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https://www.courtlistener.com/api/rest/v3/opinions/8490235/ | MEMORANDUM OPINION AND ORDER RE: MOTION FOR NEW TRIAL OR AMENDED JUDGMENT
WILLIAM B. LEFFLER, Bankruptcy Judge.
This cause is before the Court on the Plaintiff’s motion for a new trial or, in the alternative, amendment of this Court’s September 12, 1985 judgment for the Defendant. The Court denied the motion for a new trial but agreed to reconsider its judgment. The primary issue is whether the Court erred as a matter of law in ruling that no “undercharge” amounts are owed to the Plaintiff by the Defendant as the parties agreed upon and applied appropriate rate schedules (tariffs) to the freight shipments in controversy.
The following constitute findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052.
Gordon’s Transports, Inc. (Debtor) filed a Chapter 11 bankruptcy petition with this Court on February 9, 1983. The Chapter 11 Petition was converted to a Chapter 7 proceeding on April 14, 1983 and Mr. A.J. Calhoun, Esq. was appointed Trustee.
*446Prior to its Chapter 7 bankruptcy status, the Debtor was an interstate motor freight carrier with its principal offices in Memphis, Tennessee. The record reflects that on several occasions between November, 1981 and February, 1983, the Defendant employed the Debtor to transport various commodities from Kansas City, Missouri to locations in Tennessee, Louisiana, Alabama, Mississippi and Georgia.
It is the Trustee’s position that the amounts charged and paid for these services were erroneous. According to the Trustee, the Debtor undercharged the Defendant because it applied the wrong rate schedules (tariffs) to the commodities transported. The amount allegedly due in Adversary No. 84-0262 is $22,229.88 while $1,483.57 is allegedly due in Adversary No. 85-0011. The Defendant contends that the correct tariffs were applied and nothing is owed the Debtor.
It is the Court’s understanding that at the time of the shipments at issue there were four legally published, potentially applicable rates in effect. One was published by the Debtor itself pursuant to authorization obtained from the Interstate Commerce Commission (ICC) and is known as ICC GORD 209-A. Others were published by the Middlewest Motor Freight Bureau1 and are known as ICC MWB 540-E and ICC MWB 240-E. Yet another was published by the Southern Motor Carriers Conference and is known as ICC SMC 560-B.
The commodities transported by the Debtor for the Defendant were icing paste, icing powder, cereals, grain flour, and edible flour. The rates charged for shipment of these items were derived from GORD 209-A and are of a type known as “distance” or mileage rates, i.e. the rates are based upon mileage.
The Trustee contends that these were inapplicable because of the following language taken from the then in effect regulation, 49CFR 1310.16(b)(i) and contained in GORD 209-A itself:
DISTANCE COMMODITY RATES
Distance or mileage commodity rates named in this Section may be used only when no commodity rates, other than distance commodity rates have been published to apply from and to the same points over the same routes. ICC GORD 209-A, § 3, Item 4000, p. 60.
Pursuant to this language, according to the Trustee, the “distance rates” contained in GORD 209-A would not have been applicable were there other rates of a difference nature in effect for the same commodities at the same time. Therefore, the Trustee contends that the applicable rates were: For the grain flour and edible flour, the point to point commodity rate2 found in MWB 240; for the icing paste and cereals, the class rate3 found in MWB 540 and SMC 560, and for the icing powder, the point to point commodity rate in MWB 240 as well as the class rate in SMC 560.
At the same time the above quoted language contained in CORD 209-A was effective, so was the following language taken from a 1981 “Special Tariff Authority” issued to the Middlewest Freight Bureau from the ICC:
Authority is granted to depart from the necessary sections of 49CFR1310, but not 1310.14, to publish in all involved Bureau’s Tariffs.... a new Rule or Item entitled “PRIORITY OF RATES, RULES, OR OTHER PROVISIONS OF INDIVIDUAL CARRIER’S TARIFFS,” reading as follows:
Rates, Rules, or Provisions named in this tariff [do] not apply for the ac*447count of any individual participating carrier to the extent that such carrier provides conflicting or duplicating rates, rules, or provisions in any applicable tariff issued by such individual carrier and lawfully on file with the Interstate Commerce Commission. Interstate Commerce Commission Decision, Special Tariff Authority No. 81-3077, April 7, 1981.
As required by this authority, these terms were published in the Middlewest tariff.
With respect to the Southern Motor Carrier Bureau’s tariffs, there is before the Court a provision from the tariff known as ICC SMC 460-F which renders that tariff inapplicable to shipments made by Gordon’s when and if there should be a Gordon’s tariff in effect equally applicable to the same shipments. It does not appear that the same or similar language is present in the class rate tariff, SMC 560, which the Trustee contends is applicable to the icing paste, icing powder, and cereal transported within the Southern region. Moreover, SMC 560 is not specifically alleged to contain the special tariff authority language found in the Middlewest tariffs. However, the implication at pages 19 through 21 of Mr. David Jernigan’s (Gordon’s former traffic manager) deposition testimony is that all of the Bureaus adopted the same or similar language in their tariffs.
Counsel for both parties have done an excellent job of presenting evidence and citing cases regarding tariff interpretation and rate determination for the Court’s consideration. From this information, it is the Court’s understanding that pursuant to the Motor Carrier Act of 1980 and its purpose of deregulating the motor carrier industry, individual carriers were granted much more incentive to establish and apply their own tariffs than in the past. See “Congressional Findings as Motor Carrier Act of 1980,” July 1, 1980, P.L. 96-296 § 3(a) reprinted at 49 U.S.C.S. § 10101, cumulative supplement. As a result, there existed at the time of the shipments in controversy, a belief in the correctness of and a trend toward the establishment and application of individual carrier tariffs.
Although none of the cases cited for the Court’s consideration interpret the specific provisions present here, or, as here, provisions from different tariffs which must be construed together, they set forth the guidelines that are followed by courts to resolve tariff questions.
The essence of these guidelines appears to be as follows.
The terms of a tariff must be taken in the sense in which they are generally used and accepted; properly published tariffs are incorporated into any agreement between a shipper and a carrier and is a legal rate between them which cannot be varied; tariffs should be construed to avoid unjust, absurd, and improbable results and the practical application of the tariffs by interested parties should be considered in determining their meanings; if a tariff is unambiguous, it must be enforced according to its terms; generally, ambiguous tariffs are construed against their drafters; tariffs must be reasonable pursuant to 49 U.S.C. § 10704(a) and determination of such is left to the Interstate Commerce Commission. See, among others, Penn Central Co. v. General Mills, Inc, 439 F.2d 1338 (8th Ct.1971), Scope Imports, Inc. v. I.C.C. 688 F.2d 992 (5th Ct.1982), Coca Cola Co. v. Atchinson T. and S.F. Ry. Co. 608 F.2d 213 (5th Cir.1979), Illinois Cent. Gulf R. Co. v. Tabor Grain Co., 488 F.Supp. 110 (N.D.Ill.1980); Western Transport Co. v. Wilson and Co., Inc., 682 F.2d 1227 (7th Cir.1982).
It appears from the facts in the case at bar that, pursuant to the above guidelines and 49 U.S.C. § 10761(a), the parties applied a lawfully published tariff to the shipments at issue. In addition, from application of the above guidelines to the present facts, it is this Court’s determination that the provisions of the “special tariff authority” found in the Middlewest tariffs and the provisions of the Gordon’s tariff calling for application of other than distance rates if published, are ambiguous *448when an attempt is made to construe them together to “avoid unjust or improbable results.” Specifically, the Court finds that the language of the Middlewest provision which waives pertinent “portions of 49 C.F. R.1310 but not 1310.14” could have been and was “practically” construed by the parties involved as a waiver of the language found at 49 C.F.R. 1310.16(b)(1) and reproduced pursuant thereto in GORD 209-A. Furthermore, once compliance with the GORD 209-A provision was construed as waived, and it was determined that GORD 209-A contained no rates other than distance rates applicable to the specific commodities shipped, it was logical for the parties to classify them as foodstuffs and grains and apply the applicable thereto distance rates.
With respect to the Southern Motor Bureau’s tariff, the Court does not have before it a provision from the tariff in question, SMC 560, that contains the waiver language discussed above. However, there is testimony to the effect that such language was adopted by all of the bureaus, including the Southern one, of which Gordon’s was a member. Without such a provision, it appears that the GORD 209-A, Item 4000 provision taken from 49 C.F.R. 1310.16 and calling for application of rates other than distance rates when applicable would have remained effective. Consequently, the Southern tariff rates other than distance rates and otherwise applicable to the shipments at issue should have been employed.
In light of the above, this Court's judgment of September 12, 1985 is amended as follows:
IT IS HEREBY ORDERED that to the extent that this Court has determined that Special Tariff Authority 81-3077 issued by the Interstate Commerce Commission to the Middlewest Bureau had the effect of waiving the language found at Item 4000, GORD 209-A the appropriate rates were applied to the shipments made in the Mid-dlewest region and the relief sought is denied, and
(2) To the extent that no similar provision was conclusively found to pertain to the Southern Motor Bureau tariff at issue, the appropriate rates for shipments made in that region were those from SMC 560 and the relief sought with respect thereto is granted.
.Regional Freight Bureaus are organizations composed of carriers who have grouped together to establish and publish rules, regulations, and rates for specific geographic areas. As their names imply, the Southern and Middlewest Bureaus cover those respective regions.
. Point to point commodity rates are rates on specific items based on their being transported between specific points.
. Class rates are rates assigned to items according to classes into which the items are grouped and the distance they are to be transported. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490238/ | OPINION
EMIL F. GOLDHABER, Chief Judge:
As the vortex of the dispute in this case, the issue is whether payments to a creditor under a chapter 13 plan which is funded by postpetition wages, may be recovered by the debtor after conversion of the case to chapter 7. For the reasons stated herein, we conclude that the payments may be recovered.
The facts of this case are as follows:1 The debtor borrowed funds from Bankers Mortgage Corporation (“Bankers”) in exchange for which the debtor granted it a mortgage on her residence. She fell in default on the loan and Bankers commenced foreclosure proceedings on the mortgage. The debtor then filed a petition for the repayment of her debts under chapter 13 of the Bankruptcy Code (“the Code”). The repayment plan provided for the repayment of all arrearages under the mortgage and the payment of 100% of all prepetition debts. Current payments on the mortgage were to be paid “outside the plan.” Under this repayment plan $2,203.65 was deducted from the debtor's postpetition salary under a wage order, $1,973.25 of which was paid to Bankers. The debtor ultimately fell in default on her current mortgage payments and, consequently, Bankers moved for relief from the automatic stay to enable it to foreclose on the mortgage. Shortly thereafter, the debtor converted the case to a chapter 7 proceeding and abandoned her home to Bankers.
The debtor commenced the instant action to recover the $1,973.25 paid to Bankers under the chapter 13 plan. The basis of the requested relief is that, while postpetition wages are property of a chapter 13 estate, they cease having that character on conversion of a chapter 13 case to chapter *5477. Counsel for both sides assert that there is no governing case law in this district on the issue. We enlighten counsel with our decision in In Re Bullock, 41 B.R. 637 (Bankr.E.D.Pa.1984). On the basis of the reasoning expressed in that case, which case is essentially identical to the case at bench, we will enter judgment in favor of the debtor and against Bankers in the amount of $1,973.25.
. 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/8490239/ | MEMORANDUM OPINION
JAMES G. MIXON, Bankruptcy Judge.
On January 25, 1985, Hilyard Drilling Company, Inc.-, (Hilyard), filed a voluntary petition in bankruptcy under the provisions of Chapter 11 of the Bankruptcy Code. For several years prior to the filing of the petition, United Insurance Agency, Inc., a general agent for United States Fidelity Guaranty Company, (USF & G), had arranged Hilyard’s insurance needs. These coverages included general liability, worker’s compensation, automobile, fire and extended coverage. In the normal course of the prior transactions, all insurance would first be issued by means of a written binder issued by the agent who would send certificates of insurance to various loss payees. The debtor was required to furnish detailed information regarding loss experience, substituted property, payroll, and other information necessary to compute a premium. Some time after the binder had been issued, the debtor would execute a premium finance note with a bank which would pay the premium to United Insurance Agency, Inc., which, in turn, would forward the amount, less its commission, to USF & G. A formal policy would then be prepared and delivered.
In the latter part of 1984, the insurance coverage expired, and the debtor applied for renewal but was unable to negotiate a premium financing arrangement as it had in years past. Due to the fact that the parties were still negotiating, United Insurance Agency, Inc., issued an oral temporary contract of insurance binding USF & G and then sent certificates of insurance to loss payees as it had done, in the past. No written binder memorandum was issued. The parties continued to negotiate until around January 25, 1985, when United Insurance Agency, Inc., determined to cancel the coverage because satisfactory arrangements had not been made for the payment of the premium. This bankruptcy immediately ensued.
Procedurally, the status of matters before the Court is unclear, but because of the significant sums involved and the importance of the legal question, and with some agreement of counsel, these procedural defects will be disregarded. The issues presented are whether United Insurance Agency, Inc., and USF & G should be granted relief from the stay to cancel all coverage for nonpayment of premiums. The companies argue, alternatively, that if relief is not granted, the Court should order the debtor to accept or reject the insurance contract as an executory contract under 11 U.S.C. § 365 and, if the contract is *618assumed, that it be done promptly, that arrearages be cured and that the debtor be required to provide adequate assurance of future performance. The debtor argues that a policy of insurance, and not merely a binder, has been issued. The debtor further argues that the insurance policies are not executory, and that the companies’ remedies are to file claims which will be paid under its Chapter 11 plan. The debtor suggests that the companies’ claims might be entitled to an administrative priority.
There are two groups of policies and one group1 was paid for by means of a premium finance note which has been sold back to United Insurance Agency, Inc., pursuant to the recourse agreement with the financing bank. These will be dealt with separately.
Prior to the hearing on these motions, the Court, upon application of the debtor, imposed the stay under 11 U.S.C. § 105(a) against the companies and required them to extend coverage pending a determination of these issues on the merits.
Black’s Law Dictionary 213 (rev. 4th ed. 1968) defines a binder as follows:
The memorandum of an agreement for insurance, intended to give temporary protection pending investigation of the risk and issuance of a formal policy.
A verbal contract of insurance in prae-senti, of which the insurance agent makes a memorandum temporary in its nature....; thus constituting a short method of issuing a temporary policy to continue until execution of a formal one,
Ark.Stat.Ann. § 66-3219 (Repl.1980) provides, in part, as follows:
(1)Binders or other contracts for temporary insurance may be made orally or in writing, and shall be deemed to include all the usual terms of the policy as to which the binder was given together with such applicable indorsements as are designated in the binder, except as superseded by the clear and express terms of the binder.
(2) No binder shall be valid beyond the issuance of the policy with respect to which it was given or beyond ninety (90) days from its effective date, whichever period is the shorter.
(3) If the policy has not been issued a binder may be extended or renewed beyond such ninety (90) days with the written approval of the Commissioner, or in accordance with such rules and regulations relative thereto as the Commissioner may promulgate.
The facts here present an example of an oral binder consummated by the verbal agreement of the company’s general agent. See Leigh Winham, Inc. v. Reynolds Ins. Agency, 279 Ark. 317, 651 S.W.2d 74 (1983); Home Insurance Company v. Moyers, 252 Ark. 51, 477 S.W.2d 193 (1972). Until the time the policy is issued, Ark. Stat.Ann. § 66-3219 (Repl.1980) supplies the terms of the policy. The Court has no evidence, for instance, of the terms of the insurance contract regarding either party’s right to cancel.
Since Ark.Stat.Ann. § 66-3219 (Repl. 1980) is controlling in this case, the temporary insurance supplied to the debtor automatically lapsed ninety (90) days from its effective date of December 1, 1984. The debtor has cited no authority requiring the companies to involuntarily extend coverage to the debtor beyond the ninety (90) days. There is no evidence before the Court that other insurance is unavailable to the debt- or. Therefore, the Court finds that this is an inappropriate case to invoke its equitable powers under 11 U.S.C. § 105(a) to indefinitely enjoin the insurance companies from cancelling coverage, except for a period to allow the debtor to secure other insurance coverage. See In re Douglas, 18 B.R. 813 (Bkrtcy.W.D.Tenn., W.D.1982).
The debtor’s argument that the debt owed for the postpetition insurance protection is like the debtor-creditor relationship *619created if the debtor had purchased a suit of clothes from a merchant on unsecured credit is unpersuasive. Equally unpersuasive is the debtor’s argument that prior dealings with the debtor and United Insurance Agency, Inc., and USF & G created some type of vested right to a continuation of such relationship postpetition. The Court simply cannot envision how the equitable principle of estoppel can be a basis for requiring the insurance companies to enter into a new contract with the debtor when the insurance companies are unwilling to do so. The debtor cites no authority for this argument. Therefore, 30 days from the entry of this Memorandum Opinion and the Order of this same date, the Court’s stay requiring the companies to maintain insurance coverage pursuant to 11 U.S.C. § 105(a) is dissolved. The automatic stay provided for in 11 U.S.C. § 362 is relaxed, allowing cancellation of the following temporary insurance policies:
1. 39-02745-84-3
2. RICC-048031005
3. CEP 059537380
4. RBAP-058806650
United Insurance Agency, Inc., and USF & G, are allowed a priority administrative claim in an amount equal to the accrued premium since the filing of the petition in bankruptcy and until cancellation of the policies.
Policies which were financed by a premium finance note and which are numbered F040962108 and F035148080 have expired by their own terms. USF & G shall not be required to renew these policies, except as it may choose to do so. At the time of the filing of the petition, United Insurance Agency, Inc., as agent for USF & G, had a security interest in the unearned premiums which have now been earned while the case was under advisement. Premium Financing Specialists, Inc. v. Robert P. Lindsey, Trustee, 11 B.R. 135 (E.D.Ark.1981); In re Krimbel Trucking Co., Inc., 3 B.R. 4 (Bkrtcy.W.D.Wash., at Seattle 1979). United Insurance Agency, Inc., and USF & G, as their interest may appear, are, therefore, allowed a priority administrative claim in an amount equal to the accrued premiums from the filing of the petition in bankruptcy until the expiration of the policies.
Policy No. SMP030805093 will expire on March 26, 1986. The stay as to Policy No. SMP030805093 shall not be relaxed. Debtor shall, as adequate protection under 11 U.S.C. § 362, within 30 days from the entry of the Order of this same date pay all premiums earned since the filing of the petition up to the date of this Memorandum Opinion. As further adequate protection, the debtor shall pay at least once monthly all premiums as they accrue. Neither United Insurance Agency, Inc., nor USF & G shall be obligated to renew the policy, except as it may choose to do so upon the expiration of the policy.
IT IS SO ORDERED.
. Policy SMP030805093 — Expiration Date 3/26/86
Policy F040962108 — Expiration Date 4/01/85
Policy F035148080 — Expiration Date 5/17/85 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490240/ | *621MEMORANDUM OPINION
JOHN D. SCHWARTZ, Bankruptcy Judge.
Nature of Proceedings
This proceeding comes before the Court on cross-motions for summary judgment. The debtor was a futures commission merchant. The debtor's Trustee seeks to recover deficits in the commodity futures trading accounts of certain of the defendants and to disallow or subordinate the claims of certain other of the defendants.
Procedural Background and Facts
Procedural History
On November 4, 1980 a voluntary petition for relief under subchapter IV of Chapter 7 of the Bankruptcy Code (11 U.S.C. § 101 et seq.) was filed on behalf of Chicago Discount Commodity Brokers, Inc. (“CDCB”) by its then court-appointed receiver and present trustee, John K. Notz, Jr. (“Trustee”).
On January 12, 1981, defendants, Dr. Wayne B. Tate (“Tate”) and his wife, Mrs. Alice C. Tate (“Mrs. Tate”), individually and as individual trustees, filed claims against CDCB in order to recover positive balances in their trading accounts.
On October 28, 1982 the Trustee filed an adversary proceeding against the defendants. On August 13, 1984 following a filing of responsive pleadings and a stipulation of certain facts, the parties filed cross-motions for summary judgment. Each of the parties filed memoranda and replies in support of their respective motions.
Summary of Facts
CDCB traded commodities as a “futures commission merchant” as defined in the Commodity Exchange Act (7 U.S.C. § 2). In September of 1979 Tate became a shareholder in CDCB when he purchased over 10% of CDCB common stock. On September 14, 1979 Tate and certain other shareholders and individuals associated with CDCB executed an agreement in which the parties to the agreement became guarantors of the “individual accounts of each other, to the extent of available balances within their respective individual accounts.”
Prior to November 4, 1980, Tate traded commodities future contracts through three personal trading accounts at CDCB. Tate also traded commodities in a fourth account on behalf of the Dr. Wayne B. Tate P.A. Pension Trust (“Tate P.A.”), a Maryland corporation of which Tate owns 99.8% of the outstanding stock.
Mrs. Tate traded commodities future contracts through two personal trading accounts, and also in a third account as Trustee for the benefit of the Tate children (“Tate Trust”). On May 15,1980 Mrs. Tate executed a handwritten note authorizing Tate “to act in continuing capacity and with my full authority in the transference of funds from any and all accounts of mine and under my jurisdiction to his own and vice-versa.” Prior to the November 4,1980 bankruptcy petition transactions in Mrs. Tate’s accounts were initiated by Tate with Mrs. Tate’s authorization. No transfers of funds between Tate and Mrs. Tate’s accounts occurred. (Stipulation of Facts: Nos. 19, 20).
By October 27, 1980 eight days before the filing of the bankruptcy petition, personal trading accounts maintained by CDCB for certain shareholders and individuals other than Tate showed a deficit of over $4.7 million. On the date of the filing, the defendants’ trading accounts maintained by CDCB consisted of the following:
Tates Accounts Balance
# 0070 $ (1,100.00)
0071 3,236.86
0073 17,350.11
Tate P.A. Account
# 0072 $(12,902.60)
Mrs. Tate’s Accounts
# 0074 $ 49,287.82
# 0076 10,000.00
Tate Trust Account
# 0075 1,386.55.
*622The defendants filed claims seeking to recover positive balances in their respective accounts. The Trustee moved to recover deficits in the Tate and Tate P.A. accounts and to disallow or subordinate claims with respect to defendnats’ other accounts.
Discussion
I. Net Equity Offsets
A. Accounts in the same capacity.
The issue of whether Tate can offset the deficit in one of his personal trading accounts against the positive balances in his two other personal accounts with CDCB is resolved in favor of the defendant Tate by looking to the applicable provisions in subchapter IV of Chapter 7 of the Bankruptcy Code. The Trustee’s contention that an offset is prohibited under 11 U.S.C. § 763(c) is not supported by applicable provisions in subchapter IV. While § 763(c) does prohibit offests of net equity in a customer's account against “the net equity in the account of any other customer,” Tate’s three personal trading accounts do not fall within the prohibition because they were held for Tate in the same capacity. This interpretation is supported by the definition contained in § 761(9)(A)(i) which provides that a “customer” is an “entity for or with whom ... a futures commission merchant deals. ...” Additionally, § 101(14) defines “entity” as a “person, estate, trust, and governmental unit.” Most importantly, § 761(17) states that “net equity” refers to the “aggregate of all of a customer’s accounts that such customer has in the same capacity.” (Emphasis added). This distinction between the treatment of accounts held by a customer in the same capacity and those accounts of a customer held in a different capacity is further supported by § 763(a) which states that “[accounts held by the debtor for a particular customer in separate capacities shall be treated as accounts of separate customers.” Necessarily, accounts held by a customer in the same capacity should be treated as accounts of ■ the same customer. Thus, to conclude that each customer account should be treated as a separate customer is unsupported by provisions throughout subchapter IV.
Since Tate traded commodity futures in his personal capacity as an individual trader, Tate’s three personal trading accounts are treated as those of the same customer. Consequently, the Trustee’s motion to enter summary judgment against Dr. Wayne B. Tate in the amount of $1,100 in order to recover the deficit in Tate’s account number 0070 will be denied. An offset of the deficit in Tate’s personal account number 0070 against the positive balances in his two other personal accounts is allowed.
B. Accounts in Separate Capacities
Under the same analysis the Trustee’s motion for summary judgment against Tate P.A. is granted in the amount of $12,-902.60. Pursuant to § 763(a) Tate P.A. is treated as a separate customer, because Tate was not acting in his individual capacity when he traded on behalf of the pension trust. Under § 542(b) which provides that “an entity that owes a debt that is the property of the estate and that is matured, payable on demand, or payable on order, shall pay such debt to, or on the order of, the trustee ...” Consequently, Tate P.A. must pay the Trustee the $12,902.60 owed as of the date of the commencement of the case.
II. Accounts Subject to the Guaranty
A. Tate's Personal Trading Accounts
The Trustee’s motion for summary judgment to disallow claims for the recovery of positive balances in Tate’s personal trading accounts is granted. Under an, agreement executed on September 14, 1979 between and .among Tate individually, CDCB, and certain shareholders and individuals associated with CDCB, each signatory became a guarantor for one another, “to the extent of available balances within their respective individual accounts.” In addition, since the agreement by its terms inures “to the benefit of the Company and its ... successors and assigns”, the Trustee is empowered to enforce its terms. The *623nature of property of the bankrupt estate that the Trustee can seek to recover is given a broad scope under § 541(a). Such property includes “tangible and intangible property” as well as “causes of action.” 4 Collier on Bankruptcy § 541.01, at 541-5 (15th ed.1985). Consequently, pursuant to § 541(a) the contractual obligations of Tate as evidenced by the Guaranty is property of the estate.
Since the aggregate deficit balance in the accounts of the individual guarantors other than Tate exceeded $4.7 million, the Trustee’s motion to disallow Tate’s claim is a necessary consequence of enforcing the property rights of CDCB by the Trustee. While § 763(c) prohibits the offset of net equity between customers, as defined previously, the Guaranty is a valid agreement whose legal status was not altered as a result of the commencement of the case. Therefore, the Trustee may assert his rights granted under the Guaranty as successor to CDCB. Consequently, the Trustee’s motion to disallow Tate’s claim to recover positive balances in his two personal trading accounts numbered 0071 and 0073 is granted.
B. Other Trading Accounts
The Trustee’s contention that Tate’s control over the accounts of Mrs. Tate and the Tate Trust effectively subjects these accounts to the obligation of Tate under the Guaranty is not supported by the record before the Court. Mrs. Tate’s handwritten authorization to Tate to allow transfers of funds in and out of her individual and trustee accounts is insufficient in and of itself to show that these accounts were in actuality Tate’s accounts.' Significantly, although Tate stipulated that he initiated transactions on behalf of Mrs. Tate for her accounts, the stipulations also established that no transfer of funds from her accounts to his accounts occurred either before or after the May 15, 1980 authorization was written.
The record also does not support a finding that the accounts were held as joint funds, thereby permitting their use to satisfy claims against Tate under the Guaranty. The Trustee relies on two Illinois cases, Fisher v. Jacobs, 39 Ill.App.2d 332, 188 N.E.2d 505 (1963); Miller v. Standard State Bank, 31 Ill.App.2d 189, 176 N.E.2d 639 (1961), for the proposition that a creditor can “attach joint funds of the debtor and a third party in satisfaction of the debtor’s obligations subject to proof of the third party’s share of ownership of the subject funds.” (Plaintiff’s Memorandum p. 9). But, relying on the authorization itself is insufficient to establish that the relationship between the Tate’s created a “joint fund.”
The Trustee further contends that Mrs. Tate’s grant of authority to Tate is sufficient proof that the Tate Trust is a “sham” and therefore should be treated as Tate’s personal account. To reach this conclusion the Court would have to infer that the handwritten authorization alone was intended to include the power to unlawfully withdraw funds from the corpus of the Tate Trust. The lack of any other evidence in the record makes such a conclusion too tenuous especially in light of the fact that no transfer of funds took place.
The Guaranty itself can not be used to extend Tate’s obligation to include those accounts. The Guaranty is expressly limited “to the individual trading accounts of the Guarantor.” This provision precludes application of the Guaranty to accounts that are not held individually. Furthermore, under governing Illinois law a guarantor’s liability can not be “extended beyond the precise words of the agreement either by implication or by construction.” Castle v. Powell, 261 Ill.App. 132, 144 (1931). See also Lawndale Steel Company v. Appel, 98 Ill.App.3d 167, 174-75, 53 Ill.Dec. 288, 423 N.E.2d 957 (1981). To disallow the claims of Mrs. Tate and the Tate Trust on the basis of extended obligations under the Guaranty would contradict the terms of the agreement and Illinois law. The foregoing does not preclude proof being offered at trial to establish that accounts held in the name of Mrs. Tate *624and the Tate Trust by CDCB were in actuality Tate’s accounts.
III. Subordination of Proprietary Accounts
Under the 1982 amendments to § 766(h) “a customer net equity claim based on a proprietary account” is subordinated to net equity claims of non-proprietary customer accounts. Public Law 97-222 § 19(d) enacted on July 27, 1982 amended § 766(h) by adding the following:
Notwithstanding any other provision of this subsection, a customer net equity claim based on a proprietary account, as defined by Commission rule, regulation, or order, may not be paid either in whole or in part, directly or indirectly, out of customer property unless all other customer net equity claims have been paid in full.
By its terms the amendment applies to accounts whose ownership is by individuals with at least a 10% share of the corporation or certain other individuals, including immediate family members of such shareholders living in the same household. In pertinent part Title 17 Code of Federal Regulations (C.F.R.) § 1.3y defines a proprietary account as:
[A] Commodity futures or commodity option trading account carried on the books and records of an individual, a partnership, corporation or other type association (1) for one of the following persons, or (2) of which ten percent or more is owned by one of the the following persons:
(i) Such individual himself ...
(vi) A spouse or minor dependent living, in the same household of any of the foregoing persons.
Accordingly, under the 1982 Amendment all accounts held by Tate and Mrs. Tate would be considered proprietary because of Tate’s 16% ownership of CDCB’s outstanding shares. But prior to the enactment of the 1982 Amendment, § 766(h) did not contain the provision subordinating claims of proprietary accounts and simply provided that “the trustee shall distribute customer property ratably to customers.” The threshhold issue is whether the 1982 amendment which would subordinate the defendant’s claims is applicable to this proceeding when the CDCB petition for bankruptcy was filed in 1980. As a matter of law, this Court finds that the 1982 amendment altered the existing law and should not be given retroactive effect.
In 1980 when CDCB filed for bankruptcy all customers with positive balances in their trading accounts effectively became creditors of CDCB. Additionally, at that time since no distinction was drawn between the status of proprietary and non-proprietary customer accounts under § 766(h), all customers were accorded equal treatment. Only after the enactment of the 1982 Amendment to § 766(h) were proprietary accounts accorded a lesser status than non-proprietary accounts.
While the legislative history of the 1982 Amendment to § 766(h) reveals a congressional intent to accord different treatment to proprietary accounts, such an intent is conspicuously absent from the legislative history of § 766(h) in the 1978 Code. Consequently, to infer legislative intent of a 1978 provision on the basis of the legislative history of the 1982 Amendment is to ask this Court to make such history retroactive. Since the consequences of enacting the 1982 Amendment drastically alters the status of customers who are also major shareholders of commodities futures merchants, and in the absence of an expressed contrary legislative intent in 1978, the presumption must be that the 1978 Code provision reflects the intent of the legislature at that time.
Moreover, in United States v. Security Industrial Bank, 459 U.S. 70, 81, 103 S.Ct. 407, 414, 74 L.Ed.2d 236 (1982) the Supreme Court reiterated a basic principle of statutory construction that “[n]o Bankruptcy law shall be construed to eliminate property rights which existed before the law was enacted in the absence of an explicit command from Congress.” Accordingly, any property rights of customers in balances remaining in their trading accounts *625which would be eliminated would violate this basic rule. Consequently, where the effect of giving priority status to some customers would deplete the assets available for distribution to other customers, clearly some customer’s property rights would be eliminated. Because CDCB’s liabilities were in excess of $4.7 million, the property rights of customers accorded lesser status would effectively be extinguished. Consequently, this Court should not give retroactive effect to the 1982 Amendment if its application would effectively eliminate established property rights. Furthermore, while the degree of risk in commodities trading is admittedly high, to magnify that risk by changing the rules without giving participants an opportunity to evaluate new or added risks and act accordingly would be unjust.
Since § 766(h) of the 1978 Code expressly orders the Trustee to “distribute customer property ratably to customers” without according a lesser status to some customers, the Court should not give retroactive effect to the 1982 Amendment and thereby destroy those property rights present at the commencement of the case and before the enactment of the 1982 Amendment to § 766(h). Consequently, this Court will deny the Trustee’s motion to subordinate the claims of Mrs. Tate and the Tate Trust to those claims of non-proprietary customer accounts.
An Order in conformity with this Memorandum Opinion will be entered.
ON MOTION FOR RECONSIDERATION
This matter is before the Court on the Trustee’s motion for reconsideration of that portion of the Court’s July 12, 1985 order which denied the Trustee’s motion for summary judgment as to Alice C. Tate’s claim for the positive balance in account nos. 0074, 0075, and 0076. The Trustee sought the disallowance or subordination of the claims of Alice C. Tate arising from certain of her accounts with the debtor which are designated as proprietary. The foregoing order was entered pursuant to the Court’s June 27,1985 memorandum opinion which sets forth in detail the facts of this case.
The Court has determined that this bankruptcy proceeding is governed by § 766(h) of the Bankruptcy Reform Act of 1978 (“Bankruptcy Code”) as it existed prior to the 1982 amendment. (11 U.S.C. 766(h)). Section 766(h) as amended now requires the subordination of claims of proprietary accounts to those claims of public account customers. The Trustee asserts that Section 6d(2) of the Commodity Exchange Act which requires the segregation of proprietary funds applies to the debtor’s proprietary customers and obtains the same result as amended § 766(h). The parties agree that Mrs. Tate’s proprietary accounts were not segregated by the debtor. Therefore, the Trustee argues that Mrs. Tate’s claims should be subordinated. The Court disagreed in its July 12, 1985 memorandum opinion and held that Mrs. Tate’s claim should be treated like other customer claims.
The substance of the Trustee’s motion for reconsideration is that the Commodity Exchange Act and rules and regulations of the Commodity Future Trading Commission defining customer property and relating to proprietary accounts are binding on this Court and govern these Bankruptcy proceedings even though the provisions of the Bankruptcy Code may be inconsistent with or contrary to those regulations. According to the Trustee, Congress explicitly delegated general rulemaking authority to the Commodity Future Trading Commission, and that authority included the right to define the term “customer property”. The Commission having acted, the adopted definitions are binding upon this Court. The effect of this position is that the 1982 amendment to § 766(h) of the Bankruptcy Code would be essentially a non act.1
*626Prior to 1982, § 766(h) of the Bankruptcy Code required that claims arising from both proprietary accounts and customer accounts receive ratable distributions from available funds. Section 6d 2 of the Commodity Exchange Act by itself does not mandate the subordination of unsegregated proprietary account claims to the claims of segregated account customers. Nor can the Commodity Exchange Act and the Commodity Future Trading Commission determine the priority of bankruptcy claims. Furthermore, the 1982 amendment requiring the subordination of claims of proprietary accounts cannot be applied retroactively to this bankruptcy proceeding which was commenced in 1980.
The Court stands by its Order of July 12, 1985. However, Mrs. Tate’s claims must be paid from the proper funds.
The Court in its memorandum of November 15, 1985 requested information regarding funds to be used for the payment of the customer accounts. The question is whether the funds distributed and to be distributed to proprietary customers come from the liquidation of assets which were in segregated customer accounts or belonged in segregated accounts. The Court is of the opinion that it would be unfair and unlawful to use funds generated by such segregated customer accounts to pay those claims arising from nonsegregated proprietary accounts such as Mrs. Tate’s claims.
Defendant stated that the Court’s inquiries are not relevant to or dispositive of the merits of the Trustee’s pending motion to reconsider the Court’s memorandum opinion and order. The Court disagrees with counsel for the defendant. Not only would it be improper to pay claims for proprietary accounts from funds generated from the disposition of public customers’ assets; it would also be unfair to Mrs. Tate individually and as trustee of the Tate Trust account to subordinate her claims in such a manner that she has no right to payment from unsegregated funds.
The Trustee’s affidavit is clear, precise and responds to the questions raised by the Court. Funds in the house account not directly traceable to public customer assets shall be used to pay Mrs. Tate's claims ratably with all other claims against that fund, including public customer claims not paid out of the public customer fund. For example, if public customer claims total $10,000,000 and there is $5,000,000 in public funds available for distribution, there would be a $5,000,000 balance due public customers which would be paid out of the house account pro rata with Mrs. Tate’s and other like claims.
Paragraph 7 of the order of July 12,1985 as modified by the minute order of July 30, 1985 will be further modified in accordance with the provisions of this supplemental memorandum.
The Trustee is directed to submit an order in open Court consistent with this memorandum on January 30, 1986 at 10:30 a.m. on two days notice to the defendant.
. The Court finds further support for this position in the 1978 Amendment to 28 U.S.C. § 2075. Pub.L. 95-598 substituted "in cases under Title 11” for “under the Bankruptcy Act” and struck out provisions directing that all laws in conflict with bankruptcy rules be of no fur*626ther force or effect after such rules have taken effect. 28 U.S.C.A. § 2075, Historical Note at 102 (West 1982). See also H.R.Rep. No. 595, 95th Congress, 1st Sess. 292-93 (1977), reprinted in [1978] U.S.Code Cong. & Ad News, 5963, 6249-50. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490241/ | MEMORANDUM AND ORDER
JOHN D. SCHWARTZ, Bankruptcy Judge.
A voluntary case under Chapter 7, sub-chapter IV, of the Bankruptcy Code was commenced for Chicago Discount Commodity Brokers, Inc. (“CDCB”), by its court-ap*628pointed receiver on November 4, 1980. Pri- or to the commencement of the case CDCB was primarily engaged in the business of trading commodity futures contracts for its customers and was a “commodity broker” within the meaning of § 101(5) of the Bankruptcy Code. Plaintiff, John K. Notz is the duly appointed trustee for the estate of CDCB.
Presently before the court is the trustee’s motion to strike and dismiss the affirmative defense of defendant, Donna B. Weiner. The trustee’s motion will be denied.
The trustee filed a two count complaint against Weiner alleging prior to October 27,1980, she, or her authorized agent, traded in commodities futures contracts through an account no. 800-80008 at CDCB. As of October 27, 1980, according to CDCB’s books and records, defendant had a $3,000 balance in her account. That balance was based upon a $25,823.75 “cash received” credit on October 20, 1980. No cash was received on October 20, 1980. The true balance in defendant’s account was a $22,823.75 deficit. In count I the trustee seeks recovery of the $22,823.75 deficit. In Count II he seeks to avoid and recover a $3,000 wire transfer from defendant’s account as a preference.
Defendant pleaded an affirmative defense to the trustee’s recovery of the $22,-823.75 deficit. She admits authorization was given to trade her account, but states “said authorization was subject to various terms and conditions agreed upon by and between Defendant and her duly authorized agent. Said terms, among other things, restricted and reduced the potential liability of Defendant to zero.”
The trustee has moved to strike defendant's affirmative defense. He argues any such agreement violated § 4b of the Commodity Exchange Act, 7 U.S.C. 6b, and Commodity Futures Trading Commission Rule 1.56, 17 C.F.R. § 1.56, and cannot be enforced.
Fed.R.Civ.P. 12(f) [Bankr.R. 7012(b)], provides the court may order any insufficient defense stricken from any pleading. Fed.R.Civ.P. 12(f); Marco Holding Co. v. Lear Siegler, Inc., 606 F.Supp. 204, 212 (N.D.Ill.1985). A motion to strike is ordinarily decided solely on the pleadings. Id. The court has considered matters outside the pleadings, specifically defendant’s deposition testimony and exhibits. Therefore, the trustee’s motion to strike will be “converted” into one for partial summary judgment under Fed.R.Civ.P. 56(d) [Bankr.R. 7056]. Id. at 213.
The trustee states Frank H. McGhee was defendant’s agent and had discretionary authority to trade her account at CDCB, subject to terms and conditions. Specifically, McGhee would indemnify defendant against any margin calls, deficits or liability incurred by her customer trading account at CDCB.
At a Bankruptcy Rule 205(a) examination defendant testified she met McGhee at a party during the Summer of 1980. He stated he was with CDCB. He said he was a broker for this company and was interested in getting new accounts. She subsequently opened the account at CDCB with a $3,000 check dated June 23, 1980. McGhee said he, and his company, would cover any losses that occurred in her account. She gave him a check. He opened an account. He took care of everything else. Examination of Donna B. Weiner at 8-12, 46-47, Notz v. Weiner, No. 82 A 3935 (Bankr.N.D.Ill.1982) (filed Sept. 16, 1983).
Defendant also testified she did not deposit $25,823.00 into her account on October 20, 1980. That entry represents McGhee’s reimbursement for all her losses. He said he had taken care of the matter. Id. at 22-25, 31-33.
Defendant typed the following statement on the October 9, 1980, Combined Commodity Statement for her account which indicated a $13,653.75 debit balance. Id. at 31-32, Exhibit 7.
THIS STATEMENT IS INCORRECT.
ON SEPTEMBER 22, 1980, FRANK MCGHEE WAS PERSONALLY TOLD BY ME TO SELL ALL GOLD CONTRACTS IN MY ACCOUNT, STOP ANY *629FURTHER TRADING AND SEND ME A CHECK FOR THE BALANCE IN MY ACCOUNT. INSTEAD, HE BOUGHT MORE GOLD CONTRACTS AND PROCEEDED TO LOSE ALL THE PROFITS THAT I HAD ACCUMULATED. HE ASSURED ME THAT HE WOULD PERSONALLY REIMBURSE ME FOR ANY LOSSES DUE TO HIS ERRORS.
THE ENTRY IN MY ACCOUNT ON 10/20/80 FOR $25,823.75 REPRESENTS THE REIMBURSEMENT FROM FRANK MCGHEE TO COVER THE ERRORS THAT HE MADE CAUSING MY ACCOUNT TO LOSE MONEY WHEN HE TRADED CONTRARY TO MY INSTRUCTIONS. IS THERE A CLAIM THAT I CAN FILE FOR THE PROFITS I HAD BEFORE HE WENT AGAINST MY INSTRUCTIONS?
THE $3,000 REPRESENTS THE RETURN OF MY MARGIN MONEY AND CERTAINLY IS NOT A PREFERENCE. PLEASE LET ME KNOW IF I SHOULD FILE A CLAIM FOR MY LOST PROFITS.
The following letter to defendant from McGhee dated October 30, 1981, and notor-ized November 5, 1981, was introduced at the Rule 205(a) examination and attached to defendant’s response.
This letter will serve as written confirmation of our verbal agreement entered into May 15, 1980 covering your account at Chicago Discount Commodity Brokers, Inc. As I stated, in order to make the trading decisions for your account, I agreed to assume all responsibility for any and all deficit balances, debits, and margin calls arising from my trading your account. All profits were to remain yours, solely..
Our further understanding was that Chicago Discount Commodity Brokers, Inc. would guarantee my performance of this agreement.
The trustee argues no agreement ever existed between defendant and CDCB. On November 5, 1981, when McGhee signed the letter, he had not been an officer of CDCB for over a year. McGhee had neither actual nor apparent authority to impose legal obligations upon CDCB after October 27, 1980, when CDCB went into receivership. The alleged confirmation letter cannot be binding upon CDCB.
The trustee will be entitled to partial summary judgment if the record shows there is no genuine issue as to any material fact and he is entitled to judgment as a matter of law. Fed.R.Civ.P. 56 (c); Big O Tire Dealers, Inc. v. Big O Warehouse, 741 F.2d 160, 163 (7th Cir.1984). The court must view the evidence and any reasonable inferences to be drawn therefrom in the light most favorable to defendant, the party opposing the motion. Id. 741 F.2d at 163.
The parties do not dispute Frank McGhee made some form of guarantee against loss or liability. “Reputable members of the industry are not in the habit of making guarantees of this nature to customers.” Ergas v. Bache Halsey Stuart Shields, Inc. [1980-1982 Transfer Binder] Comm. Fut.L.Rep. (CCH) ¶ 21,140 (Painter A.L.J. 1980). Since 1978 the Commodity Future Trading Commission (“Commission”) has required futures commission merchants furnish customers with a risk disclosure statement advising them “[t]he risk of loss in trading commodity future contracts can be substantial. ... You may sustain a total loss of the initial margin funds and any additional funds that you deposit with your broker ..., and you will be liable for any resulting deficit in your account.” Commodity Future Trading Commission Rule 1.55, 17 C.F.R. § 1.55, Comm.Fut. L.Rep (CCH) f 2190.
The Commission now specifically prohibits futures commission merchants or brokers from guaranteeing a person against loss or limiting losses. Commodity Future Trading Commission Rule 1.56, 17 C.F.R. § 1.56, Comm.Fut.L.Rep. (CCH) 112191. Rule 1.56 provides it shall not affect any guarantee entered into prior to January 28, 1982, its effective date. Commodity Future Trading Commission Rule 1.56(e), 17 C.F.R. § 1.56(e), Comm.Fut.L.Rep. (CCH) ¶ 2191. However, defendant’s argument *630the Commission therefore recognized the validity of pre-existing guarantees, such as the one made to her by McGhee, is without merit.
Commission Interpretative Letter No. 77-16 released in October of 1977 states: “we believe, for example, that Section 6b(2) [anti-fraud] prohibits oral or written assurance of profit to customers or prospective customers and any suggestion or claim of profit potential that does not fairly represent the possibility of loss”. Commodity Futures Trading Commission Interpretative Letter No. 77-16, Comm.Fut.L.Rep. (CCH) ¶ 20,498 (released Oct. 28, 1977) (emphasis added).
Guaranteeing a customer against loss violated § 4b of the Commodity Exchange Act, 7 U.S.C. § 6b, before the Commission adopted Rule 1.56, 17 C.F.R. § 1.56. Section 4b, the Act’s antifraud provision, is similar in language and intent to § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j. Hirk v. Agri-Research Council, Inc., 561 F.2d 96, 104 (7th Cir.1977); Hagstrom v. Breutman, 572 F.Supp. 692, 696 (N.D.Ill.1983). It “prohibits any person from engaging in fraudulent or deceptive practices ‘in or in connection with’ futures transactions [or attempting] to defraud or to deceive ‘in or in connection with’ those activities”. Hirk v. Agri-Research Council, Inc., 561 F.2d at 103.
In Hirk v. Agri-Research Council, Inc., 561 F.2d 96 (7th Cir.1977), the court held the complaint stated a cause of action under § 4b. During the course of soliciting the commodity trading agreement the defendant represented, among other things, that plaintiff would lose no more than $7,500 and his account would not fall below $2,500. Id. at 98, 104. In Beshara v. Spath, [1977-1980 Transfer Binder] Comm.Fut.L.Rep. (CCH) 11 20,616 (Duncan A.L.J.1978), the Commission held, inter alia, commodity trading ad-visors violated § 4b by guaranteeing the complainants against loss of their initial deposits. Id. Accord, Miller v. Kinch, [1980-1982 Transfer Binder] Comm.Fut.L. Rep. (CCH) ¶ 21,488 (1982) (Respondent guaranteed commodities customer would lose no more than $5,000 on his investment.) In Nelson v. Hench, [1977-1980 Transfer Binder] Comm.Fut.L.Rep. (CCH) 11 20,437 (D.Minn.1977), the district court held, inter alia, defendant violated SEC Rule 10b5 by representing he would reimburse the plaintiffs for any losses incurred while he traded the commodity futures account for them. Id. The Commission has held with respect to commodity options that it is a per se violation of Commission Rule 32.9,17 C.F.R. § 32.9 [anti fraud] to guarantee a customer against risk of loss. Navarra v. British American Options Corp. [1977-1980 Transfer Binder] Comm.Fut.L.Rep. (CCH) 1120,857 (Shipe A.L.J.1979).
Defendant’s argument that the violation lies not in making the guarantee against loss, but in failing to honor it, is unpersuasive. The Act is violated by making such a guarantee and thus misrepresenting the risk of trading commodity futures contracts, which is substantial, to the investor. See, Beshara v. Spath, [1977— 1980 Transfer Binder] Comm.Fut.L.Rep. (CCH) 11 20,616 (Duncan A.L.J.1978).
Any agreement McGhee made that restricted and reduced defendant’s potential liability to zero violated § 4b of the Act, 7 U.S.C. § 6b. In addition, the record suggests McGhee bought gold contracts after defendant instructed him to stop any further trading in her account. If such unauthorized trading occurred it would also constitute a violation of the Act. Ray E. Friedman & Co. v. Jenkins, 738 F.2d 251, 253 n. 4 (8th Cir.1984).
The law is clear. If a contract is entered into in violation of statutory or regulatory law, it is unenforceable. Comdisco v. United States, 756 F.2d 569, 576 (7th Cir.1985); Broverman v. City of Taylorville, 64 Ill.App.3d 522, 526, 21 Ill.Dec. 264, 267, 381 N.E.2d 373, 376 (1978). An agreement that violates § 4b of the Commodity Exchange Act is also unenforceable as a matter of public policy. See Hogan v. Teledyne, Inc., 328 F.Supp. 1043, 1046-1047 (N.D.Ill.1971).
*631The court is mindful the primary focus of § 4b of the Act “is to protect buyers and sellers of futures contract from fraud practiced by their brokers”. Woods v. Reno Commodities, Inc., 600 F.Supp. 574, 578 (D.Nev.1984). The law which makes any guarantee agreement unlawful was intended to protect investors like defendant. A futures commission merchant who violates the Act can be denied recovery of the customer’s deficit balance, See Herman v. T & S Commodities, Inc., 592 F.Supp. 1406, 1422 (S.D.N.Y.1984), or be required to pay the customer a reparation award. 7 U.S.C. § 18; see also e.g. Miller v. Kinch, [1980-1982 Transfer Binder] Comm.Fut.L.Rep. (CCH) 1121, 488 (1982) ($49,059.25 awarded investor guaranteed a loss of no more than $3,000). In addition, under § 2 of the Act, 7 U.S.C. § 4, “[t]he fraudulent actions of an agent are imputed to his principal.” Woods v. Reno Commodities, 600 F.Supp. 574, 578 (D.Nev.1984).
Defendant does contend the guarantee against loss was also a hold-harmless agreement directly from CDCB. She testified McGhee told her, he and his company would cover any losses. The alleged confirmation letter defendant offered was written long after any verbal agreement was reached and is entitled to little, if any, weight. The trustee argues McGhee did not have actual or apparent authority to impose legal obligations upon CDCB after October 27,1980. When the alleged confirmation letter was signed he had not been an officer of CDCB for over a year. In the court’s opinion, the possibility remains, however remote, that McGhee was an officer of CDCB and had such apparent or actual authority when he made any assurances or guarantees to defendant, since this occurred prior to October 27, 1980.
To prevent a summary judgment in the trustee’s favor, this disputed fact must be material, outcome-determinative under applicable law. Big O Tire Dealers, Inc., v. Big O Warehouse, 741 F.2d 160, 163 (7th Cir.1984). If defendant can establish under § 2 of the Act, 7 U.S.C. § 4, McGhee’s violation of the Act is, in fact, imputed to CDCB, she may have a defense against the trustee. See 7 U.S.C. § 4; Herman v. T & S Commodities, 592 F.Supp. 1406, 1422 (S.D.N.Y.1984); Hogan v. Teledyne, Inc., 328 F.Supp. 1043, 1046-47 (N.D.Ill.1971). Generally, neither party to an illegal contract may obtain judicial relief. In such cases, the court leaves the parties as it finds them, and does not assist either. Manning v. Metal Stamping Corporation, 396 F.Supp. 1376, 1379 (N.D.Ill.1975); Broveman v. City of Taylorville, 64 Ill.App.3d at 527, 21 Ill.Dec. at 267, 381 N.E.2d at 376.
Defendant did assert the guarantee agreement’s legality, as opposed to its illegality, in defense of the trustee’s motion. Illinois law, however, does not permit a party to be estopped from asserting an illegality defense. Nathan v. Tenna Corp., 560 F.2d 761, 763 (7th Cir.1977).
Success on the merits is rather unlikely, but defendant has raised a genuine issue of material fact for trial. Therefore, at this time, her affirmative defense will not be stricken.
IT IS THEREFORE ORDERED the motion of plaintiff JOHN K. NOTZ, trustee of the estate of Chicago Discount Commodity Brokers, Inc., to strike the affirmative defense of defendant DONNA B. WEINER is denied; and this matter is set for status on February 4, 1986 at 10:30 a.m. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490242/ | ORDER ON DEFENDANTS’ MOTION TO QUASH SERVICE OF PROCESS AND MOTION TO DISMISS
THOMAS C. BRITTON, Chief Judge.
This complaint filed by a liquidating trustee appointed by a bankruptcy plan of *722reorganization seeks avoidance of several transfers aggregating $1.7 million made by the bankruptcy debtor to these two Colombian corporations upon the ground that they were fraudulent under 11 U.S.C. § 548(a)(1) or (2), the Bankruptcy Code.
The complaint was filed in the District Court on May 17, 1985. On July 12, 1985, the District Judge referred the case to the Bankruptcy Court under 28 U.S.C. § 157(a) in accordance with the District Court’s Order of Reference dated July 11,1984. (C.P. No. 1). However, the Order of the District Judge was not transmitted to nor brought to the attention of the Bankruptcy Court until January 22, 1986 (six months later).
On January 25, 1986, the Bankruptcy Court scheduled the matter to be tried on February 20 and directed the defendants to answer within 15 days.
On February 11, the two defendants made a special appearance to move for quashal of service of process and to dismiss the complaint. (C.P. No. 21). Those motions were heard by the Bankruptcy Court on February 14 upon an expedited basis at ipovants’ special request.
On February 14, several hours after the conclusion of the hearing, the parties were advised that each motion had been denied and that a written order would be provided as rapidly as the court’s circumstances would permit. This Order confirms the oral ruling of February 14.
The plaintiff claims to have effected service upon each defendant by delivering a copy of the District Court complaint and a copy of a Summons issued by the Clerk of the District Court on November 25, 1985. (C.P. No. 3). This Summons was issued after the District Judge referred this matter to the Bankruptcy Court (C.P. No. 1). That Order also provided:
“all proceedings in this case are stayed until further order of the Bankruptcy Court.”
It is argued that the Summons of the District Court was a nullity and, therefore, its service was ineffectual.
I disagree. The intent and purpose of the District Judge’s Order was to transfer the District Court case to this court for trial and determination. The District Judge did not intend that a new action be commenced in this court or that new process be issued from this court. Had he so intended, the District Court action would have been dismissed. It was appropriate that the District Court complaint be served with a District Court Summons issued by the Clerk of that Court.
The stay of further proceedings was intended to prevent the parties seeking further judicial action from the District Judge and to direct the parties for that purpose to the Bankruptcy Court.
There is no material difference in the process employed by the two courts nor is there any prejudice caused to the defendants by the use of the District Court summons.
Plaintiff’s return of service upon each of the defendants was executed by a Colombian attorney and was acknowledged by a Vice-Consul of the United States. The return recites that service was made on December 26 upon a designated individual who was described as:
“Officer at the mail office of”
each of the defendant corporations.
The service is governed by Rule 4(i)(l)(C), Fed.E.Civ.P., which requires for service upon a corporation:
“delivery to an officer, a managing or general agent.”
The defendants have submitted an affidavit executed by the individual who received service of process in each instance. That affidavit recites the legal conclusion that the individual is:
“not a managing or general agent, or an agent authorized by appointment or by law to receive service of process.”
I find that the presumption which cloaks a return of service has not been overcome by the affidavit submitted by the defendants. Hicklin v. Edwards, 226 F.2d 410, 414 (8th Cir.1955); C. Wright & A. Miller, Federal Practice and Procedure: Civil, § 1130 n. *72378 (1969). In this instance, the attempted service was effective in the sense that it came almost immediately to the attention of each defendant as is demonstrated by the fact that each defendant almost immediately arranged to be represented by well-qualified counsel who have appeared before this court. The essential purpose, therefore, of the service of process has been accomplished.
Defendant has also argued that the service was ineffective because the defendants were “nationalized by the Government of Colombia” and, therefore, service was subject to the provisions of the Foreign Sovereign Immunities Act, 28 U.S.C. § 1602 et seq. It is conceded, however, that neither defendant was nationalized by Colombia until long after this action was commenced and after this service was effected. It is, I think, settled beyond serious question that the Act would have no applicability here for that reason.
The defendants, finally, have argued that they are not subject to an action in this United States District Court and that they must be sued, if at all, in Colombia. I disagree. The allegedly fraudulent transfers were made from the debtor’s New York Bank in U.S. currency to the bank accounts of each defendant in a Miami bank. The entire transaction, therefore, occurred in this country and it was completed within this District. If either defendant resided within the District, there would be no question as to the appropriate situs of the litigation under 11 U.S.C. § 548. The fact that each defendant, though then maintaining a bank account in Miami employed for the purpose of receiv-' ing these transfers, was then and is now domiciled in Colombia does not divest this court of jurisdiction.
The grounds asserted in the defendants’ motion to dismiss present no issue which has not been previously decided by this court in published opinions and for the reasons stated on the record at the hearing and no useful purpose would be served by repeating that discussion here.
Each motion on behalf of each defendant is denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490244/ | OPINION AND ORDER ON MOTIONS TO DISMISS COMPLAINT
L. CHANDLER WATSON, Jr., Bankruptcy Judge.
Introduction—
The above-styled case was commenced by the debtor’s voluntary petition filed under title 11, chapter 11, United States Code, on September 29, 1983. This case and all proceedings therein were referred to the bankruptcy judges by an order of the District Court after July 10, 1984, and said case remains pending under said chapter 11, before the undersigned bankruptcy judge.
The above-styled adversary proceeding was commenced by a prepetition creditor, Central Soya Company, Inc. (hereinafter referred to as Central Soya), against the debtor, Madison H. Hooton, Jr. (hereinafter referred to as debtor), the debtor’s co-trustee under a trust created by the debtor’s late father, said co-trustee being AmSouth Bank, N.A. (hereinafter referred to as bank), and the chairman of the unsecured creditors’ committee. The debtor and the bank, respectively, appeared by legal counsel and moved for dismissal of the complaint, on the ground that the complaint fails to state a claim upon which relief can be granted. The third defendant has made no appearance in this adversary proceeding.
In its complaint, Central Soya seeks equitable relief by having the Court declare that it holds a lien upon the real property placed in trust by the debtor’s late father, which lien secures the indebtedness owed to it by the debtor. It is alleged that this lien arose and attached by virtue of Central Soya’s having obtained a judgment against the debtor’s late father, the debtor, and others for the sum of $818,652.13 on August 12, 1982, and its having filed a certificate of said judgment with the Judge of Probate of Clay County, Alabama, on December 6, 1982.
There are attached to the complaint copies of the certificate of judgment which was filed for record in Clay County, Alabama, and two other instruments:
1. A trust agreement between the debtor’s late father, as settlor, and the bank’s predecessor and the debtor, as trustees, dated September 3, 1974; and
2. A deed from the debtor’s mother and his late father to the bank’s predecessor and the debtor, as trustees under the trust agreement, purporting to convey fee-simple title to some 600 acres of land in Clay County, Alabama, and dated September 19, 1974.
Pertinent to the question of whether Central Soya’s complaint must be dismissed for failure to state a claim upon which relief can be granted are the following three sections of the Code of Alabama (1975):
§ 6-9-210.
The owner of any judgment ... may file in the office of the judge of probate of any county of this state a certificate of the clerk or register of the court by which the judgment was entered, which certificate ... shall be registered by the judge of probate in a book to be kept by him for that purpose....
§ 6-9-211.
Every judgment, a certificate of which has been filed as provided in section 6-9-210, shall be a lien in the county where filed on all property of the defendant which is subject to levy and sale under execution_ [emphasis added.]
§ 6-9-40.
Executions may be levied:
(1) On real property to which the defendant has a legal title or a perfect equity ... or in which he has a vested legal interest in possession, reversion or remainder....
(2) On personal property of the defendant, except things in action....
(3) On an equity of redemption in either land or personal property. [emphasis added.]
*758Without further detail, it is the opinion of the bankruptcy judge, and it appears to be the opinion of respective counsel for Central Soya, the debtor, and the bank, that the net effect in this proceeding of these three code sections is that Central Soya did not obtain a lien upon the Clay County land if, at the time the certificate of judgment was filed and subsequent thereto, the debtor had neither the legal title nor a perfect equity in the real property, by reason of its encapsulation within the trust created by the debtor’s late father.
Undaunted by this rather formidable proposition, counsel for Central Soya strike out against the trust itself by an assertion which in essence is that the trust is not in fact a trust and that the legal title to the Clay County real property became vested in the debtor on September 3, 1979, by virtue of the powers which the trust instrument gave to the debtor five years from the date of the trust instrument. The contention is that, when those powers given to the debtor came into effect, the trust was no longer an “active” trust but became a “dry” or “passive” trust. It is the opinion of the bankruptcy judge, and apparently the opinion of the respective counsel for Central Soya, the debtor, and the bank, that a dry or passive trust is made anomalous by the so-called Alabama “Statute of Uses,” found in Code of Alabama (1975), as follows:
§ 3.5-4-250.
No use, trust or confidence can be declared of any land, or of any charge upon the same, for the mere benefit of third persons; and all assurances declaring any such use, trust or confidence must be held and taken to vest the legal estate in the person or persons for whom the same is declared....
At least a summary of the provisions of the trust agreement is required for an understanding of the exact issue in this adversary proceeding. The trust agreement declares that the trustees shall hold the trust estate for the use and benefit of the debtor and shall pay to him the entire net income and such of the principal as the trustees may from time to time deem necessary for his health, education, maintenance and support, taking into account his other known resources. In this proceeding, the debtor’s age is not established, but the trust instrument requires the trustees to pay over to him “one-half of said trust” at age 35 years and the remainder at age 55 years. In the event that the debtor does not attain the latter age, the bank is directed to pay over “said trust” to his descendents, as may be directed and appointed in his last will, with any unappointed portion to go to the debtor’s living descendents or, if none, to the settlor’s descendents.
The trustees (the bank’s predecessor and the debtor) were directed to hold and manage the trust estate and were given such powers as one might expect, including powers to sell, convey, exchange, or rent all or any portion of the trust estate and to invest and reinvest the trust estate. All of the duties and powers of the trustees, however, were made subject to a crucial provision in the trust instrument, effective five years from its date and thereafter during the continuance of the trust, which stated that “the trustees shall obtain and are hereby authorized and directed to act upon the written directions of grantor’s son, Madison H. Hooton, Jr., regarding the sale of land or of timber or of both.... ” This was coupled with the following provision: “[t]he trustees shall not be liable for any loss or claim of any kind or nature whatsoever resulting by reason of acting or refraining from acting according to such directions received by them from said son.”
In this adversary proceeding, the respective briefs submitted for Central Soya and for the bank are comprehensive and persuasive. They differ only as to whether the trust agreement established a perfectly-valid active trust1 which — depending upon the debtor’s age — continues to this day or whether the powers of direction to the trustees given to the debtor five years after the date of the trust agreement converted the trust, on September 3, 1979, into *759a dry or passive trust, thereby vesting in the debtor the title to the Clay County land and making it subject to a lien created by the filing of Central Soya’s certificate of judgment on December 6, 1982.
Conclusions by the Court—
When all other propositions and arguments are cut away, the difference in the position assumed by Central Soya and the position assumed by the debtor and the bank appears to the Court to rest upon the conflicting interpretations given to that provision in the trust instrument which reads as follows: “[t]he trustees shall not be liable for any loss or claim or any kind or nature whatsoever resulting by reason of acting or refraining from acting according to such directions received by them from said son.” In the brief submitted for the bank, counsel stated the following:
The provision giving Hooton the right to instruct the trustees to sell the property is irrelevant because the trustees can ignore that instruction without liability to the beneficiary, and because the beneficiary will not have title to any trust property until he reaches 35 years of age, and until the trustees convey title to him.
A completely opposite construction of this provision in the trust agreement is stated in the brief submitted for Central Soya:
The effect of section (b) of ARTICLE TWO is to grant Madison H. Hooton, Jr. a general power of appointment over the trust corpus. At any time, Madison H. Hooton, Jr. could direct the corporate trustee and himself as individual trustee to convey all of the land in the trust corpus to Madison H. Hooton, Jr. for one dollar, and the contingent remaindermen beneficiaries could not sue either the individual trustee or the corporate trustee because the last sentence of section (b) provides “[t]he trustees shall not be liable”
The bankruptcy judge concludes that this disagreement as to' the meaning of the referred-to provision in the trust agreement is a telling difference and that the interpretation given by the bank rests upon a misreading of the trust provision. The trustees are not freed from liability “by reason of acting or refraining from acting” contrary to directions from the debtor (which the trustees are bound to obtain regarding the sale of land or timber) but when “acting or refraining from acting according to such directions.” [emphasis added.]
When this provision became effective, it gave the debtor unfettered control of the disposition of the corpus of the trust, and this converted the trust from an active trust into a merely dry or passive trust. At that point, it became a “use ... for the mere benefit of [a] third [person] ... [then] held and taken to vest the legal estate in the person or persons for whom the same [was] declared_” Thus, it became possible for Central Soya — as far as the facts are now presented to the Court — to obtain a lien upon the Clay County land by its filing a certificate of the judgment against the debtor and others. This conclusion means that it is within the realm of possibility that Central Soya may obtain a favorable judgment in this adversary proceeding and that the motions to dismiss the complaint are not well taken and must be denied.
This conclusion does not mean that the motions to dismiss may, under the circumstances here, be converted by the Court into motions for summary judgment and a final judgment entered in favor of Central Soya. The Court judicially knows that the debtor’s mother and his late father also commenced, a chapter 11 bankruptcy case (Case No. 83-4500), which is pending before the undersigned bankruptcy judge. There is no evidence before the Court at this time as to whether the trust agreement or the conveyance of real property or both were filed for record with the Probate Judge of Clay County, Alabama.2 If either was not filed for record, the effect that this omission would have upon whatever title was vested in those debtors would have to be considered by the bankruptcy judge. Except for the right to compensation, those *760debtors, as debtors in possession, are given all of the rights and powers of a trustee serving in a chapter 11 case.3 Those rights and powers include the “strong arm” of “a bona fide purchaser of real property.”4 Thus, it is conceivable that it may be necessary to add to the adversary proceeding other parties who may have a claim to the real property superior to that of a claim by the debtor’s creditor to a lien upon the debtor’s title to the land.
Order by the Court
In view of the foregoing, it is ORDERED by the Court that the respective motions of the debtor and of the bank for the Court to dismiss the complaint of Central Soya are denied, and that a copy of the foregoing shall be sent by the clerk through the United States mails to each of the following (which shall be sufficient service and notice hereof): counsel for the debtor, counsel for the bank, counsel for Central Soya, Mr. Tim Coe, and the United States trustee for this district.
. Permitted by the terms of Code of Alabama (1975) § 35-4-251.
. As to the necessity for filing for record a conveyance of real property, see Code of Ala*760bama (1975) § 35-4-90. As to the details of such filing, see §§ 35-4-50, 35-4-51, 35-4-59, and 35-4-62.
. 11 U.S.C. § 1107(a).
. 11 U.S.C. § 544(a)(3). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490246/ | MEMORANDUM OPINION
JAMES E. YACOS, Bankruptcy Judge.
This matter was tried before the court on January 14, 1986 on the trustee’s Complaint, as amended, alleging a preferential transfer pursuant to 11 U.S.C. § 547(b) in the amount of $550.00 and the defendant’s Answer thereto. Pursuant to this court’s pre-trial Order of December 9, 1985, the sole affirmative defense raised by the defendant and heard at trial was whether or not the transfer was made in the ordinary course of business and hence would fall within the exception to recovery by the trustee provided in § 547(c)(2).
In this case the debtor filed a voluntary petition under Chapter 11 on January 25, 1985. The case was converted to Chapter 7 on April 2, 1985.
The transfer in question is the debtor’s payment to the defendant by check dated November 9, 1984 in the amount of $550.00. From the evidence it appears that the defendant had a contract with the debt- or whereby the defendant was to test certain air conditioning systems on a job which the debtor was under contract to perform for the New England Telephone Co. In short, the defendant was a subcontractor vis á vis debtor’s contract with New England Telephone.
The defendant’s president, Charles A. Corlin, Jr., testified that the first dealings his company had with the debtor occurred in approximately July 1984. Defendant verbally proposed and performed its first work for debtor in August 1984. This work was billed to the debtor by defendant’s invoice dated August 30, 1984 in the amount of $550 and constitutes the job for which debtor allegedly paid in the ordinary course.
While Mr. Corlin’s company had had no previous relationships with the debtor, Mr. Corlin had dealt with Agency’s project manager, a Mr. Ken Duchesne, on other occasions. Mr. Corlin testified that Mr. Duchesne was the Agency Refrigeration representative involved in the dealings between debtor and defendant discussed in these proceedings. However, according to Mr. Corlin, he and Mr. Duchesne never discussed when Agency would pay Tekon for the subcontract work Tekon performed.
Mr. Corlin testified that Tekon usually begins to pursue a debt when it has remained unpaid for 45 days. It does so at that time on the theory that the general contractor it is directly dealing with should have been paid by then. Mr. Corlin also testified that Tekon’s policy is that it generally expects to get paid when its general or subcontractor gets paid, and in the same ratio. However, on similar jobs for telephone company contractors, Tekon's experience was that it would get paid 40 to 90 days after the work was done. A telephone company engineer usually had to approve contract work before that company paid it’s contractors.
According to Mr. Corlin, Tekon’s usual method of collecting its payments in subcontract situations, was to contact its gen*879eral contractor or the contractor next-above Tekon. The uncontroverted evidence is that Tekon telephoned the debtor concerning the $550.00 in question on November 8, 1984 and was told that Agency would pay the debt “this Friday”.
In response to the question of whether Tekon had had other “contacts” with the debtor during the time period to which his testimony had referred, Mr. Corlin indicated that the only other “contacts” between the defendant and the debtor had been Tekon’s bids on two other jobs for the debtor. Tekon in fact performed two additional subcontract jobs for the debtor prior to receiving payment on the first. These two additional jobs were bid by Tekon at $950 and $400 but Tekon never received payment for either.
In addition to Mr. Corlin’s testimony, the court also heard the testimony of Frank Williams, the president of the debtor. Mr. Williams stated that Agency Refrigeration did not pay Tekon at the time Agency was paid by New England Telephone.
The relevant statutory section provides as follows:
§ 547. Preferences
* * * * * *
(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; ...
(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.
However:
(c) The trustee may not avoid under this section a transfer—
***>(!**
(2) to the extent that such transfer was—
(A) in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the transferee;
(B) made in the ordinary course of business or financial affairs of the debtor and the transferee; and
(C) made according to ordinary business terms;
11 U.S.C. § 547(c)(2).
Under the facts of the instant case, this court must find that the payment at issue was made in the ordinary course of business of the debtor and the transferee, Tek-on Technical Consultants, Inc., and hence is not avoidable by the trustee. Certainly the transfer was in payment of a debt incurred by the debtor in the ordinary course of its business and that of Tekon, within the meaning of § 547(c)(2)(A). The trustee-plaintiff offered no evidence or argument in support of a contrary finding. Neither is it seriously contended that the payment by the debtor was not made according to ordinary business terms. § 547(c)(2)(C).
The real dispute in this matter centers on the question of whether or not the payment was “made in the ordinary course of business ... of the debtor and the transferee.” § 547(c)(2)(B) (emphasis added). The trustee’s basic position is that debtor’s November 9, 1984 payment of an invoice dated August 30, 1984 was sufficiently outside the creditor’s usual mode of conducting its business as to make that payment a preferential transfer avoidable by the trustee under § 547.
Contrary to the trustee’s argument, the actual conduct of the parties, in the context of the contract and sub-contract involved, points in the opposite direction. The debtor *880paid Tekon by check dated November 9, 1984 as it had informed Tekon it would at the time that Tekon, following its usual practice of contacting its next-above contractor, telephoned the debtor on November 8, 1984. Thus, debtor’s payment to Tekon was made 70 days after the date of Tekon’s August 30, 1984 invoice to debtor. While the payment itself and even Tekon’s telephone call to debtor were thus well after the 45 day limit by which Tekon usually began pursuing its unpaid debts, the payment was well within the 40 to 90 day period which Tekon had experienced in the past for payment on work involving the telephone company. Simply put, Tekon’s 45 day deadline was far from absolute, and in fact there never was any specific agreement by both parties that a “due date” occurred 45 days after the billing. Additionally, given that an outside party had to approve the work before payment, the court can only conclude that, in the circumstances, Tekon waited a reasonable time for its contractor, the debtor, to be paid by the telephone company and in turn, for debtor to forward payment to Tekon.
Finally, the court cannot ignore the fact that from Tekon’s point of view, what was happening with its expected $550 payment from the debtor was sufficiently within its ordinary course to justify Tekon in going out on a limb to bid on and perform two additional jobs for debtor before it had been paid the $550 in question for the first job. This corroborates the tacit agreement of the parties that the billing was not “past due” on November 9, 1984.
In sum, the evidence establishes that the ordinary course of business between these parties was fairly fluid and that the payment by debtor was not outside the usual manner of conducting this type of business.1
For all the foregoing reasons the court will, separately, enter judgment for the defendant and against the trustee-plaintiff in this matter.
. The Court notes that prior to the 1984 Amendments to the Bankruptcy Code, § 547(c)(2) limited to 45 days the period of delay that would be deemed in the ordinary course of business for preference purposes. The elimination of this limit indicates a legislation judgment that "course of business” can be interpreted broadly in terms of the actual situation of the particular creditor and debtor. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490247/ | ORDER
WILLIAM J. O’NEILL, Bankruptcy Judge.
The Trustee, Myron E. Wasserman, filed a complaint and amended complaint to sell personal property and determine validity, priority and extent of liens. By order of November 5, 1985, Trustee was authorized to sell the property and certain liens were transferred to the fund. Presently at issue is the validity and priority of the security interest of Ameritrust Company National Association (Ameritrust) in dental equipment. The parties submitted briefs in support of the following stipulations:
“1. On or about August 26, 1980, Richard P. Slaten, D.D.S. & Elliott A. Gross, D.D.S., an Ohio Partnership having its principal place of business at 32 W. Orange Street in the Village of Chagrin Falls, Cu-yahoga County, Ohio, borrowed certain funds from the AmeriTrust Company National Association for the purchase of various items of dental equipment. In conjunc*913tion with said obligation, the Defendant, the AmeriTrust Company National Association, received a certain security interest in the aforementioned dental equipment, evidenced by the security agreement attached hereto and labeled Exhibit ‘A’. Said Defendant further filed its financing statements for record with the Secretary of State for the State of Ohio on September 12, 1980 and with the Recorder for Geauga County, Ohio on September 2, 1980. Copies of the aforementioned financing statements are attached hereto and labeled collectively Exhibit ‘B’.
“2. From prior to August 26, 1980 through the date of the filing of the bankruptcy petition, Richard P. Slaten resided in Geauga County, Ohio while Elliott A. Gross resided in Cuyahoga County, Ohio.
“3. On October 30, 1980, the partnership, Richard P. Slaten, D.D.S. & Elliott A. Gross, D.D.S., incorporated and became known as Richard P. Slaten, D.D.S. and Elliott A. Gross, D.D.S., Inc. A copy of the certificate of incorporation issued by the State of Ohio, Department of State is attached hereto and labeled Exhibit ‘C’.
“4. On or about July 31, 1981, the Corporation, Richard P. Slaten, D.D.S. and Elliott A. Gross, D.D.S., Inc., moves (sic) its offices from its prior location of 32 W. Orange Street in the Village of Chagrin Falls, Cuyahoga County, Ohio to 551 E. Washington Street in the Village of South Russell, Geauga County, Ohio.
“5. On February 5, 1982, the Corporation, Richard P. Slaten, D.D.S. and Elliott A. Gross, D.D.S., Inc. amended its corporate charter with the State of Ohio to change the name to Chagrin Valley Dental Associates, Drs. Slaten & Gross, Inc. A copy of the certificate of amendment to the articles of incorporation and the certificate from the Department of State of the State of Ohio evidencing said amendment are attached hereto, made a part hereof, and labeled collectively Exhibit ‘D’.
“6. At no time after September 12, 1980, were the financing statements amended or refiled in any manner until the filing of a continuation statement by the Defendant, the AmeriTrust Company National Association, on August 30, 1985, after the filing of the petition herein, with the Secretary of State for the State of Ohio and with the Recorder for Geauga County, Ohio, said financing statement being filed against the Debtor, Richard P. Slaten, D.D.S. & Elliott A. Gross, D.D.S., a Partnership. A copy of the filing with the Recorder for Geauga County, Ohio is attached hereto as a portion of Exhibit ‘B’.
“7. On August 26,1980, Richard P. Sla-ten, D.D.S. & Elliott A. Gross, D.D.S., an Ohio Partnership, had only one place of business, being at 32 W. Orange Street in the Village of Chagrin Falls, Cuyahoga County, Ohio.”
In addition the Court finds:
8. On March 25, 1985, the Debtor, Chagrin Valley Dental Associates, filed a petition under Chapter 7 of the United States Bankruptcy Code.
Section 1309.21 of the Ohio Revised Code requires filing a financing statement to perfect a security interest in equipment of the kind in issue. Pursuant to Section 1309.38(A)(4), to perfect such security interest dual filing is required,
“(4) ... in the office of the secretary of state and, in addition, if the debtor has a place of business in only one county of this state, also in the office of the county recorder of such county...” Ohio Rev. Code § 1309.38(A)(4).
Ameritrust filed with the State and Geauga County but not in Cuyahoga County, the only county in which the debtor was then doing business. Both parties agree this initial filing failed to perfect the security interest. Ameritrust argues, however, that the improper filing was cured when the debtor relocated its business in Geauga County on July 31, 1981. Trustee maintains Ameritrust’s improper filing and failure to correct the error constitutes an un-perfected security interest subordinate to his interest in the property. Ohio Revised Code Section 1309.20 provides an unper-fected security interest is subordinate to the rights of a person who becomes a lien *914creditor before the security interest is perfected. Ohio Rev. Code § 1309.20(B)(2). “Lien Creditor” is defined to include “... a trustee in bankruptcy from the date of the filing of the petition.” Ohio Rev. Code § 1309.20(C). In addition, Section 544 of the Bankruptcy Code vests the trustee with rights and powers granting him priority over an unperfected security interest. 11 U.S.C. § 544. An unperfected security interest therefore, is subordinate to the rights of the Trustee.
Can an unperfected security interest resulting from filing in the wrong location become perfected by changing circumstances which constitute correct location filing? There is no definitive answer under the Uniform Commercial Code and conflicting decisions have resulted. See generally Frisch, U.C.C. Filings: Changing Circumstances Can Make a Right Filing Wrong. But Can They Make a Wrong Filing Right?, 56 S.Cal.L.Rev. 1247 (1983). There is no Ohio case law on this issue. The better reasoned view, however, precludes such cure. “If the secured party files a financing statement in the wrong county, then that filing is improper and, regardless of its sequence in relation to other requisites, perfection is unattainable.” International Harvester Credit Cory. v. Vos, 95 Mich.App. 45, 290 N.W.2d 401, 28 U.C.C. Rep.Serv. 1187 (1980). See also In re Kane, 1 U.C.C.Rep.Serv. 582 (D.C.E.D.Pa.1962); and In re G.G. Moss Co., Inc., 9 B.R. 47 (Bankr.E.D.Va.1981).
Section 1309.38(A)(4) O.R.C., supra, requires dual filing in specific circumstances. Section 1309.38(B), referred to as the saving clause, provides:
“(B) A filing which is made in good faith in an improper place or not in all of the places required by this section is nevertheless effective with regard to any collateral as to which the filing complied with the requirements of sections 1309.-01 to 1309.50 of the Revised Code, and is also effective with regard to collateral covered by the financing statement against any person who has knowledge of the contents of such financing statement.” Ohio Revised Code § 1309.38(B).
Section 1309.38(B) limits the efficacy of an improper filing to the stated circumstances. Filing is defined as “presentation for filing of a financing statement and tender of the filing fee or acceptance of the statement by the filing officer.” Ohio Revised Code § 1309.40(A). The propriety of a financing statement is determined on the date of presentment and acceptance by the filing officer. Improper filing fails to perfect a security interest under Section 1309.38(A) and is effective only as delineated in Section 1309.38(B). Subsequent change of circumstances, such as relocation of debtor’s place of business, cannot cure the improper filing. To allow such cure would conflict with Section 1309.-40(A) which defines filing and would create conflict between Sections 1309.38(A) and (B). In re Campbell, 37 Ohio Op.2d 261 (D.C.S.D. Ohio 1966). A statement is either properly or improperly filed. Section 1309.38(B) sets forth the only effect of an improper filing. Ameritrust’s improper filing is ineffectual under Section 1309.38(B).
Ameritrust requests the Court to “carve out an exception for a non-prejudicial good faith error”. In similar circumstances, Ohio courts refused such exception. Haueisen v. Central Acceptance Corp., 5 Ohio L.Abs. 776 (Ohio Ct.App.1927). By enacting Section 1309.38, the legislature addressed the issue and Ameri-trust does not benefit from the saving clause. Filing requirements are unequivocal and preclude discretionary balancing of the equities. Uniroyal, Inc. v. Universal Tire and Auto Supply Co., 557 F.2d 22 (1st Cir.1977).
For reasons stated herein, Ameri-trust’s lien on the dental equipment is not a valid perfected security interest and, pursuant to the Bankruptcy Code and Ohio law, is subordinate to the rights of the Trustee.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490248/ | EDWARD J. RYAN, Bankruptcy Judge.
Two Oil, Incorporated (“Two Oil”) is a Chapter 11 debtor in possession which, under 11 U.S.C. § 547, seeks to set aside an alleged preferential transfer made to Tam-pimex Oil International, Ltd. (“Tampi-mex”). The facts of the case are as follows:
Two Oil arranged with its only bank, Houston City Bank, now BancTexas, (“the Bank”) for a line of credit which was secured by all the assets and inventory of Two Oil. The value of the assets and inventory pledged by Two Oil was at all relevant times at least equivalent to the amount of the line of credit, which varied between $3.8 million and $5.5 million in value. Additionally, the Bank secured the line of credit with the guaranties of James Singleton, R.E. Lombard, R.D. Gatton, Thomas Thompson, and a Certificate of Deposit in the amount of approximately four million ($4,000,000.00) dollars provided by Gulf States Refining Co., a company controlled by Mr. Thompson. Based on this line of credit, Two Oil was able to obtain letters of credit from the Bank for the benefit of its oil and gas trading partners.
On or about December 8, 1981, at Two Oil’s request, an exchange agreement was entered into between Two Oil and Tampi-mex whereby Tampimex would deliver 50,-000 barrels of No. 2 fuel oil to Two Oil; this December agreement contemplated the transfer of No. 2 fuel oil to Tampimex from Two Oil in January 1982.
On December 9, 1981, Tampimex delivered by book transfer the 50,000 barrels of oil which Two Oil contemporaneously sold to Mellon Energy. In order to fit Two Oil’s supply and distribution requirements, Two Oil requested and received an extension of the January delivery of product to Tampi-mex. In February, 1982, as a further accommodation of Two Oil’s needs, Two Oil requested and received a purchase agreement whereby Two Oil agreed to purchase the outstanding exchange balance. Under the February 26, 1982 purchase agreement, Two Oil acquired and Tampimex sold the exchange balance for $2,142,000. At each of these times, Tampimex requested and Two Oil obtained an extension of the Letter of Credit which was finally extended to *967March 10, 1982. At the time of their agreement concerning the sale of the exchange balance, the parties also agreed that payment would be made by wire transfer on or before March 4, 1982.
On March 4, 1982, Tampimex received by wire transfer the total purchase price in the amount of $2,142,000.00.
On June 1, 1982, Two Oil filed its petition for relief. .
The court finds and concludes that the payment of the $2,142,000.00 by Two Oil to Tampimex was the functional equivalent of a payment under the Letter of Credit issued in its favor by the Bank.
Two Oil contends that Tampimex was an unsecured creditor and that payment to it was a transfer of Two Oil’s funds in payment of an antecedent debt. Two Oil argues that since the payment came from its account, not from the Bank, this must be considered a simple preference action.
It was uncontroverted that Two Oil was overdrawn on its account with the Bank immediately before this payment was made. Prior to that payment, the Bank had loaned Two Oil monies which it required to pay off the debt owed to Tampi-mex. The wire transfer sent by the Bank to Tampimex included the notation that acceptance of the wire transfer cancelled the Letter of Credit which demonstrated that the payment was intended to and did eliminate the Bank’s liability and obligation to Tampimex. See, In re Price Chopper Supermarkets, Inc., 40 B.R. 816 (Bkrtcy.S.D.Cal.1984).
In his testimony, Victor Barrett, who was employed by Two Oil and who was a party to the dealings with Tampimex, showed that Two Oil had borrowed against the collateral which was available to cover the Letter of Credit in order to pay the invoice of Tampimex. He testified that Two Oil had requested two extensions of time for the fulfillment of its obligation to Tampimex. On those occasions Two Oil and Tampimex mutually agreed to do what was most convenient for both in the sense of eliminating unnecessary paperwork.
On or about February 26, 1982, the parties mutually agreed that the cash payment for the exchange balance was simpler for the parties than a payment under the Letter of Credit.
A maxim of equity is that equity will order to be done that which ought to have been done. Here, had there been payment pursuant to a demand on the Letter of Credit, the payment would not have been a preference. See, In re Page, 18 B.R. 713 (D.C.1982). The facts demonstrate a consensual agreement, the implementation of which was the functional equivalent of such a transaction, i.e., a draw on a letter of credit.
The payment to Tampimex was not a voidable preference under 11 U.S.C. 547.
Let judgment enter accordingly. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490249/ | ORDER ON EXEMPTIONS AND APPORTIONMENT OF LIENS
THOMAS C. BRITTON, Chief Judge.
The trustee's objection (C.P. No. 90) to the debtor’s claim of exemptions was heard *7on February 18. At the hearing, the trustee and the debtor agreed that a related issue, the apportionment of liens, had also been carried over for consideration with the objection to exemptions, although this related matter was not noted on the calendar. At the parties’ request, both matters were heard.
The debtor owned two separate parcels of real property, which may be identified as the Ocean property and the Lake property. The latter has been claimed as an exempt homestead. Both properties were encumbered by a lien, the validity and amount of which has been fixed and is not now in dispute. The trustee has sold the Ocean property and holds the proceeds for appropriate distribution.
It is the debtor’s contention that the lien should be satisfied entirely from the Ocean property and the trustee argues that the lien should be apportioned pro rata between the two properties in proportion to their respective value. The Ocean property was sold for $1.625 million. A recent offer of $1.1 million has been made for the Lake property. I find that these are the current values of these two properties.
The issue is governed by Florida law. In Wiggins v. Leinenweber, 404 So.2d 778, 780 (Fla.Dist.Ct.App.1981), it was held that where property is sold expressly subject to liens, the rule that where lands are mortgaged to secure a debt and part of said lands are subsequently sold by the mortgagor, the portion unsold is primarily liable under the lien, is not applicable:
“In the absence of express agreement, however, the portions [of real property] are, as between themselves, liable for their proportionate share of the debt based on their relative value on the date of conveyance.”
The issue here is sufficiently analogous to that before the court in Wiggins, that the holding there is applicable here. The lien encumbering these two properties shall be allocated between the two properties in proportion to their present current value.
The trustee has withdrawn any other objection he might have to the debtor’s claim of exemptions. The objection is, therefore, overruled. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490250/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Chief Judge.
The liquidating trustee appointed under this debtor’s chapter 11 plan seeks recovery of $3 million from the defendant Panamanian corporation under 11 U.S.C. § 548(a)(2).
The complaint was filed in the District Court on May 17, 1985. On June 27, 1985, the District Judge entered an order transferring the case to the bankruptcy court (C.P. No. 1), however, that order was never brought to the attention of the bankruptcy court until January 21, 1986, seven months later. In the meantime, the clerk of the District Court issued a summons and that summons was served upon the defendant on December 26, 1985. Neither the service nor the transfer of this matter to this court has been questioned by the defendant.
This court’s Order of January 29 set the matter to be tried on February 20. On February 19, plaintiff moved for the entry of a default on account of the defendant’s failure to answer and on February 20, an Answer was filed together with defendant’s motion for continuance.
At the trial held February 20, the motion for continuance was denied. The motion for default was also denied, in view of defendant’s Answer and appearance at trial.
The uncontroverted evidence before me is that the debtor transferred $3 million to the defendant in five transactions between October 21, 1982 and January 19, 1983, on the dates and in the amounts alleged. It is equally undisputed that the debtor was hopelessly insolvent during the time these transfers were made.
To carry his burden under § 548(a)(2), plaintiff is also required to prove only that the debtor:
“received less than a reasonably equivalent value in exchange for such transfer or obligation.”
The Answer concedes that defendant furnished no consideration to the debtor, but alleges that the defendant:
“used the funds to purchase Colombian Pesos at the direction of the Debtor.”
It is not alleged that the pesos were delivered to the debtor or were delivered to someone else at the debtor’s direction. If defendant could prove either fact, it would have provided a reasonably equivalent value in exchange for the transfer. However, defendant has offered nothing.
Plaintiff’s evidence is that there is no record or other indication that this defendant ever furnished anything of value to or for the account of the debtor. I find, therefore, that plaintiff has proved each of the elements specified in § 548(a)(2).
As is required by B.R. 9021(a), a separate judgment will be entered for the plaintiff and against the defendant in the amount of $3 million. Costs may be taxed on motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490549/ | MEMORANDUM OF DECISION
GEORGE S. WRIGHT, Chief Judge.
The above-styled cases came before the Court for confirmation of the debtors’ proposed Chapter 13 plans of reorganization. At the Confirmation Hearings, a question was raised as to the secured status of certain lenders who held security interests in the debtors’ mobile home homesteads. After consideration of the Alabama Supreme Court’s decision in First Alabama Bank of Dothan v. Renfroe, 452 So.2d 464 (Ala.1984), it is the opinion of this Court1 that in the Kelly case, Bedford Financial Corporation is a secured creditor. However, the Court finds that in the Garrett case, both the First National Bank of Jasper 2 and Security Mutual Finance Corporation are unsecured creditors. This memorandum shall constitute findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.
FINDINGS OF FACT
The Garrett and Kelly cases have been consolidated for the purposes of this opinion because they involve common questions of law. In both cases, the debtors executed security agreements covering mobile homes used as their place of residence.
In the Garrett case, the debtors executed two separate agreements with different lenders. The first agreement, which was executed in June of 1985, purportedly gave the First National Bank of Jasper (the Bank) a security interest in a 1974 Holiday 12 x 65 Mobile Home, Serial Number 0592384. According to the security agreement, the Garrett’s executed the agreement so that they could obtain funds to purchase the mobile home. In August of 1985, the Garretts executed a second security agreement, on the same mobile home, in favor of Security Mutual Finance Corporation (Security Mutual). In Security Mutual’s documentation, the home was described as a 1970 Holiday 12 x 65 Mobile Home, Serial Number 701-8907.
*903In the Kelly case, Carl Stanley Kelly and his wife executed a purchase money security agreement in a 1985 New River Oaks 14 X 72 Mobile Home, Serial Number 15200 in May, 1986. The security agreement was executed in favor of Adventure Homes, Inc. who later assigned the Kellys’ contract to Bedford Financial Corporation (Bedford). A financing statement covering the mobile home in question was filed on July 3, 1986.
CONCLUSIONS OF LAW
The Renfroe decision focused on Sections 6-10-3 and 6-10-122 of the Alabama Code (1975). Section 6-10-3 requires that for an alienation of a married persons homestead interest to be valid, the assent of the husband or wife must be shown by a voluntary signature, duly acknowledged, “upon or attached to” the relevant instrument/s.3 Section 6-10-122 requires that any waiver of the homestead exemption must be shown “by a separate instrument”, subscribed by the party making the waiver and attested by one witness. In the case of married persons, 6-10-122 requires the voluntary, duly acknowledged, signature of the spouse.4 The issue this Court must determine is whether these sections are equally applicable to non-purchase money and purchase money contracts.
NON-PURCHASE MONEY CONTRACTS.
The facts of the Renfroe decision centered around a non-purchase money contract in which the lender, First Alabama Bank, had the debtor sign a note containing their standard homestead exemption waiver. First Alabama Bank then properly recorded a UCC-1 financing statement. Based on the facts before it, the Alabama Supreme Court determined that First Alabama Bank was an unsecured creditor because it had not complied with the requirements of 6-10-3. Having made the determination that Renfroe had not validly alienated his homestead interest, the Court found it unnecessary to examine the waiver issue. Thus, it is clear that non-purchase money mobile home lenders must comply with Section 6-10-3 and 6-10-122 to be fully protected.
PURCHASE MONEY CONTRACTS
As stated earlier, Renfroe dealt with a non-purchase money contract. However, no particular significance was attached to this fact in the Court’s opinion. Rather, the Supreme Court’s decision simply mentioned in passing that the Renfroe contract was non-purchase money.
After reviewing the applicable law, it is apparent that the Renfroe decision turned on the fact the contract involved was not a purchase money contract.
Section 6-10-2 of the Alabama Code grants to the residents of this State the right to claim a homestead exemption not to exceed $5,000.00 in value and 160 acres in area. Section 6-10-3 then provides for certain restrictions on the alienability of an individual’s homestead. Section 6-10-4, which is contained with the same article as both 6-10-2 and 6-10-3, states that
[t]he provisions of this article5 shall not, however, be so construed as to prevent *904any lien attaching to the homestead in favor of any laborer, merchant or materi-alman for work and labor done or for materials furnished or in favor of any vendor for unpaid purchase money or so as to affect any deed, mortgage or lien on such homestead, lawfully executed or created. (Underlining for emphasis)
Thus, it is clear that 6-10-4 effectively nullifies the right to claim a 6-10-2 homestead exemption and the 6-10-3 restrictions on alienation if it is purchase money.
This Court’s interpretation of Section 6-10-4 is supported by Alabama case law. For example, in Cates v. White, 252 Ala. 422, 41 So.2d 401, 402 (1949) it was stated that a “homestead claim cannot prevail against a purchase-money mortgage given contemporaneously with the purchase.” See also Martin v. First National Bank of Opelika, 279 Ala. 303, 184 So.2d 815 (1966) (a lien secured by a mortgage which is lawfully executed or created is superior to a claim of a homestead exemption); Waters v. Union Bank of Repton, 370 So.2d 957 (Ala.1979) (homestead rights would not prevail over vendor’s lien).
The following chart illustrates the interplay of Sections 6-10-2, 6-10-3, 6-10-4 and 6-10-122.
VALIDITY REQUIREMENTS OP A SECURITY INTEREST IN A MOBILE HOME
Sec. 6-10-3
UCC-1 Financing Statement Filed With Probate Judge Sec. 7 — 9—302(l)(d) Acknowledgment "upon or attached to” Security Agreement— Sec. 6-10-122 Acknowledgment “by separate6 instrument”
Type Transaction Marital Status On Post 2-1-82 7 Contracts Restriction on Alienation Waiver of Exemption
I. Purchase Money Immaterial Yes No No
II. Non-Purchase Married Yes Money Yes Yes
III. Non-Purchase Single Yes Money No Yes
Separate confirmation orders have been entered in conformance with this opinion in both cases.
. It should be noted that at the Confirmation Hearing the Court ruled on the secured status of the parties involved in this opinion. Thus, this opinion is merely intended to clarify the application of the Renfroe decision to cases which come before this Court.
. The Court’s decision on the secured status of claim filed by the First National Bank of Jasper is based on the fact that the bank failed to properly perfect its claim by filing a UCC-1 statement. Under the 1981 amendments to the Ala. UCC Sect. 7-9-301(l)(d) effective on February 1, 1982, all security interests in mobile homes classified as consumer goods, must be perfected by filing a UCC-1 statement in the Probate Court of the county where the consumer resides. See opinion of Judge William Acker in In re Sewell, CV No. 83-C-2426-S Slip Op. (N.D.Ala. February 28, 1984), holding that a UCC-1 was not necessary to perfect a security interest in pre Feb. 1, 1982 contracts.
. Section 6-10-3 provides:
Sect. 6-10-3. Same — Alienation by married person.
No mortgage, deed or other conveyance of the homestead by a married person shall be valid without the voluntary signature and assent of the husband or wife, which must be shown by his or her examination before an officer authorized by law to take acknowledgments of deeds and the certificate of such officer upon, or attached to, such mortgage, deed or other conveyance, which certificate must be substantially in the form of acknowledgment for individuals prescribed by section 35-4-29.
. Section 6-10-122 provides:
Sect. 6-10-122. Same — Homestead.
As to the homestead, the waiver must be by a separate instrument in writing, subscribed by the party making the same and attested by one witness. If such party is a married man, such waiver shall not be valid without the voluntary signature and assent of the wife and acknowledgment by her before an officer authorized to take acknowledgments in the form of the individual acknowledgment prescribed by this Code. If such party is a married woman, such waiver shall be executed only in the mode prescribed by section 30-4-12 for the alienation of her lands.
.It is to be noted that Article 3 is titled "Waiver of Right to Exemption” and 6-10-122 covers waiver of the right to claim a homestead exemption and, at first blush, it would appear that 6-10-122 would be unaffected by 6-10-4. But on closer analysis, Section 6-10-2 gives the "right” to claim the homestead exemption *904(which is in Article 1) and 6-10-122 governs the "waiver” of that right (which is in Article 3), therefore, since 6-10-4 operates on the "right” given by 6-10-2, then there is no need for operation of the "waiver” in 6-10-122 (as there is no "right" to "waive”). The net result is that no one can claim a 6-10-2 homestead exemption against a purchase money transaction.
. Renfroe explained that Section 6-10-3 requires the acknowledgment to be "upon or attached to” the instrument in order to validly alienate a homestead (which after 2/1/82 includes a mobile home). Section 6-10-122 is even a more stringent requirement than Section 6-10-3 in that it requires an acknowledgment "by separate instrument”. Renfroe makes this separate instrument requirement (which in the past, was customarily applicable in real estate transactions), now applicable to mobile home transactions. In the usual real estate transaction, there is normally a separate "note” (which includes the waiver of exemption), and also a separate "mortgage”. After Renfroe, nonpur-chase money mobile home lenders are required to comply with the stringent "separate instrument" requirement of section 6-10-122.
. Post 2/1/82 contracts must file a UCC-1, but not pre-2/1/82 contracts. See footnote 2, supra. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490550/ | ORDER ON MOTION TO DETERMINE SECURED STATUS
ALEXANDER L. PASKAY, Chief Judge.
The matters under consideration in this Chapter 11 case are a Motion to Determine Secured Status and a Motion to Determine the Value of the Collateral. The Motions are filed by the Sellas Corporation d/b/a Don’s Ornamental Iron (Debtor) and by Dominic Ficarrotta (Ficarrotta) who claims to be a secured creditor. The Court has considered the Motions, together with the record and arguments of counsel and now finds and concludes as follows:
In 1983, Ficarrotta sold all the assets of his dissolved corporation, Don’s Ornamental Iron, Inc. in which he and possibly his wife were the sole stockholders, to the Debtor. The purchase price of this purchase was $200,000. The balance of the purchase price which remained unpaid was secured by a promissory note in the amount of $70,000.00, executed on January 4, 1983, by the Debtor; and a Security Agreement which granted a security interest to Mr. and Mrs. Ficarrotta in the assets involved in the sale. A UCC-1 Financing Statement was properly executed and was recorded with the office of the Secretary of State. The UCC-1 form was also recorded in the office of the Clerk of the Circuit *925Court, Hillsborough County, Florida, in O.R. Book 4048, Page 935. The sale did not include the business premises owned by Mr. and Mrs. Ficarrotta individually. The Debtor thereafter leased the premises from Mr. and Mrs. Ficarrotta. It is without dispute that Ficarrotta perfected an interest in the collateral described in the security agreement.
The description of the collateral in which Ficarrotta claims to have perfected a security interest purported to include the real property leased by the Debtor for an unexplained reason. This collateral is described in paragraphs 3 and 4 of the Financing Statement and reads as follows:
3. All furniture, fixtures, leasehold improvements equipment, machinery, tools, motor vehicles, inventory and work in progress now owned or subsequently acquired by Debtor.
4. Lots 18-21 of O’Berry’s Industrial Sites, according to the plat thereof as the same is recorded in Plat Book 27 on Page 80 of the public records of Hillsborough County, (sic).
Of course, it should have been clear to anyone that one cannot grant and create an interest in real estate by a security agreement. This can only be done by a properly executed mortgage which is properly recorded in the public records.
On December 30, 1986, Mr. and Mrs. Ficarrotta signed a handwritten letter which on its face appears to terminate their security interest originally granted by the Debtor. This letter reads in pertinent part as follows:
The Sellas Corporation has vacated the building at 3510 East Columbus Drive, Tampa, Florida 33605, and by agreement of both parties the lease has been broken.
The purpose of this letter is the termination of Financing Statement recorded in O.R. 4048, Page 935.
The letter is, without a doubt, ambiguous simply because it is not clear whether Fi-carrotta intended to terminate only the so called security interest in the real property (sic) or also the lien on the collateral described in the Financing Statement as well.
The Debtor maintains that the letter was intended to terminate the security interest and the lien on the collateral described in the Financing Statement and that Ficarrot-ta is no longer holding a valid lien on the Debtor’s assets. The basis for this contention is that the Financing Statement recorded in the public records of Hillsborough County, Florida refers to the same Financing Statement which was recorded in the office of the Florida Secretary of State. Therefore, by terminating the interest in the collateral described in the statement recorded in Hillsborough County, Claimant effectively terminated the security interest recorded with the Secretary of State.
In opposition Ficarrotta contends that the letter mentioned was intended only to terminate the interest in the real property of Ficarrotta and therefore he still has a valid lien on the chattels described in the Financing Statement. The basis of his argument is that he executed the letter only to enable him to deliver a clear title to the purchaser to whom he sold the real property and which was no longer occupied by the Debtor. He maintains that the letter was never intended to terminate the lien on the tangible assets of the Debtor
Based on the evidence this Court is satisfied that the parties intended to terminate only the lien which attached the title to the real property which was also a lien owned by the Debtor and which he was about to sell. The letter of December 30, 1986, was executed on the same day as the closing on the sale of the real property. The letter states that the Debtor’s leasehold interest in the property was terminated; that the premises had been vacated and that the Financing Statement recorded in Hillsbor-ough County was also terminated. The letter was used for purposes of the closing. It is quite evident that the parties intended to invalidate the lien only with respect to the real property so that clear title could be conveyed. Therefore, the Court finds and concludes that Claimant has a valid lien against the Debtor’s chattels.
This leaves for consideration the determination of valuation of the collateral. *926Ficarrotta inspected the shop equipment on July 23, 1987. His detailed and itemized valuation of the property was based on the amount that the property could be sold for today and as stated by him is worth $8,070.00. The breakdown item by item indicates that this figure includes two trucks valued at a total of $2,000.00. There is no doubt that Ficarrotta does not have a valid lien on the trucks. Based on the foregoing, the Court finds that the total value of the collateral is $8,070.00 from which the $2,000.00 value of the trucks must be deducted.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that Ficarrotta has perfected security interest in the shop equipment of the Debtor. It is further
ORDERED, ADJUDGED AND DECREED that the shop equipment is valued at $6,070.00.
Addendum No. 1
1Small punch press $ 50.00
1 Hosefield Benders with parts 250.00
1 Table grinder 20.00
1 Heavy duty grinder with stand 100.00
1 Anvil 50.00
2 Portable welders 600.00
3 Portable Heaters 75.00
2 Miller Welding Machines 100.00
1NCG Welding Machine 50.00
1 D.C. 200 cuo Unit P. & H. Welder 250.00
1 N.C.G. Chemtron heavy duty welder 250.00
1 Nibbler 50.00
1 Core Drilling machines with 2 drills (bit) 75.00
1 portable cut off saw 50.00
1 aluminum cut off saw 50.00
2 Heavy duty cut off saws for steel 500.00
5 Hand drill, hammer and screw guns 125.00
1 Bar twister 350.00
2 Hobart welders 100.00
1 Table saw (Sears) 75.00
1 Air compressor 250.00
2 Drill presses 200.00
2 Dvorak shear and punch & shear machines 700.00
1 # 10 Bateman punch & shears with punches 400.00
1 Portable generator 50.00
1 Hand shear on stand 50.00
2 Scroll benders 500.00
1 1973 (1 ton) Chevy truck 500.00
11981 (1 ton GMC (sierra) trucks ■ 1500.00
4 Heavy Duty Grinders 100.00
1 Mig Welder 250.00
4 4X10 Steel Tables for Fabrication 400.00
TOTAL $8070.00 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490551/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Chief Judge.
The plaintiff as trustee for the individual debtor, Duque, seeks recovery from the defendant bank of $2 million under 11 U.S.C. §§ 547 and 550. Two other counts alleging a fraudulent transfer were abandoned at trial. The bank has answered and the matter was tried on June 11.
This is one of 26 similar actions against various defendants filed simultaneously by this trustee. By stipulation between the parties, the issue of insolvency on the transfer date was tried separately as to all the actions. By a separate Memorandum Decision dated June 26, 75 B.R. 829 (Bankr.S.D.Fla.1987), I have found that Duque was insolvent on the date of this transfer. (C.P. No. 20). I now find that the trustee has failed to establish the fourth element required under § 547(b)(4). This requires that the complaint be dismissed with prejudice.
The relevant events are undisputed. The dispute is as to their relative significance and the conclusions to be drawn from them. Because of their complexity and because they are undisputed, I will repeat them here only in summary form and only as directly pertinent to this decision.1
During the 21 days between April 29 and May 20, 1983 (respectively 20 days before and the day after Duque’s bankruptcy) Du-que orchestrated a bewildering series of transfers involving a number of bank accounts, five banks, two corporations and two other individuals.
For our purposes, it is significant only to note that Duque borrowed $2 million from the defendant bank, concealing from the bank his involvement by arranging that a credit-worthy family friend (Londono) borrow the money and, on the same day, April 29, loan the money to Duque for ten days, and that Duque repaid the loan through the same intermediary on May 20, the day after he filed a chapter 11 petition in bankruptcy.
Although Duque owned 55% of the stock of a holding company which owned all of the bank’s stock, he was neither an officer, director nor employee of the bank, and the Comptroller of Currency had required nine months earlier that all transactions between Duque and entities related to him be liquidated and that there be no further contact. The bank did all in its power to live up to this requirement. It knew noth*935ing of Duque’s involvement in this transaction. It acted in good faith and not unreasonably in extending the loan to Londono on his note.
On May 20 Duque repaid the borrowed $2 million to Londono from funds he personally had borrowed from another bank, and on the same day, Londono paid his note to the defendant bank. This is, of course, the $2 million transfer which Duque’s trustee seeks to recover as a preferential and, therefore, voidable transfer under § 547.
The fourth element specified for an avoidable preferential transfer is that the transfer be made:
“before the date of the filing of the petition”. § 547(b)(4).
The trustee argues that because the payment to the bank was “set in motion” before bankruptcy, it was made “before Du-que’s bankruptcy filing on May 19, 1983.” As stated by the trustee:
“The most believable version of this interesting transaction is that Duque borrowed the $2,000,000 from City National Bank on April 29, 1983, using Mr. Londono as his ‘facilitator’. This much has been acknowledged by the Eleventh Circuit Court of Appeal [sic] in Nordberg v. Carolina Sanchez, et al., 813 F.2d 1177 (11th Cir.1987). Then, after receiving a loan from Arab Banking Corporation, Duque repaid the Defendant its $2,000,000 over the period May 10 — 20, 1983, again using Mr. Londono (among other entities as described above) as his ‘conduit’ for making the payment. The Trustee demonstrated at trial that City National Bank was a creditor of Duque, and that Duque made his $2,000,000 payment to the Defendant on account of an antecedent debt ...
“From the discussion above, it is clear that the payment ‘set in motion’ by Du-que to the Defendant on May 10, 1983 was a payment made within the ‘preference period’ before Duque’s bankruptcy filing on May 19, 1983.” Trustee’s post-trial letter memorandum of June 22, 1987. pp. 5-6.
The transfer date for the purposes of § 547 is specified in § 547(e)(2)(A) to be:
“the time such transfer takes effect between the transferor and the transferee.”
I reject the trustee’s contention that the transfer took effect when it was set in motion. The transfer took effect when the bank received the $2 million payment. See Askin Marine Co. v. Conner (In re Conner), 733 F.2d 1560, 1562 (11th Cir.1984); McClendon v. Cal-Wood Door (In re Wadsworth Bldg. Components, Inc.), 711 F.2d 122, 123 (9th Cir.1983); Nixon v. I.R.S. (Matter of Her Majesties Stout Shop, Inc.), 65 B.R. 145, 147 (Bankr.M.D.Fla.1986). The trustee’s case must fail for this reason.
I am aware, of course, that § 549 permits a trustee to avoid post-petition transfers under specified circumstances. However, the trustee did not proceed alternatively under nor did he argue the applicability of that statutory section.2 He proceeded specifically and solely under §§ 547 and 550. The defendant bank did not argue or otherwise consider the applicability of § 549. I have not, therefore, pursued an issue raised by neither party, each of which is represented by experienced bankruptcy counsel. See Sylvan Beach, Inc. v. Koch, 140 F.2d 852, 861-62 (8th Cir.1944); C. Wright, A. Miller & M. Kane, Federal Practice and Procedure: Civil 2d § 2662 (1983). Presumably there was a good reason in this case to disregard § 549.
As is required by B.R. 9021(a), a separate judgment will be entered dismissing this complaint with prejudice. Costs may be taxed on motion.
. The parties have adopted a factual stipulation between another bankruptcy trustee and this defendant in that trustee’s unsuccessful effort to recover a part of this transfer for the estate of a related debtor. Nordberg v. Sanchez (In re Chase & Sanborn Corp.), Adv. No. 85-1041, (Bankr.S.D.Fla. Oct. 7, 1985). That decision was affirmed by the District Court and by the Court of Appeals, where the facts are also stated. In re Chase & Sanborn, 813 F.2d 1177 (11th Cir.1987).
. On July 7 after this decision had been prepared, but before its release, the trustee first referred to § 549 in a supplemental memorandum filed 16 days after the date counsel had accepted as a deadline for their post-trial memo-randa. I have not considered that argument. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490552/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Chief Judge.
The trustee seeks the recovery under 11 U.S.C. § 548(a)(1) or (2) and § 550 of $2.15 million transferred two days before bankruptcy by the debtor Duque to the defendant, his wife. Defendant has answered and the matter was tried on May 15. Three other counts which involved the same transaction were abandoned at trial.
This is one of 26 similar actions against various defendants filed simultaneously by this trustee. By stipulation between the parties, the issue of insolvency on the transfer date was tried separately as to all the actions. By a separate Memorandum Decision dated June 26, 75 B.R. 829 (Bankr. S.D.Fla.1987), I have found that Duque was insolvent on the date of this transfer. (C. P. No. 20). I now find that the trustee has proved his entitlement to judgment for the relief he seeks.
There is no conflicting testimony and the events material to this case are undisputed. Most of the evidence is documentary and both the debtor and the defendant invoked the Fifth Amendment.
The $2.15 million in question here was credited to the defendant’s account in a Miami bank on May 17, 1983. Hers was the only authorized signature on the account. The funds were disbursed from the account shortly thereafter over her signature to serve her purposes. The account had been opened by the debtor in early May when a major creditor, the Shawmut Bank of Boston began calling its loans to the debtor.
The money came from the loan proceeds ($4.7 million) of a personal loan to the debt- or from the Arab National Bank on May 9, 1983 and was credited the following day to *937the account of Domino Investments, Ltd., an entity wholly owned and controlled by the debtor.
On May 10 Shawmut filed a complaint seeking injunctive relief against the debtor to prevent the dissipation of the debtor’s funds. On May 10, 11 and 12 the debtor transferred the proceeds of the Arab Bank loan from the Domino account to various accounts and entities including the $2.15 million transferred to his wife’s account.1
I find that the sum at issue here was transferred by the debtor from money borrowed for his own account to his wife through an initial transferee, Domino, for the benefit of his wife, receiving no equivalent value in exchange, when the debtor was insolvent.2 It follows that the transfer is constructively fraudulent and, therefore, avoidable under § 548(a)(2) and is recoverable from the defendant under § 550(a)(1).
Alternatively, I find that the transfer was made by the debtor with actual intent to hinder, delay or defraud his creditors. I reach this finding by inference from the facts, particularly the insolvency of the debtor, the impending pressure from his creditors, the absence of consideration, the debtor’s relationship to the defendant/transferee and the pattern and timing of this and related transfers made by the debtor. See Walker v. Treadwell (In re Treadwell), 699 F.2d 1050 (11th Cir.1983).
The transfer is, therefore, also avoidable under § 548(a)(1) and recoverable from defendant on that ground.
As is required by B.R. 9021(a), a separate judgment will be entered for the trustee against the defendant for recovery of $2.15 million. Costs may be taxed on motion,
. The details of these transfers are documented. The testimony of the debtor’s chief lieutenant who assisted the debtor in arranging these transfers is also before me. In addition to verifying the debtor’s personal and direct involvement, this witness has also testified that the debtor established the account for his wife because Shawmut was "trying to close the loans”. I have disregarded this apparent hearsay and have considered only that evidence from this witness that resulted from his direct observation and participation.
. In Nordberg v. Sanchez (In re Chase & Sanborn Corp.), 813 F.2d 1177, 1181-1182 (11th Cir.1987) the court upheld this court’s finding and conclusion that the funds from the Arab Bank loan remained the property of the debtor Duque notwithstanding their brief passage through entities under his complete control. Neither this plaintiff nor this defendant were parties to that action and I do not suggest that they are in any way bound by that decision. However, the essential evidence here with respect to the transaction is the same and I have applied the legal principles as announced in Nordberg v. Sanchez. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490553/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Chief Judge.
The trustee seeks recovery of $1.43 million from defendant under 11 U.S.C. §§ 548(a)(2) and 550(a)(2) as a constructively fraudulent transfer. The trustee abandoned his remaining two counts at trial. Defendant has answered and the matter was tried May 21.
This is one of 26 similar actions against various defendants filed simultaneously by this trustee. By stipulation between the parties, the issue of insolvency on the transfer date was tried separately as to all the actions. By a separate Memorandum Decision dated June 26, 75 B.R. 829 (Bankr.S.D.Fla.1987), I have found that Domino was insolvent on the date of this transfer. (C.P. No. 12b). I now find that the trustee has failed to establish the remaining elements required under § 548(a)(2).
The trustee is required to prove (1) a transfer of an interest of the debtor in property, (2) within a year before bankruptcy, (3) for which the debtor received less than a reasonably equivalent value, and (4) that the debtor was insolvent on the date of transfer. The trustee has failed to prove the first and third elements.
The facts are essentially undisputed. On February 11, 1983, three months before bankruptcy, the debtor Domino Investments, Ltd., obtained a cashier’s check from its bank payable to it for $1.43 million. The check was endorsed by the debt- or to defendant and was delivered that day to defendant in exchange for 65,000 shares of the common stock of City National Bank of Miami. The stock was conveyed through a stock power executed in blank by the defendant and delivered to debtor in that form at the debtor’s request. The stock power was later completed by the debtor to designate Alberto Duque rather than the debtor as the assignee. Duque in his own name had previously contracted to buy the stock from defendant.
It is undisputed that the stock was then worth the $1.43 million. I find, therefore, that the debtor received reasonably equivalent value, in the form of the stock power executed in favor of the bearer, for the money it paid. The fact that the debtor's president subsequently elected to transfer the stock without consideration to the owner of all the debtor’s stock does not diminish the fact that the debtor received full consideration from defendant. If a fraudu*944lent transfer occurred, it occurred when the debtor transferred the stock to Duque.
On February 10, the day before the exchange of money for stock described above, Duque transferred $1.47 million to the debtor from three accounts which were in his name. The debtor was regularly used by him as a personal holding company through which he purchased his home, a yacht and a car. From these facts, defendant also argues that the money transferred to her was not “an interest of the debtor”, but was in fact Duque’s money and the debtor was a mere conduit of the funds.
An earlier decision in a companion bankruptcy in favor of a different trustee was recently reviewed in In re Chase & Sanborn Corp, 813 F.2d 1177, 1182 (11th Cir.1987). The court held that there is a more stringent test for fraudulent than preferential transfers to establish the debtor’s ownership of the funds transferred.
The court then said:
“In light of these facts, neither the use by the debtor of some of the funds for its own purposes nor the fact that the debt- or’s president ordered the transfer can overcome the overwhelming evidence that Duque, not Chase & Sanborn, controlled the transfer at issue. Accordingly, we conclude that the funds were not the property of the debtor, and thus the transfer is not avoidable.”
Though the facts here are not identical, they are sufficiently similar to require the same finding.
The foregoing findings make it unnecessary to consider defendant’s additional contention that Duque was the debtor’s alter ego and, therefore, the corporate veil should be disregarded as between them for the purposes of this transaction. However, I agree with the trustee that the defendant has shown no basis to disregard the corporate veil. The Supreme Court of Florida, after reviewing the decisions of this State, said:
“We conclude that the district court decision directly and expressly conflicts with decisions of this Court which hold that the corporate veil may not be pierced absent a showing of improper conduct. We decline to recede from these cases. The district court holding is quashed on this point.” Dania Jai-Alai Palace, Inc. v. Sykes, 450 So.2d 1114, 1121 (Fla.1984).
One must show that the corporation was organized or employed to mislead or defraud creditors or the corporation acted illegally. There is no such evidence here.
As is required by B.R. 9021(a), a separate judgment will be entered dismissing the complaint with prejudice. Costs may be taxed on motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490554/ | MEMORANDUM DECISION INCORPORATING FINDINGS OF FACT AND CONCLUSIONS
A. JAY CRISTOL, Bankruptcy Judge.
Bay Clubs International, Inc. (BCI) filed an adversary complaint against J.C. Investors, Ltd. (debtor) seeking recission, money damages, and set off for fraudulent representations resulting in breach of a settlement agreement under which BCI purchased both the lease to operate the Jockey Club and certain personal property used in the operation of the club.
The matter was tried to the Court on April 9, 1987, April 17, 1987 and May 7, 1987. Upon the evidence presented, the Court makes the following findings and conclusions:
1.Walter C. Troutman (Troutman) is the president and sole stockholder of J. Club, Inc., the general partner of the debt- or. The debtor operated the Jockey Club under a lease from The Jockey Club Inc., at all times material to these proceedings, until November 27, 1985, at which time BCI closed on its purchase of the debtor’s lease and related personal property.
2. Richard Stevens (Stevens) is the president of BCI. BCI entered into management and reorganization agreements with the debtor in the summer 1985, both of which terminated within a short period of time.
3. The financial condition of the debtor deteriorated further after the commencement of these Chapter 11 proceedings, and on behalf of BCI, Stevens negotiated for the purchase of the Jockey Club under a Settlement Agreement dated November 1, 1985, with Robert Larsen, the principal of The Jockey Club, Inc., the fee owner; Midwest Federal Savings & Loan Association, the mortgagee on the Jockey Club property; and Troutman and his attorney Eliot Borkson, on behalf of the debtor, as operator of the Jockey Club under a lease agreement.
4. That agreement contemplated a linked.transaction by which BCI would purchase both the fee and the lessee’s interest in the property so as to terminate a burdensome and uneconomic lease. In addition, it provided BCI would purchase all of the debtor’s other assets, including all its accounts receivable, and the assumption of certain of the debtor’s scheduled liabilities.
5. Because the cash flow available from operations of the club was insufficient to fund daily operations, the parties agreed in Section (5)(c) of the Settlement Agreement that the debtor could “invade” annual dues payments up to $61,500 to cover operating expenses until the closing. There was an express understanding made by the debtor that any sum used in excess of that figure “shall be charged against the debtor.”
6. The Settlement Agreement was confirmed by Court Order dated November 12, 1985. A closing with the debtor was held November 27, 1985, and a closing for purchase of the fee occurred on February 21, 1986.
*9487. The evidence at trial clearly reflected that although BCI had access to the books and records of the debtor prior to the signing of the Settlement Agreement on November 1, 1985, those records were incomplete and posting entries were not current. The Court finds those records were not nearly complete, accurate or current enough for BCI to have determined the true state of facts concerning the matters hereinafter discussed.
8. After the closing BCI learned the annual dues had been “invaded” by $79,818 more than the agreed $61,500 referred to in Section 15(c) of the Settlement Agreement. Trial exhibit 14 reflects the breakdown of the amount and date of the excess dues invasion. As provided in the Settlement Agreement BCI is entitled to have this sum credited in its favor and charged against the debtor.
9. After the closing various claims were asserted by creditors of the debtor as liens against the fee interest purchased by BCI. These claims were not on the schedule of debts assumed by BCI and were in fact unknown to BCI. BCI was obligated to pay these claims to avoid foreclosure against its property and seeks recovery from the debtor. The debtor claims it made no representations to BCI as to these debts; sold BCI no property subject to these claims, and that BCI did not rely on any representations made by the debtor concerning these claims. Each argument is rejected. First, the Settlement Agreement clearly spells out that BCI was purchasing both the fee and the leasehold estates with the intention of merging the leasehold into its fee ownership. Both pru-chases were consideration for the deal, although each came from a different seller. As such, the debtor’s representations in the Settlement Agreement concerning debts assumed by BCI were false and known to be so by the debtor, since the evidence at trial showed the debtor knew of the mechanic’s lien claim asserted by Carlson Construction Company the lien claim of the Condominium Associations and the German investors; and the mortgage lien claim against the Troutman Villa.
10. As a result of these liens, BCI paid $24,385 to Carlson Construction Company, as shown in trial exhibit 19; $46,987.81 to the Condominium Association as shown in trial exhibit 16; $52,614.88 to the German investors, as shown in trial exhibit 17; and $14,458.98 to the mortgagee of the Trout-man Villa, as shown in trial exhibit 18.
11. Because these claims were enforceable as liens against property which the debtor knew BCI was purchasing in reliance on the representations contained in the Settlement Agreement, and because these claims were not in the schedule of assumed liabilities, BCI’s reliance was justified. BCI was damaged by these omissions.
12. In addition to the misrepresentations noted above, the debtor also misrepresented the sale to BCI of an account receivable in the name of Paul Anderson for $162,133.25, representing a note obligation Anderson incurred when he became a limited partner of the debtor, and an account receivable in the name of Troutman for $21,120.23. At trial the more credible and believable evidence proved that Anderson’s note had been paid off by the debtor as consideration for his sale back to the debt- or of his limited partnership interest. The debtor knew his note was paid but failed to advise BCI of this fact. The debtor represented the Anderson note account receivable to be a valid debt when it knew otherwise. The evidence as to the Troutman receivable was even more egregious. Upon demand being made for payment of this debt, Eliot Borkson wrote (Trial exhibit 4) the obligation had been satisfied prior to closing, and that it was not canceled through a clerical oversight. The Court rejects this as inherently improbable.
13. In addition, BCI claimed the right to offset sums paid to DeWoody and Company, CPA’s, for preparation of the debtor’s partnership tax returns for 1985. Eliot Borkson, acknowledged BCI’s right to offset these sums against the debtor (trial exhibit 13, letter dated August 14, 1986). The testimony proved was that $5,000 had been paid by BCI to DeWoody and Company for preparation of the returns.
*94914. The Court previously announced it would grant the debtor’s motion for directed verdict as to those claims asserted in Section 6(h) of the adversary complaint, representing sums voluntarily paid by BCI to unsecured creditors of the debtor which were not expressly assumed by BCI.
CONCLUSION
1. The Court has jurisdiction over the parties and the subject matter of this adversary complaint.
2. The plaintiff has proven its right to a credit in its favor for $79,818, representing the excess over $61,500 of annual member dues used by the debtor, as provided by Section 15(c) of the Settlement Agreement. Plaintiff is entitled to set off this sum against any monies due or to become due to the debtor and Troutman under the terms of Section 15(g), requiring indemnification.
3. The plaintiff has proven its right to a credit in its favor of $5,000, representing sums paid to DeWoody and Company for preparation of the debtor’s 1985 tax returns. Plaintiff is entitled to set off this sum against any monies due or to become due the debtor and Troutman under the terms of Section 15(g), requiring indemnification.
4. The plaintiff has proven its right to a credit in its favor of $162,133.65, representing the amount scheduled as the Paul Anderson account receivable; and $21,-120.23, representing the amount scheduled as the Troutman account receivable. The debtor materially misrepresented these sums as assets being sold to BCI in the Settlement Agreement when it knew they were not valid accounts receivable. Plaintiff reasonably relied upon these representations to its detriment. Plaintiff is entitled to set off the sum of $182,253.88 against any monies due or to become due the debtor and Troutman under the terms of Section 15(G), requiring indemnification.
5. The plaintiff has proven its right to a credit in its favor of $24,385.30 for sums paid to Carlson Construction Company to satisfy a mechanic’s lien against the Jockey Club property. This sum was paid by plaintiff upon an obligation of the debtor which was not an assumed debt. The Court finds the debtor knew the claim could be asserted against the property being sold to BCI under the terms of the Settlement Agreement, and withheld this information. The Court further finds BCI did not know of this lien claim prior to the Settlement Agreement. Plaintiff is entitled to set off the sum of $24,385.30 against any monies due or to become due the debtor and Troutman under the terms of Section 15(G) requiring indemnification.
6. The Plaintiff has proven its right to a credit in its favor of $46,987.81, representing sums paid by it to the condominium associations for overcharges by the debtor, in order to avoid lien claims against the Jockey Club property. This sum was paid by plaintiff upon an obligation of the debt- or which was not an assumed indebtedness. The Court finds the plaintiff is entitled to a set off of the sum of $46,987.81 against any monies due or to become due the debt- or and Troutman under the terms of Section 15(G), requiring indemnification.
7. The plaintiff has proven its right to a credit in its favor of $52,614.88, representing sums paid by it to the German investors for a debt due by the debtor, in order to avoid lien claims against the Jockey Club property. This sum was paid by plaintiff upon an obligation of the debtor which was not an assumed indebtedness. The Court finds the plaintiff is entitled to a set off of the sum of $52,614.88 against any monies due or to become due the debtor and Trout-man under the terms of Section 15(G), requiring indemnification.
8. The plaintiff has not proven its right to a credit in its favor of $14,458.98, representing sums paid by it to the mortgagee of the Troutman Villa for a debt due by the debtor in order to avoid foreclosure against the Jockey Club property.
9. The Court finds plaintiff is not entitled to recission of the Settlement Agreement, but is entitled to money damages for breach of the agreement and material misrepresentations by way of offset against a,ny sums due under Section 15(G) of the *950Settlement Agreement, in the amounts set out above.
As is required by B.R. 9021(a), a separate judgment will be entered in accordance with this Memorandum Decision. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490555/ | ORDER ADJUDICATING JULES KRAS-NER AND HOSKINS MOTOR TREND LEASING TO BE IN CONTEMPT, PROVIDING FOR SANCTIONS TO BE IMPOSED SUBJECT TO PURGING BY COMPLIANCE WITH COURT RULING
A. JAY CRISTOL, Bankruptcy Judge.
On July 22, 1987 a hearing was held pursuant to the order entered July 16, 1987 requiring Jules Krasner and Motor Trend Leasing to show cause why they should not be held in contempt and sanctioned accordingly by reason of their willfully violating the automatic stay imposed in this cause pursuant to 11 U.S.C. § 362 by removing and failing to return the Ford Aerostar Mini-van referred to in the motion of Gui L.P. Govaert, trustee herein, for order to show cause filed on July 16, 1987. The court has considered the testimony of Jules Krasner and Gui L.P. Govaert, as well as admissions made in open court at the hearing and finds that respondent referred to as Motor Trend Leasing is, in fact, known as Hoskins Motor Trend Leasing, that Jules Krasner is a duly authorized officer and agent of Hoskins Motor Trend Leasing, that Krasner on behalf of Hoskins Motor Trend Leasing caused the Ford Ae-rostar Mini-van to be repossessed without any authorization and failed to return it upon demand by the trustee, that Krasner was on telephone notice that the order for relief had been entered in this case, that Govaert had been appointed trustee and that the automatic stay prohibited the repossession of the Ford Aerostar Mini-van without authorization and that after the Mini-van had been taken by the respondents they were given an opportunity to return it before the trustee’s motion for order to show cause was filed, all of which the court finds to be in willful violation of 11 U.S.C. § 362. In open court on July 22, 1987 the court orally announced its ruling that Jules Krasner and Hoskins Motor Trend Leasing were found to be in willful violation of 11 U.S.C. § 362 and as punishment for such willful violation and civil contempt the court announced the imposition of fines against Jules Krasner and *951Hoskins Motor Trend Leasing in the amount of $25,000 and sentenced Jules Krasner to ten (10) days confinement subject, however, to Hoskins Motor Trend Leasing and Jules Krasner purging themselves of such contempt by returning the vehicle to the trustee before 5:00 p.m. on July 22, 1987. The court has been advised by the trustee through his counsel that the Ford Aerostar Mini-van was, in fact, returned to the trustee within the time set forth. By reason of the foregoing, it is,
ORDERED, as follows:
1. Hoskins Motor Trend Leasing and Jules Krasner are held to be in willful violation of 11 U.S.C. § 362 by reason of their removing the Ford Aerostar Mini-van from the possession, custody and control of the trustee without authorization and failing to return the same and are hereby held to be in civil contempt.
2. As punishment for such willful violation and civil contempt the court has imposed a fine of $25,000 against Jules Kras-ner and Hoskins Motor Trend Leasing and has sentenced Jules Krasner to ten (10) days confinement. However, the respondents having purged themselves of the contempt by returning the vehicle prior to 5:00 p.m., July 22,1987 and prior to the entry of this order, the payment of said fine and the sentence of confinement are hereby suspended.
3. The court reserves jurisdiction to consider the assessment of actual damages, including costs, attorneys’ fees, and punitive damages as allowable under 11 U.S.C § 362(h) upon application for such by the trustee. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493895/ | ORDER DENYING REGION BANK’S MOTION TO ALLOW LATE CLAIM
JERRY A. FUNK, Bankruptcy Judge.
This case came before the Court upon Region Bank’s Motion to Allow Late Claim. Upon Findings of Fact and Conclusions of Law separately entered, it is
ORDERED:
*363Region Bank’s Motion to Allow Late Claim is denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494779/ | OPINION REGARDING DAMAGES, AFTER ENTRY OF DEFAULT JUDGMENT AGAINST DEFENDANTS AS TO LIABILITY
THOMAS J. TUCKER, Bankruptcy Judge.
I. Introduction and background
This adversary proceeding is before the Court on the issue of damages. On March *21419, 2012, the Court entered an Order granting a default judgment in favor of Plaintiff and against Defendants, as to liability (the “Default Order”).1 In the Default Order, the Court entered a default judgment “with respect to liability, on the claim stated in Plaintiffs amended complaint filed February 17, 2012 (Docket # 20).” The Default Order required Plaintiff, no later than March 23, 2012, to “file an affidavit and an itemization of all damages claimed from Defendant’s violation of the discharge injunction under 11 U.S.C. § 524(a)(2).” The Order required Defendants to file, no later than March 30, 2012, any objections “to the amount of damages requested by Plaintiff, and any objections to the Plaintiffs affidavit and itemization regarding damages.” The Default Order further stated that if any timely objections were filed to the Plaintiffs affidavit and itemization, “the Court will consider the Plaintiffs affidavit and itemization and the Defendant’s objections, and decide what further proceedings, if any, are necessary to enable the Court to enter a final judgment regarding damages.”
Plaintiff timely filed his affidavit and itemization of damages, on March 23, 2012.2 Defendants have not filed any objections to the Damages Itemization, timely or otherwise.3
The compensatory damages sought by Plaintiff are limited to the attorney fees incurred by Plaintiff because of the Defendants’ violation of the discharge injunction under 11 U.S.C. § 524(a)(2). In the Damages Itemization, Plaintiff seeks such compensatory damages in the amount of $16,837.50. Plaintiff also asks for punitive damages of $10,000.00.
II. Jurisdiction
This Court has subject matter jurisdiction over this adversary proceeding under 28 U.S.C. §§ 1334(b), 157(a) and 157(b)(1), and Local Rule 83.50(a) (E.D. Mich.). This proceeding is a core proceeding under 28 U.S.C. § 157(b)(2)(0). This proceeding is also “core” because a contempt proceeding based on a violation of the § 524(a)(2) discharge injunction is an action “created or determined by a statutory provision of title 11.” See generally Allard v. Coenen (In re Trans-Industries, Inc.), 419 B.R. 21, 27 (Bankr.E.D.Mich.2009).
III. Discussion
The Court has reviewed Plaintiffs Damages Itemization, and concludes that a default judgment should be entered against Defendants in the amount of $16,837.50, jointly and severally, for compensatory damages. But the Court declines to award any punitive damages, for the reasons stated in this opinion.
A. Compensatory damages
1. Overview of relevant law
The Court begins with an overview of the law governing Plaintiffs claim. In this adversary proceeding, Plaintiff seeks relief for Defendants’ violations of the discharge injunction contained in Bankruptcy Code § 524(a)(2). That section states:
(a) A discharge in a case under this title—
(2) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset *215any [debt discharged under section 727] as a personal liability of the debt- or, whether or not discharge of such debt is waived[.]
11 U.S.C. § 524(a)(2). The Sixth Circuit has held that no private right of action exists under 11 U.S.C. § 524 for a violation of the discharge injunction. Pertuso v. Ford Motor Credit Co., 233 F.3d 417, 422-23 (6th Cir.2000). Rather, bankruptcy courts enforce § 524 through civil contempt proceedings. See id. at 422; see also Gunter v. Kevin O’Brien & Assocs. Co. LPA (In re Gunter), 389 B.R. 67, 71 (Bankr.S.D.Ohio 2008) (citing Pertuso, 233 F.3d at 421) (“[A] debtor’s only recourse for violation of the discharge injunction is to request that the offending party be held in contempt of court.”).
Bankruptcy courts have civil contempt powers. Those powers “flow from Bankruptcy Code § 105(a) and the inherent power of a court to enforce compliance with its lawful orders.” In re Walker, 257 B.R. 493, 496 (Bankr.N.D.Ohio 2001) (citations omitted). The United States Court of Appeals for the Sixth Circuit has held that:
In a civil contempt proceeding, the petitioner must prove by clear and convincing evidence that the respondent violated the court’s prior order.
A litigant may be held in contempt if his adversary shows by clear and convincing evidence that “he violate(d) a definite and specific order of the court requiring him to perform or refrain from performing a particular act or acts with knowledge of the court’s order.”
It is the petitioner’s burden ... to make a prima facie showing of a violation, and it is then the responding party’s burden to prove an inability to comply....
[T]he test is not whether [respondents] made a good faith effort at compliance but whether “the defendants took all reasonable steps within their power to comply with the court’s order.”
[G]ood faith is not a defense to civil contempt. Conversely, impossibility would be a defense to contempt, but the [respondent] had the burden of proving impossibility, and that burden is difficult to meet.
Glover v. Johnson, 138 F.3d 229, 244 (6th Cir.1998) (citations omitted); see also Liberie Capital Grp., LLC v. Capwill, 462 F.3d 543, 550 (6th Cir.2006); Elec. Workers Pension Trust Fund of Local Union # 58, IBEW v. Gary’s Elec. Serv. Co., 340 F.3d 373, 379 (6th Cir.2003).
In the context of a violation of the discharge injunction, this means that the act must have been willful. The question of whether the violation is willful is based on whether the creditor intended the acts that constituted the violation. The standard does not require proof that the creditor deliberately violated the injunction. Thus, a debtor who alleges a violation of § 524(a)(2) must establish by clear and convincing evidence (1) the creditor violated the discharge injunction and (2) the creditor did so with actual knowledge of the injunction.
In re Frambes, No. 08-22398, 2012 WL 400735, at *5 (Bankr.E.D.Ky. Feb. 7, 2012) (citations omitted).
If a bankruptcy court finds a creditor in civil contempt for violating the discharge injunction, the court may award the debtor compensatory damages, including attorney fees and costs. In re Johnson, 439 B.R. 416, 428 (Bankr.E.D.Mich.2010), aff'd on other grounds, No. 10-14292, 2011 WL 1983339 (E.D.Mich. May 23, 2011); Gunter, 389 B.R. at 71-72; In re Perviz, 302 B.R. 357, 370 (Bankr.N.D.Ohio 2003). As discussed below in Part III-B of this *216opinion, however, there is a split of authority on the question whether bankruptcy courts may award punitive damages for a violation of the discharge injunction.
2. The compensatory damages sought in this case
In this case, Defendants’ liability for violations of the discharge injunction, as alleged in Plaintiffs Amended Complaint, has been established by the Default Order. Having reviewed the itemization of attorney fees contained in Plaintiffs Damages Itemization, the Court finds and concludes that the attorney fee amount itemized and claimed as damages by Plaintiff&emdash;$16,837.50&emdash;is reasonable, and properly reflects the damages incurred by Plaintiff due to Defendants’ violations of the discharge injunction.
And the Court notes that having previously been defaulted by the Court as to liability, Defendants now also have defaulted as to the amount of compensatory damages, by failing to file any timely objection to the amount of damages itemized by Plaintiff.
Accordingly, the Court will enter a default judgment against Defendants in the amount of $16,837.50, jointly and severally, for compensatory damages.
B. Punitive damages
Plaintiff also seeks punitive damages of $10,000.00. But the Court will not award any punitive damages, for the following reasons.
First, the Court agrees with those cases that have held that bankruptcy courts may not award a debtor punitive damages based on a violation of the discharge injunction, because (1) under the law of contempt, punitive damages can only be awarded for criminal contempt, not civil contempt; and (2) bankruptcy courts lack criminal contempt powers. See, e.g., Griffith v. Oles (In re Hipp, Inc.), 895 F.2d 1503, 1511 (5th Cir.1990) (footnote omitted) (“[W]e hold that bankruptcy courts do not have inherent criminal contempt powers, at least with respect to the criminal contempts not committed in (or near) their presence.”); In re Lawrence 164 B.R. 73, 76 (W.D.Mich.1993) (“[T]his Court is persuaded by the reasoning in Hipp and the Sixth Circuit’s apparent endorsement of Hipp in [Rafoth v. Nat’l Union Fire Ins. Co. (In re Baker & Getty Fin. Servs., Inc.), 954 F.2d 1169 (6th Cir. 1992) ] ... and holds that, as a matter of law, the bankruptcy court did not have jurisdiction to conduct the criminal contempt hearing and enter its order.”); In re Ho, No. 11-01512, 2012 WL 405092, at *2 n. 4 (E.D.La. Feb. 8, 2012) (holding that the bankruptcy court had no criminal contempt power); Burton v. Mouser (In re Burton), No. 08-1019, 2010 WL 996537, at *4 (Bankr.W.D.Ky. March 16, 2010) (“The Court can impose remedial and compensatory damages through a finding of civil contempt, but not punitive sanctions for a violation of the injunction.”); but see Nicholas v. Oren (In re Nicholas), 457 B.R. 202, 225 (Bankr.E.D.N.Y. Aug. 3, 2011) (Bankruptcy courts can award a debtor “actual damages, attorney’s fees and punitive damages” for violation of the discharge injunction.); In re Wallace, No. 09-bk-594-PMG, 2011 WL 1335822, at *7 (Bankr.M.D.Fla. April 5, 2011) (internal quotation marks and citations omitted) (“Section 105 constitutes express authority to award punitive damages for contempt to the extent necessary or appropriate to carry out the provisions of the Bankruptcy Code. Section 105 creates a statutory contempt power distinct from the court’s inherent contempt powers.”).
Second, even if this Court did have the power to award punitive damages for a *217violation of the discharge injunction, it would not do so under the circumstances of this case. In those jurisdictions where bankruptcy courts have held that they have power to award punitive damages for violation of the discharge injunction, “[p]u-nitive damages are typically awarded in cases where there is particularly egregious creditor misconduct.’ ” Russell v. Chase Bank USA NA (In re Russell), 378 B.R. 735, 744 (Bankr.E.D.N.Y.2007); see also Wallace, 2011 WL 1335822, at *7-8 (discussing the different standards courts have adopted for awarding punitive damages). The Court finds that Defendants’ violations of the discharge injunction in this case, while subject to civil contempt, do not rise to the level where they can reasonably be called “particularly egregious.”
IV. Conclusion
For the reasons stated in this opinion, the Court will enter a default judgment in favor of Plaintiff and against Defendants, jointly and severally, in the amount of $16,837.50, plus interest at the federal statutory rate under 28 U.S.C. § 1961 from the date of judgment, plus costs.
OPINION AND ORDER DENYING DEFENDANTS’ MOTION FOR RECONSIDERATION
This adversary proceeding is before the Court on “Defendants’ Motion to Set Aside Default Judgment,” filed on March 30, 2012 (Docket #31, the “Motion”), which this Court construes as a motion for reconsideration of, and for relief from, the March 19, 2012 Order Granting Default Judgment (Docket # 28, the “Default Judgment”), and
The Court concludes that neither a response by Plaintiff nor a hearing is necessary on the Motion, and that the Motion should be denied, for the following reasons.
First, the Court finds the Motion fails to demonstrate a palpable defect by which the Court and the parties have been misled, and that a different disposition of the case must result from a correction thereof. See Local Rule 9024 — 1(a)(3).
Second, the Court finds that the factual allegations in the Motion, even if assumed to be true, and the legal arguments in the Motion, do not establish excusable neglect under Fed.R.Civ.P. 60(b)(1), Fed R.Bankr.P. 9024, or any other valid ground for relief from the Default Judgment.
Third, to the extent the Default Judgment was caused by neglect or mistake by Defendants’ attorney, rather than personally by Defendant Clarence Bennett, any such neglect or mistake by Defendants’ attorney is chargeable to both of the Defendants, for purposes of determining whether any such neglect or mistake is excusable. See, e.g., Pioneer Investment Services Co. v. Brunswick Associates Limited Partnership, 507 U.S. 380, 396-97, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993) (in determining whether “excusable neglect” is shown, “the proper focus is upon whether the neglect of [the movants] and their counsel was excusable” (italics in original)).
Fourth, the circumstances described in the Motion are not sufficient to establish that defense counsel’s neglect or mistake can be deemed “excusable” under Civil Rule 60(b)(1). See, e.g., Pioneer Investment Services Co. v. Brunswick Associates Limited Partnership, 507 U.S. at 398, 113 S.Ct. 1489 (“[i]n assessing the culpability of respondent’s counsel, we give little weight to the fact that counsel was experiencing upheaval in his law practice at the time of the bar date.”); Symbionics Inc. v. Ortlieb, 432 Fed.Appx. 216, 2011 WL 2076335 (4th Cir. May 23, 2011) at *3 *218(“[w]e find nothing extraordinary or unusual about counsel’s calendaring error that should relieve Symbionics of its duty to comply with the time limit of Rule 4(a)(1).... [T]his neglect is precisely the sort of ‘run-of-the-mill inattentiveness by counsel’ that we have consistently declined to excuse in the past.”); Allied Domecq Retailing USA v. Schultz (In re Schultz), 254 B.R. 149, 153-54 (6th Cir. BAP 2000) (“courts have consistently held that ‘clerical or office problems’ are simply not a sufficient excuse for failing to file a notice of appeal within the ten day period.’ ”) (citing numerous cases).
As stated by the Court on the record during the March 19, 2012 final pretrial conference, the Court entered the Default Judgment because (1) neither of the Defendants nor their counsel attended the final pretrial conference; and (2) Defendants and their counsel failed to cooperate in the preparation of a proposed joint final pretrial order, see L.B.R. 7016-l(c). Defense counsel knew of the date and time of the March 19 final pretrial conference at all times from January 30, 2012 forward, and knew of the requirements of L.B.R. 7016-1 at all times.1 And the Scheduling Order entered on January 30, 2012 (Docket # 14) specifically required the parties to file and submit a proposed joint final pretrial order, “prepared in accordance with L.B.R. 7016-1,” no later than March 14, 2012 (the Wednesday before the March 19, 2012 final pretrial conference.)2 The Court’s decision to enter the Default Judgment was correct.
For these reasons,
IT IS ORDERED that the Motion should be, and is, DENIED.3
. Docket # 28.
. Docket # 30 (the “Damages Itemization”).
.Defendants filed a motion to set aside the Default Order, on March 30, 2012, which this Court denied in its Opinion and Order filed on April 2, 2012. (Docket ## 31, 32).
. Defendants’ counsel knew these things from the Court's local rules, from attending the January 30, 2012 scheduling conference, and from the provisions of the Scheduling Order entered that same day (Docket # 14).
. The Court notes that the Motion offers no excuse whatsoever for Defendants' counsel’s failure to cooperate with Plaintiff's counsel in preparation of a proposed joint final pretrial order, in the days leading up to the March 14, 2012 filing deadline.
.The Court notes that Defendants did not file any objection to the amount of damages requested by Plaintiff, or to Plaintiff’s itemization regarding damages. Any such objections by Defendants were due to be filed no later than March 30, 2012. (See Order Granting Default Judgment, etc., filed March 19, 2012 (Docket # 28) at ¶ 3(C)). Under the terms of the March 19, 2012 Default Judgment, then, the Court will now consider Plaintiff's itemization, and will either set a hearing on it (if the Court deems a hearing to be necessary) or enter an appropriate judgment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490251/ | MEMORANDUM AND ORDER DENYING DEBTOR’S MOTION FOR NEW TRIAL
EDWARD J. RYAN, Bankruptcy Judge.
On the 10th day of March, 1986, Stephen M. Yamin, Involuntary Debtor, herein, filed his motion for new trial in the above-styled and numbered involuntary Chapter 7 proceeding. Debtor’s application set forth in pertinent part the following:
“1. This Involuntary Chapter 7 proceeding was filed herein in July, 1984, by three (3) petitioning creditors, to-wit: International Trading Company, Dan Moody, and Rosemary Ellefson. After a trial on the merits, an Order for Relief was signed by the Court on February 27, 1986, and docketed on February 28,1986. Same was entitled Decision and Memorandum on Settlement of Proposal Findings of Fact and Conclusions of Law. Said Order found Stephen M. Yamin, Involuntary Debtor, hereinafter called “Movant” to be a debtor for which an order for relief should be entered on the grounds that he was not paying his debts as they matured.
2. Movant would show unto the court that the court erred as a matter of law in ruling that Movant had failed to pay his debts as they matured. The evidence introduced at trial showed that Movant had paid over $1,000,000 worth of debts and that the remaining indebtednesses were relatively small. Evidence introduced at the trial also showed that Debt- or had worked out certain payment agreements with other of his creditors. Therefore, the petitioning creditors failed to prove as a matter of law that Movant was not paying his debts as they matured. As a result the request for Order for Relief should have been denied.
3. Movant therefore requests that this Court enter its order for New trial on the merits based upon the grounds set out above.
WHEREFORE, PREMISES CONSIDERED, STEPHEN M. YAMIN, Involuntary Debtor, respectfully prays that this court grant his Motion for New Trial in the above-styled and numbered Involuntary Chapter 7 proceeding for the reasons set out herein.”
Debtor failed to provide this court with any citations of authorities in his motion for new trial.
By response the petitioning creditors argue that debtor’s motion for new trial *10should not be granted because debtor is merely trying to relitigate old matters, which have already been decided at trial.
There was no error of law that would require a new trial on the merits, as requested by debtor. The evidence clearly showed longstanding, substantial debts owed by debtor that were not being paid as they became due, despite various negotiations and settlement agreements for alleged payments of those debts to the petitioning creditors.
Debtor’s motion for new trial is denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490252/ | OPINION
VINCENT J. COMMISA, Bankruptcy Judge.
The facts in this matter are as follows:
Water Gap Village [hereinafter the “Debtor”], a Limited Partnership of the State of New Jersey, filed a petition for reorganization under Chapter 11 of the Bankruptcy Code [hereinafter the “Code”], on February 16, 1983. Since the time of its Chapter 11 filing, the Debtor has operated its business as a debtor-in-possession. The Debtor’s business involves the ownership and operation of residential townhouse units, which were constructed by the debt- or and are located in the Borough of Delaware Water Gap, Monroe, Pennsylvania. Since construction of the townhouse complex in 1977, the Debtor has been engaged in the business of renting apartments in the townhouse units. The complex, situated on approximately 9.25 acres, consists *24of one hundred (100) one and two-bedroom rental units.
The Debtor entered into a mortgage with Chemical Bank dated August 15, 1977. Chemical Bank lent the Debtor $2,415,000 to construct the Water Gap complex. The terms of said loan included an interest rate of 9% securing the mortgage and note which covered all realty, equipment and fixtures. The United States Department of Housing and Urban Development [hereinafter “HUD”] endorsed and insured the note pursuant to the National Housing Act, 12 U.S.C. Sec. 1701, et seq. HUD also guaranteed permanent financing for forty (40) years at the 9% interest rate.
In 1979, Water Gap defaulted under the terms of the mortgage and Chemical Bank assigned the mortgage to HUD. Thus, HUD holds a mortgage, mortgage note and security agreement.
On June 17, 1983, HUD commenced an adversary proceeding against the Debtor seeking relief from the automatic stay provision of the Code, 11 U.S.C. Sec. 362, et seq. HUD alleged in its Complaint that it held a secured claim in the amount of $2,962,835.71 against the Defendant-Debtor as of February 18, 1983. (Plaintiff’s Complaint, Par. 3). Moreover, HUD alleged that Defendant-debtor was unable or unwilling to provide adequate protection to HUD thereby decreasing the value of HUD’s interest in the property (Plaintiff’s Complaint, Par. 5). The Court denied HUD’s requested relief. However, on September 23, 1983, the Court ordered the Debtor to pay HUD monthly: one-twelfth (V12) of the annual Real Estate Taxes due on the Water Gap project and one-twelfth (V12) of the annual interest on $1,300,000, at the rate of thirteen percent (13%).
On September 19, 1983, the Debtor filed its Plan of Reorganization [hereinafter the “Plan”] and Disclosure Statement. On December 6, 1983, HUD filed Objections to The Reorganization Plan. HUD’s objections to the Plan and the Plan’s confirmation were based on the following assertions:
(A) Management — The Debtor did not make disclosure of the proposed post-confirmation management as required by the Code under Section 1129(a)(5);
(B) Liquidation — The Plan provided HUD with property of value less than it would have received if the Debtor was liquidated and therefore the Plan was not in compliance with the requirements of Section 1129(a)(7);
(C) Impairment — HUD as a member of two classes — Class Three-Secured Claims (wherein HUD is the Class’s sole member) and Class Five-General Unsecured Claims (wherein HUD’s claim exceeds % of the unsecured debt) — finds its claim in each class impaired by the Plan. Further, HUD claims real estate taxes or a priority claim pursuant to Class Two which is not listed and therefore appears to be impaired and since HUD does not retain its pre-petition legal, equitable and contractual rights, it alleges that its interests and claims are impaired under Section 1124 of the Code. Thus, HUD finds the Plan unacceptable under Section 1129(a)(8) of the Code;
(D) Fair and Equitable — HUD urges that the present value of the New Mortgage offered by the Plan is less than the present value of the real estate collateral. This provision in the Plan renders it neither fair nor equitable under Section 1129(b)(2)(A)(i)-(II). So, assuming arguendo the Plan satisfies the requirements of Section 1129(a) of the Code, HUD's position is that it still may not be confirmed as it falls short of the fair and equitable requirement of Section 1129(b);
(E) Feasibility — HUD alleges that the Plan does not meet the feasibility standards of Section 1129(a)(ll) of the Code because the Plan relies upon income not available to the Debtor such as: excess rents, tenant security deposits and application fees. Moreover, the Plan requires sources of funds whose availability is questionable, such as cash calls to limited partners. Further, HUD asserts that the Plan is not feasible from a regulatory standpoint because of past problems encountered with the Debtor and DHC Realty Corp. [herein*25after “DHCR”], the general partner of the Debtor and the management agent. Said problems, HUD maintains, will permit it to deny proposed rent schedules and may result in further regulatory and administrative action against the Debtor or DHCR;
(P) Cram Down — HUD alleges that the Plan does not comply with any of the requirements of Section 1129(a) of the Code other than paragraph (8), and consequently the Plan cannot be confirmed or “cram(ed) down” over the dissenting class by the Court under Section 1129(b)(1) of the Code. HUD specifically asserts that the Plan requires HUD to originate the Plan’s proposed New Mortgage; something that HUD contends it has no statutory authority to do. Similarly, HUD contends that the Plan’s proposed New Mortgage is not eligible for any currently authorized program with a subsidized interest rate and therefore HUD cannot be induced (by the Court) to fashion a program to implement the Debtor’s Plan that would be in contravention of HUD’s statutory authority;
(G) Good Faith — HUD alleges that neither the Petition nor the Plan were filed in good faith as required by Section 1129(a)(3) of the Code. HUD contends that the Debt- or filed the Petition immediately before HUD was to exercise regulatory and administrative powers in the form of a request that the Debtor produce its books and records for examination pursuant to HUD’s regulatory powers under the National Housing Act, 12 U.S.C. Section 1715-/(d)(3) and the Regulatory Agreement between HUD and the Debtor dated August 25, 1977, Para. 9(c). HUD alleges that it gave advance notice to, and on February 17, 1983, visited the offices of, DHCR for the purpose of inspecting the Debtor’s books and records. HUD alleges that the Debtor requested HUD employees to leave the DHCR offices after approximately 15 minutes on counsel’s advice. On February 18, 1983 the Debtor filed its Petition for Reorganization. HUD further alleges as indicia of lack of good faith the Debtor’s refusal, for several months, to make available its books and records notwithstanding the exemption from the Automatic Stay provision of the Code, Section 362(b)(4) for regulatory actions of governmental units.
After the foregoing objections were filed, modifications were made to both the Plan and Disclosure Statement. On March 5, 1983, the Debtor filed a Modified Plan of Reorganization and on March 26, 1984 the Court entered an Order approving the Fourth Modified Disclosure Statement. Subsequently, balloting occurred and Class Four, an impaired class as designated under the Plan voted by the number required Section 1126(c) of the Code to accept the Plan.
Meanwhile, HUD filed Supplemental Objections to the Reorganization Plan. Further, on March 26, 1984 HUD filed objections to the Modified Reorganization Plan and on May 18, 1984 filed Supplement to Objections to the Modified Reorganization Plan.
On March 14, 1985, confirmation hearing on the Plan was held. The Court heard testimony and oral argument and reserved decision while requesting legal memoranda on the effect of In re Braniff Airways, Inc., 700 F.2d 935 (5th Cir.1983) on confirmation of the Plan.
The issue the Court addresses herein is whether HUD’s regulatory authority— which HUD Proposes to exercise by approving or disapproving management under the Plan — can be affected by the Court pursuant to the “cram down” provisions of the Code.
The case central to the issue at hand and relied upon by HUD is Braniff, supra. Therefore, a review of Braniff is in order here.
Braniff involved the attempt of Braniff Airways, Inc. to sell its “landing slots” and airport lease rights to another carrier (PSA). Prior to Braniff’s Chapter 11 filing, the Federal Aviation Administration (hereinafter “FAA”) due to the Air Traffic Controllers' strike, determined the maximum safe number of hourly arrivals at certain airports and allocated hourly “landing slots” among the airlines using the airports. Following Braniff’s Chapter 11 fil*26ing, the FAA distributed to other carriers more than 100 of 450 slots previously allocated to Braniff. Subsequently, the Unsecured Creditors’ Committee filed an application with the Bankruptcy Court to determine whether the FAA had violated the automatic stay under Section 362 of the Code when it allocated the former Braniff slots. The issue of whether the District Court (which earlier had approved the Braniff-PSA transaction in its review of the Bankruptcy Court’s approval) had the power to order the FAA to allocate certain landing slots at various airports to Braniff so that Braniff could consummate its agreement with PSA, was decided by the Fifth Circuit Court of Appeals.
The Court of appeals noted that under the Federal Aviation Act, 49 U.S.C. Section 1301 et seq. [hereinafter the “Act”], the FAA was empowered to regulate the use of navigable airspace to insure the safety of aircraft and the efficient utilization of such airspace and that also under the Act, the FAA had “unquestionable authority for all aspects of airspace management.” 700 F.2d at 941, citing S.Rep. No. 1811, 85th Cong., 2d sess. 14 (1958). The Court of appeals further mentioned that the Act was passed for the purpose of centralizing in one authority the power to make rules for the safe and efficient use of the nation’s airspace. 700 F.2d at 941, quoting Air Line Pilots Association, International v. Quesada, 276 F.2d 892, 894 (2d Cir.1960). Moreover, the Fifth Circuit found it noteworthy that FAA regulations, in addition to insuring the safety of aircraft and the efficient use of such airspace, must take cognizance of such policies as national defense requirements as well as the encouragement of a competitive air transportation system and generally must regulate in response to the needs of the public. 700 F.2d at 941.
The Fifth Circuit dismissed Braniff’s argument that since the landing slots are property of the estate under Sec. 105 of the Code, the Bankruptcy Court was empowered to issue whatever orders it thinks necessary to protect the property, specifically, the landing slots. The Court concluded that the slots were restrictions on the use of property, specifically, airplanes; not property in themselves. 700 F.2d at 942. The Court went a step further by saying that assuming arguendo the landing slots did give rise to some limited proprietary interest which, in turn, would confer jurisdiction over them by the Bankruptcy Court, it was well-established by a long line of authority that any transfer of a state or federal license or certificate is subject to the continuing jurisdiction and approval of the agency. Id.
The Fifth Circuit concluded its decision by stating:
At most, a determination that the slots were “property” might allow the debtor to transfer them to another carrier for purposes of the bankruptcy laws, but approval of that transfer under the Federal Aviation Act would rest solely with the FAA. Id.
HUD is an executive branch department of the United States Government. 42 U.S.C. Sec. 353(a). The department is administered under the supervision and direction of the Secretary of Housing and Urban Development [hereinafter the “Secretary].” Id. The National Housing Act [hereinafter “NHA”] is administered by HUD. 12 U.S.C. Sec. 1701 et seq.
In the instant matter, HUD asserts that it is primarily a mortgage insurer as opposed to a mortgage lender. (Post Confirmation Hearing Memorandum of HUD), p. 2). HUD also offers that it is a regulated statutory agency which can transact business only by statutory authority. (Transcript, Adj. Hearing Confirmation of Plan, 53:13-19). HUD further claims that before it achieved its present status of a creditor as a result of the assignment of the mortgage from Chemical Bank, it regulated the Debtor by way of HUD regulations and the Regulatory Agreement For Multifamily Housing Projects [hereinafter the “Regulatory Agreement”] (Post Confirmation Hearing Memorandum of HUD, p. 2.).
HUD cites as evidence of its regulatory function 24 C.F.R. Sec. 200.210, et seq. (1985) “Previous Participation Review and *27Clearance Procedure” [Uniform standards established for approval, disapproval or withholding of action on principals based on, inter alia past performance] and 24 C.F.R. Sec. 24, et seq. (1985) “Debarment, Suspension and Ineligibility of Contractors, and Grantees; Administrative Sanctions” [Procedures relating to exclusion from participation in HUD programs]. (Objections to the Modified Reorganization Plan of HUD, p. 1-3 and Post Confirmation Hearing Memorandum of HUD, p. 2-6).
HUD asserts that because the Regulations entitle it to control a project’s management, the Bankruptcy Court cannot require it to accept the Plan’s proposed management. This, HUD maintains, is the focus of the Braniff case as applied to the instant matter. (Transcript 55:14-21). The Braniff case, however, is distinguishable herein and, consequently, does not provide authority in the instant matter.
In Braniff, the Fifth Circuit Court of Appeals emphasized that the FAA had unquestionable authority for all aspects of airspace management. 700 F.2d at 941. The Court, moreover, cited the FAA’s “plenary authority in the matter of air traffic rules.” Id., quoting H.R.Rep. 2360, 85th Cong., 2d sess. 6-7 (1958), U.S.Code Cong. & Admin.News 1958, p. 3741.
Plenary authority means, of course, full and complete authority. So complete is the FAA’s authority, that regulations are subject to only limited review in the courts of appeals. 49 U.S.C. Sec. 1486(a).
HUD in the instant matter has not prof-erred any argument that its regulatory authority is plenary. Admittedly, HUD regulates its lending, financing and insuring but it does so in the interest of fiscal prudence and to protect its financial position. Moreover, HUD concedes that it is in the business of lending or guaranteeing money. (Transcript 55:22-23). Logically, then, if HUD is in the business of lending or guaranteeing money it cannot be solely in the business of regulating as is the FAA. The Court in the Braniff case upheld the FAA’s plenary regulatory authority when it refused to subject the FAA to the jurisdiction of the Code.
No such plenary regulatory authority can be found existing for HUD in the instant matter. Therefore, HUD’s status is that of government agency qua secured creditor. Consequently, the Braniff case does not address HUD’s status as merely a secured creditor. Therefore, it is decided that HUD can be subject to the jurisdiction of the Code including, inter alia, the Section 1129 “cram-down” authority of this Court to confirm the Plan over its objection.
Submit an appropriate Order. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490253/ | OPINION ON COMPLAINT TO SELL REAL ESTATE
A. POPE GORDON, Bankruptcy Judge.
The trustee in this case filed a complaint seeking to sell real estate free and clear of liens. Additionally, the trustee sought turn over of funds held in a checking account. Defendants Wilbur Spigener and AmSouth Bank, N.A., filed answers. The issue as to the checking account funds was *61settled among all parties. Further, defendant Spigener makes no claim to the real estate. The only remaining issue is defendant AmSouth s claim to an equitable interest in the real estate There is no dispute as to any material fact and the case is taken as submitted on briefs.
Findings of Fact
The debtor, Laura Ann Ferguson, was formerly married to defendant Wilbur Spi-gener, that marriage having ended by divorce. Spigener deeded his interest in the real property which is the subject of this dispute to Ferguson in July, 1970.
Ferguson, now remarried, and her husband executed a promissory note and a mortgage on the real estate in the amount of $7,987.43 to the Citizens Bank of Wet-umpka, predecessor to AmSouth Bank, N.A., on October 16, 1981. In February 1983, Ferguson negotiated a check in the amount of $25,000.00, drawn on the account of Wilbur Spigener. From the proceeds, Ferguson paid in full the balance due on the mortgage to the bank in the amount of $6,780.24. AmSouth issued Ferguson a loan payoff receipt and apparently satisfied the mortgage of record. The promissory note was marked paid.
Ferguson did not have the permission of her former husband to withdraw the $25,-000.00 and he filed a lawsuit in the Circuit Court of Elmore County, Alabama, against both the debtor and AmSouth Bank. Spi-gener obtained a judgment against Ferguson and AmSouth for fraud and conversion.
On May 29, 1985, Ferguson, together with her husband, filed for bankruptcy under Chapter 7 of the Bankruptcy Code. She listed the real property among her assets.
The trustee, charged with the duty to liquidate the estate, seeks to sell the property free and clear of any liens. AmSouth seeks to impose an equitable lien on the property equal to the outstanding indebtedness evidenced by the promissory note plus interest.
Conclusion of Law
The argument of AmSouth is not well ^ AmSouth has no interest in the rea] estate and the trustee gell the r. ty free and dear of interest of Am. g ^
Discussion
AmSouth cites Nicklaus v. Bank of Russellville, 336 F.2d 144 (8th Cir.1964) for the proposition that the trustee in bankruptcy can have no interest in property acquired by the fraud of the bankrupt as against the party with a rightful claim to the property.
The Nicklaus court stated “a Trustee in Bankruptcy can have no interest in property acquired by the fraud of a bankrupt, or anyone else, as against the claim of the rightful owner of such property.” (Emphasis added)
The rightful owner of the funds used to pay off the promissory note and satisfy the mortgage in the case at bar is Spigener, not AmSouth. AmSouth’s reliance upon this aspect of the Nicklaus case for relief is inappropriate.
The Nicklaus court goes on to say “[creditors have no right to profit by the fraud of a bankruptcy to the wrong and injury of the one defrauded.” AmSouth is not the defrauded party in this case. Indeed, a jury found that AmSouth was a party to the fraud perpetrated against Spigener. This fact leads to the conclusion that Am-South is not genuinely a creditor of Ferguson because there can be no contribution among joint-tortfeasers under Alabama law. Covington Grain Co., Inc., 638 F.2d 1357 (5th Cir.1981).
AmSouth cites Creel v. Birmingham Trust National Bank, 383 F.Supp. 871 (N.D.Ala.1974) for the proposition that the trustee can acquire no higher right to the property than the debtor possessed. Therefore, AmSouth argues, if the debtor’s rights are subject to AmSouth’s mortgage on the property, then the trustee can succeed to no more than the debtor possessed.
*62The facts in this case show that Am-South had no lien of record * at thé date the debtor filed her Chapter 7 petition. Under 11 U.S.C. § 544(a)(3), the trustee may avoid any obligation incurred by the debtor that is voidable by a bona fide purchaser of real property. Since AmSouth had no lien of record at filing, a bona fide purchaser, and therefore the trustee, can avoid the transaction.
The Alabama Supreme Court in the opinion of Justice Harwood in the case of Hair v. Beall, 274 Ala. 699, 151 So.2d 613 (1963) stated “[o]ne who comes into equity must do so with clean hands, and equity will not aid one in extricating himself from hurtful consequences when his acts are reprehensible and directly connected with the subject matter of the litigation.”
Here, AmSouth has been found equally guilty of fraud with Ferguson. AmSouth cannot now by claims of equity extricate itself from the consequences of its own wrongdoing.
AmSouth argues that to deny its claim for an equitable lien in the real estate would result in the debt, evidenced by the promissory note and secured by the mortgage of Mr. and Mrs. Ferguson to Citizens Bank, being paid in full, but nevertheless, with AmSouth having to repay that same amount to Mr. Spigener pursuant to the order of the Circuit Court of Elmore County, Alabama. This court finds no inequity in such a result. The court in the case of Baird v. Howison, 154 Ala. 359, 45 So. 668, stated “the suit of the party compelled to seek the aid of the court in order to obtain the fruits of his own fraud or wrong must be dismissed although it may result in unjustly giving to the other equally culpable party the entire benefit of them.”
This opinion shall constitute the findings of fact and conclusions of law required by Rule 7052 of the Federal Rules of Bankruptcy Procedure.
A separate order will be entered consistent with this opinion.
If the mortgage had not actually been satisfied of record by the time of filing as we assume, it should have been, because the mortgage had been paid in full prior to the date of the petition. No lien existed at that date, although the Probate Office records may show otherwise. The lack of satisfaction of record of the mortgage would not affect the holding in this case. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490254/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Chief Judge.
The debtor’s ex-wife and her attorney seek exception from discharge under 11 U.S.C. § 523(a)(5). The debtor has answered. The matter was tried on February 27.
The facts are not in dispute. The marriage was dissolved in Pasco county by a six-page Final Judgment entered July 25, 1985. The Judgment granted custody of one child to each parent and provided separate child support which is conceded to be excepted from discharge.
The Judgment also awarded the wife $20,000 “lump sum alimony” to compensate her for her interest in the marital home, automobile and the debtor’s stock bonus plan. I find that notwithstanding the label selected by the State court, this award was in fact a property settlement and not alimony, maintenance or support as those terms are employed in § 523(a)(5)(B). Collier on Bankruptcy ¶ 523.15[1] n. 5 (15th Ed.1985).
The Judgment required that the debtor pay his wife’s reasonable attorney’s fees, reciting that:
“She ... does not have the financial ability to pay fees and expenses.”
By a separate Order entered July 31, 1985 the State court fixed the fee and costs at $9,755 and provided that payment be made directly to the attorney.
The debtor argues that the attorney has no standing to seek exception from discharge and has moved that the attorney’s claim be dismissed from this action. The debtor relies upon § 523(a)(5)(A), which provides that marital support shall not be excepted from discharge to the extent that:
“such debt is assigned to another entity, voluntarily, by operation of law, or otherwise,”
noting an exception not pertinent here.
I disagree with the debtor on both points. The attorney has standing to seek exception for the award made payable directly to him by the State court.
In Pauley v. Spong (In re Spong), 661 F.2d 6, 10 (2nd Cir.1981), the court reversed a district court affirmance of a bankruptcy court which had discharged a debt owed to the wife’s attorney upon the ground asserted by the debtor here. The court said:
“Appellant asserts that, when the House and Senate bills were redrafted to make ‘debts assigned to another entity’ dis-chargeable, Congress had in mind assignments to State welfare agencies only. This interpretation is supported by most of the cases. [Cases cited].
Assuming for the argument that these cases have incorrectly interpreted the congressional intent concerning ‘assigned’ debts, appellant’s claim of nondis-chargeability remains unaffected. We view appellee’s undertaking to pay his wife’s legal fees as a paradigmatic third party beneficiary contract, which is not, and should not be confused with, an assignment.”
The foregoing holding has been followed in Porter v. Gwinn (In re Gwinn) 20 B.R. 233, 234 (9th Cir.B.A.P., 1982).
It is generally agreed that if the attorney’s services were essentially associated with a property settlement agreement, the fee might be dischargeable as a part of the settlement agreement. However, that is not the case here. I find that a significant part of the attorney’s services was necessary to protect the wife’s interest with respect to child support. Furthermore, the State court’s comment, quoted above, *79makes it clear that the State court ordered the debtor to pay these fees in accordance with the Florida statute, § 61.16, which requires that the court consider:
“the financial resources of both parties” in determining which shall bear the legal expense. I find, therefore, that the debt for legal expense is a debt in the nature of alimony or support and not a property settlement. It is not, therefore, dischargea-ble.
As is required by B.R. 9021(a), a separate judgment will be entered in accordance herewith. Each party shall bear its own expense incurred in this adversary proceeding. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490255/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Chief Judge.
A creditor seeks exception from discharge for its claim of $14,882 under 11 U.S.C. § 523(a)(4), alleging that the debt was for “embezzlement or larceny.” At trial, plaintiff abandoned any other ground referred to in its complaint, which also mentions § 523(a)(2)(A) and “fraud or defalcation while acting in a fiduciary capacity” under § 523(a)(4), as well as § 727 (grounds for denial of discharge).
The evidence contains relatively little conflict. The debtor/husband was the president and chief executive of a corporate travel agency in Miami, Trav Am, of which he owned 10%. The debtor has personally guaranteed all of Trav Am’s obligations to plaintiff. During the 13 months between May 1982 and June 1983 Trav Am did $84,575 worth of business with the plaintiff, Tecnitur, a Peruvian corporation which provides tourist services in that country. The contract between the parties provided that plaintiff would furnish services booked by Trav Am for its customers, billing Trav Am for the cost of those ser*80vices plus an agreed commission. Trav Am collected from its customers and had 30 days from the billing date to pay plaintiff. This delay was designed to afford Trav Am time to adjust any customer complaints and, presumably, to receive cash from credit card payments. Plaintiff is the largest travel service in Peru.
All went well until June 1983 when Trav Am stopped payment of three checks payable in the aggregate amount of $14,882 to plaintiff. Two of the checks were postdated July 31 and August 31. When payment was stopped, plaintiff ceased providing services for Trav Am and subsequently commenced a civil action upon its account against Trav Am in Miami.
Although the debtor now claims that Trav Am stopped payment because (a) plaintiff hurt his reputation with the major Peruvian airline causing it to suspend Trav Am’s agency privilege, and (b) he received complaints from customers as to the services for which payment was stopped, I find these explanations unpersuasive. To begin with, there is no record that either explanation was given to plaintiff. Secondly, plaintiff and a disinterested witness deny both. Thirdly, the debtor has provided no corroboration on either explanation. It appears more plausible to me that Trav Am’s financial woes, which ultimately provoked the debtor’s bankruptcy on October 3,1985, led him to delay and eventually to withhold payment. The postdated checks support this inference.
Although I agree with plaintiff in the foregoing respect, I disagree with the plaintiff in all other respects.
The debtor has not been charged, much less convicted, of any crime in connection with this transaction. Therefore, plaintiff must prove
“the fraudulent appropriate of property of another by a person to whom such property of another has been entrusted or into whose hands it has lawfully come,”
the federal definition of “embezzlement” for dischargeability purposes, or “larceny,” which differs:
“only with respect to the manner in which the property comes into the possession of the party charged: In the case of larceny, the original taking must itself be unlawful or fraudulent.”
Teamsters Local 533 v. Schultz (In re Schultz), 46 B.R. 880, 889 (Bankr.D.Nev.1985). Plaintiff has proved neither.
The money in question came into the debtor’s possession as the manager of Trav Am lawfully from Trav Am’s customers. This was not a trust fund for plaintiff’s benefit. Matter of Angele, 610 F.2d 1335, 1338 (5th Cir.1980). He committed no larceny against anyone with respect to this transaction.
Although plaintiff insinuates that the debtor used Trav Am’s receipts from its customers to buy expensive cars for his personal use instead of paying the plaintiff’s account, the proof fails to establish this insinuation. Even if it did, the money received by Trav Am from its customers was never the property of the plaintiff and the debtor never had possession of any property of the plaintiff. He could not have embezzled from plaintiff had he wished to do so.
Plaintiff relies upon Funventures in Travel, Inc. v. Dunn, 39 B.R. 249 (E.D.Pa.1984) in which the district court affirmed the bankruptcy court’s exception from discharge of a debt owed to a travel agency by an agent who failed to remit commissions collected by the agent for the travel agency. He had been convicted of theft in connection with the transaction. Both courts found defalcation by a fiduciary (not an issue in our case) and, alternatively, embezzlement.
In that case, unlike ours, the debtor obtained possession of money owned by the plaintiff/creditor and converted it to his own use. The holding is not in point here. Plaintiff has not proved any basis for relief under § 523(a)(4).
On the eve of trial, plaintiff sought belated discovery from the debtor, who was unavailable until trial. On that ground *81plaintiff moved for a continuance of the trial. The motion was denied (C.P. No. 7):
“without prejudice to the plaintiff renewing at time of trial its request for continuance in order to seek discovery from the debtor in support of this adversary complaint.”
The debtor never renewed his motion. It is clear to me from the basic facts which are not disputed that plaintiff cannot prove any ground for relief under § 523(a)(4). As has already been noted, plaintiff abandoned any other possible ground, even if any other ground was alleged and I do not believe plaintiff properly alleged any other ground for relief.
As is required by B.R. 9021(a), a separate judgment will be entered dismissing the complaint with prejudice. Costs may be taxed on motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490256/ | OPINION
D. JOSEPH DeVITO, Bankruptcy Judge.
This matter concerns the entry of an order entered pursuant to an opinion of this Court, rendered in a case consolidated with that of the debtor named herein. After due consideration of the numerous arguments and motions made by the parties, this Court finds the order entered on September 23, 1985 to be the proper implementation of the intent of the aforerendered opinion. That order is hereby reaffirmed.
Reviewing the facts at hand, the Court is concerned with but two items — the content of its opinion and whether the order submitted and entered is in accordance with that opinion.
In the early part of 1985, this Court decided a motion made by the Department of the Army in In the Matter of Consolidated Pier Deliveries, reported at 53 B.R. 523 (Bankr.D.N.J.1985) (DeVito, B.J.). Therein the court decided the viability of a lease between the debtor, Consolidated Pier, and the Army. In the text of the opinion, the court noted that the debtor, as lessee, had significantly violated the terms of the leasehold, resulting in serious financial damages suffered by the Army. The monetary damages extended past the time of the debtor’s filing of its petition, as well *82as including pre-petition costs. Id. at 528-29.
The court specifically ruled that the lease in question, having been “effectively terminated ... before the filing” of the petition, was not property, nor ever had been property, of the debtor’s estate. Id. at 529. Accordingly, the automatic stay was vacated with respect to the realty underlying the lease and also with respect to an escrow fund of $560,000 held as security for lease obligations. Id.
To implement this decision, an order submitted by the United States was signed by this Court on September 23, 1985. That order provided, inter alia, that the banking institution holding the escrow fund should turn said fund over to the United States. In re Diversified Transportation Resources, Inc., et al., No. 84-02898 (Bankr.D.N.J. Sept. 23, 1985) (DeVito, B.J.). The propriety of that order is now before the Court.
In its ruling herein, the Court finds no reason to belabor what it perceives to be a relatively clear-cut matter. The Court’s opinion of February 15,1985 was unequivocal on several points. First, the Army suffered both pre- and post-petition damages. Second, and more importantly, the lease in suit was never part of the estate.
Simple logic demands that if the lease was never a part of the estate, the escrow account appurtenant to it was, likewise, never a part of the estate. Thus, the Army is the sole party with rights to the escrow funds. Moreover, it is undisputed that the combined damages due to unpaid rent, utilities, and destruction to the leasehold total several millions of dollars. The escrow fund in the amount of $560,000 permits but a small recovery by the Army.
In conclusion, this Court finds the order entered on September 23, 1985 to be a correct embodiment of the Court’s February 15, 1985 opinion. The order shall remain undisturbed. Any motions contesting same shall be denied, and any other rulings or orders inconsistent therewith shall be vacated.
The United States is hereby directed to submit an appropriate order. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490257/ | OPINION
D. JOSEPH DeVITO, Bankruptcy Judge.
The debtor, Kerr Concrete Pipe Company (“Kerr”), seeks to reopen the above proceeding for the purpose of obtaining an order permanently restraining and enjoining the firm of Paterno & Sons, Inc. (“Pa-terno”) from prosecuting a third-party complaint against the debtor in the Supreme Court of New York. For the reasons set forth below, the motion is granted.
Briefly reviewing the facts, it appears that in 1972 Paterno contracted with the City of New York (“the City”) to construct a sewer line with pipe supplied by Kerr. Following the installation of the pipe, the City informed Paterno that the pipe did not meet the specifications required by the contract. Upon Paterno’s refusal to correct that problem, the City withheld the payment of $75,000 due on the contract as reimbursement for the City’s costs of corrective construction and the diminished life expectancy of the nonconforming pipe. Pa-terno, in turn, likewise withheld $75,000 from its contractual payments to Kerr. As a result of these developments, Paterno instituted a suit against the City in December of 1974 seeking, inter alia, recovery of the $75,000. Specifically, the complaint, dated December 18, 1974, alleged total damages of $179,045.96 based upon four separate causes of action.
Kerr filed a petition under Chapter XI of the former Bankruptcy Act on February 14,1975. Paterno was not listed as a creditor in the reorganization petition, nor did Paterno file a claim during the pendency of the bankruptcy proceeding. Kerr’s Chapter XI arrangement was confirmed by this Court pursuant to an order dated December 27, 1977. The case was administratively closed in June of 1981.
During this time, the Paterno suit against the City continued through the pretrial stage. The case’s entire complexion was changed in May of 1981, when the New York court permitted the City to amend its pleadings and interpose a counterclaim against Paterno for a sum in excess of $300,000. The counterclaim was based upon further costs incurred by the City in rehabilitating the defective pipe installed by Paterno and supplied by Kerr. As a result of this development, Paterno impleaded Kerr as a third-party defendant. It was this action which precipitated the instant motion to reopen the case and to restrain Paterno from prosecution of the impleader action.
Kerr alleges that Paterno is foreclosed from pursuing any claim at this time because of Paterno’s failure to file a claim during the pendency of Kerr’s reorganization proceeding. Kerr maintains that Pa-terno, being fully cognizant of Kerr’s Chapter XI filing, should have sought adjudication of its claim in the bankruptcy court.
In response, Paterno insists that its claim, as embodied in the third-party complaint, is only now ripe for judgment; that the alleged claim was previously so lacking in substance that it could not be liquidated within the provisions of the former Bankruptcy Act. Thus, the illusory claim could not have been properly raised in the prior bankruptcy proceeding. Paterno’s im-*84pleader action is, therefore, not barred by Kerr’s prior adjudication in bankruptcy.
There can be no question that the instant matter is governed by the Bankruptcy Act of 1898. “A case commenced under the Bankruptcy Act ... shall be conducted and determined under such Act_” Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, § 403[a], 92 Stat. 2549, 2683 (1978).
The former Act spoke directly to the question of the proof and allowance of claims in a bankruptcy proceeding:
Claims which have been duly proved shall be allowed upon receipt by or upon presentation to the court, unless objection to their allowance shall be made by parties in interest or unless their consideration be continued for cause by the court upon its own motion: Provided, however, That an unliquidated or contingent claim shall not be allowed unless liquidated or the amount thereof estimated in the manner and within the time directed by the court; and such claim shall not be allowed if the court shall determine that it is not capable of liquidation or of reasonable estimation or that such liquidation or estimation would unduly delay the administration of the estate or any proceeding under this Act.
§ 57(d) of the Bankruptcy Act, formerly 11 U.S.C. § 93(d) (repealed 1978). The former Act provides that contingent claims are allowable when liquidated or estimated by direction of the court. It is for the court to determine if a claim is not allowable due to the inability to liquidate or estimate its amount. The Court takes note of the analysis made by the learned commentary:
The problem of contingent claims in bankruptcy is thus a problem more of remedial than of substantive law. Its gist is the question whether or not the bankruptcy court will deem liquidation or estimation of the claim reasonably feasible, a question as to which the parties in interest may advance all the reasons available, but whose solution will ultimately rest upon the exercise of judicial discretion in light of the circumstances of the case, particularly the probable duration of the process of liquidation as compared with the period of future uncertainty due to the contingency in question. For the discussion of contingent claims, therefore, reference should primarily be made to the treatment of § 57.
3A Collier on Bankruptcy 1163.30 (14th ed. 1940). The matter is then one for judicial discretion, with the bankruptcy court applying a rule of reason to either liquidate or estimate the contingency. Only if those alternatives are unfeasible should the court disallow the claim as unprovable, and thereby render it nondischargeable. Furthermore, former § 57(d) necessarily implies that it is incumbent upon the holder of a contingent claim to come before the bankruptcy court and submit the question of liquidation or estimation to the court’s sound discretion.
Based on this treatment of contingent claims by the former Act, this Court is completely justified in granting Kerr’s request to permanently restrain the Paterno lawsuit. Paterno was, at all times, cognizant of the facts of the situation which existed between itself, Kerr and the City. Paterno was fully aware of the pendency of Kerr’s reorganization. As such, Paterno had notice to pursue any claims it might have had against Kerr. Moreover, Paterno had ample opportunity to present such claims in the context of the Chapter XI proceeding. Paterno knew, or should have known, that its litigation with the City gave potential to a claim against Kerr. It follows that Paterno is at fault for failing to act accordingly.
It has already been shown that this Court was empowered under former § 57(d) of the Bankruptcy Act to entertain the allowance of contingent claims. The power thereby bestowed to liquidate or estimate such contingencies within the scope of the bankruptcy case would have been directly applicable to the instant matter. By not submitting its contingent claim to this Court during Kerr’s reorganization, Paterno foreclosed this Court from rendering a judicious decision.
*85It is self-evident that Paterno willingly gave up its rights to assert its claim in the prior Chapter XI case. Having turned its back on the remedies offered by the former Bankruptcy Act, the Court will not now allow Paterno to attack the newly reorganized debtor with a claim that should have been addressed nearly a decade ago. Pa-terno’s assertion that this claim has only recently become ripe for resolution is unfounded. Paterno knew enough to pitead four separate causes of action and demand $179,045.96 in damages in the complaint filed with the New York state court in December of 1974. To instigate a civil action in 1974 with damages calculated to the penny, surely Paterno had more than a sufficient basis to file some type of claim, contingent or otherwise, in Kerr’s proceeding. Up to the present time, Paterno was apparently well-satisfied with the original $75,000 in payments it withheld from Kerr. Whatever the reasons for Paterno’s change of heart, the Court is unmoved. By its own inaction and apparent unwillingness to appear before this Court during Kerr’s reorganization, Paterno must be satisfied with the remedies it already has availed itself of.
In conclusion, the Court will first reopen the instant case in accordance with the principles espoused in In re Willie C. Norman, 54 B.R. 809, 810 (Bankr.D.N.J.1985) (DeVito, B.J.) (dealing with the procedure for the reopening of a bankruptcy proceeding). Second and more importantly, the motion to permanently restrain and enjoin the Paterno lawsuit is hereby granted.
Submit an order in accordance with the above. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490259/ | OPINION and ORDER
D. JOSEPH DeVITO, Bankruptcy Judge.
This matter deals with an order to show cause why an interim trustee should not be appointed. Upon reviewing the proceeding, the application is dismissed without prejudice.
The ratio decidendi herein is straightforward. The moving parties filed this involuntary petition pursuant to 11 U.S.C. § 303[b][2], which holds that a petition may be filed against the debtor where there are fewer than twelve creditors. The moving papers indicate the movants’ belief that there were, indeed, less than twelve creditors.
At the hearing, however, counsel for the movants freely admitted in at least two instances that more than twelve creditors existed. In such event, this Court must be guided by 11 U.S.C. § 303[b][1], which demands that three creditors join in an involuntary petition where there is an aggregate of twelve or more creditors.
The law being crystal clear on this subject, the Court must dismiss the petition but does give leave to refile. The Court is of the further opinion that its decision today is the more equitable alternative. The tenor of the pleadings indicates that this is a hotly contested dispute among family members. In the interests of justice and fair play, the joinder in a new involuntary filing by unrelated creditors would un*138doubtedly present a more balanced and detached perspective than the litigants here, who are so deeply personally involved.
Accordingly, this Court hereby ORDERS that the involuntary petition filed against the alleged debtor is dismissed, with leave to refile. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490260/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Chief Judge.
The plaintiff/judgment creditor seeks exception from discharge under 11 U.S.C. § 523(a)(6) for that part of her state court judgment against the debtor which represents punitive damages, $50,000. The debt- or has answered and the matter was tried on March 6.
The facts are in sharp conflict. Resolving the conflicting evidence, I find that the plaintiff first consulted the debtor, a medical doctor, who specialized in gynecology and obstetrics and who practiced with his father. At that time she gave a history of having undergone a tubal ligation and expressed a desire to reverse the process and again restore her ability to bear children.
She was sent to a radiologist who saw plaintiff on February 27 and whose report confirmed that both fallopian tubes were obstructed, confirming the patient’s history of a tubal ligation. The radiological examination, however, was consistent with obstructions resulting from causes other than a tubal ligation and her examination could not confirm independently that the patient had undergone that procedure.
*139Eight months later, on October 28, plaintiff again consulted the debtor, complaining of pain in the right ovary. There was an initial diagnosis of a possible ovarian mass.
On November 11, the patient underwent an operation performed by the debtor, assisted by his father, in which a tuboplasty was performed. This is a delicate operation, frequently unsuccessful, in which the function of one or both fallopian tubes is restored by the insertion of plastic tubes.
Plaintiff insists that she never consented to that procedure and that she only consented to an operation by the father, and not the debtor. She explains that she was divorced, with teenage children, was past 40 and had no interest in again bearing children. This testimony is contradicted by the debtor and his father and is a critical issue in this case.
The surgical consent form executed by the plaintiff clearly designates the debtor to be the surgeon. I reject the plaintiff’s explanation that the term “Jr.” has no meaning or common equivalent in the Spanish language and that with her Cuban background she was completely unaware of its significance. I find that the term “Jr.” is commonly used in the Spanish language, having been borrowed from the English usage, and that it has exactly the same significance it has in English and that this practice has existed for at least this plaintiffs adult life.
The surgical consent form did not list or include the tuboplasty. Accepted medical practice requires that consent be obtained for such a procedure and that the surgical consent form signed by the patient expressly include that procedure.
Both the debtor and his father are adamant that the procedure was fully explained to the patient and that she had given her informed consent before the operation, notwithstanding the fact that the procedure was negligently omitted from the surgical consent form. There was no attempt in the medical records to conceal the performance of the procedure nor is there any suggestion that the debtor had any motive or actual intent to cause the plaintiff any personal harm by performing this procedure.
The debtor had performed this procedure once before as a resident. His father had never performed the procedure.
As is normal and was anticipated, the patient returned for a second operation on November 25 for the removal of “foreign bodies”, the plastic tubes used in the tubo-plasty. The surgical consent form covered this procedure and designated the debtor, whose father was then out of the country. Plaintiff expressed no dissatisfaction.
The attempted removal was unsuccessful. The patient was so advised and she returned on December 15 for a third operation which appeared to complete her treatment and she was subsequently discharged.
During the debtor’s follow-up treatment, there was no indication of dissatisfaction and the plaintiff made no complaint until some time later after she had consulted another doctor. She then filed a civil action against both father and son and recovered a judgment for compensatory damages of $100,000 and $50,000 punitive damages against each defendant. The claim for compensatory damages was fully satisfied. The state court judgment was neither required to nor did it reflect any finding of a “willful and malicious injury”, the basis for exception from discharge under § 523(a)(6).
The state court action was not defended by the debtor who had become an alcoholic. His medical license has been suspended.
Plaintiff subsequently underwent a complete hysterectomy performed by another physician.
It is plaintiff’s burden to prove by clear and convincing evidence that her claim is based upon a willful and malicious injury by the debtor to her. The term “willful” means “deliberate or intentional” and “malicious” includes an injury that was wrongful and without just cause or excessive, even in the absence of personal hatred, spite or ill will.
*140“Therefore, a wrongful act done intentionally which necessarily produces harm and is without just cause or excuse, may constitute a willful and malicious injury.” Collier on Bankruptcy, ¶ 523.16[1] n. 9 (15th Ed.1985).
I find that in this case the injury sustained by the plaintiff was neither willfully nor maliciously caused by the debtor. There is no question in my mind that the injury resulted from negligence and probably gross negligence on the debtor’s part. I do not believe that he had adequate experience to perform this procedure assisted only by his father who had never performed the procedure. It is clear, however, since the enactment in 1978 of the present Code that:
“Congress expressly overruled prior caselaw that had refused dischargeability when the conversion occurred innocently or recklessly.” In re Held, 734 F.2d 628, 629 (11th Cir.1984).
As was the case in Held, I find that the debtor acted in a good faith though perhaps mistaken belief that plaintiff had requested as well as consented to his performance of the tuboplasty and that everything he did to or for the plaintiff was done in a good faith attempt to help her, not harm her. The state court judgment, even though including an award for punitive damages, does not collaterally estop the debtor. The debtor did not willfully and maliciously injure the plaintiff.
As is required by B.R. 9021(a), a separate judgment will be entered dismissing this complaint with prejudice. Each party shall bear its own costs. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490261/ | MEMORANDUM AND ORDER FOLLOWING HEARING ON STATUS OF PROPOSED FILING OF MOTION TO COMPROMISE CONTROVERSY
LETITIA Z. TAITTE, Bankruptcy Judge.
Came before the Court on March 24, 1986, the proponents of an undisclosed but nonetheless proposed compromise of controversy. Such compromises are necessarily pursuant to Bankruptcy Rule 9019 and Local Bankruptcy Rule 9007.
The proponents were the Debtor who has sought the protection of the Bankruptcy Code, Mr. Robert Taylor, and Bay Area Bank and Trust, of which he is a former director, and with which he now seeks to effect a compromise.
The only documents presented to the Court were a request for expedited hearing and a “Motion to Compromise Controversy” which named no controversy and proposed no compromise. In utter disregard of any semblance of proper pleading, no compromise has ever been filed. See, e.g. Compania Espanola de Petroleos v. Ner*177eus Shipping, opinion by J. Medina, 527 F.2d 966, 967-8 (2nd Cir.1975). Indeed, the Court remains unaware of what controversy it is that the parties wish to compromise. The parties say only that they do not want the media to hear about their proceedings because publicity might trigger a run on the bank, in the wake of unfavorable publicity about an officer of the Bank, a Mr. Gene Quartermont, following a recent trial and conviction of Mr. Quartermont’s son-in-law in the Southern District of Texas, Judge DeAnda presiding.
The parties requested that they be permitted to present their proposed compromise in camera, without filing it or notifying creditors of its contents.
The Fifth Circuit has addressed the issues which are to be considered in approving a Compromise of Controversy in a Bankruptcy matter, in Rivercity v. Herpel, 624 F.2d 599, (5th Cir.1980) These include the nature of the controversy, the length of time it might take to try, and the possible benefits of settlement to creditors.
The secrecy in which the proponents have chosen to shroud this proceeding has left the creditors, and to date the Court, unable to make any of these determinations.
The proponents had no authority to offer for their suggested gag order or in camera proceedings. No question of national security is involved. The contents of the compromise must naturally be as well the contents of the as yet unfiled lawsuit. It is extraordinary for the parties to suggest that facts involving their activities are “defamatory.” The proponents have mentioned that they fear a run on the bank, but have not troubled to bring before the Court the FDIC, which might properly speak to such a concern. The Court ordered that briefs on the request for secrecy be filed by March 81, 1986. The Court has previously ordered that the proposed compromise, if any, be filed by March 31, 1986; that any objections by creditors be filed by April 14, and that a hearing be held on the proposed compromise on April 17, 1986.
No argument or authorities supporting a gag order or in camera proceedings having been shown, and no compromise having been disclosed upon the record, the Court finds no basis for changing the above dates. They remain effective. It is so ordered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490262/ | *236OPINION
GEORGE B. NIELSEN, Jr., Bankruptcy Judge.
I
This proceeding is an action by the standing Chapter 13 Trustee objecting to the allowance as a claim of a judgment rendered by the Municipal Court of Riverside County, California, on April 4,1982 for $7,520.22, plus costs and fees. 11 U.S.C. § 704(5).1 This Court has jurisdiction as a core proceeding. 28 U.S.C. § 157(b)(2)(B). Previously, the parties stipulated the judgment lien itself is voidable as a preferential transfer due to recordation within 90 days of the filing of debtors' case. Pretrial Order, at 2-3, Docket Item 19; 11 U.S.C. § 547(b).
The issue presented is whether the Trustee can attack the prior judgment in this proceeding by alleging improper service and lack of subject matter jurisdiction. Because applicable law prohibits a collateral attack on the judgment’s validity, the Trustee’s challenge is rejected. The facts necessary to an understanding of this dispute follow.
II
Debtor Roy David Gilman and defendant John Bender met in 1975 or 1976 while Bender operated a Fallbrook, California restaurant. In June of 1980, the parties orally agreed defendant would drive an Arizona truck owned by debtor and his business partner, Frank Mendez. According to Gilman, Bender was to receive 20% of the revenue generated through lease of the vehicle by England Equipment Co. of Salinas, California. Exhibit l.2 The vehicle’s owner would supply the driver, tractor, fuel and fund repairs in exchange for 67% of gross revenue from bookings made by England.
As a driver, Bender would request advances from England for food, fuel and repairs incurred on the road. These advances would be deducted by England from the monies due debtor. Exhibit 1, at 1; Exhibit 2.
Pursuant to debtor’s testimony, $14,-691.31 was due from England’s billing of $20,987.33 for 19 trips, with Bender being entitled to $2,938.26 for his 20% share. However, Bender obtained $14,699.75 in advances during the period June 21, 1980 through September 30, 1980. When the operation started running a deficit and receipts supporting Bender’s advances did not appear, England was instructed in September or October to have the truck return to Arizona. As advances exhausted all monies due, the vehicle was retired and defendant was instructed that nothing further was due him.
In November of 1981, debtor Gilman received a letter from the California Labor Commissioner3 at Gilman’s Arizona residence. He denies being served with any process concerning the subsequent California litigation. Bender, complainant in the labor matter, was aware of Gilman’s address as he resided in the Arizona home in June, 1980, after he left California to work for debtor. Gilman moved to Arizona in 1979 from California, but continues to *237maintain a California home, which he uses on occasion.
Mr. Mendez was supposed to hire a California attorney to handle the labor dispute. Mendez later assured Gilman the matter was “cleared up.”
On April 10, 1981, the California Labor Commission entered an award adverse to debtor and Mendez as partners doing business as the Gilman Corporation4 under complaint 09-81H-1154. The award was served on Mendez on May 12, 1981. The Commissioner concluded in a default decision that Gilman and Mendez had agreed to pay complainant 25% of the gross revenue generated by the partnership vehicle; based on a gross revenue of $37,950.15, Bender was entitled to compensation of $9,487.54 but only received $3,000.00. Consequently, an award of $6,487.54 was made against the partners, listed as doing business from a Fallbrook, California address. This is the same address listed by debtor as his California address in a December 10, 1980, letter he sent to the Commissioner concerning the labor complaint.
On May 21, 1981, a notice of appeal to the Riverside, California Municipal Court from the Commissioner’s ruling was filed on behalf of Gilman and Mendez by California counsel.5 Trial was set for August 10, 1981, but was continued by counsels’ stipulation as, inter alia, appellants had not contacted their counsel.
At trial on February 26, 1982, in Hemet, California, both Gilman and Mendez failed to appear and prosecute their appeal. Following proof sufficient to that court that appellants had sufficient notice of the hearing, additional evidence was taken and a judgment of $7,520.22, with interest and attorney fees of $700.00, was entered on April 4, 1982.
On May 22, 1982, the municipal court approved counsel’s request to withdraw representation of appellants for Mendez’s failure to contact or communicate since June, 1981. Defendant Bender did not appear at trial of this proceeding, although he was represented by legal counsel.
Ill
The Trustee complains debtor was not personally served with “California process and the Commissioner lacks jurisdiction over an oral employment contract created in Arizona. Apparently, neither defense was advanced in the prior litigation. By contrast, Bender alleged in his labor complaint that the contract was created in Riverside, California.
Under the full faith and credit statute, 28 U.S.C. § 1738, a federal court must give a state court judgment the same preclusive effect as the judgment would receive in that state. Migra v. Warren City School District Board of Education, 465 U.S. 75, 81, 104 S.Ct. 892, 896, 79 L.Ed.2d 56 (1984); Piatt v. MacDougall, 773 F.2d 1032, 1034 (9th Cir.1985). Accordingly, it is necessary to look to the California state law on preclusion. Marrese v. American Academy of Orthopaedic Surgeons, — U.S. —, 105 S.Ct. 1327, 1331-35, 84 L.Ed.2d 274 (1985).
In California, a valid judgment on the merits bars completely any further litigation on the same cause of action. Takahashi v. Board of Trustees, 783 F.2d 848, 851 (9th Cir.1986), citing Slater v. Blackwood, 15 Cal.3d 791, 795, 126 Cal.Rptr. 225, 226, 543 P.2d 593, 594 (1976).
In a collateral attack on a California judgment, jurisdiction is presumed and cannot be challenged unless lack of jurisdiction appears on the face of the record. Johnson v. Hayes Cal Builders, 60 Cal.2d 572, 35 Cal.Rptr. 618, 621-22, 387 P.2d 394, 397-98 (1963). The face of the record (i.e., the judgment roll) alone is examined when improper service is alleged. If the roll recites a finding of jurisdiction, the attack is precluded. If the judgment roll is silent, *238the judgment is still secure under the presumption of jurisdiction. 2 WITKIN, CALIFORNIA PROCEDURE, JURISDICTION § 279, at 685-86 (3d ed. 1985), citing In re Eichhoff, 101 Cal. 600, 36 P. 11 (1894); Milstein v. Turner, 89 Cal.App.2d 296, 299, 200 P.2d 799, 800-02 (1948).
The prior judgment, even if erroneous, is res judicata on matters which were raised or could have been raised in the prior litigation. Busick v. Workmen’s Compensation Appeals Board, 7 Cal.3d 967, 975, 104 Cal.Rptr. 42, 48-49, 500 P.2d 1386, 1392-93 (1972). An affidavit of service is not part of the judgment roll for collateral attack purposes. Johnson, supra, 35 Cal.Rptr. at 621, and cases cited.
Thus, California requires that any attack on a judgment be made directly through the usual appellate process rather than in subsequent litigation. This is similar to federal preclusion law, where a judgment issued by a court lacking jurisdiction is valid when the jurisdictional issue was litigated in the prior action. Durfee v. Duke, 375 U.S. 106, 111, 84 S.Ct. 242, 245, 11 L.Ed.2d 186 (1963).
Under federal res judicata law, alleged lack of personal jurisdiction deprives a judgment of preclusive effect if debtor failed to appear in the California litigation. Baldwin v. Iowa State Traveling Men’s Association, 283 U.S. 522, 525, 51 S.Ct. 517, 518, 75 L.Ed. 1244 (1931); In re Harlow Properties, 56 B.R. 794, 799 (Bankr. 9th Cir.1985) (where party is not served and does not appear in his individual capacity, lack of service may be raised for first time in appeal of prior order).
Here, however, debtor expressly authorized his partner to “handle” the labor matter, resulting in representation of debtor in the municipal court appeal and the filing of pleadings on his behalf. Unfortunately for the estate, debtor’s failure to supervise the lawsuit contributed to entry of a default judgment following trial.
The defense of lack of service is waived unless raised in a preliminary motion or in the first responsive pleading. Harlow Properties, supra, at 799. Although preliminary pleadings were filed on behalf of debtor, alleged lack of jurisdiction was not raised. Docket Item A-9. Res judicata precludes a collateral attack based on defenses that could have been litigated in the prior proceeding. Chicot County Drainage District v. Baxter State Bank, 308 U.S. 371, 378, 60 S.Ct. 317, 320, 84 L.Ed. 329 (1940); Americana Fabrics v. L & L Textiles, 754 F.2d 1524, 1529 (9th Cir.1985) (where party appears in state court and fails to raise defense of lack of personal jurisdiction, defense deemed waived). California law likewise precludes maintenance of a second suit based on an issue that could have been litigated in the first action. Los Angeles Branch NAACP v. Los Angeles Unified School District, 750 F.2d 731, 737 (9th Cir.1984).
The salutary doctrine of res judicata applies to jurisdictional as well as substantive issues. Americana Fabrics, supra, 754 F.2d at 1529, citing Yanow v. Weyerhauser Steamship Co., 274 F.2d 274, 277 (9th Cir.1959); Title v. United States, 263 F.2d 28, 30 (9th Cir.1959). California law imposes the doctrine not just on the parties, but on their privies and those claiming under them as well. Hirst v. State of California, 770 F.2d 776, 778 (9th Cir.1985).
In attacking jurisdiction of the prior judgment, the Trustee is claiming a legal right through the debtor. As such, he is precluded, as is the debtor, under California law from mounting a successful challenge.
IV
The evidence concerning the location of the oral contract is unclear. While debtor believes the parties contracted in Arizona, defendant’s pleadings indicate a California situs. What is undisputed is that debtor had the opportunity to fully litigate jurisdictional questions when he authorized his associate to “handle” the labor dispute, and subsequently failed to monitor the matter. Representation of debtor in the judicial appeal, without raising these *239issues, constitutes a waiver, which cannot be avoided by a trustee claiming through debtor. Unless reversed in a direct appeal, the prior judgment precludes the instant attack on defendant’s claim. Accordingly, the Trustee’s complaint and cause of action has been dismissed.
. While the Chapter 13 Trustee lacks the wide powers of a liquidation trustee —Cf. Commodity Futures Trading Commission v. Weintraub, — U.S. —, 105 S.Ct. 1986, 1993, 85 L.Ed.2d 372 (1985)—he has the power to object to improper claims if a purpose would be served thereby. 11 U.S.C. § 1302(b)(1). Defendant does not question the Trustee’s standing here.
. The document identifies the parties as England Equipment and Gil-Men Corporation of Fallbrook, California. Exhibit 1. However, debtor testified his business was never formally incorporated.
.As amended, California law provides:
The labor commissioner shall have the authority to investigate employee complaints. The labor commissioner may provide for a hearing and any action to recover wages, penalties, and other demands for compensation properly before the division or the labor commissioner including orders of the Industrial Welfare Commission, and shall determine all matters under his or her jurisdiction.
California Labor Code § 98(a) (1986 Supp.).
. See footnote 2, supra.
. Appellate review of the Commissioner’s decision is to the appropriate justice, municipal or superior court within ten days of service of the adverse order. Labor Code, supra, at § 98.2(a) (1986 Supp.). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490263/ | OPINION
EMIL F. GOLDHABER, Chief Judge:
The query here presented is whether a debtor has a cause of action under the Federal Tort Claims Act (“FTCA”) or the *281Administrative Procedures Act (“APA”) due to the failure of the United States Department of Housing and Urban Development (“HUD”) to decide whether to accept assignment of the debtor’s mortgage prior to foreclosure of that mortgage. On the basis of the reasons expressed below, we conclude that no cause of action is present.
The facts of this case are as follows:1 In March of 1983, the debtor filed a petition for the repayment of her debts under chapter 13 of the Bankruptcy Code (“the Code”). Prior to that time, she resided on a parcel of improved realty which was encumbered by a mortgage held by the Federal National Mortgage Association (“FNMA”). The debtor having defaulted on the mortgage, FNMA sent the debtor the second of two letters explaining to her certain avenues of recourse. More particularly, the letters stated that if she wished to save her home through assignment of the mortgage to HUD she would have to contact HUD within 15 days of the date of the letter. Through the missive she was also informed that, in the absence of contacting HUD, FNMA would ultimately foreclose on the mortgage. Notwithstanding the information in the letters, the debt- or chose the filing of a chapter 13 petition shortly thereafter to forestall the foreclosure.
The debtor thereupon wrote to HUD requesting that that agency accept her application for an assignment of her mortgage. Although the application was filed more than two years late, HUD accepted it under its “good cause” exception to its rule of timely filing. Before HUD reviewed the merits of the application, FNMA completed foreclosure of the mortgage and the property was sold at sheriff’s sale to FNMA.
The debtor filed the instant complaint against FNMA and the secretary of HUD, requesting that they restore to her legal title to the property and “reverse HUD’s decision to deny [her] an assignment of the mortgage.” In the alternative, the debtor requested damages. The causes of action presented by the debtor arise under (1) the FTCA, (2) the APA, and (3) 11 U.S.C. § 548 of the Code. We are confronted with these causes of action through HUD’s motion for dismissal, or alternatively, for summary judgment on the three causes of action.
As stated above, the first cause of action is under the FTCA. This statute authorizes the institution of suit by tort victims against the United States under certain circumstances. Since the FTCA is a partial abrogation of the common law limitation of sovereign immunity, our jurisdiction to hear this cause of action is defined by the consent of the United States. “By enacting the FTCA, the United States defined the conditions and limitations under which suits are permitted, and having seen fit to impose conditions and limitations on the right to be sued, these must be observed and exceptions thereto are not to be implied.” Mudlo v. United States, 423 F.Supp. 1373, 1375 (W.D.Pa.1976). At issue here is the requirement that a plaintiff must first present his claim to the appropriate federal government agency and have that claim denied prior to the institution of suit under the FTCA. 28 U.S.C. § 2675(a). As stated in § 2675(a):
§ 2675. Disposition by federal agency as prerequisite; evidence
(a) An action shall not be instituted upon a claim against the United States for money damages for injury or loss of property or personal injury or death caused by the negligent or wrongful act or omission of any employee of the Government while acting within the scope of his office or employment, unless the claimant shall have first presented *282the claim to the appropriate Federal agency and his claim shall have been finally denied by the agency in writing and sent by certified or registered mail. The failure of an agency to make final disposition of a claim within six months after it is filed shall, at the option of the claimant any time thereafter, be deemed a final denial of the claim for purposes of this section. The provisions of this subsection shall not apply to such claims as may be asserted under the Federal Rules of Civil Procedure by third party complaints, cross-claim, or counterclaim.
28 U.S.C. § 2675(a). The debtor contends that her claim was finally denied within the meaning of § 2675(a) when HUD sent her an uncertified letter refusing relief. The clear language of the statute requires that the denial be by certified or registered mail. Hence, due to the lack of an essential condition precedent, the debtor cannot successfully maintain the instant cause of action. As to this cause of action we will accordingly grant HUD’s motion to dismiss.
The debtor’s second cause of action is brought under the APA, under which an individual, aggrieved by the action of a federal agency, may seek redress within the scope of the statute. Under this statute the debtor contends that she is entitled to judicial recourse due to HUD’s alleged decision not to accept the assignment of the mortgage. HUD contends that it merely failed to decide the question of whether to accept the assignment prior to the sheriff’s sale of the property and that this type of inaction is not reviewable under the APA. In support of its argument, it quotes a portion of the APA:
§ 702. Right of review
A person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial review thereof. An action in a court of the United States seeking relief other than money damages and stating a claim that an agency or an officer or employee thereof acted or failed to act in an official capacity or under color of legal authority shall not be dismissed nor relief therein be denied on the ground that it is against the United States or that the United States is an indispensable party.
* * * * * #
5 U.S.C. § 702. We also quote another section of the APA:
§ 706. Scope of review
To the extent necessary to decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action. The reviewing court shall—
(1) compel agency action unlawfully withheld or unreasonably delayed; and
(2) hold unlawful and set aside agency action, findings, and conclusions found to be—
(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;
(B) contrary to constitutional right, power, privilege, or immunity;
(C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right;
(D) without observance of procedure required by law;
(E) unsupported by substantial evidence in a case subject to sections 556 and 557 of this title or otherwise reviewed on the record of an agency hearing provided by statute; or
(F) unwarranted by the facts to the extent that the facts are subject to trial de novo by the reviewing court.
In making the foregoing determinations, the court shall review the whole record or those parts of it cited by a party, and due account shall be taken of the rule of prejudicial error.
5 U.S.C. § 706.
Under 5 U.S.C. § 706(1) it appears that an agency’s inaction may be redressable under the APA but only if the action was “unlawfully withheld or unreasonably *283delayed.” The debtor has not averred that HUD unreasonably delayed in deciding the merits of the debtor’s application for an assignment of the mortgage. Nor has the debtor advanced any argument that HUD “unlawfully withheld” action. Thus, we conclude that the debtor’s cause of action under the APA is without merit and we will grant HUD’s motion to dismiss this cause of action.
On the third cause of action, which arises under 11 U.S.C. § 548(a) HUD requests its dismissal from this action on the condition that it place title to the property at issue in escrow. That section reads:
§ 548. Fraudulent transfers and obligations
(a) The trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor voluntarily or involuntarily—
(1) made such transfer or incurred such obligation with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation was incurred, indebted; or
(2)(A) received less than a reasonably equivalent value in exchange for such transfer or obligation; and
(B)(i) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation;
(ii) was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with the debt- or was an unreasonably small capital; or
(iii) intended to incur, or believed that the debtor would incur, debts that would be beyond the debtor’s ability to pay as such debts matured.
Although HUD’s basis for dismissal is reasonable in light of the proffered condition, we will deny the request since we prefer to have HUD’s aid in resolving this controversy-
We will, accordingly, enter an order granting HUD’s motion for dismissal of the first and second causes of action, but will deny its motion for dismissal of the third cause of action which is predicated on 11 U.S.C. § 548.
. In adjudicating a motion to dismiss a complaint for failure to state a cause of action upon which relief can be granted, we must view the facts in the manner most favorable to the plaintiff. We can grant such a motion only if it appears certain that the plaintiff is entitled to no relief under any statement of facts which could be proved in support of the claim. Hishon v. King & Spalding, 467 U.S. 69, 104 S.Ct. 2229, 2233, 81 L.Ed.2d 59 (1984); Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); 2A Moore's Federal Practice 12.08 (2d ed. 1982). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490264/ | OPINION
EMIL F. GOLDHABER, Chief Judge:
At the heart of this dispute the question is whether the debtor is entitled to damages for the foreclosure of a mortgage on a parcel of her realty when she did not receive notice of the foreclosure until shortly before the sheriff’s sale. For the reason stated herein, we will deny the debtor’s request for damages.
The facts of this case are as follows:1 The debtor purchased a parcel of realty in Philadelphia in 1963 and granted a mortgage thereon to Buffalo Savings Bank (“Buffalo”). The mortgage was insured by the Federal Housing Administration (“FHA”) and serviced by Fidelity Bond and Mortgage Company (“Fidelity”). The debt- or fell in default on the mortgage and Fidelity commenced foreclosure proceedings in July of 1980. The following month the sheriff attempted to effect service of the mortgage complaint by delivering a copy to an individual residing on the realty. Although Fidelity knew that the debtor was residing elsewhere, service was not made on the debtor or at her residence.
In the beginning of September 1980, default judgment was entered on the foreclosure complaint. Three weeks later, at the end of September, the debtor first learned of the foreclosure action. She contacted Fidelity and discovered that a sheriff’s sale of the property was scheduled for October 6. The debtor requested that the sale be postponed and Fidelity complied by rescheduling the sale for November 3.
With hopes of reinstating the mortgage, the debtor flew to Philadelphia and offered Fidelity $1,300.00. Fidelity declined stating that the outstanding deficiency was $1,997.88, consisting of $1,199.38 in missed monthly payments and late charges, $774.50 in attorneys’ fees and $24.00 in inspection costs.
The property was sold at sheriff’s sale on November 3 to Commercial Banking Corp. (“Commercial”) for a bid of $4,600.00. The debtor then began leasing the property from Commercial.
Shortly thereafter the debtor filed a petition for the repayment of her debts under chapter 13 of the Code and she then commenced the instant suit against Buffalo, Fidelity, Commercial and James J. O’Con-nell, the standing chapter 13 trustee. Commercial was ultimately dismissed from the suit when it agreed to return the property to the debtor for $8,000.00.
Resorting to the oft used “shotgun” approach, the debtor advances five causes of action, none of which clearly entitle her to damages under the facts of this case. Notwithstanding the novel application of some of her theories to these facts, her brief addresses the five causes of action in a total of ten pages, — a classic scatter pattern for the “shotgun” approach.
*300The first theory is that Fidelity violated Pa.R.Civ.P. 1145(c)2 by not mailing a copy of the foreclosure complaint to the debtor’s residence. While it is clearly true that Fidelity violated Rule 1145, it is equally clear that the debtor failed to prove how she was harmed by this violation since the debtor received actual notice of the proceeding prior to the sheriff’s sale. The debtor has not advanced any meritorious defense she would have introduced at the trial on the foreclosure complaint had she received timely notice of the proceeding. Furthermore, the debtor has not pointed to any provision of law allowing us to levy damages against Fidelity simply because of its technical violation of Rule 1145, and none is apparent to us.
Under her second cause of action the debtor contends that Fidelity violated Pa.Stat.Ann. tit. 41, § 404 (Purdon 1985 Supp.)3—which allows for the curing of a mortgage default by the payment of all arrearages, attorneys’ fees and costs— when it “impermissibly inflated the amount needed for a cure when [the debtor] returned to Philadelphia to try to prevent a foreclosure.” There is no proof of record that Fidelity inflated its charges, and thus this cause of action is without merit.
The debtor’s third basis for recovery is predicated on the assertion that the foreclosure of the FHA insured mortgages is governed by regulations of the Department of Housing and Urban Development. These regulations provide that:
Mortgagees are expected to avoid the foreclosure or assignment of HUD insured mortgages and to utilize acceptable methods of forebearance relief whenever feasible ... Any of the relief measures discussed in this chapter may be used and mortgagees are expected to refrain from foreclosure where it is determined that the case may be salvaged through use of one or more of these procedures.
Debtor’s brief p. 9, quoting from HUD Handbook, Ch. 8, § 121.
Assuming that HUD regulations are applicable here, the debtor asserts that the *301Fidelity breached the terms of the above quoted language by failing to accept the debtor’s tender of partial payment on the arrearage. We conclude that this is neither a violation of the regulation quoted above, nor is it clear to us that this regulation gives a debtor an implied cause of action for damages against a mortgagee. Hence, the third cause of action is without merit.
The fourth asserted basis for relief is that “the totality of [Fidelity’s] conduct was deceptive under” Pennsylvania’s Unfair Trade Practices and Consumer Protection Law. Pa.Stat.Ann. tit. 73, §§ 201-1 to 204-9 (Purdon 1985 Supp.). Although the statute in question is too lengthy to reproduce here, we have reviewed it and conclude that Fidelity’s conduct is not actionable under that statute.
The last cause of action raised by the debtor is that Fidelity’s conduct was an abuse of process. Under Pennsylvania law an abuse of process entails an appropriate commencement of legal proceedings although those proceedings may ultimately be used for an improper end. Baird v. Aluminum Seal Co., 250 F.2d 595 (3d Cir.1958). Under the facts of this case we see no abuse of process.
Since the debtor has failed to advance a meritorious cause of action, we will deny the debtor all relief on her complaint.
. This opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052.
. (a) The complaint shall be served by the sheriff upon the defendants. He shall also serve any person not named as a party who is found in possession of the land and shall so state in his return but such person shall not thereby become a party to the action.
(b) The plaintiff shall have the right of service upon a defendant in any other county by having the sheriff of the county in which the action was commenced deputize the sheriff of the county where service may be had.
(c) If service cannot be made under Subdivision (a) or (b) of this rule and the plaintiff sets forth in his complaint or files an affidavit that a defendant is deceased or his whereabouts unknown, or that he resides outside the Commonwealth, the sheriff shall forthwith (1) make service on that defendant by posting a copy of the complaint on the most public part of the land and (2) send him, if not known to be deceased, a copy of the complaint by registered mail to his last known address.
Pa.R.Civ.P. 1145.
. § 404. Right to cure a default
(a)Notwithstanding the provisions of any other law, after a notice of intention to foreclose has been given pursuant to section 403 of this act, at any time at least one hour prior to the commencement of bidding at a sheriff sale or other judicial sale on a residential mortgage obligation, the residential mortgage debtor or anyone in his behalf, not more than three times in any calendar year, may cure his default and prevent sale or other disposition of the real estate and avoid acceleration, if any, by tendering the amount or performance specified in subsection (b) of this section.
(b) To cure a default under this section, a residential mortgage debtor shall:
(1) Pay or tender in the form of cash, cashier's check or certified check, all sums which would have been due at the time of payment or tender in the absence of default and the exercise of an acceleration clause, if any;
(2) Perform any other obligation which he would have been bound to perform in the absence of default or the exercise of an acceleration clause, if any;
(3) Pay or tender any reasonable fees allowed under section 406 and the reasonable costs of proceeding to foreclosure as specified in writing by the residential mortgage lender actually incurred to the date of payment.
(4) Pay any reasonable late penalty, if provided for in the security document.
(c) Cure of a default pursuant to this section restores the residential mortgage debtor to the same position as if the default had not occurred.
Pa.Stat.Ann. tit. 41, § 404 (Purdon 1985 Supp.). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490267/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
L. CHANDLER WATSON, Jr., Bankruptcy Judge.
Introduction —
On March 28, 1984, the debtor commenced the above-styled case with the filing of a voluntary petition under chapter 11 of title 11, United States Code, and the case was converted to a case under chapter 7 on January 9, 1985. The above-styled adversary proceeding involves an objection to the debtor’s discharge under 11 U.S.C. § 727(a)(2) and (5), and a determination of dischargeability of a debt to the plaintiff under 11 U.S.C. § 523(a)(4) and (6). The case was tried before the Court without intervention of a jury and based on the stipulations of the parties and the evidence adduced at trial, the Court finds the facts to be as set forth below.
Findings of Fact —
1. The plaintiff, Central Bank of the South (hereinafter “bank”), is the holder of a claim secured by the debtor’s 1984 crop and the proceeds thereof.
*6522. The debtor delivered to the bank checks totalling $3,223.56 on January 9, 1985, which were proceeds from the sale of the debtor’s 1984 crop.
3. On January 9, 1985, the debtor told a bank officer that he had filed a claim for crop insurance on the 1984 crop and was in the process of collecting the insurance proceeds. As admitted by the debtor, each of the parties to the conversation understood that the bank claimed the insurance proceeds, although the debtor did not explicitly promise to deliver the insurance proceeds to the bank.
4. The debtor received the insurance proceeds shortly thereafter in two checks totalling $7,805.44.
5. The debtor used the insurance proceeds in the amount of $7,805.44 for living expenses and for expenses and obligations in the operation of his farm, other than the debtor’s obligation to the bank.
6. The debt owed the bank is, and was at that time, greater than the amount of the insurance proceeds.
Conclusions of Law —
The bank had a properly-perfected security interest in the debtor’s 1984 crop and the proceeds thereof, and the bank holds an allowed claim secured thereby in the debt- or’s case. Insurance payable by reason of loss or damage to collateral is proceeds, subject to an exception not applicable here. Ala.Code § 7-9-306(1) (1975). Each of the parties in the instant case understood that the bank claimed a right to the insurance proceeds to be received by the debtor on account of loss or damage to the bank’s collateral, i.e. the debtor’s 1984 crop, even though the debtor did not explicitly promise to turn over the insurance proceeds to the bank. The insurance proceeds were property of the estate. 11 U.S.C. § 541(a)(6) and (7).
Section 727(a)(2)(B) of title 11, United States Code, provides:
(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—
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(B) property of the estate, after the date of the filing of the petition ...
There can be no dispute that the debtor’s transfer1 of the insurance proceeds after the filing of the petition has proven a hindrance or delay to the bank in collection of the debt owed the bank. Resolution of the bank’s objection to discharge under 11 U.S.C. § 727(a)(2)(B) hinges, therefore, on the debtor’s intent.
Cases interpreting the statute have held that actual intent to hinder or delay must be shown. In re Devers, 759 F.2d 751, 753 (9th Cir.1985). Intent may be established by circumstantial evidence, or by inferences drawn from a course of conduct. Id. at 753-54, citations omitted. The question of whether a debtor has the requisite intent is a question of fact. Matter of Reed, 700 F.2d 986, 992 (5th Cir.1983).
Here, the debtor’s transfer of the insurance proceeds was not inadvertent or negligent; the debtor knew the bank asserted an interest in the insurance proceeds. The debtor’s transfer of the insurance proceeds was not based on a belief that the bank consented to the transfer of the insurance proceeds; the debtor understood that the bank was expecting to receive the insurance proceeds when the debtor obtained them. Despite the ultimate use of the insurance proceeds, it may be inferred from the amount of the transfer that the debtor *653was not motivated by ordinary personal concerns such as food or clothing, or by ordinary business concerns; it may be inferred that in transferring $7,805.44 subject to the bank’s security interest, understood by both parties to be asserted against the insurance proceeds, the debtor intended to hinder or delay the bank. Further, it may be inferred from the debtor’s actions that he knowingly concealed his receipt of the insurance proceeds with the intent of delaying or hindering the bank in enforcement of its rights to the insurahce pro-, ceeds.
The bank has met its burden of proof under 11 U.S.C. § 727(a)(2) as required by Bankruptcy Rule 4005, and an order denying the debtor’s discharge will be entered. Having concluded that the debtor’s discharge should be denied based on 11 U.S.C. § 727(a)(2), the Court does not address the other grounds asserted by the bank for denying the debtor’s discharge under 11 U.S.C. § 727 or the discharge of the debt owed the bank under 11 U.S.C. § 523.
. " *[T]ransfer’ means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an interest in property, including retention of title as a security interest." 11 U.S.C. § 101(41) (1982) (originally designated paragraph [40] by P.L. No. 95-598, the paragraph is now designated, with modification not applicable here, as paragraph [48], after intervening designations as paragraph [41], [43], and [44]. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490268/ | ORDERS ON MOTIONS CONCERNING NUNC PRO TUNC EMPLOYMENT AND COMPENSATION OF PROFESSIONALS AND RELATED PLEADINGS
ALEXANDER L. PASKAY, Chief Judge.
THE MATTERS before the Court in this Chapter 11 case are the Motion To Revoke *659Nunc Pro Tunc Order Authorizing Employment Of Real Estate Brokers And Requiring Return Of Monies Paid To Professional Persons, filed by the Debtor, and the objections thereto; and the Motion For Entry Of An Order Nunc Pro Tunc Authorizing Employment Of Real Estate Brokers, Lucas Real Estate Investments, Inc., and Approval Of Disbursements Of Real Estate Commission, filed by Lucas Real Estate Investments, Inc. (Lucas) and the objections to that Motion.
In the first Motion, the Debtor seeks an order revoking a previous order entered by this Court on May 29, 1984 which authorized the Debtor to employ real estate brokers and authorized payment of compensation to three real estate brokers in connection with the sale of real estate identified as the O’Neill property. The commissions paid pursuant to that order are as follows: Richardson Realty, Inc. — $32,000; Lucas— $11,550; and Indian Beach Land Company, Inc. (Indian Beach) — $11,550. The crux of the Debtor’s argument at the hearing was that the Court should reexamine the authorization, first, because the agent who acted on behalf of Lucas, Mr. LaHurd, was the former father-in-law of the president of the Debtor corporation and, as such, had a conflict of interest which, had the Court known, would have precluded Lucas from being authorized as a broker.
The second thrust of the Debtor’s argument is that the commissions are exorbitant and would not have been authorized if the sale had been accurately depicted to the Court as the single transaction that it was rather than a combination of two transactions.
Kusic and Kirtley, P.A. and Richardson Realty jointly objected to the Debtor’s Motion to Revoke the Order Authorizing Real Estate Brokers. The first basis for their objection was that it was not a timely motion for rehearing and, therefore, the Court should not revisit the propriety of the professional fees. They argue, further, that the Order Authorizing Fees should not be revisited under F.R.C.P. Rule 60(b) based on newly discovered evidence unavailable within time to move for a new trial or on the basis of fraud. They contend that all relevant facts were known or should have been known to the Debtor’s attorney and, further, that all relevant facts were disclosed to the Court at the time of the hearing on the Application for the Employment of Real Estate Brokers.
At the outset, this Court is satisfied that the Court can revisit an administrative order authorizing the Debtor’s payment to professional persons at any time during the pendency of the case and that it is not necessary that this Debtor meet the requirements of F.R.C.P. Rule 59 or 60 in order to be heard.
The Court is satisfied on the basis of the evidence presented that even if LaHurd’s relationship to a principal of the Debtor had been disclosed to the Court at the time his employment was approved, the Court would not have found that his interests were adverse to that of the estate and denied him employment on that basis. Consequently, the Order Nunc Pro Tunc Authorizing Debtor To Employ Real Estate Brokers should be reaffirmed to that extent.
The portion of the Order which does bear reassessment is the amount of brokerage fees paid. The fees totaled $55,100, or approximately 15.10% of the sale price of $365,000. That figure is grossly in excess of the percentage customarily found reasonable in this real estate market and should be reexamined.
The progress of the sale of the O’Neill property was somewhat unusual and can be briefly summarized as follows: The Debtor entered into a brokerage agreement with Lucas in an effort to sell what ultimately became the O’Neill property. Lucas listed the property and Indian Beach ultimately procured a buyer, Blondeau, and the purchase price was set at $231,000. Under the terms of the contract, Lucas and Indian Beach Land Company, Inc. would split the 10% brokerage fee, resulting in a commission to each of them in the amount of $11,550. Before that sale closed, how*660ever, Richardson Realty, Inc. procured a second buyer who, after some negotiation, agreed to a purchase price of $365,000. Under the terms of the second contract, $50,600 was paid to Blondeau to buy out his right to purchase under the original contract for purchase and sale. The contract further provided that, in addition to the brokerage fees earned by Lucas Real Estate Investments, Inc. and Indian Beach Land Company, Inc. in procuring the first buyer, Richardson Realty, Inc. would receive $32,000 in commissions for its efforts in procuring the ultimate buyer. As noted above, the combined commissions constitute approximately 15.10% of the total purchase price.
The record reflects that when Richardson Realty, Inc. procured the buyer, the Debtor had not been authorized to employ that company as a real estate broker and only subsequently obtained nunc pro tunc authorization. It is also without question that the estate benefited by Mr. Richardson’s efforts in that the net proceeds to the Debt- or under the final sales contract increased by $83,400 over that contemplated by the original sale contract. It is the considered opinion of this Court, therefore, that Richardson Realty is entitled to be compensated for the benefit it produced and is entitled to a commission limited to 10% of the net increase to the Debtor, i.e. $8,340, and should be required to refund the remaining $23,660 to the Debtor.
The Court reaffirms its ruling on the propriety of the employment and the compensation of Lucas and Indian Beach.
The second matter before the Court is the Motion for Entry of Order Nunc Pro Tunc Authorizing Employment Of Real Estate Brokers, Lucas Real Estate Investments, Inc., And Approval Of Disbursement Of Real Estate Commission, filed by Lucas Real Estate Investments, Inc. (Lucas). This Motion relates to Lucas’ efforts in procuring a buyer for that property of the Debtor known as the Oak Street property. Although this Court has strongly endorsed the proposition that any professional who deals with a Debtor without court authority does so at its own risk, the facts in this particular case require an exception. The record reveals that the attorney for Lucas, upon learning that court authorization was necessary, drew up an Application For A Nunc Pro Tunc Order Authorizing Employment Of Lucas Real Estate and forwarded the same to the Debtor’s attorney so that it could be submitted to the Court. The Debtor’s attorney did file the Application, albeit sometime later, but then subsequently withdrew the Application. Relying on the assurances that the authority would be obtained and the commissions paid, Lucas performed according to its brokerage agreement with the Debtor and the sale was ultimately closed. Based on the foregoing, the Court is satisfied that the nunc pro tunc authority should be granted and finds that the commission requested, 5% of the purchase price, is reasonable and should be approved.
Both of the above Motions dealt with the attorney’s fees held in escrow for Kusic and Kirtley pending court approval of the fees. The Debtor’s Motion asked that the Court review the fees and Kusic and Kirtley request that they be approved and disbursed from the escrow account. The Court heard argument of counsel on this issue, reviewed the record and finds that the firm of Kusic, Kirtley and Gay, f/k/a Kusic and Kirtley, P.A. was approved as special counsel to Sarasota Land Company nunc pro tunc for the purpose of the O’Neill closing. The Court finds, further, that the legal fees and costs in the amount of $2,252.50 are reasonable and should be disbursed to Kusic and Kirtley from the escrow account held by Sarasota Land Company and its attorney.
The record further reflects that in connection with the Spanish Oaks closing, no authorization to employ Kusic and Kirt-ley has been requested and none given and, further, there is no application for fees as required by Bankruptcy Rule 3016 made by that firm. Consequently, any payment to that firm would be improper. Based on the foregoing, it is
*661ORDERED, ADJUDGED AND DECREED that the Motion to Revoke Nunc Pro Tunc Order Authorizing Employment of- Real Estate Brokers and Requiring Return of Monies Paid to Professional Persons, filed by the Debtor be, and the same is hereby, granted in part and denied in part and Richardson Realty, Inc. is directed to return $23,660.00 of the commission disbursed to it at the O’Neill closing and the Court reaffirms its ruling on the propriety of the employment and compensation of Lucas and Indian Beach. It is further
ORDERED, ADJUDGED AND DECREED that the Motion for Entry of An Order Nunc Pro Tunc Authorizing Employment of Real Estate Brokers, Lucas Real Estate Investments, Inc. And Approval of Disbursement Of Real Estate Commissions, filed by Lucas be, and the same is hereby, granted in part and denied in part and the Debtor is authorized, nunc pro tunc, to employ Lucas as a real estate broker for the sale of the Oak Street property and is authorized to pay and disburse the 5% commission requested. The request for authorization to disburse funds to the firm of Kusic and Kirtley in connection with the Spanish Oaks closing be, and the same is hereby, denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490270/ | MEMORANDUM AND ORDER
ROBERT L. EISEN, Chief Judge.
This matter comes to be heard on the motion of Joyce A. Childress (“plaintiff”) *829for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure, made applicable to the case herein by prior Bankruptcy Rule 756, on her adversary proceeding against Aurora National Bank (the “Bank”) for damages based on an alleged breach of duty by the Bank while acting as disbursing agent in this Chapter XII case. For the reasons set forth below, plaintiffs motion for summary judgment is denied and the Bank’s motion to dismiss the complaint is granted.
BACKGROUND
The Chapter XII petition of the debtor, Harry L. Childress (“debtor”), was filed on March 20, 1979. Subsequent thereto, the debtor’s Amended Plan of Arrangement (the “Plan”) was filed on October 30, 1979. The Plan proposed to repay creditors 100% through the sale of two of the debtor’s fractional interests in certain real property. Article II of the Plan, the catalyst for the instant complaint, provided, inter alia:
Petitioner’s plan contemplates, however, the sale of certain real estate interests which will result in Federal tax liability and the plan hereinafter set forth will include the retention of sufficient funds to satisfy these tax liabilities.
The sale of the first interest contemplated full payment of $325,000 to be received by June 30, 1980 and the Plan stated that the debtor would be required in connection therewith to pay a federal tax of approximately $90,000. With respect to the sale of the second interest for approximately $220,000, the Plan set forth that the debtor would be liable for approximately $62,000 in federal tax liability.
Article V of the Plan provided that the debtor would deposit the proceeds from the foregoing sales in a separate escrow account with the Bank to be disbursed by a disbursing agent pursuant to court order. That same article, in providing for the payment of claims, made no provision for the retention of funds in escrow for future tax liabilities generated by the sales, other than to state that Class 1 priority creditors would be paid in full after payment in full to each of the two secured creditors. The Plan was thereaftér confirmed on December 5, 1979.
On April 3, 1980, the Bank made disbursements pursuant to court order. Shortly thereafter, on April 17, 1980, a creditors’ committee was established composed of defendant Ralph Egeland, president of the Bank, and two other individuals. On February 18, .1981, the creditors' committee filed its petition seeking authority for the disbursing agent to make a 100% disbursement to creditors, after payment of any fees and costs having priority under the plan, from the approximately $165,000 on hand. The court granted the creditors’ committee’s petition and further ordered that the sum of $5,000 be held until March 11, 1981 to cover contingencies, which sum, as well as all other funds currently held by the disbursing agent, would be released to the debtor if no further orders of court were entered before that date.
In April, 1981, the plaintiff alleges that she and the debtor filed a joint return showing tax liability of $140,000 from the 1980 sales of property to fund the Plan. Because there was no money to pay such tax liability, plaintiff states that the IRS subsequently levied on the residence which had been awarded to her in connection with the dissolution of her marriage to the debt- or in 1982. Consequently, the plaintiff and the debtor jointly borrowed $96,681.41 from the Bank to pay the tax liability and in connection therewith, the plaintiff signed a one year promissory note dated May 28, 1982, securing said loan with an assignment of beneficial interest of the land trust holding her home. Both the debtor and the plaintiff defaulted on the note, thereby causing the Bank to institute a state court foreclosure proceeding against both parties. The Bank took a voluntary dismissal of that foreclosure proceeding subsequent to plaintiff’s filing the instant adversary complaint which seeks to surcharge the Bank by rescinding the promissory note and assignment of beneficial interest and to recover actual and punitive damages and attorneys’ fees. The plaintiff alleges that *830the Bank, through its president, breached its fiduciary duty as a disbursing agent by failing to retain sufficient proceeds, at the time of the February, 1981 disbursements, to pay the subject federal tax liabilities.
DISCUSSION
Initially, the court concludes that there does not appear from the pleadings, memo-randa, and other materials submitted, any fact which raises a genuine dispute which is material or relevant to the court arriving at a judgment as a matter of law. Therefore, the issue as to whether the Bank breached a duty to the plaintiff herein can be rendered as a matter of law. Secondly, since this case was commenced under the Bankruptcy Act of 1878 (the “Act”), this adversary proceeding must be resolved under the Act.
The plaintiffs pending motion for summary judgment sets forth three independent sources for the Bank’s duty to retain sale proceeds: the Plan itself; the predecessor to 31 U.S.C. § 3713 and the analysis thereof in King v. United States, 379 U.S. 329, 85 S.Ct. 427, 13 L.Ed.2d 315 (1964); and section 64 of the Act. As will be discussed briefly below, the court concludes that these sources imposed no duty on the Bank to this plaintiff in the context of this case. Concomitantly, the court concludes that this adversary proceeding can be summarily disposed of simply on the basis of Rule 924 of the Act which makes Rule 60 of the Federal Rules of Civil Procedure applicable to bankruptcy cases. Fed. R.Civ.P. 60(b) provides in relevant part:
On motion and upon such terms as are just, the court may relieve a party or his legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; ... (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; ... The motion shall be made within a reasonable time, and for reasons (1), (2), and (3) not more than one year after the judgment, order, or proceeding was entered or taken....
At the time the court entered the February, 1981 order of distribution, the plaintiff was still married to the debtor. Two months later, when plaintiff and the debtor filed their joint tax return, both of them were aware of the $140,000 tax liability. Therefore, if in fact the Plan was to provide for an escrow account for the tax liability so that the February, 1981 order had been entered by mistake or, as the plaintiff alleges in her present complaint, by some misconduct of the disbursing agent, it was incumbent on her part to present a motion to vacate the order of disbursement within a year after it was entered. Instead, she signed a promissory note in May, 1982 to pay the tax liability. It was not until four years after the 1981 disbursement that the plaintiff filed the instant complaint, essentially contending that the disbursement order should never have been entered. Her request for relief from that order is simply too late, even if all the allegations she sets forth are true. See In re Daugherty, 32 B.R. 461 (Bankr.E.D.Tenn.1983).
Even in the absence of the foregoing disposition of this complaint, upon reviewing section 64 a of the Act, the Plan itself, and the Supreme Court decision in King v. United States, supra, this court finds no duty on the part of the Bank as disbursing agent. Section 64 a(4) of the Bankruptcy Act provides for a fourth priority for “taxes which became legally due and owing by the debtor to the United States.” The priority accorded thereunder relates to those taxes which became legally due and owing prior to bankruptcy. 3 Collier on Bankruptcy, ¶ 64.401 at 2150.1 (14th ed. 1975). A tax cannot be found “legally due and owing” by the debtor until enough is known of its basis to make the tax computable or knowable, when all facts necessary for its calculation are available. In re Pulliam, 2 B.C.D. 800, 802 (Bankr.E.D.Mo.1976). Clearly, the tax at issue here was not legally due and owing at the time this Chapter XII petition was filed. There*831fore, any priority which may have existed would arise pursuant to section 64 a(l) as an administrative expense.
However, the liability for the taxes, which accrued post-confirmation, was not incident to the arrangement in this case as a cost of administration provided for in the Plan as a Class 1 administrative expense priority. Rather, the liability for taxes arose, if at all, under the language in the Plan which, under section 461, may, but is not required to, “provide for payment of debts incurred after the filing of the petition and during the pendency of the arrangement, in priority over the debts affected by such arrangement.” Although the Plan apparently intended to provide for the tax liability accruing from the sale of the debtor’s real property, it did not so explicitly provide. No provision for the estimated tax liabilities was set forth in the disbursement portion of the Plan.
The court further notes that even if the United States were a creditor provided for in this Chapter XII Plan, it was not entitled to participate in distribution thereunder since it was neither a creditor whose proof of claim had been filed prior to the date fixed by the court pursuant to Rule 12-30(b)(3) and subsequently allowed, nor a creditor whose claim, although not so filed, was scheduled by the debtor and was not contingent, unliquidated, or disputed. 9 Collier on Bankruptcy 119.10 at 1150 (14th ed. 1976).1 (emphasis added). Thus, if the United States was not even entitled to participate in the distribution, the disbursing agent could not have breached any duty under the Act or the Plan.2
The plaintiff, in contending that the disbursing agent improperly paid unsecured debt ahead of the Class 1 administrative expense of post-petition taxes, places primary reliance on the Supreme Court decision in King v. United States, 379 U.S. 329, 85 S.Ct. 427, 13 L.Ed.2d 315 (1964). The Supreme Court there held a disbursing agent in a Chapter XI proceeding personally liable for satisfying claims of non-priority creditors while having knowledge of an outstanding government priority claim. The duty in that case was based on 31 U.S.C. § 192 (now 31 U.S.C. § 3713) which provided:
Every executor, administrator, or assign-ee, or other person, who pays, in whole or in part, any debt due by the person or estate for whom or for which he acts before he satisfies and pays the debts due to the United States from such person or estate, shall become answerable in his own person and estate to the extent of such payments for the debts so due to the United States, or for so much thereof as may remain due and unpaid.
However, no liability can be attributed to the disbursing agent herein pursuant to the above statute since, as noted above, there was no debt due to the United States in the form of a priority claim at the time of the February, 1981 order of disbursement.
The duty imposed on the disbursing agent in King was greatly limited by the circumstances of that case. The plaintiff herein seeks to expand the Supreme Court’s holding in King to impose a duty on the disbursing agent to have informed this court that the creditors’ committee’s petition apparently conflicted with the provisions of the Plan, a duty which this court concludes was more properly on the debtor *832or his attorney.3 As the concurring opinion notes in King, a disbursing agent’s control and possession are limited to the deposit. The deposit made by the debtor is merely required to include a sufficient sum to pay all scheduled priority claims. If the deposit does not include an amount sufficient to take care of all scheduled priority claims, the arrangement may not be confirmed. 8 Collier on Bankruptcy ¶ 5.32[8] at 663 (14th ed. 1974). If an arrangement is nevertheless confirmed without a sufficient deposit to pay all scheduled priority claims, the disbursing agent should arguably not be required to bear the burden of the court’s unauthorized act absent facts such as in King. See King v. United States, supra, 85 S.Ct. at 434.
Under the Bankruptcy Act, a disbursing agent is charged with distribution to specified recipients and has no reason or duty to know of or ascertain unscheduled debts. The disbursing agent performs only the ministerial function of paying out the deposited funds in conformity with orders of court. 8 Collier on Bankruptcy 11 5.27[7] at 640 (14th ed. 1974). Thus, lacking knowledge from some other source, the disbursing agent would be beyond the reach of 31 U.S.C. § 192 if the government “priority claim” is unscheduled and unpaid. King v. United States, supra, at 433. The present case is simply not one of a disbursing agént’s payment out the deposit so as to defeat a scheduled government priority claim.
Finally, the court finds it significant that the United States never objected to the confirmation of the plan hereunder nor has it ever sought to assert its rights as a creditor by filing a claim for taxes against the estate under Rule 12-33 which permits the United States to file a claim for taxes after confirmation but before the case is closed, provided the taxes are found to be owing within one year from the date of filing and have not been assessed prior to confirmation, or which may become owing from a trustee or debtor in possession. Nor is the plaintiff herein a creditor of this estate asserting a claim to the underlying deposit of funds. Rather, the plaintiff seeks to assert a claim for damages for an alleged breach of duty by the disbursing agent based on what she perceives to have been owed to the United States. If the disbursing agent did in fact owe anyone a duty under this Plan, it would be one to the United States and not to this plaintiff.
IT IS THEREFORE ORDERED that the motion of the plaintiff, Joyce A. Childress, for summary judgment is hereby denied. It is further ordered that the motion of Aurora National Bank to dismiss this adversary proceeding is hereby granted.
. The plaintiff argues that the tax “claim" was contingent and unliquidated. However, the United States would still be required to file a proof of claim within the time fixed under Rule 12-30. Such claim would thereafter have to be allowed in order to participate in distribution.
. The court notes that the Plaintiff seems to find some misconduct due to the fact that the Bank, besides acting as disbursing agent, was paid in full. However, even if there had been a legally due and owing tax claim, it would have been paid after payment to secured creditors pursuant to Article V of the Plan. Even if the Bank had a duty to tell the court that the Plan conflicted with the February, 1981 petition for disbursement, it did not benefit from such alleged omission since it still would have received full repayment under the Plan. Further, if there were some conflict of interest with respect to the Bank’s acting as disbursing agent while being the largest secured creditor, some objection should have been filed at the time of appointment, not four years later.
. Section 473(2) of the Act requires that upon confirmation of a Plan, the debtor shall comply with the provisions of the arrangement and shall take all necessary action to carry out the same. By Ihe time of the February, 1981 order, the debtor had all the necessary facts to ascertain any tax liability for which he may have been responsible. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490271/ | RANDOLPH BAXTER, Bankruptcy Judge.
MEMORANDUM OF OPINION AND ORDER
This matter is before the Court upon the motion of Accurate Die Casting Company, a Chapter 11 Debtor In Possession (DIP), seeking injunctive relief which, if granted, would preliminarily enjoin the National Labor Relations Board (NLRB) from continuing to administratively adjudicate an action filed with the NLRB by Local Lodge # 439, District 54, International Association of Machinists and Aerospace Workers (Union).1 More specifically, the DIP seeks in-junctive relief against the NLRB until this Court can adjudicate issues raised in the DIP’s earlier-filed Complaint to enjoin alleged violations of the automatic stay afforded by Section 362 of the United States *854Bankruptcy Code. That adversary proceeding is also against the NLRB and the Union and is premised upon the same administrative charge filed by the Union with the NLRB.
FACTS
The following facts are pertinent to the Court’s determination of the matter at bar:
1. During the period of 1973 through 1985, the Union was a duly recognized bargaining agent with the DIP’s Cleveland, Ohio operations;
2. In September of 1985, the Union filed a grievance with the DIP, alleging a failure of the DIP to bargain with the Union regarding terms of employment and benefits allegedly due the Union. The Union during the same time period, filed a civil action in the District Court for the Northern District of Ohio against the DIP, seeking injunctive relief to prevent the DIP from encumbering or otherwise disposing of its assets until certain disputes were resolved;
3. Also, in September of 1985, the most recent collective bargaining agreement between the union and the DIP expired;
4. On October 15, 1985, the DIP caused to be filed its Chapter 11 petition and ceased operations at its Cleveland, Ohio facility;
5. The District Court entered an order staying the Union’s action in that Court in view of the DIP’s bankruptcy petition;
6. In January of 1986, the Union filed an administrative charge against the DIP with the NLRB;
7. In response thereto, the DIP filed its Complaint with this Court seeking to enjoin the NLRB’s administrative action;
8. The NLRB issued its Complaint against the DIP, alleging certain violations of the NLRA and an alleged failure and refusal of the DIP to bargain collectively and in good faith with the Union. The NLRB’s Complaint further required the DIP to file a response thereto within a thirty-day period or be subjected to a summary disposition of the administrative complaint. The DIP’s instant motion was filed.
The gravamen of the movant’s contentions is that it would be irreparably harmed and damaged if it is required to file an answer to the NLRB’s administrative complaint before this Court issues a ruling on its Complaint to enjoin the NLRB from alleged automatic stay violations under 11 U.S.C. § 362. The DIP bases this contention on the NLRB’s indication that it (NLRB) would seek summary judgment on its administrative complaint should the DIP fail to timely respond. The DIP further contends that any delay of the NLRB’s proceedings will have no substantive effect on any of the parties, and that should this Court rule adversely to the DIP on its Complaint against the NLRB to enjoin automatic stay violations, the NLRB’s proceedings can still be timely completed.
Rather than respond directly to the DIP’s motion for preliminary injunction, the NLRB filed its motion to dismiss the DIP’s amended complaint for injunctive relief. Therein, however, the NLRB avers that requiring the DIP to respond to its administrative complaint will not constitute an irreparable harm to the DIP, and further contends that a mere necessity to expend funds to oppose an administrative proceeding does not constitute a threatened harm to the DIP.
The instant question for the Court’s determination is whether the Bankruptcy Court should enjoin the NLRB from proceeding with its administrative complaint against the DIP, and without requiring a response from the DIP until this Court can adjudicate the DIP’s Complaint to enjoin stay violations on the merits.
Although this Court is cognizant of its power to issue any order, process, or judgment that is necessary or appropriate to effectuate the several provisions of the Code under the authority of 11 U.S.C. *855105(a), this question should most properly be determined by an application of the usual rules relating to the grant or denial of injunctions. See, In re Larmar Estates, Inc., 5 B.R. 328, 331; 6 B.C.D. 711, 713 (Bkrtcy.E.D.N.Y.1980). Within the Sixth Circuit, the following considerations are prerequisites in deciding whether to grant or deny a preliminary injunction:
1. Whether the Plaintiffs have shown a strong or substantial likelihood or probability of success on the merits;
2. Whether the Plaintiffs have shown irreparable injury;
3. Whether the issuance of a preliminary injunction would cause substantial harm to others;
4. Whether the public interest would be served by issuing a preliminary injunction.
See, In re Marion Steel Co., 35 B.R. 188, 194 (Bankr.N.D. Ohio 1983).
Upon consideration of these factors, and in view of the factual context presented, the DIP has failed to sufficiently meet the requirements of this four-pronged test. The grant or denial of a preliminary injunction is a matter within the sound discretion of the trial court. Buffler v. Electronic Computer Programming Institute, Inc., 466 F.2d 694 (6th Cir.1972). Rule 52, Fed. R.Civ.P., requires the Court to make specific findings concerning each of the four (4) factors, unless fewer are dispositive of the issue. In re DeLorean Motor Co., 755 F.2d 1223, 1228 (6th Cir.1985); citing United States v. School District of Femdale, 577 F.2d 1339, 1352 (6th Cir.1978).
In addressing the first of the four factors, whether the DIP has shown a strong or substantial likelihood or probability of success on the merits, a ruling on this factor may be deferred, but must be balanced against the remaining three factors. The Sixth Circuit, in DeLorean, supra, at 1229, in clarifying how the “likelihood of success” factor would be determined, held that the degree of likelihood of success required may depend upon the strength of the other factors. It went on to hold that “the four factors applicable to a preliminary injunction decision are factors to be balanced, not prerequisites to be met.” Id. adequately addressed this concern when it held that “mere litigation expense, even substantial and unrecoupa-ble cost, does not constitute irreparable injury.” Renegotiation Board v. Bannercraft Clothing Co., 415 U.S. 1, 23-24, 94 S.Ct. 1028, 1042, 39 L.Ed.2d 123 (1973). Further, this Court notes that the NLRB’s administrative hearing is not scheduled until June 9, 1986, which post-dates this Court’s scheduled hearing on the DIP’s Complaint. Even within the purview of 11 U.S.C. 105(a), no irreparable harm would be found in this situation. In the absence of a clear showing of the threat of irreparable harm, an injunction may not issue under § 105 or Rule 65, Fed.R.Civ.P.. In Re Baldwin United Corp., 48 B.R. 901, 902 (Bankr.S.D. Ohio 1985), quoting Friendship Materials, Inc., v. Michigan Brick, Inc., 679 F.2d 100, 104 (6th Cir.1982). Responding to the NLRB by filing an answer cannot be found to represent irreparable harm to the DIP. The DIP has not demonstrated that preparing a response to the NLRB Complaint would threaten the estate’s assets or would otherwise harm the viability of the DIP’s economic condition or successful reorganization before this Court can render a ruling on the DIP’s Complaint regarding alleged stay violations.
A pretrial on the DIP’s Complaint is scheduled for April 23, 1986, and the NLRB’s hearing is not scheduled until June 9, 1986. Even the DIP has acknowledged in its pleading that if this Court rules adversely to its position, the proceedings before the NLRB can still be timely completed. DIP’s Brief at 3. In light of the DIP’s awareness that neither party would be harmed in preparation for the hearing on the NLRB Complaint, should this Court rule against the DIP’s Complaint on the merits, the DIP’s present allegations of harm are unpersuasive.
The third and fourth factors to be considered by the Court have not been specifically addressed by the movant and, accordingly, the Court is without substance to *856determine whether either factor would weigh in favor of the issuance of a preliminary injunction. Thusly, utilizing either a required four-element test or a balancing test of the four elements, the DIP has failed to establish that it is entitled to receive the injunctive relief it seeks.
For the foregoing reasons, the movant’s motion for a preliminary injunction is hereby denied.
IT IS SO ORDERED.
. The Union’s complaint filed with the NLRB, inter alia, alleged that the DIP had violated the provisions of Sections 8(a)(1) and 8(a)(5) of the National Labor Relations Act (NLRA), 29 U.S.C. 158(a)(1) and 158(a)(5). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490272/ | ORDER ON VERIFIED MOTION FOR PRELIMINARY INJUNCTION OF COLONIAL DRIVE, INC., DEBTOR/PLAINTIFF
ALEXANDER L. PASKAY, Chief Judge.
The matter under consideration is a motion for preliminary injunction filed by Colonial Drive, Inc. (Debtor). The Debtor seeks a preliminary injunction to prohibit Southeast Bank, N.A. (Bank), from proceeding with the currently pending civil suit filed by the Bank against Donald P. Fischer, James G. Bingham and John M. Cherry, in the Circuit Court in and for Hillsborough County, Florida, Case No. 85-20882. The evidence presented in support of the motion reveals the following facts pertinent to the resolution of the matter under consideration.
Colonial Drive, Inc., the Debtor, is the owner of 18 condominium units located in Tampa, Florida, which units are encumbered by a first mortgage in favor of the Bank securing an indebtedness in the approximate amount of $560,000. It is indicated by the testimony of the President of the corporation that the property might *877have a retail value of $1,000,000. Mr. Fischer, Mr. Bingham and Mr. Cherry are sole stockholders of the Debtor, and Mr. Fischer claims to devote his full time to the affairs of the Debtor which consists of an attempt to retail the condominium units or, in the alternative, to market the entire package as part of a plan of reorganization. The Chapter 11 petition by Debtor was filed on November 22, 1985. No plan or disclosure statement has been filed, and the Debtor did not seek an extension of the time to file a plan of reorganization. It appears that Mr. Bingham is wholly incapacitated at this time due to a stroke and does not participate at all in the affairs of the Debtor. Mr. Fischer claims to spend his full time looking after the affairs of the Debtor and Mr. Cherry also, but to a lesser extent. It appears that after the commencement of the case the Debtor received some funds from an entity known as Townhouse Technologies, Inc., Westshore Properties, Inc., and Mr. Fischer, the President of the corporation, for the purpose of defraying its current operating expenses. It appears that Mr. Fischer is also involved, although not alone, with the affairs of Townhouse and Westshore. None of these advances were authorized by the Court. It further appears that the Debtor has some other income from the rental of one of the condominium units.
There is nothing in this record to indicate that any of the individually owned assets of the principals of the Debtor will be used to fund a plan of reorganization nor is there any evidence in this record to indicate that the credit of these individual non-debtors will play a meaningful or important part in the Debtor’s efforts to achieve a reorganization through refinancing or through the infusion of equity capital, c.f. St. Petersburg Hotel Associates, Ltd,., 37 B.R. 380 (Bkrtcy.M.D.Fla., 1984).
These are the. relevant facts which, according to the Debtor, would warrant the relief prayed for and this Court should prohibit the Bank from taking any further steps against Messrs. Bingham, Fischer and Cherry in the civil suit filed by the Bank against them based on their personal guaranties of the prime obligation of the Debtor.
It is a well established proposition that the party seeking injunctive relief under § 105 of the Bankruptcy Code to protect non-debtors by the automatic stay have a heavy burden to establish convincing evidence that unless the relief is granted the Debtor, and not the non-debtor whose protection is sought will suffer irreparable harm, and if the relief is granted would not injure or harm the party against whom the injunction is issued and the party seeking the relief will have a realistic chance to prevail ultimately at the final evidentiary hearing. As stated in the case of Landis v. North American Company, 299 U.S. 248, 255, 57 S.Ct. 163, 166, 81 L.Ed. 153, 158 (1936), before a petitioner is entitled to relief he must show “ ‘a clear case of hardship’ or ‘inequity’ if there is ‘a fair possibility that the stay would work damage on another party.’” Thus, the appropriateness of granting such relief to a non-debtor was held to be justified only under exceptional circumstances. See In re Otero Mills, Inc., 31 B.R. 185 (Bkrtcy.N.M.1983); In the Matter of Old Orchard Inv. Co., 31 B.R. 599 (Bkrtcy.W.D.Mich.1983); St. Petersburg Hotel Associates, Inc., supra; A & B Heating Corporation, 48 B.R. 401 (Bkrtcy.M.D.Fla., 1985). Based on these cases, this Court is satisfied that this Debt- or failed to carry the burden and establish the requisite degree of proof that it is éntitled to the relief sought at this time for the following reasons: First, the activity of this Debtor is minimal; and second, the Debtor had already obtained funds albeit without authorization from some of these individual non-debtors, and also from some other entities controlled by Mr. Fischer. Thus, it is clear that these entities could just as well advance the funds necessary to defend against civil suits filed against them. Since there is no proof at this time that either of the properties of these individuals will be devoted to fund a plan of reorganization, or that the preservation of their credit would be imperative because it *878is needed to fund a plan of reorganization, the motion cannot be granted.
ORDERED, ADJUDGED and DECREED that the Verified Motion for Pre-. liminary Injunction filed by Debtor is denied. It is further
ORDERED, ADJUDGED and DECREED that a final evidentiary hearing will be scheduled and heard before the undersigned on the 15th day of July, 1986, at 1:30 o’clock P.M. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490273/ | OPINION
EMIL F. GOLDHABER, Chief Judge:
The focus of the controversy at hand is whether the “cause” requirement of 11 U.S.C. § 502(j) and Bankruptcy Rule 3008 is an additional implicit element required for disallowance of a claim under 11 U.S.C. § 502(d). On the basis of the reasons ex*927pressed herein, we conclude that it is not, and we will therefore disallow the claim at issue.
The facts of this controversy are as follows:1 A creditor, Londonderry Mushroom Farms, Inc. (“Londonderry”), filed a proof of claim (No. 98) against the bankruptcy estate for $209,846.34 for prepetition merchandise sold and delivered to the debtor. The trustee objected to the claim on the basis that the debtor’s books reflect that it only owed Londonderry $188,282.21, consisting of $121,784.41 for prepetition goods and $66,497.80 for postpetition merchandise. The trustee also asserted in its objection that he had commenced suit in this court claiming that Londonderry owed the debtor $66,497.80 for postpetition goods the debtor sold to Londonderry. The parties eventually stipulated to an adjustment and setoff of prepetition liabilities and fixed Londonderry’s claim at $71,558.38. At the time of the execution of the stipulation the trustee knew that he had little prospect of ever collecting on any possible judgment against Londonderry if he prevailed in his suit against it. We thereafter entered judgment on the trustee’s complaint in his favor and against Londonderry in the amount of $46,475.93 for postpetition goods sold to it by the debtor.2 Londonder-ry has failed to pay any part of the judgment.
The trustee filed a second objection to Londonderry’s proof of claim requesting that we disallow it under 11 U.S.C. § 502(d) of the Code. Londonderry defends the action by asserting that the trustee knew at the time of the signing of the stipulation that it would be unable to satisfy any possible judgment entered in favor of the trustee. Thus, Londonderry claims that circumstances have not changed since the signing of the stipulation and that therefore there is no “cause” for reconsidering our order approving the stipulation in question.
Under § 502(d)3 the bankruptcy court may disallow a claim if the claimant has failed to pay money it owes the estate or turn over property of the estate. This provision is based on the policy that a creditor who fails to turn over to estate any money or property it owes to the estate, will not be entitled to share in the proceeds of the estate. This power of disallowance is distinct from the court’s power to reconsider claims under § 502(j)4 and Bankruptcy Rule 3008.5 Hence, the requirement that claims may only be reconsidered for cause under § 502(j) and Bankruptcy rule 3008 is not applicable to § 502(d). Section 502(d) is limited by the terms and conditions set forth in that provision rather than the restrictions of § 502(j) and Bankruptcy Rule 3008.
*928As applied to the ease at hand, the fact that the trustee knew at the time of the signing of the stipulation that Londonderry would be unable to pay any possible judgment that the trustee might obtain, is no bar to the disallowance of Londonderry’s claim under § 502(d). Under § 502(d) Londonderry has neglected to pay 11 U.S.C. § 542 of the Code the trustee’s judgment on his postpetition claim. Thus, disallowance of Londonderry’s claim is mandated. Bank of Dixie v. King (In re Honeycutt Grain & Co., Inc.), 41 B.R. 678 (Bankr.W.D.La.1984).
We will accordingly enter an order disallowing Londonderry’s total claim of $71,-558.38.
. This opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052.
. Set off between Londonderry’s prepetition claim and the trustee’s postpetition judgment is not permissible since set off between prepetition debts and postpetition claims is not allowable. Cooper Jarrett, Inc. v. Central Transport, Inc., 726 F.2d 93, 96 (3d Cir.1984); Franklin Computer Corp. v. Wolsten's Projector House, Inc. (In Re Franklin Computer Corp.), 57 B.R. 155, (Bankr. E.D.Pa.1986).
. (d) Notwithstanding subsections (a) and (b) of this section, the court shall disallow any claim of any entity from which property is recoverable under section 542, 543, 550, or 553 of this title or that is a transferee of a transfer avoidable under section 522(f), 522(h), 544, 545, 547, 548, 549, or 724(a) 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 under section 522(i), 542, 543, 550, or 553 of this title.
11 U.S.C. § 502(d).
. (j) Before a case is closed, a claim that has been allowed may be reconsidered for cause, and reallowed or disallowed according to the equities of the case.
11 U.S.C. § 502(j). This provision has been amended by the Bankruptcy Amendments and Federal Judgeship Act of 1984. The above-quoted, preamendment language is applicable to the case before us.
. RECONSIDERATION OF CLAIMS
A party in interest may move for reconsideration of an order allowing or disallowing a claim against the estate. The court after a hearing on notice shall enter an appropriate order.
Bankruptcy Rule 3008. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490274/ | MEMORANDUM OPINION AND ORDER
WEINER, District Judge.
This is an appeal from an order of the Bankruptcy Court denying petitioner’s request for attorney’s fees, 55 B.R. 207 (Bkrtcy.Pa.1985). For the reasons which follow, the decision is affirmed.
The petitioner was laid off from his job on November 19, 1982 due to a work slowdown. He subsequently obtained unemployment compensation. Before petitioner was laid off, his take home pay was $989.00 per month. His weekly unemployment compensation check totaled $858.00 per month, reflecting a decrease in income of $131.00 per month.
Petitioner subsequently requested an assignment of his mortgage from the Department of Housing and Urban Development (HUD) under its Mortgage Assignment Program. The reason for petitioner’s request for assignment of the mortgage was his inability to make his monthly mortgage payments of $145.25.1 HUD denied petitioner’s request for assignment and stated its reasons in a letter dated June 16, 1983.
Petitioner filed for relief under Chapter 7 of the Bankruptcy Code in September of 1983. He also sought judicial review of HUD’s denial of his request for assignment of the mortgage. After a motion for summary judgment, HUD agreed to accept the assignment of the mortgage. The petitioner then filed a motion for attorney’s fees against HUD under the Equal Access to Justice Act.
The Equal Access to Justice Act, 28 U.S.C. § 2412(d),2 provides for an award of fees to the prevailing party, “unless the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust.” 28 U.S.C. § 2412(d)(1)(A). The burden of proving substantial justification is on the government. Miller v. United States, 753 F.2d 270, 274 (3d Cir.1985); Dougherty v. Lehman, 711 F.2d 555, 561 (3d Cir.1983). The position of the United States includes the government’s position during the litigation as well as the agency’s position that made the suit necessary. Natural Resources Defense Council v. U.S.E.P.A., 703 F.2d 700 (3d Cir.1983). To meet its burden, the government must show (1) a reasonable basis in truth for the facts alleged; (2) a reasonable basis in law for the theory it propounds; and (3) a reasonable connection between the facts alleged and the legal theory advanced. Miller, 753 F.2d at 274.
Petitioner contends that HUD’s failure to grant him the request for assignment of the mortgage was not substantially justified and contrary to the requirements under the Mortgage Assignment Program. On default the mortgagee may assign the mortgage to HUD to avoid foreclosure if, inter alia:
(5) The mortgagor’s default has been caused by circumstances beyond the mortgagor’s control which render the mortgagor unable to correct the delinquency within a reasonable time or make full mortgage payments.
(6) There is a reasonable prospect that the mortgagor will be able to resume full mortgage payments after a period of re*1019duced or suspended payments not exceeding 36 months and will be able to pay the mortgage in full by its maturity date extended, if necessary, by up to 10 years. 24 C.F.R. § 203.650(a)(5) and (a)(6) (1982).
Petitioner argues that since HUD did not point to any specific evidence that satisfies the second requirement, that the matter was resolved in his favor. Petitioner presses this argument in spite of evidence in the administrative record which indicates that the second requirement could have been satisfied. Petitioner is asking us to accept the stated reasons in the denial letter as the only basis for determining substantial justification. In Dougherty, supra, the court stated that:
While the arguments of the parties, and any evidence introduced in the fees action, such as affidavits, must be carefully considered, it is essentially the relevant portions of the record in the underlying action which must be looked to in order to determine if the government has proved “substantial justification” for its position.
711 F.2d at 562. This clearly indicates that the entire administrative record must be looked to when the court seeks to determine substantial justification. Cf. Securities and Exchange Commission v. Chenery, 318 U.S. 80, 63 S.Ct. 454, 87 L.Ed. 626 (1943) (in reviewing the decision of the lower court, it must be affirmed if the result is correct although the lower court relied upon a wrong ground or gave a wrong reason).
The administrative record indicates that petitioner owed $16,000 in medical bills that were not covered by insurance. HUD points to this fact as a basis for denial of the request for assignment of the mortgage. HUD maintains that the petitioner would not have been able to resume normal payments under the conditions set forth in 24 C.F.R. § 203.650(a)(6) (1982). Once the medical bills were discharged in bankruptcy, however, HUD accepted the assignment since a basis for denial no longer existed. We think this establishes substantial justification and therefore affirm the decision of the court below.
. The court below stated that the monthly mortgage payment was $167.17, however the parties as well as the administrative record indicate a monthly mortgage payment of $145.25.
. This subsection was repealed by Pub.L. No. 96-481, § 204(c), effective October 1, 1984. However, this suit was commenced before the effective date and therefore the subsection applies. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490275/ | MEMORANDUM OF OPINION AND ORDER
RANDOLPH BAXTER, Bankruptcy Judge.
The matter before the Court is the motion of Fleet Credit Corporation (Fleet) for leave to file its notice of appeal, instanter, respecting an order earlier entered by this Court. In response thereto, the Court-appointed Trustee, Richard A. Baumgart (Trustee), caused to be filed his brief in opposition to the granting of such leave. Fleet’s motion relates to an order entered by this Court authorizing the Trustee to sell certain personal property. A judgment entry confirming the sale of the personalty was entered on March 7, 1986. No appeal, or request for an extension of time to perfect an appeal, was filed within the ten-day time period prescribed by Rule 8002. Fleet now seeks relief to appeal instanter.
In support of Fleet’s motion for leave to file its notice of appeal instanter, it acknowledged that the ten-day appeal period allotted by Rule 8002 of the Bankruptcy Code had lapsed prior to its present motion, but further states that its failure to timely perfect its appeal was due to no fault of its own. It further contended that such neglect was attributed to inadvertent misinformation between its counsel and the Bankruptcy Court Clerk’s Office and an inadvertent failure to receive a copy of the subject order from the Trustee. Fleet’s aforementioned contentions were supported by affidavits.
In opposition, the Trustee asserts that Fleet’s motion for leave to appeal instanter should be denied for the following reasons: 1) Such leave is expressly prohibited by the provisions of Rule 8002(c), thereby causing this Court to lack power or jurisdiction to grant the relief sought; 2) Rule 9006(b)(3) serves as a limitation on the Court’s ability to grant the extension; 3) the subject order concerns a sale which has been concluded; and 4) the Trustee timely mailed a copy of the subject order to Fleet’s counsel by which it could have timely perfected its appeal. The Trustee’s contentions, likewise, were supported by an affidavit.
Bankruptcy Rule 8002(a) requires that a notice of appeal shall be filed with the Clerk of the Bankruptcy Court within ten (10) days of the date of the entry of the judgment, order, or decree appealed from. Rule 8002(c) permits a twenty-day extension. if a request to extend the time is made *16before the time for filing a notice of appeal has expired, except that a request made no more than twenty (20) days after the expiration of the time for filing a notice of appeal may be granted upon a showing of excusable neglect, if the judgment or order appealed from does not authorize the sale of any property. The order appealed from in the matter at bar does authorize the sale of property. It is further noted that the advisory notes to Rule 8002 clearly indicate that even if the movant establishes excusable neglect, there is no authority in the Bankruptcy Code or Rules to allow an appeal under Rule 8002(c):
Orders of the bankruptcy court relating to the sale of property ... are of such significance to the administration of the case ... that this subdivision requires that either an appeal or a motion for extension be filed within the original 10 day period. (Bankr.R. 8002, advisory committee note).
This matter concerned the sale of personal property. The movant, Fleet, did not appeal or file a motion for extension within the original ten-day period. Consequently, Fleet is ineligible for relief under 8002(c) even if this Court were to find excusable neglect.
As a matter of law, this Court lacks authority to grant the relief sought by Fleet. Not only does Rule 8002 support this finding but other procedural rules, in reference to 8002, reemphasize this point. For example, Rule 9022 provides that the “lack of notice of the entry does not affect the time to appeal or relieve or authorize the court to relieve a party for failure to appeal within the time allowed, except as permitted in Rule 8002.” While the failure to learn of the entry of a judgment might ordinarily be considered a sufficient basis for excusable neglect, Rule 9022 specifically provides that such lack of notice will not affect the appeal period, except if it falls within the parameters of Rule 8002. In re DiDio, 1 B.R. 196, 198 (Bankr.E.D.Pa.1979).
Bankruptcy Rule 9006(b) further places a limitation on this Court’s authority to enlarge the time for filing an appeal. That rule clarifies beyond doubt that extensions can be allowed only in accordance with the provisions set forth in Rule 8002. Additionally, and especially applicable to the present facts, pertinent provisions of 11 U.S.C. § 363(m) amply demonstrate that the protection afforded to sales of property is more favored than the protection available to an appellant.
In view of the above findings, it becomes unnecessary for this Court to address the excusable neglect exception, since the Court lacks authority as a matter of law to grant the relief sought by Fleet.
Accordingly, the movant’s motion to file a notice of appeal instanter is denied.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490276/ | ORDER ON MOTION TO DISMISS
ALEXANDER L. PASKAY, Chief Judge.
THIS CAUSE came on for consideration upon the Motion to Dismiss the above-captioned Chapter 11 case filed by Tri-County Development Company. Tri-County seeks dismissal on grounds which can be summarized as the Debtor’s inability to effectuate a Plan and unreasonable delay by the Debt- or that is prejudicial to creditors.
The Court reviewed the record in this case and finds that on September 10, 1982 this Court entered an order directing the Debtor to file a Plan and Disclosure Statement. The Debtor complied but on January 28, 1983 an order was entered sustaining an Objection to the Disclosure Statement and directing the Debtor to file an Amended Disclosure Statement within 20 days. The Debtor failed to file an Amended Disclosure Statement within the time period set by that order but did file an Amended Disclosure Statement on April 20, 1983 in response to an Order to Show Cause. The Amended Disclosure Statement was disapproved by order entered on October 24, 1983. The Debtor filed an amendment to the Amended Disclosure Statement the following day and on January 17,1984 the Court approved the Disclosure Statement.
There were objections to confirmation, however, and on May 11,1984 an order was entered denying confirmation but granting *1960 days in which to file an Amended Plan. On August 3, 1984 the Court entered an order extending the time to file an Amended Plan and Amended Disclosure Statement for 15 days. The Amended Disclosure Statement and Plan were filed on February 7, 1985. The Disclosure Statement was approved on September 5, 1985. Confirmation was denied and the Debtors were given 30 days to file an Amended Plan and Disclosure Statement. Over four months later, on January 14, 1986, the Debtors moved for an extension of time to file a Plan and Disclosure Statement and an order was entered on January 16,1986 granting that motion.
There can be no serious doubt that there has been unreasonable delay in this case that has been prejudicial to the creditors. Further, the record reveals that the Debtor is not in business but is a wage earner and the Plan which will be proposed is a 10% Plan which will be partially funded by wages of the Debtor. It is clear that such a Plan serves no meaningful purpose and that it is in the best interest of the creditors and the estate that this Chapter 11 case be dismissed pursuant to 11 U.S.C. S1112(b)(3).
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion to Dismiss Chapter 11 Case filed by Tri-County Development Company be, and the same is hereby, granted and the above-captioned Chapter 11 case is dismissed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490277/ | OPINION
EMIL F. GOLDHABER, Chief Judge:
The focus of the instant controversy is the size of the administrative expense that should be allowed to the debtor’s landlord. On the basis of the findings and conclusions expressed below, we will allow the landlord an administrative expense in the amount of $19,257.53.
We summarize the facts of this controversy as follows:1 The claimant, Camalloy Wire, Inc. (“Camalloy”), is the owner of a parcel of improved realty on which a wire drawing plant' is operated. Camalloy and the debtor agreed that the debtor would lease portions of the realty for the storage of its personalty at a rate of $1.50 per square foot per year which is a reasonable charge for the rental of the premises. An involuntary petition for relief under chapter 7 of the Bankruptcy Code (“the Code”) was filed against the debtor. This filing was subsequently converted to a chapter 11 case. After this conversion the debtor successfully moved this court for approval of the unexpired lease with Camalloy. The debtor then prevailed on its motion for approval of its agreement to sell the personalty to PNS Industries, Inc. (“PNS”). The agreement provided that PNS would pay for the personalty as the goods were withdrawn from the leasehold and that, in *22any event, the full purchase price was due 150 days from the date of the agreement which due date was June 22, 1985. Under the agreement, PNS agreed to pay Camal-loy the current rental rate for the realty on which the personalty was stored. PNS defaulted on the purchase agreement by failing to pay Camalloy the rental charge for the realty, and consequently, PNS was evicted from the plant on April 5, 1985.
Camalloy filed the instant application for administrative expenses against the debt- or’s estate claiming entitlement to rent for the period between April 5, 19852 and November 4, 1985. The floor space in use during the period was 22,000 square feet.
The issue for decision is the period during which the debtor is liable for the use of the floor space. Both parties agree that November 4 was the terminus of the pertinent period, but the parties differ on its commencement. The debtor asserts that liability did not arise until PNS defaulted on the purchase agreement with the debtor by failing to pay for the merchandise on June 22, 1985. Camalloy contends that the default is irrelevant since the sale transaction was between the debt- or and a third party who was not privy to the lease agreement with the debtor and Camalloy. Although the record of this case is turbid, it appears that the debtor implicitly sublet the realty in question to PNS. The failure of PNS to pay the rental to Camalloy did not relieve the debtor of its concurrent duty to pay rent. We therefore conclude that the debtor is liable for rent from April 5 to November 4 at a rate of $1.50 per square foot per year or 22,000 square feet for a total of $19,257.53.
The debtor has requested that any administrative expense allowed to Camal-loy not be paid until it is clear that the estate consists of sufficient funds to pay all administrative expenses or until the size of the estate is ascertained so that all administrative claimants may be paid pro rata. We find this a sufficient basis for denying the immediate release of any funds. Disbursement will be made in due course or on proper application of Camal-loy.
We will accordingly grant Camalloy’s application for the allowance of administrative expenses in the amount of $19,257.53, but will stay payment of such expenses until the further order of this court.
. This opinion constitutes the findings of fact and conclusions of law required by Bankruptcy ' Rule 7052.
. It is unclear why Camalloy chose April 5 as its asserted beginning of the relevant period, but it is coincident with the eviction of PNS from the realty. Since both parties are in apparent harmony that the term in question commences no earlier than April 5, we do not scrutinize any earlier period as worthy of the accrual of expenses for inclusion in the instant application. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490326/ | ORDER
RALPH H. KELLEY, Bankruptcy Judge.
The court previously held, 63 B.R. 780, that the debtor could not use Bankruptcy *785Code § 522(h) to avoid the lien of Marion Trust & Banking Company on $6,000 insurance proceeds. 11 U.S.C. § 522(h). Without avoiding the lien, the debtor could exempt the insurance proceeds only to the extent they were equity over and above the debts secured. The court left open the question of whether the remaining collateral, including the $6,000, was worth more than the other debts to the bank so that part of the $6,000 could be treated as equity.
As the court explained in its earlier opinion, the $6,000 is not equity simply because it was in excess of the particular debt secured by the destroyed property. The $6,000 also secured the debtor’s other debts to the Bank. In this situation, it could be equity only if the remaining debts totaled less than the value of the remaining collateral, which would include the $6,000. The trustee’s post-trial brief included an affidavit of a bank officer, which convincingly shows that the remaining collateral, including the $6,000, was worth less than the debts owed to the Bank when the debt- or filed his bankruptcy petition. Thus, none of the $6,000 was equity that could be exempted without avoiding the Bank’s lien.
Accordingly, the court concludes that the debtor was not entitled to exempt any of the $6,000, and the $3,000 recovered from the Bank by the trustee shall remain property of the bankruptcy estate free of any claim of exemption by the debtor.
It is so ordered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490327/ | OPINION
EMIL F. GOLDHABER, Chief Judge.
The issue presented in the case under adjudication is whether we should grant the trustee’s request for an injunction barring a creditor from continuing with a state court suit, on the allegation that we previously approved a settlement of the dispute *996at issue. For the reasons outlined below, we conclude that the injunction should issue.
The facts of this case are as follows:1 As collateral for a loan, one of the debtors granted a deed of trust in a parcel of realty in Baltimore, Maryland, to Irving G. Alter, Alvin Lapidus, P.A., and United Funding Corp. (hereinafter collectively known as the “Alter Group”). Two years later the four debtors filed petitions for reorganizations under chapter 11 of the Bankruptcy Code (“the Code”) and shortly thereafter we appointed Norman M. Kransdorf as the trustee for each of the cases. At or about that time the mortgagor-debtor fell in default on the deed of trust on the realty. The deed of trust apparently provided that the mortgagor-debtor was entitled to rents accruing on realty while the mortgagor was not in default on the mortgage. Several months after the appointment of the trustee, improvements on the realty were severely damaged by water.
In December of 1983, a settlement was executed which, held, in pertinent part:
[STIPULATION]
******
3. It is also agreed that the Alter group hereby releases FAMCO from any and all liability pertaining to any damage which may have been suffered by the premises at 412-420 Redwood Street. It is agreed that FAMCO will assign to the Alter group any right to claim under any policies of insurance which insure the premises at 412-420 Redwood Street for any damage which may have been suffered by it.
4. Any release herein is intended to be solely between the parties hereto and as not intended to release any other entity or person of any responsibility or liability, if any, arisen out of the ownership, operation, lease, possession or management of the premises at 412-420 Redwood Street, Baltimore, Maryland.
/s/ Don Foster DON P. FOSTER
Attorney for the Fidelity America Mortgage Co.
/s/ Lawrence J. Lichtenstein LAWRENCE J. LICHTENSTEIN
STEVEN C. PARMER
Attorneys for plaintiffs [the Alter Group]
DATED: December 16, 1983.
We approved the settlement.
Thereafter the Alter Group filed suit in state court against Kransdorf and others seeking recompense from the water damage to the premises.2 The trustee then commenced an action in this court seeking (1) declaratory relief that the trustee was released from liability underlying the Maryland suit through the stipulation and (2) injunctive relief barring the Alter Group from pursuing the Maryland litigation. In lieu of answering the trustee’s complaint, the Alter Group filed a motion for dismissal of the complaint under Bankruptcy Rule 7012. We denied the motion. Kransdorf v. Alter (In Re Fidelity America Financial Corp.), 53 B.R. 930 (Bankr.E.D.Pa.1985). The Alter Group then answered the complaint and the matter has gone to trial.
Before discussing the merits of the action before us, we first set forth the basis of our jurisdiction to hear the matter under the Bankruptcy Amendments and Federal Judgeship Act of 1984 (“the 1984 Act”). That statute amended 28 U.S.C. § 157 which provides, inter alia, that bankruptcy judges may enter final orders on all core proceedings, such as
(A) matters concerning the administration of the estate: (B) allowance or disal-lowance of claims against the estate ... [and] (O) other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor ... relationship....
*997§ 157(b)(2). The essence of the controversy at bench is the scope of a stipulation approved by us which fixed the size of the administrative claim against the estate. We hold that § 157(b)(2)(A), (2)(B) and (2)(0) each provide us with an independent basis for resolving the matter at hand. See also, Franklin Computer Corp. v. Harry Strauss & Sons, Inc. (In Re Franklin Computer). 50 B.R. 620 (Bankr.E.D.Pa.1985); Heaven Sent Ltd. v. Centennial Ins. Co. (In Re Heaven Sent Ltd.), 50 B.R. 636 (Bankr.E.D.Pa.1985); Alloy Metal Wire Works, Inc. v. Assoc. Screw and Mfg. Co. (In Re Alloy Metal Works, Inc.), 52 B.R. 39 (Bankr.E.D.Pa.1985).
In the action at bench the Alter Group has instituted suit in the Maryland state court against the trustee under the general grant of authority found at 28 U.S.C. § 959(a), which states:
§ 959. Trustees and receivers suable: management: State law
(a) Trustees, receivers or managers of any property, including debtors in possession, may be sued, without leave of the court appointing them, with respect to any of their acts or transactions in carrying on business connected with such property. Such actions shall be subject to the general equity power of such court so far as the same may be necessary to the ends of justice, but this shall not deprive a litigant of his right to trial by jury.
28 U.S.C. § 959(a). Since the cause of action arose postpetition and is not against property of the estate, the automatic stay does not bar such an action. 11 U.S.C. § 362(a).
As his first basis for relief the trustee requests that we enjoin the members of the Alter Group and the remaining defendants from pursuing the litigation in state court against the trustee and award costs and attorneys’ fees to the trustee for expenses in defending against the allegedly wrongful state court suit. In response to the trustee’s request, the Alter Group contends that this court cannot enjoin a pending state court action due to 28 U.S.C. § 2283 which states:
§ 2283. Stay of State court proceedings A court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments.
28 U.S.C. § 2283 (the Anti-Injunction Act). The, Code, however, is an “expressly authorized” exception to § 2283. Davis v. Sheldon, 691 F.2d 176, 177-78 (3d Cir.1982); S.Rep. No. 989, 95th Cong., 2d Sess., reprinted in 1978 U.S.Code Cong. & Ad. News 5787, 5815. Prior to 1948, the Anti-Injunction Act contained only one exception, for “cases where such injunction may be authorized by any law relating to proceedings in bankruptcy.” Judicial Code § 265, 36 Stat. 1162. In 1940, this passage was expanded to cover all statutory exceptions. See Reviser’s Comments to 28 U.S.C. § 2283, 1948 U.S.Code Cong. & Ad. News Special Compilation of Legislative History of Revision of Title 28, 80th Cong., 2d Sess.1910. Therefore, it follows that, under proper circumstances, a bankruptcy court may issue an injunction to prevent a state prosecution.
The United States Supreme Court has held that the type of statutory exception set forth in the Anti-Injunction Act does not put into “question or qualify in any way the principles of equity and comity that must restrain a federal court when asked to enjoin a state court proceeding.” Mitchum v. Foster, 407 U.S. 225, 243, 92 S.Ct. 2151, 2162, 32 L.Ed.2d 705 (1972). These principles were discussed at length in the Court’s opinion in Younger v. Harris, 401 U.S. 37, 41 S.Ct. 746, 749, 27 L.Ed.2d 639 (1971), a case involving a non-statutory exception to the Act. As stated in Younger, it is a “basic doctrine of equity jurisprudence that courts of equity should not act, and particularly should not act to restrain a criminal prosecution, when the moving party has an adequate remedy at law and will not suffer irreparable injury if denied equitable relief.” 401 U.S. at 43-44, 91 S.Ct. at 750. The principles of Younger *998likewise apply to those who seek to enjoin civil proceedings in state court through the intervention of a federal injunction. Duke v. Texas, 477 F.2d 244, reh. den., 478 F.2d 1402 (5th Cir.1973); Lamb Enterprises, Inc. v. Kiroff, 549 F.2d 1052 (6th Cir.1977). Under these cases the state court action may be enjoined if it is brought in bad faith or for purposes of harassment. Younger, 401 U.S. at 54, 91 S.Ct. at 755; Davis, 691 F.2d at 178.
In the case at bench bad faith would be present if the settlement at issue released Kransdorf for liability due to the water damage and if such release was reasonably apparent to the Alter Group. We now shift to that issue.
Immediately on the filing of a petition in bankruptcy an estate is created which generally consists of all interests in property possessed by the debtor, including choses of action held by the debtor, as of the filing of the petition. 11 U.S.C. § 541(a). The estate is also liable for the payment, inter alia, of prepetition debts, as well as post-petition administrative expenses:
On the appointment of a trustee, the trustee becomes the representative of the estate. 11 U.S.C. § 323(a). In a chapter 11 corporate reorganization, the appointment of a trustee divests the management of the debtor of authority to execute its former role as head of the debtor. Whatever power remains reposed in the debtor’s president and board of directors, is inferior to that of the bankruptcy trustee. It is through the authority of the trustee that the debtor acts. During the tenure of the trustee, the debtor retains no power to compromise prepetition claims or settle postpetition administrative claims, since that duty rests with the trustee.
In the case at hand, after the appointment of the trustee, Don P. Foster (“Foster”) signed the settlement at issue under the nominal title of “Attorney for the Fidelity America Mortgage Co.,” one of the debtors. We have no doubt that Foster intended to sign the document as attorney for the trustee of Fidelity America Mortgage Co. At the time of the signing Foster represented the trustee. Nonetheless, Foster’s unilateral intentions do not end the inquiry.
Under the principles outlined above, although the stipulation was nominally signed for “Fidelity America Mortgage Co.,” the debtor was without authority to sign that stipulation. Since valuable consideration was ostensibly exchanged under the contract, the question is, for whom did Foster sign the stipulation? The obvious answer is that he signed it as counsel for the trustee. Such a conclusion is both apparent and obvious, since the Alter Group knew or should have known that Foster represented, not the debtor, but the trustee. We therefore conclude that the Alter Group’s action in commencing suit against the trustee in state court, notwithstanding his release of liability in the stipulation, constitutes an act of bad faith.
This determination of bad faith allows us to enter judgment on the instant complaint in favor of the trustee, and we will accordingly enter a permanent injunction against the continuation of the state court suit against the trustee by the Alter Group.
. This opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052.
. Circuit Court for Baltimore County [Maryland], Law No. 83-L-2886. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490328/ | OPINION
EMIL F. GOLDHABER, Chief Judge:
The heart of the controversy at issue is whether we should grant a motion to strike certain objections to a proposed stipulation which were filed after the entry of our order approving the stipulation and the order of the district court vacating our order of approval and remanding the issue to us for further findings of fact. Since the order and accompanying opinion of the district court do not expressly or implicitly direct amendment of the pleadings, we will grant the motion to strike the objections.
The facts of this case are as follows:1 Fidelity America Financial Corp. (“FAF-CO”) and three related debtors, Fidelity America Mortgage Co. of Pennsylvania, Delaware and Nevada (collectively known herein as “FAMCO”), filed petitions for reorganization under chapter 11 of the Bankruptcy Code in 1981. Another related entity, the partnership of Neshaminy Office Building Associates (“NOBA”), likewise filed a chapter 11 petition at that time. Shortly thereafter, Norman Kranzdorf (“Kranzdorf”) was appointed trustee for FAFCO and FAMCO although no trustee was appointed for NOBA.
In 1982 Kranzdorf, on behalf of FAMCO, signed a stipulation with the movant, Nesh-aminy Plaza Associates (“NPA”), in order to terminate a dispute between them. Certain limited partners of NOBA objected to the settlement. By order, supported by written opinion, we overruled the objections and approved the stipulation. In Re *1000Fidelity America Finance Corp., 43 B.R. 74 (Bankr.E.D.Pa.1984). The limited partners appealed this decision and the district court vacated our order approving the stipulation. Neshaminy Office Building Assoc., 62 B.R. 798 (E.D.Pa.1986). The district court remanded the matter to us to determine “the value of the rights being relinquished by NOB A, and the value of what NOBA received in return.” Id. at 804. The opinion of the district court clearly requires us to take additional evidence but nowhere does that opinion suggest that the pleadings be augmented.
On remand, the limited partners served notices of deposition on Arsen Kashkashian and Anthony H. Murray, Jr., and directed them to appear in Philadelphia with voluminous records of NPA. NPA filed a motion for a protective order requesting that we enter an order directing that no records, or only limited records, need be produced. NPA further requested that, if records must be produced, they be produced at the offices of NPA in the suburbs of Philadelphia.
After remand, the limited partners filed an additional set of objections to the proposed settlement. NPA filed a motion to strike these objections.
On the issue of the motion for a protective order, NPA asserts that the request for documents should be limited to those generated during a limited period ending with the signing of the stipulation. Since the records are voluminous, NPA also requests that the depositions be held at NPA’s office in Cornwells Heights. We agree with NPA that its request represents a reasonable balance between the benefits and burdens of discovery. Accordingly, we will enter an order directing that the depositions be held at NPA’s office in Cornwells Heights and further order that the production of documents be limited to those generated within five years prior to the signing of the stipulation.
We now shift to the primary issue for consideration, which is whether we should grant NPA’s motion to strike the post-remand objections of the limited partners to the proposed stipulation. On this issue, the filing of subsequent objections is analogous to the lodging of amendments to a complaint. Amendments in adversary actions in bankruptcy are governed by Fed.R. Civ.R. 15 which is incorporated by reference through Bankruptcy Rule 7015. Although the current dispute arises under Bankruptcy Rule 9014, which does not expressly incorporate Fed.R.Civ.P. 15 or Bankruptcy Rule 7015, we may expressly order the application of Bankruptcy Rule 7015 “at any state in a particular matter.” Bankruptcy Rule 9014. Even in the absence of such an order, the legal principles underlying Bankruptcy Rule 7015 or Fed.R. Civ.P. 15 afford counsel to our decision.
As a general proposition under Fed.R.Civ.P. 15, leave to amend should be granted liberally. Foman v. Davis, 371 U.S. 178, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962); Adams v. Gould, Inc., 739 F.2d 858, 864 (3d Cir.1984). Nonetheless, after a case has been appealed and remanded, proposed amendments must conform with the mandate of the appellate court. Quern v. Jordan, 440 U.S. 332, 334, 347 n. 18, 99 S.Ct. 1139, 59 L.Ed.2d 358 (1979); Commercial Paper Holders v. Hine (In Re Beverly Hills Bancorp), 752 F.2d 1334 (9th Cir.1984). In the instant case, the directive on remand was limited to our determining whether the debtor would receive as much as it would surrender in the proposed settlement. The post-remand objections go beyond this mandate, and consequently, the NPA’s motion to strike the objections will be granted. We will enter an appropriate order.
. 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/8490329/ | MEMORANDUM OPINION AND. ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court upon the Complaint To Determine Dischargeability in the above entitled adversary action. The Court conducted a Pre-Trial in this case, at which the parties agreed that the issues addressed in the Complaint are primarily issues of law. They also agreed that the Court may enter a ruling in this case based solely upon the written arguments of counsel. The parties have filed such 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 debt is dischargeable.
FACTS
The facts in this case are not in dispute. The Plaintiff in this case is the former spouse of the Defendant-Debtor. The parties were married on or about April 20, 1963. At some time during the year 1972, the parties purchased a house which was used as their marital residence. The purchase price was approximately Sixteen Thousand Five Hundred and no/100 Dollars ($16,500.00). It appears that the parties owned the property as tenants by the entireties. However, the parties were subsequently divorced by an Order of the Lake County Court of Common Pleas, Domestic Relations Division dated March 12, 1982. That decree incorporated a separation agreement which was entered into by the parties. This agreement made certain provisions with respect to the real estate in question. Specifically, the agreement provided that the Plaintiff would release all ownership interests in the real estate to the Debtor, and that the Debtor would be the sole owner of the house. It also provided that the Debtor would assume all responsibility for the outstanding obligations against the home, and hold the Plaintiff harmless from such obligations.
In addition to other issues, the agreement also addressed the question of'alimony and support between the parties. As set forth in the agreement, the Debtor agreed to pay to the Plaintiff the sum of Fifty Thousand Nine Hundred and no/100 Dollars ($50,900.00) over a period of ten years and six months. The payments would be payable in monthly installments of Four Hundred and no/100 Dollars ($400.00) per month. Liability for these payments was not terminated upon either the death or remarriage of the Plaintiff. The agreement also provided in pertinent part:
“Husband and wife agree that their intent is that the payments specified in Paragraph A above [the $400.00 per month] shall be deductible to husband and taxable income to wife for all tax purposes, whether federal, state or local
Although the intent of the parties at the time of the divorce is unclear, it appears they contemplated that the Debtor would attempt to sell the house shortly after the divorce was finalized. It also appears the parties anticipated that the house would sell for approximately Eighty Thousand *41and no/100 Dollars ($80,000.00). An appraisal estimated the fair market value of the house at Sixty Thousand and no/100 Dollars ($60,000.00). While the date of sale is unclear, the house sold for approximately Forty-five Thousand and no/100 Dollars ($45,000.00). At the time of sale, there existed against the real estate liens total-ling approximately Thirty-one Thousand and no/100 Dollars ($31,000.00). After the costs and expenses of sale, it appears that the Debtor realized approximately Thirteen Thousand and no/100 Dollars ($13,000.00) from the sale. It does not appear that any of the proceeds were applied to the Debt- or’s obligation to the Plaintiff.
In May 1983, the parties appeared before the Lake County Court in regards to a Motion filed by the Debtor to modify the terms of the divorce decree. In that Motion, the Debtor sought to modify the characterization of the obligation from alimony, maintenance, and support to a property settlement. The reasons for the filing of this Motion are unclear. However, the Court refused to grant the proposed modification, indicating that since the parties had voluntarily agreed to characterize the debt as alimony, it could not find sufficient grounds upon which to allow the amendment. The Court also held as void a promissory note and mortgage that had been executed by the Debtor to the Plaintiff subsequent to the entry of the divorce decree. The Court indicated that such instruments were unnecessary, inasmuch as the obligations represented by those instruments were already imposed by the order of divorce.
The Debtor filed his voluntary Chapter 7 petition with this Court on May 9,1985. In the schedules filed with that petition, the Debtor listed the obligation to his former spouse in the amount of Thirty-five Thousand Five Hundred Seventy-six and no/100 Dollars ($35,576.00). This debt is listed as an unsecured obligation. The Debtor listed no creditors with priority and no creditors with security. It should be noted that the Debtor’s unsecured obligations total Thirty-seven Thousand One Hundred Seventy-two and no/100 Dollars ($37,172.00).
In response to the filing of the Debtor’s petition, the Plaintiff filed the above entitled adversary proceeding. In this action, she alleges that the obligation owed to her by the Debtor under the divorce decree constitutes alimony, maintenance, and support, and that such an obligation is not dischargeable in bankruptcy. The Debtor summarily opposes the Complaint, contending that the characterization of the debt, as set forth in the divorce decree, does not accurately represent the nature of the obligation. He also contends that the obligation is in the nature of a property settlement, and that it should be discharged.
LAW
The provisions of 11 U.S.C. Section 523(a)(5) state in pertinent part:
(a) A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt— (5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree, or other order of a court of record or property settlement agreement, but not to the extent that—
(B) such debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support ...
Under these provisions, any obligation for alimony, maintenance, or support is not dischargeable. However, in order to be nondischargeable, a debt must actually be in the nature of alimony, maintenance and support. Any debt which actually constitutes a property settlement between the parties will be discharged. Smotherman v. Smotherman (In re Smotherman), 30 B.R. 568 (Bkcy.N.D.Ohio 1983). In making the determination as to the character of such obligations, the Bankruptcy Court need not accept as determinative the provisions of a divorce decree which establish certain obligations as alimony, maintenance *42and support. Conrad v. Conrad (In re Conrad), 33 B.R. 601 (Bkcy.N.D.Ohio 1983). Rather, the Court may look behind the designations of a decree to determine the nature of the obligation. Singer v. Singer (In re Singer), 18 B.R. 782 (Bkcy.S. D.Ohio 1982). The substance of the obligation and the circumstances under which ' it was created must prevail over the labels that have been put upon it. Wesley v. Wesley (Matter of Wesley), 36 B.R. 526 (Bkcy.S.D.Ohio 1983).
In the present case, it has been established that at the time of the divorce, the Plaintiff released her interest in the real estate. At the time that release was given, the parties had contemplated a certain value for the real estate. The provisions for alimony required the Debtor to pay to the Plaintiff approximately sixty percent (60%) of the amount they expected to receive from a subsequent sale, exclusive of any liens. While it is unclear as to the amounts and value of other property retained by each party, it may reasonably be inferred that the provision for periodic payments was actually intended to compensate the Plaintiff for the release of her interest in the real estate. This inference is supported by the fact that the Debtor was made solely responsible for the outstanding obligation on the house, and was required to hold the Plaintiff harmless for on the debt. It is also supported by the fact that the periodic payments are fixed in both time and amount, and are not made contingent or terminable upon the death or remarriage of the Plaintiff. Such provisions are commonly included in alimony awards, inasmuch as they are consistent with the principle that the former spouse is entitled to be supported until the support is no longer required. Where, as in the present case, the contingency of the payments is not a part of the alimony award, there is an indicia -that payments may not actually be in the nature of alimony, maintenance, and support.
In addition to the foregoing facts, it also appears that the inclusion of the payments under the guise of alimony was an attempt to establish the relationship between the parties for tax purposes. As previously indicated, the payments that were to be made by the Debtor were to be deductible from his income as alimony payments, and taxable to the Plaintiff as income. However, by attempting to modify the decree to recharacterize the nature of the obligation, the Debtor put in jeopardy a provision which otherwise worked to his pecuniary advantage. This attempt, though unsuccessful, places into serious question the actual nature of the periodic payments.
In view of this question and in light of the other facts which surround the creation of the obligation, it must be concluded that the Four Hundred and no/100 Dollars ($400.00) per month payments set forth in the divorce decree were actually intended by the parties to compensate the Plaintiff for the release of her interest in the real estate. The amount of the obligation, the terms under which it was imposed, and the attempt to adjust the tax relationship are all consistent with the type of adjustment the parties would have made in return of the release of the Plaintiff’s interests in the house. As a result of this conclusion, it must also be concluded that the obligation to make those payments, as set forth in the divorce decree, is actually a settlement of the property rights between the parties, and is, therefore, dischargea-ble.
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 Judgment be, and is hereby, entered for the Defendant.
It is FURTHER ORDERED that the debt to the Plaintiff be, and is hereby, held dischargeable. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490332/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court upon the Motion To Dismiss filed by the Defendant in the above entitled adversary action. The Court conducted a Pre-Trial conference in this 'case, at which the Court afforded the parties the opportunity to file any arguments they wished the Court to consider relative to its jurisdiction in this case. The parties have filed such 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 Dismiss should be granted.
FACTS
The facts in this case do not appear to be in serious dispute. The Plaintiffs in this action are the successor corporation (hereinafter “Bennett, Inc.”) to the Debtor-In-Possession in the underlying Chapter 11 proceeding, and the principal stockholders of the Debtor-In-Possession, Steven and Teresa Bennett. The Defendant is the agency of the State of Ohio charged with the responsibility of enforcing the State’s sales and use taxes. Prior to the formation of the Debtor-In-Possession corporation in January of 1981, the business known as the Garden Inn Steak House was operated by Cangiamilla, Inc. It appears that at the time the Debtor-In-Possession acquired Cangiamilla, Inc.’s business, Cangiamilla, Inc. was indebted to the Defendant for unpaid sales taxes. During the months following the Debtor-In-Possession’s acquisition of the business, the Debtor-In-Possession failed to file the appropriate sales tax returns with the Defendant. However, on or about the time the Debtor-In-Possession filed its petition with this Court, it also filed tax returns for the time during which it owned the business. In doing so, it also appears that the Debtor-In-Possession used the name and vendor license number of *142Cangiamilla, Inc. Therefore, there were no records to reflect that the Debtor-In-Possession had filed such returns.
On August 17, 1981, the Debtor-In-Possession filed its voluntary Chapter 11 Petition with this Court. In the schedules filed with that Petition, the Defendant is listed as a creditor for unpaid sales taxes. During the course of that Chapter 11 proceeding, it appears as though the Debtor-In-Possession and the Defendant were able to resolve the disputed sales tax liability as to all the entities in question. On June 4, 1982, this Court entered an Order confirming the Debtor-In-Possession’s Plan of Reorganization. As a part of that Plan, the Debtor-In-Possession proposed to sell the assets of the business to the Plaintiff-corporation, and to pay in full the claims of its priority creditors, including the Defendant. It also appears that the Debtor-In-Possession and the Bennett, Inc. entered into an agreement, whereby they would both hold the Bennetts harmless for any tax liabilities incurred by the Debtor-In-Possession. Although it appears that at the time of confirmation the Debtor-In-Possession and the Defendant had resolved the extent and amount of the outstanding tax liability, the certainty of that resolution is not made clear from the documents currently before the Court. Nevertheless, the assets of the business were sold to Bennett, Inc., and the proceeds were distributed as provided for in the Plan of Reorganization.
At some time in 1984, the Defendant contacted the Debtor-In-Possession’s accountant in an effort to obtain tax returns for the period of the Debtor-In-Possession’s operation which preceded the filing of the Petition. This inquiry was made as a result of the fact that the Defendant had no record of a return in the Debtor-In-Possession’s name for that period. Based upon its review of the returns for that period which had been erroneously filed in the name of Cangiamilla, the Defendant determined that a significantly greater amount was owed for that period than was originally estimated. It appears that an estimated amount for the period was used as the basis for resolving the dispute as to the Debtor-In-Possession’s liability. In light of that determination, the Defendant issued an assessment for those taxes against Steven and Teresa Bennett. This assessment was made pursuant to the provisions of Ohio Revised Code Section 5739.33. That Section renders liable for any taxes of a corporation the officers or employees of the corporation charged with the responsibility of complying with the entity’s tax obligations.
In response to that assessment, the Plaintiffs filed this action, wherein they seek an injunction against the Defendant from further pursuing the alleged deficiencies. The Motion presently before the Court seeks to have this action dismissed. The basis for this Motion addresses the question of whether or not this Court has any jurisdictional authority to enjoin the Defendant from pursuing obligations owed by parties not presently before the Court. Specifically, the Defendant argues that because Steven and Teresa Bennett are not presently under the jurisdiction of this Court, there is no basis upon which this Court can enjoin it from enforcing the Ben-netts’ statutory liability. The Plaintiff’s oppose the Motion, arguing that if the Defendant is permitted to pursue its assessment, it will require an adjustment of the amount paid to all other creditors under the Plan. This adjustment would be required, inasmuch as the Bennetts would then be entitled to assert a claim against the Debt- or-In-Possession for their contribution to the Debtor-In-Possession’s tax liability. As a result, they would then be entitled to share with all other unsecured creditors the proceeds already paid. The Plaintiffs further argue that inasmuch as this proceeding is substantially related to the Title 11 proceeding, and since it involves the Court’s authority to determine taxes pursuant to 11 U.S.C. Section 505, this Court has jurisdiction over the Defendant for purposes of this action.
LAW
The provisions of 28 U.S.C. Section 1471(b) state in pertinent part:
*143(b) ... The District Courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11 or arising in or related to causes under title 11.
Although this provision was repealed by the Bankruptcy Amendments and Federal Judgeship Act of 1984, P.L. 98-353 (1984), it was in effect at the time the underlying Chapter 11 Petition was filed. Accordingly, it must be considered applicable to the present proceeding. See, P.L. 98-353, Section 553(a).
Under this provision, any matter which arises in or is related to a case under Title 11 falls under the jurisdiction of the District Court. As indicated by the Plaintiffs, the determination as to whether a matter is a related proceeding involves the question of whether the outcome of the matter has the potential to alter the debt- or’s rights, liabilities, options, or assets. Pacor, Inc. v. Higgins, 743 F.2d 984 (3rd Cir.1984). However, a review of the case finds that the only effect the outcome of the dispute between the Bennetts and the Defendants could have is to give rise to a claim by the Bennetts against the Debtor-In-Possession. As a practical matter, the estate of the Debtor-In-Possession has been fully liquidated and distributed pursuant to the Plan of Reorganization. There appears to be no estate which can be materially affected by the outcome of the dispute.
Furthermore, the action presently before the Court seeks to have an injunction issued by this Court against the Defendant’s actions against the Bennetts. It does not, in and of itself, seek an adjudication of the merits of whether or not the Bennetts are liable to the Defendant. That alleged liability arises from the provision which places the Bennetts in the position of statutory guarantors for the Debtor-In-Possession’s tax obligations. The question of their liability and the issuance of an injunction to prevent the Defendant from enforcing that which it is otherwise entitled to do is not a matter which substantially effects the rights of the estate. Therefore, in the absence of such effect, it cannot be said that the outcome of the dispute is “related” to a case under Title 1 within the context of the rule set forth in Pacor, Inc. v. Higgins, supra. Accordingly, it must be concluded that the Plaintiffs’ argument on this point is without merit.
Although it has been determined that the dispute between these parties is not a matter directly related to a Title 11 proceeding, the Court recognizes that there exist circumstances where litigation between parties not presently before the Court have a bearing on bankruptcy proceedings. Such circumstances often arise where, as in the present case, a creditor may seek satisfaction of a debt from both the debtor and a third party guarantor. Where the. obligation is of a substantial or nondischargeable nature, the creditor has the ability to exert pressure on the debtor for payment by threatening collection from the co-debt- or.
The question of whether the Bankruptcy Court is empowered to enjoin actions by creditors against third parties has been a matter of significant prior litigation. It does not appear that there have been uniform resolutions to this question. See, Bostwick v. United States (Matter of Bostwick), 521 F.2d 741 (8th Cir.1975), J.K. Printing Service, Inc. v. United States (J.K. Printing Service, Inc.), 49 B.R. 798 (Bkcy.W.D.Va.1985), Steel Products, Inc. v. United States (In re Steel Products, Inc.) 47 B.R. 44 (Bkcy.W.D.Wash.1984), Otero Mills, Inc. v. Security Bank & Trust (In re Otero Mills, Inc.), 21 B.R. 777 (Bkcy.D.N.M.1982), but see, United States v. Huckabee Auto Co., 46 B.R. 741 (M.D. Ga.1985), Goodman v. United States (In re Pierce Coal and Const., Inc.), 49 B.R. 779 (Bkcy.N.D.W.Va.1985), In re Sondra, Inc., 44 B.R. 205 (Bkcy.E.D.Pa.1984). However, it does appear that the Courts have fashioned a test for determining whether or not jurisdiction exists to issue such an injunction. That test addresses the question of whether or not the absence of an injunction would detrimentally influence the debtor through pressure on the third party, or whether the creditor’s pressure would jeop*144ardize the reorganization effort. See, Otero Mills, Inc. v. Security Bank & Trust, supra, In re Sondra, Inc., supra. Where jurisdiction has been found, it is premised on the authority of 11 U.S.C. Section 105, and is justified on the grounds that creditors should not be able to accomplish indirectly that which the automatic stay precludes them from accomplishing directly. Otero Mills, Inc. v. Security Bank & Trust, supra.
In applying this test to the present case, it does not appear that this Court may invoke jurisdiction over the Defendant. As has been previously indicated, the Debtor-In-Possession’s estate has been fully liquidated and distributed under the plan. In making that distribution, the claims were paid as allowed in the case and as required by 11 U.S.C. Section 101 et seq. The plan has been completed and the case has been administratively closed. Although it is unclear whether or not the Debtor-In-Possession has been officially dissolved, it appears that the only remnant of the Debtor-In-Possession is the corporate shell. In light of the absence of a viable entity with any material or consequential value, it cannot be said that the issuance of an injunction against the Defendant will have any effect on the Debtor-In-Possession or its estate. Without the potential for such a result, it must be concluded that the Court has no ground upon which to enjoin the Defendants from pursuing its assessment.
Although the Plaintiffs have argued that there was a total resolution of the disputed tax liabilities during the course of the Chapter 11 case, the consummation of such an agreement is not made evident from the record. Even if such a resolution were apparent, it does not appear that it would give rise to an accord and satisfaction defense in subsequent litigation between the parties. However, that defense cannot be the grounds upon which this Court should grant the relief sought in the Complaint. Therefore, it must be concluded that the Complaint should be dismissed.
In reaching these conclusions the Court has considered all the evidence and arguments of counsel, regardless of whether or not they are specifically referred to in this Opinion.
It is ORDERED that the Motion To Dismiss be, and is hereby, GRANTED.
It is FURTHER ORDERED that the Complaint be, and is hereby, DISMISSED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490333/ | ORDER DENYING PLAINTIFF’S MOTION FOR REHEARING AND CLARIFYING ORIGINAL ORDER
GEORGE L. PROCTOR, Bankruptcy Judge.
THIS CAUSE came on to be heard upon Plaintiff’s Motion For Rehearing and Clarification of Order Entered April 10, 1986. Upon consideration of counsels’ argument and memoranda, it is ORDERED that:
1. Plaintiff’s request for a rehearing as to the determination of the validity of Defendants’ Lane Aerial Platforms and *156Equipment Rentals, Inc. and Turner-Jones Specialty Co., Inc. mechanic’s liens is denied, and the validity of said mechanic’s liens is upheld.
2.This Court’s prior order of April 10, 1986, is clarified to hold that Defendants Michael C. Williams and Steven N. Larson and Joann G. Larson do not claim under a mechanic’s lien, but rather pursuant to Purchase Agreements for the purchase of condominium units on the Twelve Oaks project. These three Defendants thus hold positions which are subordinate and inferi- or to those claims of Defendants possessing valid mechanic’s liens. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490335/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THE MATTER under consideration in this pre-Code proceeding is an issue submitted to this Court for resolution by T & B General Contracting, Inc. and Ballenger Corporation, the Plaintiff and one of the Defendants in this adversary proceeding. Although there are no formal motions for summary judgment before the Court, the parties agree that there are no genuine issues of any of the material facts and the *292matter can be resolved as a matter of law. Under consideration is the Debtor’s claim to profits resulting from certain joint ventures with the Defendant and the Defendant’s right to setoff its claim against the Plaintiff’s claim. The facts relevant and germane to the controversy, as gleaned from the record and the joint stipulation of the parties, are as follows:
T & B General Contracting, Inc. (Debtor) is a defunct Florida corporation which at the time of its petition under Chapter XI of the Bankruptcy Act was primarily engaged in road construction and construction of underground facilities. Ballenger Corporation (Ballenger) is a South Carolina corporation which was primarily engaged in interstate highway and bridge construction. In March of 1977, the Debtor and Ballen-ger entered into four contracts relating to an interstate highway construction for the Department of Transportation of the State of Florida (DOT) in which Ballenger was the prime contractor and the Debtor was a subcontractor. In October 1978, the Debt- or and Ballenger entered into a Joint Venture Agreement for the purpose of performing certain construction work in a project for Punta Gorda Isles. This project was successfully completed in March of 1980, and Ballenger is now holding the profits from this joint venture pursuant to a prior order of this Court.
In 1978 and 1979, the Debtor experienced financial problems that ultimately led to its inability to meet its payroll and cause the termination of its workers’ compensation and liability insurance. On March 8, 1979, Ballenger decided to terminate its contract on the interstate project with the Debtor, claiming breach by the Debtor and stating as grounds for the termination the insurance cancellation and the Debtor’s inability to meet the payroll. Shortly thereafter, the Debtor filed its petition pursuant to Chapter XI of the Bankruptcy Act.
In due time, Ballenger filed a Proof of Claim and an Amended Proof of Claim against the Debtor for the cost it incurred as the result of the Debtor’s failure to complete the four contracts with DOT for the interstate road project. The Debtor objected to this claim, and counterclaimed for monies allegedly owed to it by Ballen-ger for equipment rental and unpaid progress payments for work performed. In an order entered on June 10, 1981, this Court held that Ballenger had an allowable claim against the Debtor in the amount of $709,387.35, and that Ballenger owed the Debtor $56,934.00 for the equipment rental. The Court further held that the $56,934.00 owed the Debtor by Ballenger must be paid in full because that claim was not subject to any setoff.
The matter now before this Court is whether by virtue of the Joint Venture Agreement entered into by Ballenger and the Debtor in 1978, Ballenger is entitled to retain the Debtor’s portion of the profits of the joint venture. Ballenger relies on ¶ 9 of the Joint Venture Agreement, which provides as follows:
It is specifically understood and agreed between the parties that this Joint Venture Agreement extends only to the performance of the construction contract, together with any changes or additions hereto for extra work thereunder; in no event shall this agreement extend to or cover any or other different work. The term “construction contract” as used herein is extended to and shall include the changes, additions, or extra work herein mentioned. PROVIDED, however, that it is understood and agreed that T & B is and has been performing certain other work as subcontractor for Ballenger on other projects in the Punta Gorda, Florida area, and it is mutually understood and agreed that Ballenger shall be entitled to a “setoff” against any profits earned by T & B under this construction Joint Venture Agreement resulting from advances which shall have been made by Ballenger to T & B on other construction projects and not repaid. T & B acknowledges by the signing hereof that Ballenger may from time to time advance funds to T & B, or may have already advanced funds to T & B on other projects, and T & B acknowledges *293that any unpaid advances from said projects may be retained by Ballenger out of the profits earned by T & B on this particular project.
The ‘‘other projects” referred to in the Joint Venture Agreement are obviously the four contracts for the interstate highway project. Ballenger contends that as a result of the Debtor’s default on the other projects, namely the interstate job, that the joint venture funds never became due to the Debtor and Ballenger is entitled to the funds. The Debtor claims that its share of the joint venture profits represent monies earned by the joint venture after the commencement of the Chapter XI case, and therefore the profit is property of the estate. The Debtor contends that to pay Ballenger the profit would constitute an impermissible setoff under § 68 of the Bankruptcy Act.
Section 68(a) & (b)(1) & (2) of the Bankruptcy Act of 1898 deals with the matter of setoff and provides as follows:
In all cases of mutual debts or mutual credits between the estate of a bankrupt and a creditor the account shall be stated and one debt shall be setoff against the other, and the balance only shall be allowed or paid.
A setoff or counterclaim shall not be allowed in favor of any debtor of the bankrupt which (1) is not provable against the estate and allowable under Subdivision (g) of § 57 of this Act; or (2) was purchased by or transferred to him after the filing of the petition or within 4 months before such filing with a view to such use and with knowledge or notice that such bankrupt was insolvent or had committed an act of bankruptcy.
In order to accomplish a setoff under § 68, there must be mutuality of debt and mutuality of parties. Mutuality of debt means that each party must owe something to the other side and that each party have a valid, enforceable claim against the other. Clearly, there is mutuality of debt between the parties in this case.
What prevents Ballenger from accomplishing a setoff in this case is the mutuality of parties. As this Court has held on numerous occasions, see i.e. Matter of T & B General Contracting Co., Inc., 13 B.R. 686 (M.D.Fla.1981); In re Eli Witt Co., 39 B.R. 984 (M.D.Fla.1980); In re A’s Plumbing Co., Inc., Case No. 78-226 (M.D. Fla.1979); In re Big “D” Corporation, CCH Bankr.Rptr. § 65, 450 (M.D.Fla.1974), when a pre-petition creditor seeks to setoff its claim against the claim of a debtor in possession which arose in its favor after commencement of a case, there is no mutuality of parties because the debtor in possession is an entity different and distinct from the debtor itself. Ballenger cannot setoff its claim against any monies earned by the Debtor after the commencement of the case. Even though Ballenger and the Debtor entered into the Joint Venture Agreement and began work on the Punta Gorda project pre-petition, it is clear that the project was not completed until after the Debtor filed its petition in bankruptcy and that the profits on the project were not earned and did not become due until after the commencement of the case.
Ballenger also urges that the Debtor was never “owed” the profits because pursuant to the Joint Venture Agreement, Ballenger was entitled to setoff against the profits any advances made to the Debtor. Ballen-ger contends that the $709,387.35 awarded to it by this Court in a prior order was just an “advance.” This contention is clearly without merit as there is no doubt that the monies awarded Ballenger in this Court’s order entered June 10, 1981 were not for advances to the Debtor, but for the cost of completing the four interstate contracts under which the Debtor defaulted. This Court is satisfied that the Debtor is entitled to its share of the profits on the Punta Gorda project and became entitled to the profits post-petition and not pre-petition. Ballenger is not entitled to a setoff against the Debtor and must turn over the Debt- or’s share of profits from the Joint Venture Agreement. Accordingly, the parties having submitted the issue for resolution on an oral joint motion for summary judgment *294with stipulated facts, this Court is satisfied that the Debtor must prevail in the oral joint motion for summary judgment and is entitled to recover from Ballenger its share of the profits from the Punta Gorda project and that Ballenger is not entitled to setoff this sum from the money owed to it by the Debtor.
Because there is no evidence before this Court as to the amount of the Debtor’s share of profits held by Ballenger, this cause must be set down for final evidentia-ry hearing on the limited issue of the amount of the Debtor’s share of profits held by Ballenger unless, within 20 days from the date of this Findings of Fact, Conclusions of Law, and Memorandum Opinion, this Court is presented with a joint stipulation as to said amount. If no joint stipulation is filed within 20 days, a final evidentiary hearing will be held on Nov. 19, 1986 at 11:00 a.m. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490337/ | ORDER ON OBJECTION TO CLAIM
ALEXANDER L. PASKAY, Chief Judge.
THE MATTER under consideration in this Chapter 11 case is an Objection by the Debtor, Sunnybrook Adult Mobile Home Park, Inc. (Debtor) to the Claim of Florida Federal Savings and Loan Association (Florida Federal). The Debtor contests Florida Federal’s claim, asserting that the Debtor is entitled to a setoff for damages it suffered when Florida Federal allegedly refused to deal in good faith with the Debtor in its efforts to convert its mobile home park from a rental park to a cooperative. The facts relevant to the issues presented herein as gleaned from the record and the evidence presented at the hearing are as follows:
In early 1984, the Debtor obtained a loan in the amount of $690,600 from Florida Federal for the purpose of satisfying existing liens and encumbrances and completing construction on its mobile home park located in Hernando County, Florida. The loan agreement provided that the mobile home park was to be operated as a rental park open to the general public, and the loan from Florida Federal was to be repaid from income produced by the operation of the park. Any changes in this rental park concept were subject to the approval of Florida Federal. On March 30, 1984, Dr. Gail Shields, Vice-President of the Debtor, executed on behalf of the Debtor a construction loan agreement, note, security agreement granting to Florida Federal a security interest in certain personal property owned by the Debtor, and a financing statement. Dr. Shields also executed a mortgage granting to Florida Federal a lien on the Debtor’s mobile home park.
Pursuant to the terms of the note and mortgage, the term of the note was comprised of two distinct loan periods consisting of an 18 month construction loan period and a 60 month permanent loan period. At the expiration of the 18 month construction loan period, the Debtor was to tender to Florida Federal an amount sufficient to reduce the outstanding principal balance of the loan to $300,000 and to pay all accrued and outstanding interest. The remainder of the obligation was to be paid during the permanent loan period.
In early November, 1984, Dr. Shields and Mr. Charles Shields, President of the Debt- or, met with Mr. Donald Truppi, an underwriter for income properties at Florida Federal, to discuss with him the possibility of converting the use of the Debtor’s mobile home park from a rental park to a cooperative park. The Debtor contends that at this meeting Mr. Truppi approved the conversion of the park from a rental park to a cooperative, and indicated that formal approval would be virtually automatic once the paperwork was completed; however, Florida Federal asserts that Mr. Truppi, who had no independent loan approval authority and did not have authority to authorize the conversion, only expressed an interest in the cooperative and requested that the Debtor prepare the written documentation necessary for the conversion in order to submit it to the loan committee at Florida Federal for approval. In any event, it is clear that nothing specific regarding the cooperative concept was discussed at that meeting and there was no discussion of changes to the note and mortgage or of release prices for individual lots which would be necessary to market the park as a cooperative.
After this November meeting, the Debt- or contacted its attorney to begin preparation of the documents necessary to convert the park to a cooperative, including documents required by the Division of Land Sales and Condominiums of the State of Florida. In January, 1985, after the Debt- or delivered drafts of the required documents to Florida Federal, the Debtor em barked on a marketing program to sell shares in the cooperative and expended *367over $20,000 in advertising. During this time the Debtor also entered into several reservation agreements with prospective buyers which required the Debtor to close sales under the cooperative plan within 45 days after the reservation was taken.
Testimony by Dr. Gail Shields indicated that the Debtor believed that Florida Federal would give formal approval to the conversion within time to meet the 45 day closing deadline in the reservation agreements. Unfortunately for the Debtor, there were several deficiencies and omissions in the documents submitted to Florida Federal, and in March, 1985, Mr. Truppi contacted counsel for the Debtor and informed him of changes that would have to be made before the documents could be submitted to the loan committee for approval. By this time, however, the Debtor, which had begun to experience financial difficulties, had failed to make its February 1st and March 1st interest payments due under the note and mortgage. When the Shields met with officers from Florida Federal in April, they were told that in addition to correcting the problems with the documents, the Debtor would also have to cure the arrearages under the note and mortgage before the documents could be submitted for approval. Unable to cure these defaults and suffering other financial pressures as well, the Debtor filed its Voluntary Petition for Relief under Chapter 11 in this Court on May 1, 1985.
The Debtor bases its Objection to the Claim of Florida Federal on the alleged failure of Florida Federal to deal in good faith with the Debtor in its efforts to convert its rental park to a cooperative park. The Debtor asserts that in its November meeting with Mr. Truppi at Florida Federal, Mr. Truppi committed Florida Federal to a prompt approval of the changes the Debt- or desired to make and that the Debtor reasonably relied on this representation when it expended funds for preparations of the documents and for marketing. Additionally, the Debtor contends that the delay in obtaining the approval precluded its closing numerous sales within the 45 days set in the reservation agreement and resulted in lost sales and lost rent it would have collected if the Debtor had not relied on Mr. Truppi’s representation and had continued to operate its park as a rental park.
A properly filed Proof of Claim is presumed to be valid, and the Debtor has the burden of going forward with evidence and rebuttal. See, i.e. 11 U.S.C. § 502(a); Munzenreider Corporation, 58 B.R. 228 (Bankr.M.D.Fla.1986); In re Global Western Development Corp., 759 F.2d 724 (9th Cir.1985). It is without dispute that Florida Federal’s Proof of Claim was properly filed pursuant to § 501 of the Bankruptcy Code, and therefore the burden is on the Debtor to overcome the presumption that the claim is valid.
This Court has reviewed the testimony and the evidence presented at trial and finds that the Debtor has failed to present credible evidence which would defeat Florida Federal’s claim and entitle the Debtor to a setoff. Even assuming that Mr. Truppi had the authority to enter into a binding agreement concerning the modification of the original note and mortgage, an assumption that is not established by this record, Mr. Truppi did not commit Florida Federal to approval of the Debtor’s cooperative concept in the November, 1984 meeting. Any reliance by the Debtor on the alleged promise was not justified and reasonable, especially in light of the fact that the November meeting was nothing but a general conversation without any discussion of any specific terms of the modification. The most that could be said about that meeting was that Mr. Truppi expressed an interest in the concept and encouraged the Debtor to explore the possibility of converting the project from a rental property to a cooperative. Florida Federal had no duty to assist the Debtor in the conversion and any damages the Debtor suffered were not caused by anything that Florida Federal did or did not do. The Debtor’s claim of setoff is without basis and cannot be recognized.
Based on the foregoing, this Court is satisfied that the Debtor has failed to over*368come the presumption under § 502(a) of the Bankruptcy Code that Florida Federal’s properly filed Proof of Claim is valid, and accordingly, Florida Federal’s claim must be allowed as filed.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Objection to Claim of Florida Federal Savings and Loan Association is overruled, and the claim is allowed as filed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490338/ | ORDER ON MOTION FOR SUMMARY JUDGMENT AND ON MOTION FOR JUDGMENT ON THE PLEADINGS
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 case and the matter under consideration are Motions for Summary Judgment, filed in the above-captioned adversary proceeding by Diane Jensen (Trustee) and by Charlie B. Green (Green), the Defendant named in the Complaint filed by the Trustee. It is the contention both of the Trustee and Green that there are no genuine issues of material fact and the claim asserted by the Trustee should be resolved as a matter of law. The facts relevant to the resolution of the Motions as they appear from the pleadings and the affidavits on file are without dispute and are as follows:
Johansen Construction Company (Debt- or) at the time relevant was engaged in the construction business. The Debtor originally sought relief under Chapter 11, but having failed to obtain confirmation it’s Chapter 11 case was converted to a Chapter 7 case. In due course Diane Jensen was appointed Interim Trustee and later became the permanent Trustee for the estate of the Debtor pursuant to § 702(d) of the Bankruptcy Code. In July, 1983, the Trustee brought suit in the Twentieth Judicial Circuit for Lee County, Florida against one Kotsopoulus and others. The Trustee’s suit was based on a claim under a construction contract of the Debtor and sought to recover the unpaid balance due under the contract.
Prior to the institution of the suit, the Trustee also filed a Claim of Lien pursuant to Chapter 713 of the Florida Statutes. The Claim of Lien showed on its face that the Trustee was perfecting the lien in her capacity as “Trustee in Bankruptcy of Jo-hansen Construction.” The Claim of Lien was recorded in the public records of Lee County on November 20, 1981.
On May 11, 1982, the Defendants named were the owners of the real property involved in the contract in the State Court action. They substituted a bond as security for the Trustee’s lien, thereby releasing the real property from the lien pursuant to § 713.24 of the Florida Statutes. The bond was in the amount of $16,032.95. The transfer bond showed on its face that Green, who was and still is the Clerk of the Circuit Court, served a copy of the transfer bond upon “Jensen as Trustee in Bankruptcy of JOHANSEN CONSTRUCTION COMPANY, INC.”
On December 8, 1982, the Defendants in the State Court action requested Green to release the bond. The demand was made pursuant to § 713.24(4) of .the Florida Statutes, which specifies that a Claim of Lien shall remain valid for only one year. Green assented to the request and released the bond two days later on December 10, without giving notice to the Trustee.
When the Trustee learned that the bond had been released, she asked the Circuit Court to reinstate the bond on the basis of § 108 of the Bankruptcy Code which extends the time in which the Trustee may bring actions under state law for two years provided that the start of the commencement of the case is not barred by the applicable statute of limitations relating to the particular claim. The Circuit Court recognized that § 108 extended the periods prescribed by Chapter 713 of the Florida Statutes, including the one year lien period and concluded that the lien remained viable beyond the one year period, therefore the bond securing the lien had been improperly released by Green. However, the Circuit Court declined the Trustee’s request to re*383instate the bond, because it found that it had no authority for doing so.
The Circuit Court further found that the Trustee was entitled to recover on the contract claim on the theory of quantum meru-it, and on September 19, 1984, entered judgment in favor of the Trustee in the amount of $18,502.50 and later a final cost judgment in favor of the Trustee in the amount of $2,554.40 on November 6, 1984. Neither of these judgments were secured by a lien upon real property or a bond, because as noted earlier Green had released the bond posted by the owners. For this reason the Trustee has been able to collect only $8,000 on these judgments from the owners and the balance of the judgments is still outstanding.
The Trustee brought this action against Green in his capacity as Clerk of the Circuit Court. Defendant Green actually became the Clerk after the occurrence of most of the relevant events, but he is being sued in his official capacity only for the derelictions of his predecessor. The Trustee alleged that the Clerk improperly released the bond in violation of § 108 of the Bankruptcy Code, and as a result the Trustee is now prevented from enforcing the judgments against the bond. The Clerk concedes the factual scenario set forth above, but asserts that he can not be held responsible because the Plaintiff Jensen did not come forth and alert him of the applicability of § 108 before the bond was released.
It should be noted at the outset the basic proposition that it is essential to an orderly society that all persons must be held to know the law. In 28 Fla.Jur.2d Evidence and Witnesses, § 100 (1980) it is stated, “Every person is charged with knowledge of legislative enactments, and this applies to federal law, as well as the state statutes that comprise the domestic law of this jurisdiction.” (Footnotes omitted) Thus, it is clear that the Clerk must be held to have known the federal as well as the state law pertaining to the performance of his statutory duties, particularly the effect of § 108 of the Bankruptcy Code on the statute of limitations including the one year date fixed by Chapter 713.24 of the Florida Statutes.
The Clerk correctly notes that it will often be difficult for him to determine if § 108 of the Bankruptcy Code is applicable before a transfer bond is released. This is certainly true, but the facts of this case show that the Claim of Lien explicitly stated on its face that the claimant was a Trustee in Bankruptcy. Likewise, the transfer bond itself revealed that the claimant was a Trustee in Bankruptcy. Both of these documents were filed with the Clerk. Yet, the Clerk released the bond without informing the Trustee that a demand for release had been made.
Based on the foregoing, this Court is satisfied that the Trustee is a member of the class of persons § 108 was intended to protect, that she has suffered the type of injury that § 108 was intended to prevent, and that the Clerk’s improper release of the bond caused her injury. See The Beaches Hospital v. Lee, 384 So.2d 234, 237 (Fla. 1st DCA 1980); Brennan v. City of Eugene, 285 Or. 401, 591 P.2d 719 (1979). This Court is also satisfied and finds that the Trustee had no obligation to alert the Clerk as to the applicability of § 108, even though she essentially did so by filing the Claim of Lien in her capacity as Trustee. To impose such a duty under the circumstances of this case would be to require a party to anticipate the negligence of another, and the law imposes no such duty. See Burgess v. Freidman & Son, Inc., 637 P.2d 908 (Okla.App.1981). Therefore, the Trustee is entitled to a judgment as a matter of law on the basis of the undisputed facts set forth above in the amount of $8,032.95, which represents the difference between the amount of the bond and the amount collected on the judgment.
The Court also finds that the Trustee is entitled to interest at the rate of 12% (the rate specified in the state court judgment) from the date the bond could have been executed upon to satisfy the judgment, i.e. September 29, 1984.
*384Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Defendant’s Motion for Judgment on the Pleadings be, and the same is hereby, denied. It is further
ORDERED, ADJUDGED AND DECREED that the Plaintiff's Motion for Summary Judgment be, and the same is hereby, granted.
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/8490340/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM ’ OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 liquidation case and the matter under consideration is an attack by Lawrence Kleinfeld (Trustee) on three real estate mortgages executed by William Davenport (Debtor) which granted to the University State Bank (Bank) mortgages on the residence of the Debtor and two condominium apartments, one located in Redington Beach and the other located in Pensacola, Florida. The attack of the Trustee is based on the contention that the execution of these mortgages constituted transfers within the meaning of the Bankruptcy Code and they are voidable by virtue of § 547 as preferential transfers, or, in the alternative, they are voidable because they are fraudulent transfers within the meaning of that term as set forth in § 548 of the Bankruptcy Code.
The precise question of the preference claim is based on the contention that these mortgages were executed by the Debtor while he was an “insider” of the Bank within the meaning of the term as defined by the Bankruptcy Code in § 101(28); that the mortgages were executed to secure an antecedent obligation; they were executed by the Debtor while he was insolvent; and if the Bank is permitted to retain these interests acquired by the mortgages, it would receive more than it would receive if the case was a case under Chapter 7.
The fraudulent transfer claim asserted by the Trustee is based on the contention that (1) the Debtor executed these mortgages with the specific intent to hinder, delay, or defraud creditors, or (2) that these transfers were without fair and adequate consideration while the Debtor was insol vent and, therefore, they fall within the prohibitive provisions of § 548 which en*413ables the trustee of the estate to set aside such transfers.
The facts relevant to the resolution of this controversy, as established at the final evidentiary hearing, can be summarized as follows:
Prior to 1980, the Debtor was the Chief Operating Officer and the person in control of several entities basically engaged in selling gasoline and allied products in several states including the State of Florida. These operations were conducted by a corporation known as Key Energy Enterprises, Inc. which was a holding company of Key Energy, Inc. and some other entities which operated numerous gasoline service stations throughout the State of Florida.
Sometime prior to 1980, the Debtor became acquainted with principals of the Bank, Mr. J.L. Richards and Mr. Churchill. Soon thereafter the Debtor acquired stock in the Bank, representing 20% of the total outstanding shares of the Bank, and became a member of the board of directors. He was also appointed Vice President in charge of development.
It further appears from the record that sometime in mid-1980, Mr. Churchill suggested to the Debtor the possibility that the Debtor might borrow monies from the Bank in order to utilize the same in several of the Key Energy operations. Initially, the loan was proposed in the amount of $250,000, but because of the then existing limitations on the interest rate which the Bank was permitted to charge by the usu-ary laws of this State, the loan was ultimately approved and granted in the amount of $500,000. The note signed by the Debtor was secured only by 100,000 common shares in Key Energy Enterprises, Inc. It is not clear whether the stock pledged was openly traded over the counter or what the going price of the stock was. Be that as it may, there is no question and it is without dispute that the value of this stock steadily declined from then on.
It further appears that at the time relevant to this controversy, Key Energy did its banking with Metropolitan Bank (Metropolitan) a bank which is now defunct and which at this time is in the process of liquidation by the FDIC. At one point in time there appeared to be an overdraft in the payroll account of Key Energy Enterprises, Inc. maintained at Metropolitan. For this reason Metropolitan requested additional collateral from collateral from the Debtor unless Key Energy could rectify the situation and pay the shortgage on the payroll account which was in the approximate amount of some $16,000.
This event turned out to be a hotly disputed and crucial point in the transaction between the Debtor and the Bank. This is so because it is unclear whether or not Mr. Churchill suggested or the Debtor requested the transactions which are the focal point of the entire controversy, that is, the execution of the three mortgages. According to Mr. Churchill, Metropolitan requested additional collateral, but in order to prevent Metropolitan from obtaining an interest in the properties owned by the Debtor, the Debtor did execute the three mortgages in question. However, on close examination this appears to be the secondary motivation of the Debtor and he executed these mortgages primarily because the Bank felt seriously undersecured due to the fact that the Key Energy stock drastically declined in value. According to the Bank, the stock could not have been dumped on the market and received more than 100 per share at that time. It is without dispute that at the time these mortgages were executed, the Debtor received no additional consideration whatsoever.
In addition, the validity and enforceability of these mortgages, while originally not challenged by the Trustee, are now in dispute. This is so because the Trustee established that these mortgages were not executed in conformity with the requirements of the laws of the State of Florida and therefore the mortgages would not be enforceable against a bona fide purchaser for value, which in turn would enable the Trustee to defeat these mortgages by vir tue of § 544(a)(3). As noted, this was not an issue raised by the original pleadings, *414but at the conclusion of the presentation of the case, the Trustee moved to amend the pleadings to conform to the evidence, and the motion was granted. The issue is now properly before the Court for consideration.
As noted earlier, it is the Trustee’s contention that at the time these mortgages were executed, the Debtor was an insider and this, of course, is necessary because these transactions admittedly occurred outside of the 90 day time frame fixed by § 547(b)(4)(A), but within 1 year from the commencement of the case and at a time when the Debtor was insolvent, which is the preference period for insider transactions fixed by § 547(b)(4)(B). There is no question that the mortgages in question were executed to secure an antecedent obligation of the Debtor, and thus, as such, could be avoided as a preference provided the record supports the conclusion that the Debtor was, in fact, an insider at the time he executed these mortgages. In addition, as noted earlier, based on these facts, it is contended by the Trustee that the mortgages were executed by the Debtor to frustrate and hinder Metropolitan or, in the alternative, the Debtor did not receive fair and adequate consideration for the execution of the mortgages. Concerning this last contention urged by the. Trustee, this Court is satisfied that there is no doubt that the Debtor was indebted to Metropolitan at the time he signed these mortgages, and this pre-existing obligation could serve as adequate and fair consideration under the applicable law (provided that the amount of the obligation and the value received are not disproportionate). See In re Decker, 295 F.Supp. 501 (W.D.Va.1969), aff'd 420 F.2d 378 (4th Cir.1970). Therefore, this contention of the trustee is without merit and shall not be considered further.
This leaves for consideration the preference claim of the Trustee and the claim of fraudulent transfer based on the alleged specific intent by the Debtor to hinder, delay or defraud a creditor by executing the mortgages. The issue of the Debtor’s position as an insider is raised by the Bank who contends that at the time these mortgages were executed, the Debt- or was no longer an insider. This contention is based on the proposition that it is without dispute that the Debtor did, in fact, resign as a member of the board of directors on October 20, 1981, some weeks before the execution of the mortgages. It is equally clear, however, that the agreement to execute these mortgages was made by the Debtor weeks before he resigned from the Board. However, there is nothing in this record to establish that he ever resigned as Vice President in Charge of Development until the following year in February. Thus, technically, at the time these mortgages were executed in October and November, the Debtor was still an officer, thus an insider.
The Bank contends, however, that the Debtor was solvent at the time these mortgages were executed and, therefore, these transactions cannot be avoided as preferences. This contention is based on a financial statement on record prepared by the Debtor dated June 30, 1981, which indicates a net worth of $7,838,116. A close analysis of the financial statement indicates, however, that among the assets scheduled by the Debtor are his residence valued at $225,000 and his investment in Key Energy Enterprises comprised of 1,702,215 shares valued at $8,035,521. This valuation was based on $1.00 face value and $4.75 market value of the stock.
As noted earlier, according to the Bank, the shares were not worth more than 10$ per share. If one readjusts this number and accepts that value, this asset must be reduced by $270,221.50. In addition, if one makes an adjustment for this and removes from the asset column the condominium residence of the Debtor which is claimed as homestead, thus exempt from the claim of creditors, the $7,838,116 net worth shown on the statement would turn out to be not a positive but a negative net worth. This would, of course, clearly indi cate an insolvency status of the Debtor at the time these mortgages were executed.
*415The contention of the Bank that the Bank had no reason to believe that the Debtor was insolvent must also be rejected. On this record it is crystal clear that the very reason the Bank requested additional security is because of the drastic loss in the value of its collateral due to the speedy and steady decline of the value of the Key Energy stock. This being the case, it ill behooves the Bank to contend now that they were ignorant and did not have any idea the Debtor was insolvent. Moreover, the Bank was very well aware that one of the mortgages it was receiving encumbered the homestead property of the Debtor and, therefore, under the applicable law of this State, it was not a proper item to be included in the asset column when one considers the solvency, vel non, of a debtor.
This leaves for consideration the last contention advanced by the Trustee that the execution of these mortgages was made with the specific intent to defraud, delay or hinder a creditor, specifically Metropolitan. The evidence at this point is clear that one of the reasons for the execution of these mortgages was to prevent Metropolitan from obtaining collateral for the overdraft. The only additional collateral available at that time were the three real estate holdings of the Debtor. This being the case, the inference is not unwarranted that these mortgages were executed by the Debtor in order to hinder the efforts of Metropolitan to obtain additional collateral to shore up its position. Based on this, this Court is satisfied that the evidence presented is sufficient to conclude that the execution of these mortgages were fraudulent transfers within the meaning of § 548(a) executed by an insolvent debtor with the specific intent to hinder, delay and defraud Metropolitan. From all this it follows that the Trustee is entitled to invalidate all three mortgages on the voidable preference ground, or on the alternative ground of fraudulent transfer.
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/8490341/ | *419OPINION
EMIL F. GOLDHABER, Chief Judge:
The primary question posed in the case at bar is whether we should deny a motion of an alleged creditor to examine one of the debtor’s principals under Bankruptcy Rule 2004. For the reasons stated below, we will grant the motion.
The facts of this case are as follows:1 One Jacques Zinman (“Zinman”) is a principal of Zinman Group, Inc., J. Zinman, Inc., and Zinman Insurance of Florida, Inc. Several years ago Zinman Group, Inc., sold certain assets to the debtor. Under an interrelated contract the debtor hired J. Zinman, Inc., as a consultant. Under the consulting contract, the fees and expenses of J. Zinman, Inc., were to be computed on the basis of sales generated by the assets sold by Zinman Group, Inc., to the debtor. Shortly thereafter, Zinman Group, Inc., ceased doing business and the corporation began winding up. Zinman was appointed one of the trustees of a trust created for the benefit of the shareholders of Zinman Group, Inc.
Two years later the debtor filed a petition for reorganization under chapter 11 of the Bankruptcy Code (“the Code”). The next month the debtor sold the assets it had purchased from Zinman Group, Inc. As part of that transaction, the trustees of the trust of the shareholders of Zinman Group, Inc., signed an agreement releasing all claims of Zinman Group, Inc., held against the debtor. By a second agreement the trustees of that same trust surrendered the rights of Zinman group, Inc., to vote or receive distributions in the debt- or’s chapter 11 proceeding.
After the filing of the chapter 11 petition, J. Zinman, Inc., filed a proof of claim (No. 23). J. Zinman, Inc., subsequently lodged the instant motion for a 2004 examination of the debtor’s president, Richard Harris (“Harris”), in order to obtain information on sales generated by the previously sold assets so it could precisely calculate the fees and expenses owed to it by the debtor. The debtor duly responded to the motion and filed an objection to the proof of claim of J. Zinman, Inc., asserting that the alleged creditor, was, in fact, not a creditor. The debtor’s aim in interposing the objection to the proof of claim during the pendency of the motion for a 2004 examination, was that the claim of J. Zin-man, Inc., would be disallowed, thus ostensibly stripping that creditor of the requisite standing necessary to obtain a 2004 examination.
Under Bankruptcy Rule 2004(a) an examination may be successfully sought “[o]n motion of any party in interest.” The debt- or apparently reads this to mean that, one who is not a creditor may not prevail on a motion filed under Bankruptcy Rule 2004. While the phrase “party in interest” is not defined in the Code, it is not apparent that the term is restricted to creditors. Nevertheless, the parties acquiesce in the belief that if J. Zinman, Inc., is deprived of its status as a creditor, it may not prevail on the Rule 2004 motion.
In objecting to the proof of claim, the debtor’s first contention is that J. Zin-man, Inc., simply failed to meet its burden of proof in establishing its claim. The parties cite Bankruptcy Rule 3001(f) which states:
(f) Evidentiary Effect. A proof of claim executed and filed in accordance with these rules shall constitute prima facie evidence of the validity and amount of the claim.
Bankruptcy Rule 3001(f). Under this provision, a claimant carries the burden of proving his claim, but the burden of persuasion is initially shifted to the trustee or debtor in possession. As used in the case at bench, the debtor has introduced sufficient evidence to offset the 'prima facie eviden-tiary value of the proof of claim by establishing that the claim currently lacks sufficient specificity. Nonetheless, at this junc*420ture of the case, this lack of particularity is due to the debtor’s procedural maneuver of objecting to the claim during the pendency of the claimant’s motion for a 2004 examination. It is through the 2004 examination that J. Zinman, Inc., hopes to obtain the necessary evidence to bolster its claim. Consequently, it would be premature to sustain the objection to the claim on this basis.
The next salvo fired against the claim by the debtor is the allegation that we should pierce the corporation veil of J. Zinman, Inc., and treat that corporate entity as the alter ego of Zinman. If the veil is pierced, the debtor posits that the releases signed by Zinman, the individual, constitute a release of the claim of J. Zinman, Inc., against the debtor.
Even presuming that the corporate veil could be pierced, we conclude that the debt- or’s argument is for naught. Zinman did not sign the releases in his personal capacity, but solely as trustee for the trust of the shareholders of Zinman Group, Inc. Any claims he may have possessed in his individual capacity were not released, and thus, we conclude that this argument is without merit.
Shifting directly to the propriety of granting the Rule 2004 motion, the debtor contends that it should not be granted on the basis of “unclean hands.” The debtor alleges that through stealth, and without authority, Zinman examined the debtor’s records.
The equitable doctrine of “unclean hands” finds its most appropriate application as a defense to an action for equitable relief. See, e.g., United States v. Wilson, 707 F.2d 304, 311-12 (8th Cir.1982). A motion for an examination under Rule 2004 is not appropriately called a request for equitable relief. Furthermore, we call to the fore, the equitable maxim that “equity follows the law.” This doctrine counsels that equitable principles, “of necessity, must comport to and remain compatible with the prevailing legislative intent.” Waldschmidt v. Ranier (In Re Fulgham Construction Corp.), 706 F.2d 171, 173 (6th Cir.1983) (quotes omitted). Derivatively, equity must comport with the rule making power vested by Congress in the Supreme Court. Such rules, as represented here by Bankruptcy Rule 2004, are not easily amenable to the engraftment of equitable exception. We see fit not to create or apply an exception in the instant case.
Since the debtor’s objections to the proof of claim of J. Zinman, Inc., are premature, we will enter an order overruling them. We also conclude that the debtor’s resistance is without adequate foundation as to the entry of an order on the Rule 2004 motion filed by J. Zinman, Inc. We will enter an order granting the motion.
. 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/8490342/ | OPINION
EMIL F. GOLDHABER, Chief Judge:
The issue for consideration is whether we should issue a permanent injunction barring the defendants from improving a parcel of realty which the debtor/plaintiff alleges is property of the estate. For the reasons set forth below, we conclude that the injunction should be denied.
The facts of this case are as follows:2 The debtor filed a petition for reorganization under chapter 11 of the Bankruptcy Code approximately two years ago. She recently filed the instant complaint and a motion for a temporary restraining order to enjoin the defendants from effecting repairs and improvements to a parcel of realty which the debtor asserts is property of the bankruptcy estate. On the basis of the debtor’s sworn averments, we entered the temporary restraining order.3
The defendants responded to the complaint, asserting that on motion of a party in interest the automatic stay was previously modified so as to authorize a sheriff’s sale of the property. The answer further avers that the property was purchased at the sheriff’s sale by one of the defendants several months ago.
At the hearing on the permanent injunction the debtor failed to prove that she retains title to the property in question or any rights in the property. In the case at issue, we conclude that such proof is essential for the issuance or retention of the injunction.
On the basis of a failure of proof, we will accordingly enter an order dissolving the injunction and deny the debtor all relief on her complaint.
. This opinion constitutes the findings of fact and conclusions of law required by Bankruptcy Rule 7052.
. The defendants have acquiesced in the continuation of the injunction until the entry of our decision on the permanent injunction. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490343/ | ORDER ON APPLICATION FOR PAYMENT OF ADMINISTRATIVE RENT
ALEXANDER, L. PASKAY, Chief Judge.
THE MATTER under consideration in this Chapter 7 case is an Application for Payment of Administrative Rent filed by John C. Fruhmorgen, who seeks payment *436of administrative rent for three separate properties rented to the Debtor, one in Clearwater, Fla., one in New Port Richey, Fla., and one in Lakeland, Fla. The Court considered the record, heard argument of counsel, and finds as follows:
In April, 1982, the Debtor corporation filed a Chapter 11 Petition in this Court. The Debtor was authorized to continue to do business as Debtor-in-Possession and continued in such capacity until April, 1984, when the case was converted to Chapter 7 and a trustee was appointed.
At the time the Petition was filed, John C. Fruhmorgen, the claimaint herein, was the president of the Debtor corporation and 100% stockholder. Mr. Fruhmorgen also individually owned or co-owned some of the properties on which the Debtor operated its business, and subleased another property to the Debtor. During the course of the Chapter 11 administration, Fruhmorgen was in control of the Debtor’s assets and was authorized pursuant to this Court’s Debtor-in-Possession Order to pay expenses such as rent as they accrued. It is for this reason that the trustee now objects to Mr. Fruhmorgen’s Application; the trustee argues that Mr. Fruhmorgen’s failure to pay the rent as it accrued materially mislead the Debtor’s creditors as to the profitability of the Debtor’s operation during the Chapter 11, and that Mr. Fruhmor-gen waived his right to payment by failing to pay himself the rent due as the estate incurred the expense.
While it is true that Mr. Fruhmor-gen had the authority to pay the rent on the properties owned by him, there is no evidence in the record that his failure to do so was the kind of “self-dealing” which would warrant equitable subrogation of his claim. In fact, the evidence shows that Mr. Fruhmorgen paid the rents due on the properties not owned by him, a fact which contradicts any suggestion of “self-dealing.” Having determined that Mr. Fruh-morgen’s claim should not be subrogated because of “self-dealing”, this Court is satisfied that Mr. Fruhmorgen is entitled to administrative rent for two of the properties, the one in Clearwater and the one in New Port Richey, but is not entitled to administrative rent for the property in Lakeland.
The New Port Richey property was owned by Mr. Fruhmorgen and his former wife, and although the original lease called for payments of $1,600 per month, the Debtor had increased its rental payment to $4,900 because of improvements made on the premises. Mr. Fruh-morgen seeks $19,600 for rent for the months of September, October, November, and December, 1988.. The rent paid by the Debtor is a presumptively valid reflection of the reasonable value of the use and occupancy in the absence of evidence to the contrary. The trustee presented no evidence to overcome this presumption and, in fact, the testimony of Mr. Mueller, a real estate broker qualified as an expert witness, was that the reasonable rental value of the premises exceeded the amount asked for by Mr. Fruhmorgen. Accordingly, Mr. Fruhmorgen is entitled to $19,600 as a priority claim for the New Port Richey property.
The property in Clearwater, Fla. was owned by Mr. Fruhmorgen and was leased to the Debtor pursuant to a lease agreement dated May 25, 1978. The terms of the lease required monthly rental payments of $6,400 per month for the first five years of the 15 year lease, $7,700 per month for the second five years, and $8,800 per month for the third five years of the lease. Mr. Fruhmorgen claims $22,995 for rent due during the second five year period for the months of October, November and December of 1983. The uncontroverted testimony of Mr. Mueller was that the reasonable value of the use and occupancy of this property was $7,667 per month or $23,000 for the three month period claimed. Thus, Mr. Fruhmorgen’s claim for $22,995 should be allowed as a priority claim.
The third property for which Mr. Fruhmorgen seeks administrative rent is located in Lakeland, Fla. The property is owned by Friendly Stores, Inc., and was *437leased to Mr. William A. Watson pursuant to a business lease dated December 14, 1973. During the course of his leasehold, Mr. Watson subleased the property to “John Fruhmorgen, personally and d/b/a Unclaimed Freight, Inc.” It was understood that the Debtor, Unclaimed Freight, Inc., was to be primarily liable for the rent, but that Mr. Fruhmorgen personally guaranteed the rents payable to Mr. Watson under the sublease agreement. The Debt- or paid Mr. Watson directly. When the Debtor failed to make the payments under the sublease agreement, Mr. Watson sued Mr. Fruhmorgen on his personal guarantee, and Mr. Fruhmorgen was held personally liable for $20,000 in back rent. Mr. Watson also filed a Proof of Claim in this case for money owed to him under the sublease agreement, and the Debtor consented to an allowance to Mr. Watson of $2,633.11 as post-petition administrative expense entitled to priority status. Mr. Fruh-morgen asserts that because he is liable for rents that the Debtor owes Mr. Watson, he should be entitled to assert a priority claim in that amount against the Debtor.
Even if Mr. Fruhmorgen is entitled to assert a claim against the Debtor for monies he paid on the Debtor’s behalf, the claim is certainly not entitled to priority status. The Debtor is required to give priority status to claims for post-petition use and occupancy of the Lakeland property, and the Debtor has done so by recognizing a $2,633.11 administrative claim to be paid to Mr. Watson. Mr. Fruhmorgen cannot assert under § 503(b)(1)(A) what is essentially a claim for indemnification, especially since the Debtor has already recognized its obligation to pay. Based on the foregoing, this Court is satisfied that Mr. Fruhmorgen’s claim for administrative rent for the Lakeland property must be disallowed.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the claim by John Fruhmor-gen for administrative rent on the New Port Richey property be, and the same is hereby, allowed as a priority claim in the amount of $19,600. It is further
ORDERED, ADJUDGED AND DECREED that the claim by John Fruhmor-gen for administrative rent on the Clear-water property be, and the same is hereby, allowed as a priority claim in the amount of $22,995. It is further
ORDERED, ADJUDGED AND DECREED that the claim by John Fruhmor-gen on the Lakeland property is disallowed without prejudice with leave granted to file an Amended Proof of Claim for monies paid on the Debtor’s behalf. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490345/ | OPINION
EMIL F. GOLDHABER, Chief Judge:
The question for decision is whether we should grant relief from the automatic stay to a purchaser of some of the assets of the debtor, a nursing home, in order for the vendee to continue proceedings' in state court which would determine whether the sale of assets included future testamentary gifts. For the reasons set forth below, we conclude that relief from the stay should not be granted.
The facts of this case are as follows:1 The debtor signed an agreement to sell the portion of its assets “used in the operation of [the debtor’s] skilled nursing and intermediate case facilities” to the movant, Mercy-Douglass Center, Inc. (“Mercy-Douglass”). Several months later the debtor filed a petition for reorganization under chapter 11 of the Bankruptcy Code (“the Code”). In the schedules accompanying its petition, the debtor listed as assets of the bankruptcy estate numerous testamentary gifts. Mercy-Douglass, believing that it had purchased the rights to these gifts under the asset purchase agreement, instituted suit in state court seeking an ultimate determination that the debtor had no interest in the testamentary gifts. The state court refused to render a decision due to the automatic stay imposed by 11 U.S.C. § 362(a). Mercy-Douglass then filed the instant motion for relief from the automatic stay so that the appropriate state courts could determine whether the debtor retains any right in the testamentary gifts.
Relief from the automatic stay may be granted under 11 U.S.C. § 362(d) which states as follows:
*479(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.
11 U.S.C. § 362(d). With respect to relief from the automatic stay as to the issue at hand, the legislative history states as follows:
Undoubtedly the court will lift the stay for proceedings before specialized or nongovernmental tribunals to allow those proceedings to come to a conclusion. Any party desiring to enforce an order in such a proceeding would thereafter have to come before the bankruptcy court to collect assets. Nevertheless, it will often be more appropriate to permit proceedings to continue in their place of origin, when no great prejudice to the bankruptcy estate would result, in order to leave the parties to their chosen forum and to relieve the bankruptcy court from many duties that may be handled elsewhere.
The lack of adequate protection of an interest in property of the party requesting relief from the stay is one cause for relief, but is not the only cause. As noted above, a desire to permit an action to proceed to completion in another tribunal may provide another cause. Other causes might include the lack of any connection with or interference with the pending bankruptcy case. For example, a divorce or child custody proceeding involving the debtor may bear no relation to the bankruptcy case. In that case, it should not be stayed. A probate proceeding in which the debtor is the executor or administrator of another’s estate usually will not be related to the bankruptcy case, and should not be stayed. Generally, proceedings in which the debt- or is a fiduciary, or involving postpetition activities of the debtor, need not be stayed because they bear no relationship to the purpose of the automatic stay, which is debtor protection from his creditors. The facts of each request will determine whether relief is appropriate under the circumstances.
H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 341 and 343-44 (1977), reprinted in, 1978 U.S. Code Cong. & Admin. News 5787, 6297 and 6300.
Mercy-Douglass asserts that, since testamentary gifts are involved, the state’s orphans’ courts are particularly adept at resolving the issue of entitlement to the gifts. The debtor contends that the inclusion of the gifts in the estate hinges on an interpretation of the sales contract for the assets and, as such, the orphans’ courts have no particular expertise which is relevant.
We agree with the debtor that the issue is primarily one of contractual interpretation. We will accordingly retain the dispute in this court for adjudication and enter an order denying the motion for relief from the automatic stay.
. 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/8490347/ | MEMORANDUM OPINION AND ORDER
HELEN S. BALICK, Bankruptcy Judge.
The Trustee of the bankruptcy estate of Dorothy E. Martin filed a complaint against *639Carl P. Hovatter. Ms. Martin and Mr. Ho-vatter were formerly married. Before their separation and divorce, Mr. Hovatter filed a Chapter 7 bankruptcy and received a discharge from joint marital debts on September 28, 1981. They separated on or about July 1, 1982, were later divorced and Ms. Martin filed a Chapter 7 bankruptcy case on November 14, 1984, listing the same joint marital debts. The Trustee’s complaint asks the court to find these debts non-dischargeable as to Carl Hovatter under 11 U.S.C. § 523(a)(5) and direct him to reimburse the estate of Dorothy E. Martin for all marital indebtedness he assumed under a separation agreement dated March 18, 1983.
The Trustee moved for summary judgment. During the course of briefing, counsel for Mr. Hovatter raised the issue of whether the Trustee has standing to seek a determination of dischargeability.
Standing is an aspect of justicia-bility under Article III of the United States Constitution and the court’s jurisdiction can be invoked only when the standing require- • ment is satisfied. Libertarian Party of Florida v. State of Florida, 710 F.2d 790 (11th Cir.1983). Standing, since it goes to the very power of the court to act, must exist at all stages of a proceeding. Safir v. Dole, 718 F.2d 475 (D.C.Cir.1983). Thus, the issue of standing is a jurisdictional question that cannot be waived and can be raised at any time. National Coalition to Ban Handguns v. Bureau of Alcohol, Tobacco & Firearms, 715 F.2d 632 (D.C.Cir. 1983).
Consequently, the merits of the action cannot be addressed until the question of the Trustee’s standing has been resolved.
Section 727(a) of Title 11 provides that the court shall grant the debtor a discharge unless certain specific conditions are met. Subsection (c)(1) specifically grants standing to a trustee or a creditor to object to the granting of a discharge of all debts in a case. Section 523 uses the word “discharge” in the context of excepting from discharge a particular debt and focuses on specific debts involving specific creditors. Although subsections (c) and (d) are not applicable to actions under § 523(a)(5), they suggest that all “§ 523 actions” lie with the specific creditors. BR 4007(a) which tracks the language of former Rule 409(a) reinforces this suggestion by designating the debtor or any creditor as persons entitled to file complaints to determine dischargeability of a debt. Thus, in sharp contrast to § 727(c)(1), no power to obtain a determination of dischargeability is given a trustee under the statutory language of either § 523 or BR 4007(a). In re Lagrotteria, 42 B.R. 867 (Bkrtcy.N.D.Ill. 1984); Vaccariello v. Lagrotteria, 43 B.R. 1007 (D.C.1984).
Further, there is no statutory duty imposed on a trustee to object to the dis-chargeability of particular debts under § 523. The trustee in a bankruptcy case, has specific duties enumerated in 11 U.S.C. § 704 which he is obligated to perform in a competent and professional manner. One of these duties is to oppose a debtor’s discharge for the benefit of all creditors of the estate, if appropriate. It would be an unwarranted burden upon the trustee to impose the additional requirement of investigating each creditor’s claim against a debtor to ascertain whether or not such debt might be determined to be nondis-chargeable. In re Overmyer, 26 B.R. 755 (Bkrtcy.S.D.N.Y.1982).
Since the Trustee lacks standing, jurisdiction is absent and the complaint must be dismissed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490348/ | DECISION AND ORDER ON MOTION OF DAVIS FURNITURE CO.
BURTON PERLMAN, Bankruptcy Judge.
The plan in this Chapter 13 case was confirmed November 27, 1984. The plan provides for a monthly payment of $35.00 to movant on an allowed secured claim of $1,900.00. Movant’s collateral consists of a bedroom set and refrigerator. Debtors are not in default on their payments to the Chapter 13 trustee.
Subsequent to confirmation, movant’s collateral was destroyed by fire. Debtors have received $1,150.00 from their home owners’ insurance carrier to compensate them for the loss. Debtors have used other resources to replace the refrigerator. They will use the $1,150.00 to purchase a replacement bedroom set. Movant was not a named loss payee on the insurance policy of debtors. Debtors’ insurance carrier is holding the $1,150.00 because of the assertion by movant that the money should be paid to it.
Against this background, movant has brought on the present motion, praying that the court order that the money held by the insurance company be paid to it. The specific relief requested is that the money be paid to the Chapter 13 trustee, and the *752plan be modified to provide that that amount be paid to movant.
Having reached the conclusion that in the present circumstances movant is not entitled to the relief which it seeks, we overrule the motion.
Movant urges essentially two bases for its position. First, it contends that a federal Chapter 13 bankruptcy filing should not alter the rights and remedies given to a creditor under state law, and pursuant to state law movant would be entitled to an order requiring payment to it of the amount being held by debtors’ insurance company. Secondly, movant urges that because its collateral has been destroyed, this should be regarded in the same manner as would a conversion by a debtor, and this court has held that in the latter circumstances a creditor is entitled to compensation. See, In re Booth, 65 B.R. 320 (Bankr.S.D.Ohio 1983).
We do not find merit in either of these contentions of movant. The proposition that a federal Chapter 13 bankruptcy filing does not affect the rights and remedies of a creditor under state law is incorrect. By reason of the Supremacy Clause of the U.S. Constitution, where there is a conflict between state and federal law, the former must yield to the latter. In this case, movant as a creditor has no right to look to state law for any remedy because it is stayed from doing so by 11 U.S.C. § 362 of the Bankruptcy Code. Where there is a confirmed Chapter 13 plan in this court, this creditor could not secure relief from that automatic stay, relief which it might seek pursuant to § 362(d), because debtors are current in their payments to the trustee. There being no default in the performance by debtors in their obligations in respect to the Chapter 13 plan, there is no “cause” for § 362(d) relief.
Nor do we think sound the further contention of movant that a state court would order payment by the insurance company to it of the $1,150.00. In support of this proposition, movant cites Ohio Revised Code, § 1309.25. That section, however, merely defines “proceeds”. There can be no dispute that the $1,150.00 being held by debtors’ insurance company is proceeds of movant’s collateral, but this provides no basis upon which it would be proper to order payment of such proceeds to movant, where movant is not a named insured in the insurance policy. Another way of making the same point is to observe that any rights of movant depend upon contract. Movant has shown us nothing in its contract with debtors or in debtors’ contract with their insurance company, which would provide for payment to movant in the event of a loss. That is not to say that movant loses its rights in proceeds derived from its collateral. Presumably, it can pursue such proceeds in the event of any default. In the absence of an appropriate contractual provision, however, movant has shown no basis for pursuing proceeds of its collateral at this time in the face of a current Chapter 13 plan.
Finally, the contention of movant that it is entitled to the relief sought on an analogy to In re Booth, supra, is misplaced. Booth did not involve a Chapter 13 case, but rather was a dischargeability proceeding. There is no reason to believe that the outcome in Booth would be the same if the debtor in that case had sought Chapter 13 relief. Further, the facts are distinguishable. Where in Booth the debtor sold the collateral, a voluntary act, in the case at hand there was an involuntary fire loss. For both the foregoing reasons, we are unable to consider Booth valid authority upon which to predicate relief for this creditor.
The motion is overruled.
So Ordered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490349/ | MEMORANDUM DECISION AND ORDER IMPOSING SANCTIONS ON DEBTOR’S ATTORNEY
JAMES H. THOMPSON, Bankruptcy Judge.
Plaintiff moved on January 29, 1986, for imposition of sanctions against the debtor and debtor’s counsel for additional costs plaintiff incurred by reason of their failure to adhere to the Stipulation filed October 29, 1985. A review of the docketed events leading to this motion for sanctions follows:
The Stipulation provided for the submission for decision by the court of this adversary proceeding upon briefs and enumerated evidence. The briefing schedule adopted therein required the defendant’s answering brief be filed ten days after the plaintiff filed its opening brief. Plaintiff filed its opening brief October 29, 1985. Allowing time from the date of mailing of the brief on October 30th, defendant’s answering brief was due November 13th. Instead of timely filing the defendant’s answering brief, the debtor’s attorney on November 18, 1985, filed a Motion to Withdraw as Counsel. The plaintiff filed its Opposition to the Motion to Withdraw as Counsel on November 20, 1985, principally on the ground that debtor’s attorney was bound by the Stipulation to continue to represent his client by adhering to the briefing schedule. The plaintiff also on November 20th moved for submission on the plaintiff’s brief only. Debtor’s attor*754ney responded to the opposition to his withdrawal that he had a conflict of interest with his client by virtue of a legal malpractice action having been filed against him in the state district court on August 5, 1985.
Debtor filed on December 4, 1985, his answering brief. On December 11, 1985, the plaintiff filed his opposition to the filing of such brief and opposing consideration of such brief by the court. The court advised counsel by letter of January 21, 1986, that since it should attempt to arrive at an informed legal decision it would consider defendant’s brief and plaintiff could file a reply brief, which plaintiff did.
The debtor’s attorney opposes a motion for sanctions upon the ground of conflict of interest with his client and that his failure to file timely the brief was due to excusable neglect and inadvertence.
The court is troubled by the fact that debtor’s attorney entered into the October 29th Stipulation more than two months after having been sued by his client’s insurance company, and further, by the absence of any mention of. that litigation and alleged conflict in his affidavit in support of his motion to withdrawal some three weeks later. Had counsel promptly filed a motion to withdraw and had not stipulated, none of the actions, motions and responses would have occurred. On the other hand, this adversary proceeding has been determined by this court, indeed in the plaintiff’s favor. This came about by debtor’s counsel recognizing, belatedly, his duty to represent his client until relieved of that representation by the court.
While it is true that plaintiff has been inconvenienced, and incurred additional expense because of this delay, no one has mentioned the added work thrust upon an already busy court simply because the motion to withdraw was not timely filed and a Stipulation was not timely honored.
The Court finds the debtor had no role in bringing about the recounted events. The motion for sanctions against debtor’s attorney is granted and he is ordered to pay the sum of $328.00 to the plaintiff. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490361/ | DECISION AND ORDER ON MOTION FOR RECONSIDERATION
BURTON PERLMAN, Bankruptcy Judge.
On August 11, 1986, our Decision and Order Re Right to Arbitrate was issued, in which we denied the application of Ohio Valley Carpenter’s District Council, Local No. 415, movant herein (hereafter “Union”), to proceed to arbitration on certain claims. Union now moves that we reconsider our Decision and Order.
We regret an error in such Decision and Order. The volume of Am.Jur.2d where the quotation appearing on p. 7 of the Decision and Order is to be found, is not volume 21, but rather volume 21A. By the present order, we correct that error. It is this error which led Union to believe that the quotation upon which we relied was to be found in a discussion of criminal law, rather than in its proper context in volume 21A, a discussion of custom and usage. We continue to believe that the quoted statement of law is valid and controlling here.
The Union urges that we apply a statement to be found at 17 Am.Jur.2d, § 274, p. 683. At that place, the text is discussing contracts. The particular proposition presented by the Union, however, is to be applied, according to the text, where one is determining the meaning of an indefinite or ambiguous contract. We made it clear in our original decision, and adhere to that belief, that there is nothing ambiguous about the provision of the collective bargaining agreement which is being applied here. For that reason, we do not think that the last referred to proposition from the text is useful.
The balance of the memorandum submitted by the Union in support of its motion for reconsideration is for the most part devoted to various authorities which also support the proposition that custom and usage can be of assistance in interpreting *548incomplete or ambiguous contractual language. As we have already said, that is simply not the situation here and, therefore, those authorities are irrelevant.
Another line of legal authority advanced by the Union is that a successor debtor is bound by the terms of a collective bargaining agreement in force both prior to and subsequent to the time of acquisition. The Union then says that this proposition has relevance because of certain testimony by plant manager Porter, to the effect that he was prepared to proceed with arbitration despite the failure of the Union to comply with the time mandates of the collective bargaining agreement. This statement by Porter, however, is not adequate to establish the acquiescence of this employer, either presently or prior to the acquisition of the employer by its present owner, in a custom and usage of ignoring the time limits of the collective bargaining agreement regarding grievances.
Accordingly, the motion for reconsideration is denied.
So Ordered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490362/ | MEMORANDUM DECISION AND ORDER ON MOTION TO RECONSIDER OPINION AND ORDER OF AUGUST 8, 1986 AND ALTERNATIVELY, MOTION FOR RECUSAL AND, ALTERNATIVELY, MOTION FOR CHANGE OF VENUE
EDWARD J. RYAN, Bankruptcy Judge.
Lurking in the thicket of words, a veritable morass that has been presented in these papers is the possibility that the debt- or may be entitled to a hearing on her claim to relief under, among other things, F.R.Civ.P. 60(b). Speare v. Consolidated Assets (In re Agora Prime Rib Restaurant), 360 F.2d 882 (2d Cir.1966). The debtor is reminded that:
Any system of court procedure worthy of the name requires the observance of certain fundamentals. The parties must prepare papers, sometimes called pleadings, in which they set forth the issues or disputes between them, preferably doing so in such fashion as to make it easy to separate the issues of fact from the Issues of law; at the trial or hearing so written record must be made of the proceedings, either in the form of stenographic transcript by a court reporter or by what have been sometimes euphemistically called the judge’s “minutes”; if, by common consent or otherwise the issues are changed during the trial or hearing, the change must be evidenced by new or amended papers or pleadings, or by a written order by the judge or a statement made by him and in some way made a part of the written record; and, when the issues are decided by the judge, there must be some writing, generally called a judgment, in which it clearly appears that the judge has made a final disposition of the whole case or that something else remains to be done. That the observance of these fundamentals is in the interest of justice, that it tends to avoid or at least reduce confusion, the great enemy of justice, and that it greatly facilitates the functioning of an appellate court of review is too obvious for comment. We are sorry to say that in the matter now before us neither the judge nor any of the parties seem to have been aware of some of these fundamentals, except after the event. Compania Espanola de Pet, S.A. v. Nereus Ship., 527 F.2d 966 ([2nd Cir.] 1975).
With respect to the branch of the motion seeking recusal, it is denied. See, W. Steve Smith, Trustee of the Estate of Shearn Moody, Jr. v. Norman D. Revie, 58 B.R. 308 (Bankr.S.D.Tex.1986).
Likewise, the branch of the motion that seeks the court to “order a change of ven*615ue of this case to the Austin Division of the Federal District of Texas” is denied.
The within Motion is denied in all respects without prejudice to the plaintiff pursuing her rights by proceeding in a workmanlike fashion.
It is so Ordered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490363/ | OPINION DENYING MOTION FOR RECONSIDERATION OF ORDER DENYING NUNC PRO TUNC APPLICATION
JUDITH H. WIZMUR, Bankruptcy Judge.
The law firm of Kasen and Kasen, former counsel to the debtor-in-possession in the above-captioned matter, seeks compensation for services rendered to the estate. No court order authorizing applicant’s employment was entered in the case. The issue presented is whether nunc pro tunc court approval may be entered to enable the applicant to be compensated for services rendered. In conformance with Third Circuit precedent, I conclude that nunc pro tunc relief may not be afforded. However, for the reasons expressed below, I suggest that the policy be re-examined.
FACTS
The salient facts are as follows. Debtor filed a voluntary petition in August 1982. Applicant acted as attorney for the Debtor-in-Possession, but failed to file an application for court approval of the employment.1 As applicant explains, the firm employee who was accustomed to and charged with responsibility for performing the routine clerical function of forwarding an application and proposed order for court approval of the employment was on vacation. As well, there was a “flurry of activity” involved in this case and its companion cases, and the firm simply neglected to file the necessary application. For purposes of this motion, it is assumed that if proper application had been made when debtor’s petition was filed, applicant’s employment would have been approved. The qualifications required by 11 U.S.C. § 827(a), including no adverse interest and “disinterested person” status, have been demonstrated by applicant.
Applicant acted as attorney for the Debt- or-in-Possession until a dispute arose with debtor’s principal. Upon formal motion to the Court, applicant obtained an Order on July 1, 1983 permitting the firm to withdraw from the case. Following the submission of a fee application on January 9,1984, applicant first discovered that no prior court approval had been obtained for the firm’s employment.
LAW
A. Generally
The controlling statutory provision, 11 U.S.C. § 327(a), permits a trustee or debt- or-in-possession,2 “with the court’s approval”, to employ professional persons to represent or assist him. Bankruptcy Rule 2014(a) requires the trustee to apply for court approval and specifies the information which must be included in the application.
*736Although neither the statute nor the rule specifically requires prior court authorization of the employment of professionals by a trustee, the jurisprudential rule denying compensation to a professional employed without prior court approval has been traditionally and strictly applied.3 In re Eureka Upholstering Co., 48 F.2d 95 (2d Cir., 1931). See also Annot., 66 ALR Fed 250. The chief reasons given for this general rule include the prevention of conflicts of interest between the professionals and the parties interested in the estate, and the maintenance of strict court supervision over the activities of the estate’s administrators in order to ensure control of costs. The rule has been applied even where the good faith of the participants was unchallenged, no allegation of a conflict of interest existed, the services of the professional benefited the estate, and the fees claimed were reasonable.
Gradually, some softening of the harsh inflexible judicial position has occurred. In re Triangle Chemicals, Inc., 697 F.2d 1280 (5th Cir., 1983). In the Third Circuit, it has been recognized that the bankruptcy court has the equitable power to authorize the appointment of counsel nunc pro tunc in order to permit counsel to be paid for work that was of value to the parties to the proceeding. In re Arkansas Co., Inc., 55 B.R. 384 (D.N.J.1985); In re Freehold Music Center, Inc., 49 B.R. 293 (Bkrtcy.D.N.J., 1985). Nevertheless, the Third Circuit tradition continues to be adherence to the “inflexible per se rule” denying compensation where an attorney negligently fails to obtain prior court approval for his employment.
B. Third Circuit Precedent
A chronological review of Third Circuit cases on the issue is instructive. The earliest Third Circuit decision my research has disclosed is the case of In re Robertson, 4 F.2d 248 (3rd Cir., 1925) in which compensation was denied to counsel for a receiver where the attorney’s application for appointment had initially been refused on the ground that he was disqualified by the terms of an applicable District Court rule from serving the estate. Several years later, nunc pro tunc relief was afforded in In re Hite, 2 F.Supp. 536 (W.D.Pa., 1932). The attorney in the case had been approved for appointment as counsel for the receiver, but had neglected to file another application for employment as counsel for the trustee when a trustee was appointed. The court excused noncompliance by reasoning that the necessity of counsel and the qualifications of the attorney had previously been determined by the court.
The most definite statement on the subject from the Third Circuit Court of Appeals may be found in In re National Tool and Manufacturing Co., 209 F.2d 256 (3rd Cir., 1954), where the inflexible rule proscribing nunc pro tunc appointment was first enunciated by the Third Circuit. Without elaboration, the Court announced:
“It is settled that under these circumstances an attorney may not be compensated out of the debtor’s estate even though he may have rendered valuable services to the trustee. [Footnote omitted] .It follows that the District Court was without authority to make the order appealed from.”
Decisions from the Second, Sixth and Eighth Circuits were footnoted, including In re H.L. Stratton Inc., 51 F.2d 984 (2nd Cir., 1931), in which case the propriety of the original appointment and the possibility of an adverse interest on the part of the attorney applicant were of serious concern.
The National Tool and Manufacturing Company language was cited approvingly in In re Hydrocarbon Chemicals, Inc., 411 F.2d 203 (3rd Cir., 1969). In Hydrocarbon, counsel for the debtor employed counsel *737for specialized services without obtaining prior court approval. The Court was concerned with the absence in the Bankruptcy-Act of authority for paying more than one fee to counsel for the debtor. As well, the necessity of such employment was questioned. The majority of the eight judge Court (three judges dissented) focused on the importance of the Court’s control over all proceedings and the imperative that counsel’s “competency, experience and integrity therefor have the approbation of the Court.” Id. at 206. See also In re Calpa Products Company, 411 F.2d 1373 (3rd Cir.1969). (Denial of compensation to creditors’ attorney where his initial application for appointment had been denied), and In re Lewis, 30 B.R. 404 (Bankr.Pa.1983) (Denial of nunc pro tunc approval of employment where application made 20 months after Chapter 11 petition was filed, following issuance of a court order directing attorney to show cause why he should not be denied compensation).
In subsequent decisions of the Third Circuit trial courts, including In re Bible Deliverance Evangelistic Church, 39 B.R. 768 (Bankr.E.D.Pa., 1984), In the Matter of Freehold Music Center, Inc., 49 B.R. 293 (Bkrtcy.D.N.J., 1985) and, most recently, In re Arkansas Company, Inc., 55 B.R. 384 (D.N.J.1985), it has been recognized that the applicable statute and bankruptcy rule do not proscribe compensation where prior court approval is not obtained, and that a bankruptcy judge may exercise discretion and balance the equities to determine whether to authorize the appointment of counsel nunc pro tunc. The Arkansas court emphasized, however, in circumstances identical to those presented in this case, that “exceptional circumstances” must be demonstrated to warrant the entry of nunc pro tunc approval, and that “mere neglect will not suffice” to justify such approval.
Based on the foregoing pronouncements of the Third Circuit, including National Tool and Manufacturing Company, supra, and Hydrocarbon Chemicals, supra, as well as its progeny, I must conclude that the applicant may not be afforded nunc pro tunc approval of his employment as attorney for debtor-in-possession.
It is fundamental that a decision by a higher court, in this case, the Third Circuit Court of Appeals, not overruled by the United States Supreme Court, is a decision of the court of last resort in this federal judicial circuit. Its judgments are binding on all inferior courts and litigants in the Third Judicial Circuit. Allegheny General Hospital v. National Labor Relations Board, 608 F.2d 965 (3rd Cir.1979). Whatever may be the personal, views of an inferior court on a particular issue, that court is not free to depart from the majority opinion of the Court of Appeals. Poulis v. State Farm Fire and Casualty Company, 747 F.2d 863 (3rd Cir.1984).
Nevertheless, I am compelled to offer my view that greater flexibility should be employed on nunc pro tunc applications, even where the only circumstance presented is the attorney’s negligence in failing to file his application for court approval in a timely fashion.
DISCUSSION
Historically, the reasons cited for the application of the “inflexible per se rule” disallowing nunc pro tunc approval of employment include the need to assess, at the beginning of the case, the necessity for the employment, In re Robertson, supra; to ascertain “the type of individual who is engaged in the proceeding, their integrity, their experience in connection with work of this type, as well as their competency concerning the same” In re Hydrocarbon Chemicals, Inc., 411 F.2d at 205; to prevent the payment of compensation to “an officious intermeddler or a gratuitous volunteer”, 2 Collier on Bankruptcy, § 327.-02 at 327-6, and, most significantly, and generally, to maintain strict control of the assets of the bankruptcy estate. In re Arkansas Co., Inc., supra.
Clearly, prior court approval of professional employment on behalf of a trustee or debtor-in-possession is desirable to maintain court supervision and control of the estate. The rule should continue to be *738effected, and negative consequences should attach to violations of the rule, including the possibility of monetary sanctions against any allowance which may subsequently be allowed. However, the element of control may be satisfied fully upon the complete and thorough review of an application for allowances made by an applicant who receives nunc pro tunc approval of his employment. The automatic consequence of denial of compensation regardless of services actually rendered and benefit bestowed upon the estate for the negligent failure' to comply with the threshold requirement of obtaining court approval is not justified in every instance.
With regard to the need for the court to ascertain the necessity for services rendered, it is clear that as a matter of course, nearly all debtors-in-possession and trustees have the benefit of legal representation. The necessity for legal services is rarely if every questioned or challenged. As well, the customary authorization for employment on a general retainer rather than for specific services is never challenged. If the necessity for specific services rendered to the estate is questioned, it may be determined when the application for compensation is reviewed.
It is also clear that a debtor-in-possession is generally free to select his own attorney and that the selection will be honored by the Court if it is demonstrated that there is no adverse interest to the estate and that the applicant is a disinterested person. Such proposed orders are routinely signed in the bankruptcy court upon proper certification of the two requested elements. The court’s need to assess counsel’s level of expertise, integrity and competence, as suggested by the Hydrocarbon Court, does not actually arise until the fee application is reviewed. At the initial application stage for court approval of employment, a Bankruptcy Court’s rejection of the application on the basis that the attorney does not have the proper level of expertise, integrity or competence to represent the debtor-in-possession would be highly questionable. As a corollary, I question the suggestion of the Arkansas Court, supra, that it would be difficult for a bankruptcy court to decide, after the fact, whether the two elements of no adverse interest and disinterested person status have been met.
Substantial support for a more flexible approach may be found in the Fifth Circuit decision of In the Matter of Triangle Chemicals, Inc., 697 F.2d 1280 (5th Cir., 1983). Specifically, the Triangle Chemicals Court held that where, through oversight, the attorney has neglected to obtain prior court approval but has continued to perform services for the debtor-in-possession, “the bankruptcy court retains equitable power in the exercise of its sound discretion, under exceptional circumstances, to grant such approval nunc pro tunc, upon proper showing ...” Id. at 1289.
It is important to address the reference in the Triangle Chemicals case to the need to establish “exceptional circumstances”. I believe that the reference is tempered by a close review of the case. The facts of the case reflect simple negligence on the part of the attorney in failing to file an appropriate application, that the attorney was otherwise qualified to serve, and that the services rendered by the attorney benefited the estate. Additionally, the Triangle Chemicals Court expressly relied on the reasoning of In re King Electric Company, 19 B.R. 660 (Bankr.E.D.Va.1982), wherein a bankruptcy court’s determination to deny nunc pro tunc approval of the employment of an attorney where the attorney was negligent in failing to obtain prior court approval for his employment was reversed on the ground that no reason had been advanced “for withholding equity ... other than that the application was not timely. Additionally because the bankruptcy court has full control over the allowance of fees, there is here no chance of overreaching through unnecessary or improper activity of counsel either before or after formal employment.” 19 B.R. at 663.
In summary, while the requirement of prior court approval should be maintained, the need for strict control of the administration of the bankruptcy estate may be *739satisfied by consideration of relevant factors upon a nunc pro tunc application and careful scrutiny of fee applications. Among the factors to be considered are the following:
1. whether the necessary elements of 11 U.S.C.A. § 327, including no adverse inter-terest and disinterested person status, have been met;
2. whether the services rendered were necessary;
3. whether the applicant could be considered to be an intermeddler or volunteer;
4. whether the applicant was recognized by the bankruptcy court and others involved in the case as the legal representative of the debtor-in-possession or trustee;
5. whether any prejudice to others involved in the case is demonstrated, and
6. whether services rendered by the applicant benefited the estate.
In this case, applicant would have qualified for appointment under 11 U.S.C.A. § 327. Applicant’s services to the estate were necessary and of benefit to the estate. Applicant was not an intermeddler, and was recognized by the bankruptcy court and others, during many court appearances and related processes, as the legal representative of the debtor-in-possession. No prejudice to others has been suggested if the application is approved. If greater flexibility were permitted by controlling Third Circuit precedent in reviewing a nunc pro tunc application of an attorney who negligently failed to apply for prior court approval of his employment, it is probable that this application would be approved.
For the reasons expressed, the motion for reconsideration of the denial of the nunc pro tunc application is hereby denied.
. It should be noted that in a companion case filed during the same month, applicant filed a Disclosure of Fees Statement in which the firm disclosed particular fee arrangements and indicated representation of the companion debtor.
. Under 11 U.S.C. § 1107(a), subject to certain specified limitations, a debtor-in-possession has all the rights and powers of a Chapter 11 trustee.
. The adoption of the Bankruptcy Code of 1978, 11 U.S.C.S. § 1101 et seq. did not significantly alter the requirement of court authorization for the employment of professionals previously found in General Orders of Bankruptcy 44 and 45. General Order 44 provided that "[n]o attorney for a debtor-in-possession shall be appointed except upon the order of the court ...". Post-1978 case law has recognized the continued validity and relevance of pre-Code case law on this issue. In re Mork, 19 B.R. 947, 6 CBC 2d 1334 (Bkrtcy.Minn., 1982). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490365/ | DECISION AND ORDER
BURTON PERLMAN, Bankruptcy Judge.
This is an adversary proceeding initially instituted by plaintiff Mapco Fertilizer, Inc. (hereafter Mapco) against two defendants, the first of them being debtor, and the other, N-Ren Illinois, Inc., a wholly-owned subsidiary of debtor. Initially the complaint sought limited relief regarding a procedure known as a “turnaround” at a plant operated by a joint venture in which plaintiff and N-Ren Illinois, Inc. are joint ven-turers. That problem was resolved by the parties outside the litigation process. Subsequently, however, further matters have been put in controversy between these parties, and it has been determined that such matters shall be resolved in this adversary proceeding and in this court.* It will be most efficient in this decision for us to quote verbatim from our earlier decision referred to in the footnote as to certain basic facts which are not in controversy:
The early allegations of the complaint provide background as to the relationship *86between the parties, viz., that on or about November 30, 1977, Mapco and N-Ren Illinois, Inc. entered into a joint venture agreement pursuant to which they were to manufacture and market urea ammonium nitrate (UAN) and other products; on that date, they also entered into a purchase agreement whereby debt- or sold to Mapco some real estate adjacent to other real estate owned by debt- or; that debtor constructed a plant on the acquired real estate for Mapco which cost $12.2 million; that in the joint venture agreement, debtor was named manager of the joint venture and again on November 30, 1977, a management agreement was executed between the joint venture and the debtor; and that there was a further agreement on that date between the joint venture and the debtor whereby debtor was to provide certain services and supplies to the joint venture from debtor’s facilities.
After the Chapter 11 case was filed January 15, 1986, on February 13, 1986, debtor, N-Ren Illinois, and Mapco entered into a tolling agreement pursuant to which the services and supply agreement, the joint venture agreement, and the management agreement were modified and/or suspended. The joint venture plant was then operated pursuant to the tolling agreement until June 27,1986, when debtor shut it down.
We now add to the foregoing, further un-controverted facts that we find on the present record. A certain rotor is an important piece of equipment at the joint venture plant. The shut-down on June 27, 1986 resulted from a mechanical breakdown and the resultant suspension of insurance coverage. The plant was started up again on August 22, 1986, though Map-co did not agree to such start up.
The joint venture UAN plant is located in close proximity to an ammonia manufacturing plant belonging to and operated by debtor, it having been the intention of the parties that the joint venture facility use ammonia produced by debtor’s plant in the operation of the joint venture plant. Debt- or maintains two storage tanks for anhydrous ammonia, and to the extent that ammonia produced by debtor’s plant is not utilized in the joint venture facility, it is stored in the tanks. The useful storage capacity of such tanks is 39,200 tons.
We make reference to certain terms of the tolling agreement which are central to the present controversy. There are three parties to that agreement, debtor, Mapco, and N-Ren Illinois, Inc. The agreement recites the existence of the three agreements dated November 30, 1977 to which we have referred above, and also to the fact that N-Ren Corporation is operating pursuant to a pending Chapter 11 reorganization case. The agreement then provides that production pursuant to it shall cease on April 30, 1986 unless extended. Mapco was to purchase all N-Ren inventory and pay for it by May 7,1986 at $145.00 per ton of anhydrous ammonia and $93.47 per ton for UAN, to be paid by May 7, 1986. N-Ren is to pay the daily demand charges by Ni-Gas of about $6,900.00 “and all other costs of operating its anhydrous ammonia plant” except for natural gas which shall be supplied by Mapco, Mapco also to pay for use tax on such natural gas which it provides. Mapco is to remove from N-Ren’s tanks all production of anhydrous ammonia by June 30, 1986. In mid-April, the parties agreed to an extension of the tolling agreement to June 30, 1986.
We have before us a number of questions which both parties have submitted and both have indicated a need for urgency in their disposition. Those by Mapco were presented as three motions in a single filing:
1. A motion to require that N-Ren carry insurance on the rotor as required by paragraph 5.02(g) of the management agreement;
2. A motion requiring N-Ren, manager of the joint venture facility, to cease operation thereof until the joint venture committee constituted under the joint venture agreement, authorizes its operation; and
3. A motion requiring that N-Ren, if the joint venture facility is to operate, use *87the ammonia previously purchased from N-Ren in operation of the joint venture facility in producing UAN for Mapco.
N-Ren for its part has filed a motion for an order requiring that Mapco remove some 16,000 tons of anhydrous ammonia from N-Ren’s storage tanks as required by paragraph seven of the tolling agreement, and also requested that this motion be handled on an expedited basis.
Because the parties represented to us that the questions raised in their several motions were urgent, we allowed them to be handled on an expedited basis as requested. At a pretrial conference which was held, it was agreed that the criteria to be applied in deciding whether relief should be granted would be those applicable to a motion for a preliminary injunction. Two separate hearings were held. The first dealt with the first two motions by Mapco which are listed above. The second hearing dealt with the third motion of Mapco and also the motion of N-Ren. The testimony of witnesses was taken at both hearings. Following the first hearing, the parties filed written memoranda, and thereafter each filed a responsive memorandum. No memoranda are to be submitted in respect to the second hearing.
After due consideration of what has been presented to us, we are satisfied that, applying the usual tests for the propriety of granting a preliminary injunction (see our decision identified supra in the footnote), neither party is entitled to such relief as to any motion here before us. We make the following observations as to each of the motions:
1. Mapco motion for insurance. The unrebutted evidence at the hearing was that Mapco agreed to insurance on the rotor at $40,000.00, and agreed to waive the contractual provision that insurance on that item be at $75,000.00. The parties have operated on this basis for many years, and Mapco seeks only now to enforce the contract in this respect. On the record before us, Mapco is not entitled to enforcement of that contract provision, and certainly not in a proceeding seeking preliminary relief. In regard to this motion, Map-co has failed to show a likelihood of success at final hearing or irreparable damage.
2. Mapco motion to require cessation of operation of the joint venture plant. It is uncontroverted that the normal selling season for UAN is in the spring when crops are planted. There is no significant market for UAN at this time, and it is unwarranted to predicate a loss on the current market price for UAN. The business in which the parties are engaged is a highly seasonal one, and a common way to do business is to manufacture product during the year and store it for sale in the spring. Mapco contends that the prospects for fertilizer sales in the coming spring are dim, but this has been true in the past and yet the joint venture facility continued to operate at full capacity, without objection by Mapco so far as this record shows. Despite the depiction by Mapco of a fading future for nitrogen products, as recently as February of this year, it entered into the tolling agreement here in litigation, the terms of which make it clear that Mapco was very anxious to secure production of UAN. In respect to this motion, assuming that the relief to be sought at trial will be the shut-down of the joint venture facility on equitable grounds, we are not persuaded that Mapco has shown a likelihood of success, nor irreparable damage if preliminary relief is denied.
As an alternative basis for denying preliminary injunctive relief on this motion, because we do not know what the issues would be at a final hearing, we cannot tell whether it is likely that Mapco will succeed at final hearing. Mapco therefore has failed to carry its burden of justifying this vital element of a case seeking preliminary injunctive relief.
3. Mapco motion that N-Ren use previously purchased ammonia. This motion fails because irreparable harm is not established. Further, the likelihood of success at final hearing is dubious, for there is no existing contractual provision which gives Mapco a right to this relief. It would *88depend entirely upon the court finding as an equitable matter that it should be allowed. The present record is not compelling towards such an outcome.
4. N-Ren motion requiring that Mapco remove ammonia. The justification for an expedited hearing on this motion was that N-Ren’s storage tanks are reaching capacity, and in order that the ammonia plant continue in operation, which is essential for the well-being of N-Ren, ammonia must be removed from the tanks to make room for further production. This motion fails for absence of evidence of irreparable harm. Both parties, N-Ren and Mapco, are in the process of removing ammonia from the tanks. A difficulty in that process has been that the most economical way of emptying the tanks has been via use of tankers, and because of flooding in the area, passage for tankers has not been possible. That situation is passing, and transport of ammonia by tanker is now possible. Irreparable harm is not shown.
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In disposing of the motions before us, the following observations must be made. To accommodate the requests by both parties for expedition in the handling of their motions, we have permitted irregular procedures. We find now the consequence of such flexibility. As we went along, we directed Mapco to file a revised complaint in order to define the issues in the case. Mapco has ignored our direction. In its recently filed responsive memorandum regarding the subject matter of the first hearing, Mapco has introduced an entirely new and unheralded approach which it suggests represents the ultimate relief it seeks, viz., that the bankruptcy filing terminated the several contractual relationships between the parties. Mapco’s adversary, of course, is disadvantaged when this vital material is introduced into the litigation at this late date, for its adversary cannot then argue fully the case which is presented. Being now satisfied that there is no basis for expediting the relief sought by either party, we will not permit this litigation to proceed any further until it has been procedurally regularized. The first step in that process is that Mapco must file an amended, supplemented, or otherwise revised complaint. If appropriate, debtor will be given an opportunity to file an amended answer and counterclaims.
After the pleadings are in order, either or both parties may assume the initiative of filing a stipulated record, with memoranda, upon which the court can render a final decision on any of the issues which are in the case. The parties could in this manner utilize the evidence which has been adduced in open court at the two hearings which have been held. If there is no such filing, the case will be scheduled for trial.
SO ORDERED.
Plaintiff here filed suit in the Illinois state courts against N-Ren Illinois, Inc., seeking that that court order cessation of the joint venture plant. We issued a preliminary injunction against that suit on September 10, 1986, Adversary No. 1-86-0203. The issues raised in the complaint in the Illinois suit then, via a motion for which an expedited hearing was sought, were introduced into the present litigation. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490370/ | ORDER DISMISSING CHAPTER 13 PROCEEDING
JAMES E. YACOS, Bankruptcy Judge.
This court on October 3, 1986 entered its order requiring the above named debtor to show cause why the debtor’s Chapter 13 proceeding pending in this court should not be dismissed. The court’s order provided that the debtor and/or any creditor should file their response on or before October 20, 1986. The debtor on October 17, 1986 filed his response, which has been reviewed and considered by the court. No creditor filed any response to the October 3rd order.
Having considered the entire record in this Chapter 13 proceeding, and the debt- or’s response filed on October 17, 1986, the court concludes that the above-named debt- or is not a qualified party entitled to file a Chapter 13 petition within the meaning and purpose of § 109(e) of the Bankruptcy Code.
Moreover, even if § 109(e) did not bar the filing, the debtor has failed to show any prejudice from the dismissal of the present Chapter 13 proceedings, without prejudice to any subsequent Chapter 13 filing that the debtor may elect to file, after he is released from incarceration in federal prison in January of 1987, and after he has obtained employment providing a regular income sufficient to fund a meaningful Chapter 13 Plan. It is accordingly,
ORDERED, ADJUDGED and DECREED as follows:
1. This Chapter 13 proceeding, be, and the same hereby is, dismissed as not being a qualified filing by a qualified debtor within the intended scope of Chapter 13 of the Bankruptcy Code. Cf. In re Gellert, 65 B.R. 970 (Bankr.D.N.H.1985); In re Mozier, 1 B.R. 350, 352 (Bankr.D.Colo.1979).
2. This dismissal is without prejudice to any subsequent filing under the Bankruptcy Code by the above-named debtor after his release from imprisonment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490372/ | WILLIAM B. LEFFLER, Bankruptcy Judge.
This cause is before the Court on the Trustee’s Objection To the Asserted Priority Claim by the United States of America, on behalf of The Cotton Board, of $130,-861.20. At issue is whether the funds claimed by the Cotton Board (Board) are property of the estate and, if so, whether the claim is entitled to priority status. This is a case of first impression in this District.
Flowers, Deverell and Crawford (the Debtor), a partnership, filed for protection with this Court under Chapter 7 of the Bankruptcy Code on January 25, 1985. Prior to that time it was in the cotton brokerage business.
According to the record and able briefs submitted by counsel for both parties, the Board is asserting its claim pursuant to 7 U.S.C. § 2101, et seq., the Cotton Research and Promotion Act (Act). The purpose of this Act is the establishment of a funding scheme to promote research and expand competitive markets for cotton. This purpose is accomplished through the voluntary assessment of $1.00 per bale of cotton sold by cotton producers plus a fractional supplemental assessment on all cotton harvested in the United States. Upon the purchase of bales of cotton from producers, firms designated as “collecting handlers” deduct from the purchase price paid the producers the amount of the assessment. These collecting handlers then remit the collected assessments to the Board for implementation of the Act’s purposes. Should a producer not want to participate in the program (s)he may apply to the Board for a refund within 90 days after the assessments are collected. The Board must refund such assessments within 60 days after the refund application is received whether or not the collecting handler has remitted same to the Board. The Act does not require the collecting handler to maintain a separate account for the collected assessments.
The amount claimed by the Board in this proceeding consists of assessments allegedly collected by the Debtor between November 1, 1984 and January 21, 1985. The parties have stipulated to the following pertinent facts.
At all times material to this proceeding, the Debtor was a “collecting handler” as defined in the Cotton Research and Promotion Order, 7 C.F.R. §§ 1205.301-1205.-342, and The Cotton Board Rules and Regulations, 7 C.F.R. §§ 1205.500-1205.540, promulgated under the Cotton Research and Promotion Act. As a collecting han*609dler, the Debtor was obliged to collect assessments from cotton producers and remit these assessments to the Board, 7 C.F.R. §§ 1205.512-1205.514. The Debtor withheld a portion of the purchase price per bale from each producer in order to meet its obligation to remit the assessment to the Board as required by the Order and Regulations cited above. Assessments were withheld by deducting the amount of the assessment from the check issued to the cotton producer. From November 1, 1984 to January 21, 1985, the Debtor collected $130,861.20 in assessments on 62,565 bales of cotton purchased from cotton producers. The Debtor failed to remit this amount to the Board. The collection of cotton assessments did not result in the creation of any funds which were segregated from other funds held by the Debtor in its checking account and any such assessments collected were commingled with such funds.
In addition to these stipulations, the record reflects that the Board has paid refunds of some $52,000.00 to producers requesting such from assessments made by the Debtor. The Trustee testified that at the time the petition was filed, the Debtor had no money on hand as all had been on deposit with First State Bank of Covington who had offset them. Since assuming his position, the Trustee has accumulated some $422,361.00 for the estate.
It is the Board’s position that the Debtor, in its role as a collecting handler, merely acted as a conduit for transmittal of the collected assessments from the producers to the Board. Therefore, the amount of the unremitted assessments is not properly property of the Debtor’s estate.
“The purposes of the bankruptcy law must ultimately govern whether a particular item constitutes property.” Segal v. Rochelle 382 U.S. 375, 86 S.Ct. 511, 15 L.Ed.2d 428 (1966) quoted with favor in In re Independent Clearing House Co. 41 B.R. 985, 998 (Bankr.D.Utah 1984). Section 541(a) of the Bankruptcy Code provides that all interests, legal and equitable, of the debtor in property at the commencement of a bankruptcy case constitutes property of the estate. As its language indicates, section 541 is intended to be broad and to include legal title to property as well as possessory or leasehold interests and property recovered by the trustee. 11 U.S.C. § 541(d); H.R.Rep. No. 595, 95th Cong. 1st Sess. 367-68 (1977); S.Rep. No. 989, 95th Cong.2d Sess. 82-3 (1978), U.S. Code Cong. & Admin.News 1978, p. 5787. The obvious purpose of the statute’s broad scope is the creation of as large an estate as possible to be equitably distributed among the debtor’s creditors. However, according to the legislative history, where property ostensibly belongs to the debtor but is, in reality, held in trust for another, Section 541 does not apply.
For example, if the debtor has incurred medical bills that were covered by insurance, and the insurance company had sent the payment of the bills to the debt- or before the debtor had paid the bill for which the payment was reimbursement, the payment would actually be held in a constructive trust for the person to whom the bill was owed. This section ... also will not affect various statutory provisions that give a creditor of the debtor a lien that is valid outside as well as inside bankruptcy or that creates a trust fund for the benefit of a creditor of the debtor. See Packers and Stockyards Act § 206, 7 U.S.C. 196.
H.R.Rep. No. 595, 95th Cong. 1st Sess. 368 (1977); S.Rep. No. 989, 95th Cong. 2d Sess. 82 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5868, 6324.
It is apparently this limitation on property of the estate that the Board is relying on in asserting its conduit theory. Examination of the Cotton Research and Promotion Act and the regulations promulgated thereunder renders inapplicable to the instant proceeding the second exception set forth above, i.e. statutory liens and trust funds, as neither are imposed. See 7 U.S.C. § 2101-§ 2118 and 7 C.F.R. § 1205.1-1205.540. Therefore, the question becomes whether the Debtor here merely held legal title to the funds in question so that they *610are beyond the reach of the Trustee and thus outside the scope of section 541. The Board supports its assertions with In re United Milk Products Co. 261 F.Supp. 766 (N.D.Ill.1966), In re The GSF Corporation, et al, unpub., (D.C.N.J. June 7, 1979, October 14, 1980), and Stark v. Wiekard 321 U.S. 288, 64 S.Ct. 559, 88 L.Ed. 733 (1944). All three cases involved milk marketing orders issued by the Secretary of Agriculture pursuant to the Agricultural Marketing Agreement of 1937. In all three cases a uniform price to be paid to producers for milk was established by the milk marketing orders and was to be accomplished by distribution of funds from a fund established by the Department of Agriculture. These funds were distributed to “handlers” or purchasers of raw milk for disbursement to the producers in amounts equalling the established minimum prices. In each case, the handler is referred to as a “conduit” of the funds received and to be disbursed. The funds in these “milk” cases were received from a government agency and were readily traceable. See, In re Commodity Exchange Services Co. 62 B.R. 868, 871 (Bankr.N.D.Tex.1986). Moreover, and most importantly for our purposes, the “milk cases” funds were not subject to levy or attachment by a judgment creditor. Therefore, in the United Milk and GSF cases, the funds were determined to not be property of the estate.
In contrast, the funds at issue in the case at bar were received from individuals and were commingled with the Debt- or’s operating funds. Although the amount constituting assessments has been calculated, the specific funds are not traceable and because they were commingled were subject to attachment by judgment creditors. This latter factor is significant because in order to better effectuate the bankruptcy law’s policy of equitable distribution among creditors, the Trustee of a bankruptcy is granted the status, rights, and powers of a judgment lien creditor at the commencement of the bankruptcy case. 11 U.S.C. § 544; See also, Matter of O.P.M. Leasing Services, Inc. 46 B.R. 661, 669 (Bankr.S.D.N.Y.1985) (involving an escrow account). As such, given that the Board had no express trust with regard to these funds, nor an escrow account, the Trustee’s right to such are superior and the Board’s position is that of an unsecured creditor. See In re Independent Clearing House Co., supra, 999; In re Tinnell Traffic Services, 41 B.R. 1018, 1020 (Bankr.M.D.Tenn.1984); In re Gordon’s Transports, Inc., unpub., Bk. no. 83-20481, Adv. no. 85-0233 (Bankr.W.D.Tenn., Oct. 27, 1986) (concerning the Trustee’s powers as opposed to constructive trust assertions). The Trustee is not necessarily limited by the Debtor’s pre-petition rights. In re Independent Clearing House Co., supra; In re Gordons Transports, Inc., supra.
In light of the foregoing,
IT IS THEREFORE, HEREBY ORDERED that the Trustee’s Objection to the asserted priority claim of the United States of America is sustained, and the Claimant should be and is allowed an unsecured claim of $130,861.20. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490373/ | ORDER
ROBERT CLIVE JONES, Chief Judge.
FACTS
The Debtor, Hamilton Associates, Inc., dba Time Development and M & D Enterprises, (“Hamilton”) engaged in business as a framing subcontractor from 1982 through 1984. Hamilton had a contract with West Coast Holdings (“West Coast”) for a project known as “Newport Cove” to provide labor and materials to frame buildings under construction. Resolution of this matter requires consideration of the claims of four entities to money owed to Hamilton by West Coast. The claimants are Pioneer Citizens Bank of Nevada (“Pioneer”), Sand-lin Lumber Company (“Sandlin”), the Internal Revenue Service (“IRS”), and the trustee of Hamilton’s bankruptcy estate (“Trustee”).
In October, 1982, Hamilton entered into an agreement with Pioneer under which Pioneer would make commercial loans to Hamilton. At that time, Hamilton signed a security agreement with Pioneer which Pioneer properly perfected. The agreement covered all obligations between Hamilton and Pioneer and gave Pioneer a security interest in, inter alia, all of Hamilton’s inventory and accounts receivable. Pioneer also obtained a general assignment of all monies owed to Hamilton by West Coast. The assignment of funds was executed on October 8, 1982 and was duly served upon West Coast.1
Pioneer subsequently made a number of loans to Hamilton. On May 13, 1983, Hamilton executed a promissory note for $25,-000.00 representing an actual cash advance. On August 12, 1983, Hamilton paid $1,000.00 against this note and executed a renewal note for the balance of $24,000.00. The unpaid balance on this note is $23,-206.09. On March 30 and April 12, 1983 Hamilton executed two notes totalling approximately $10,000.00.2 The amount still *677due and owing on these notes is $8,939.33. The present total amount due and owing on all three promissory notes, exclusive of interest, is $32,145.42.
Sandlin’s claim arises from its having supplied lumber to Hamilton for use in framing at the Newport Cove project. Between March 22, 1983, and July 30, 1983, Sandlin delivered lumber to the Newport Cove project pursuant to Hamilton’s request. The lumber was incorporated in the finished product. Pursuant to the arrangement between West Coast and Hamilton, Hamilton would submit invoices to West Coast detailing its percentage of work completed and the materials provided. West Coast would in turn require Hamilton to submit lien releases for each materialman prior to payment of any funds. Hamilton would in turn pass on the materialman’s funds to the materialman and retain its portion to use for its own operational purposes.
On May 25, 1983, Sandlin recorded a lien against the Newport Cove properties in the sum of $127,508.33 for materials used on Newport Cove Phases HA and 11B. This lien remained of record until June 6, 1983, when Hamilton, West Coast and Sandlin, agreed that Sandlin would release the lien. A partial payment was made reducing the debt to $119,350.00 and it was agreed that West Coast would pay Sandlin the balance owed directly from sums not yet released by its construction lender. Sandlin received the first two installments, but not the third installment of approximately $63,-000.00.
Sandlin learned that West Coast’s lender was disbursing the funds through First American Title Company (“First American”). Accordingly, on September 28, 1983, Sandlin requested that First American release the funds. On September 29, 1983, Sandlin’s agent went to First American to pick up the check but was advised that it could not yet be released. As a result of not receiving the last installment, Sandlin re-liened the Newport Cove Phase 11 project on September 30, 1983, although this lien was later held invalid because it was not timely filed. On the same day, Sandlin was notified that Pioneer had asserted a claim to a portion of the funds. Sandlin later learned that the IRS asserted a claim against the funds for taxes allegedly owed by Debtor.
The IRS claim is based upon an assessment of $67,638.25 made against the Debt- or on April 11, 1983. A notice of federal tax lien was not filed, however, until October 10, 1983, and no demand was made upon First American by the IRS until November 28, 1983. The IRS has admitted in pleadings that it’s claim is subordinate to that of Pioneer’s, but argues that it’s claim is superior to all others.
Finally, the Trustee argues that the money owed to Hamilton by West Coast is property of the estate that is not subject to the claims of any of the claimants. Rather, the Trustee argues that the money should be distributed equitably after compensating the Trustee for the costs and expenses of preserving the funds for the estate.
DISCUSSION
A. Pioneer vis-a-vis Sandlin
Pioneer has two bases for asserting its rights to the disputed funds: its security interest in Hamilton’s accounts receivable and the assignment of moneys owed to Hamilton by West Coast. The definition of an “account receivable” in the security agreement is “any right of [Hamilton] to payment for goods sold or leased or for services rendered.” Here, Hamilton provided goods and performed services for West Coast and West Coast became obligated to pay Hamilton for them. Thus, the money owed to Hamilton by West Coast is an account receivable and is within the scope of the security agreement.
In addition, Pioneer’s interest was properly perfected. The security interest had *678attached to the collateral because (1) the agreement described the collateral and was signed by Hamilton; (2) Pioneer had given value by lending money to Hamilton; and (3)Hamilton had rights in the collateral in that, having performed the framing work, West Coast was obligated to make payment. See Nev.Rev.Stat. § 104.9203(1), (2). Pioneer also had satisfied the requirements for perfection by filing a financing statement covering the collateral with the secretary of state. See Nev.Rev.Stat. § 104.-9302, 9401. Pioneer therefore has a valid, perfected security interest in the money owed to Hamilton by West Coast.
Additionally, however, Pioneer is protected by virtue of the assignment of moneys owed to Hamilton by West Coast. A contractor may assign moneys due under a contract even when the contract itself is not assignable and where the moneys are not yet due. Valley National Bank v. Byrne, 101 Ariz. 363, 419 P.2d 720, 722 (1966); Farmers Acceptance Corp. v. DeLozier, 178 Colo. 291, 496 P.2d 1016, 1017 (1972). If notice of the assignment is given to the obligor, he must make payment to the assignee. Van Waters & Rogers, Inc. v. Interchange Resources, Inc., 14 Ariz. App. 414, 484 P.2d 26, 29 (1971); United Bank v. Romanoski Glass & Mirror Co., 14 Ariz.App. 90, 480 P.2d 1007, 1009 (1971); Whisler v. Whisler, 9 Kan.App.2d 624, 684 P.2d 1026, 1027 (1984); McCallums, Inc. v. Mountain Title Co., 60 Or.App. 693, 654 P.2d 1157, 1159 (1982).
On October 8, 1982, Hamilton executed an assignment to Pioneer of “all moneys now due or which may hereafter become due to the Assignor from West Coast Holdings under all contracts, obligations, notes, chattel paper, purchase orders, or otherwise.” West Coast received notice of the assignment on October 11, 1982. Thus, Hamilton had assigned to Pioneer its rights to receive payments due from West Coast before the claims of Sand-lin or the IRS arose. Having received notice of the assignment, West Coast was liable to Pioneer and no subsequent assignment could deprive Pioneer of its prior rights as an assignee.
Nevertheless, Sandlin argues, without citation to authority, that because it had a superior claim to the funds by virtue of its materialman’s lien, and because it released the lien pursuant to the June 6 agreement, it is entitled to prevail in its claim to the funds. The theory underlying this argument is that the property owner has the power to redirect payment of funds from a contractor to a materialman’s lien holder in order to keep title to the property clear. The Court disagrees.
The authority that most nearly supports Sandlin’s argument is section 108.235 of the Nevada Revised Statutes. Under that provision, if a materialman’s lien is recorded and an action on the lien is commenced, the property owner “may withhold from the contractor the amount of money for which such lien is filed.” Nev.Rev.Stat. § 108.235(2). If the lien holder obtains a judgment against the property owner, the owner may deduct that amount from any amount owed to the contractor. Id. Thus, a property owner has a limited right to withhold funds owed to a contractor where a materialman’s lien is recorded and an action on the lien is commenced.
Here, Sandlin asks the Court to hold that when a materialman’s lien is recorded, the property owner may redirect payment of funds owed to the contractor (as opposed to a simple withholding) even though (1) no action to enforce the lien had been commenced, (2) the funds had previously been assigned and were subject to a security interest, and (3) the assignee/security interest holder was not given notice of the intended payment to the lien holder. This the Court can not do. Section 108.235(2) gives a property owner in this situation specific rights. The Court can find no statutory or common law granting any broader rights; i.e., the power to redirect payment without the contractor’s consent. Section 108.235 also gives the contractor (and therefore its assignee or secured party) prior certain rights to defend and contest the mechanic’s lien. The debtor may not *679consent to such redirected payment without the consent of its assignee or secured party. Sandlin, therefore, is not entitled to prevail on the “redirection of payment” theory.
Moreover as Pioneer is a secured creditor the value of whose security exceeds the amount of the claim, Pioneer is, therefore, entitled to “interest on such claim, and any reasonable fees, costs or charges provided for under the agreement under which such claim arose.” 11 U.S.C. § 506(b). The security agreement executed by Hamilton, provides that Pioneer is entitled to attorney’s fees and expenses incurred in enforcing its rights under the agreement. Thus, Pioneer may recover such fees and expenses. Under section 506(b), the interest rate used in calculating the allowed secured claim is the contract rate. See In re American Mariner Ind., Inc., 734 F.2d 426, 435 n. 12 (9th Cir.1984). In the case at bar, the interest rates on the three loans, which ranged from 16 to 18 percent, should therefore be applied to the outstanding balances on the respective loans in determining the amount of Pioneer’s claim.
B. The IBS vis-a-vis Pioneer and Sandlin
Section 6321 of the Internal Revenue Code (“IRC”) provides:
If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount ... shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.
26 U.S.C. § 6321 (1982). Once the tax has not been paid, and notice and demand have been made, the federal tax lien arises from the date of assessment. Runkel v. United States, 527 F.2d 914, 916 (9th Cir.1974); Nevada Rock & Sand Co. v. United States, 376 F.Supp. 161, 163 n. 1 (D.Nev.1974). In the case at bar, then, the IRS claim lien against Hamilton’s property arose on April 11, 1983 when the assessments were made although the notice of federal tax lien was not filed until October 10, 1983.
State law determines the nature of the legal interest a taxpayer has in property. Federal law governs the issue of lien priority. Aquilino v. United States, 363 U.S. 509, 513-514, 80 S.Ct. 1277, 1280-81, 4 L.Ed.2d 1365 (1960); Nevada Rock & Sand, 376 F.Supp. at 163-164. As discussed above, under state law, the money owed to Hamilton by West Coast is an account. Moreover, there is in this case, no dispute that this account was property that could be subject to the federal tax lien.
The only remaining issue is priority among the parties. The basic federal priority standard is “first in time, first in right.” United States v. City of New Britain, 347 U.S. 81, 85, 74 S.Ct. 367, 370, 98 L.Ed. 520 (1974). In addition, however, section 6323 of the IRC provides:
“[t]he lien imposed by section 6321 shall not be valid against any purchaser, holder of a security interest, mechanic’s lien- or, or judgment lien creditor until notice thereof which meets the requirements of subsection (f) has been filed by the Secretary.”
26 U.S.C. § 6323 (1982). Under both the New Britain rule and section 6323, Pioneer’s security interest has priority over the federal tax lien because it was created and properly perfected long before the lien arose. Sandlin’s claim, however, is less clear. A “mechanic’s lienor” is defined in the IRC as:
“any person who under local law has a lien on real property (or on the proceeds of a contract relating to real property) for services, labor, or materials furnished in connection with the construction or improvement of such property. For purposes of the preceding sentence, a person has a lien on the earliest date such lien becomes valid under local law against subsequent purchasers without actual notice, but not before he begins to furnish the services, labor, or materials.”
26 U.S.C. § 6323(h)(2). Sandlin originally had a valid materialman’s lien on the Newport Cove property that became effective *680on May 26, 1983. Since the IRS lien was not recorded until October 10, 1983, Sand-lin’s materialman's lien took priority over the IRS claim pursuant to IRC section 6323. Sandlin released that lien, however, and its subsequent attempt to re-lien the property was unsuccessful.
As a result, the IRS argues that Sandlin had no lien of record when the IRS recorded its notice of tax lien. The IRS therefore argues that its claim is superior to Sandlin’s. According to the IRS, No-mellini Constr. Co. v. United States, 328 F.Supp. 1281 (E.D.Cal.1971) supports this result. Although the facts in Nomellini are similar to those in the case at bar, there is one critical difference. In Nomellini, the creditor attempting to gain priority over the IRS lien claimed it was a “purchaser” within the meaning of section 6323. The court held that, because it had not taken the necessary steps under state law to perfect the transfer of the property at issue, the creditor was not a “purchaser.” 328 F.Supp. at 1284. The creditor therefore could not claim a priority over the IRS. Sandlin, in contrast, had a valid material-man’s lien that gave it priority over the IRS claim pursuant to section 6323. There is no assertion that Sandlin did not originally take priority over the IRS by virtue of section 6323; the question is whether Sand-lin lost its priority status by releasing its lien pursuant to the June 6 agreement. The Court concludes that it did not.
At the June 6, 1983 meeting, Hamilton, West Coast, and Sandlin agreed that in accordance with a stated timetable, West Coast would make payments to Sandlin in return for Sandlin releasing its material-man’s lien on the Newport Cove property. Thus, the agreement was essentially a substitute for the lien. Moreover, on June 6, the IRS lien had not been recorded and there is no evidence Sandlin had actual knowledge of it. Had the IRS acted promptly to record its lien and protect its rights, Sandlin could not make this claim.3 The Court concludes, therefore, that where a creditor with a lien that takes priority over an IRS lien under section 6323 gives up its security pursuant to an agreement providing for direct payment of the creditor, and where the creditor has neither actual nor constructive notice of the tax lien, the creditor retains its priority status. Sandlin’s claim, therefore, has priority over the IRS tax lien.
C. The Trustee’s Claim
Based on the above discussion, it is clear that the Court disagrees with the Trustee’s assertion that the money at issue is property of the estate free from the claims of Pioneer, Sandlin and the IRS. The Court agrees with the Trustee, however, that pursuant to sections 330(a) and 506(b) of the Bankruptcy Code, the Trustee is entitled to compensation for actual, necessary services and expenses of preserving the money at issue in this case.
CONCLUSION
Based on the above, IT IS HEREBY ORDERED that within 30 days of the date hereof, the Trustee shall submit to this Court his claim for interim compensation and Pioneer shall submit an application for determination of the amount of its secured claim. After a hearing, the Trustee shall disburse the funds in accordance with the instructions of this Court.
. A second assignment of funds was executed on February 14, 1983. That assignment, however, pertained only to funds owed to Hamilton by West Coast with respect to "Newport Cove VIII”. The present matter concerns only Newport Cove Phases 11A and B.
. One of these notes was secured by a Xerox copier as well as by the original security agree*677ment; the other was secured by a Hendrick panel radial saw as well as by the original security agreement. Pioneer has, of course, agreed to release the liens on the copier and the saw if the loans are paid.
. The critical distinction in this case between Pioneer and the IRS is notice. Pioneer had a valid, perfected security interest and an assignment of which the obligor had been notified. Thus, West Coast and Hamilton had actual notice of Pioneer’s interest in the funds and Sand-lin had constructive notice. To allow these parties to eliminate Pioneer’s interest without even providing notice would be utterly unfair. The IRS, on the other hand, took no steps to provide notice to third parties of its claim. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490374/ | ORDER
JOHN L. PETERSON, Bankruptcy Judge.
Presently filed in Adversary Proceeding No. 286/0062 are memorandums of the Trustee/Plaintiff and Defendant dealing with abstention of the adversary cause to state court pursuant to Section 28 U.S.C. 1334(c)(1) and (2). The procedural morass of this cause leads the Court to conclude that abstention has neither been formally requested, and if it has been, the request has been waived, and consent to try this cause has been impliedly made by both parties. To explain this result, it is necessary to outline and discuss the procedural history of the bankruptcy proceeding. The file reflects the following:
08/16/84 — Bankruptcy Petition filed.
09/28/84 — First meeting of creditors held.
09/28/84 — Proof of Claim of First Security Bank for secured amount of $328,-042.00 filed.
10/15/84 — Order granting relief from automatic stay against First Security Bank entered upon stipulation of the parties.
11/29/84 — Bankruptcy ease closed by Final Decree upon report of no assets by Trustee.
09/23/85 — State court action filed by Debtors against First Security Bank (Cause ADV-85-927, First Judicial District, Lewis and Clark County).
05/29/86 — Debtors filed Motion to Reopen bankruptcy case to claim as an asset the action against First Security Bank.
07/01/86 — Court entered Order reopening file.
07/09/86 — First Security Bank filed Motion For Hearing Contested Matter on grounds that state court complaint was in the nature of a counterclaim against Bank’s Proof of Claim.
07/15/86 — Debtors moved for Order seeking finding that state court action was abandoned; to appoint attorneys to act as special counsel for Debtors; to confirm and ratify filing of the state court action and “to permit the continuance of the First Security Bank case in the name of the Debtors”.
08/05/86 — Hearing on motions of Debtors and First Security Bank.
08/14/86 — Trustee, on behalf of the estate, filed a 6 count complaint in adversary cause 286/0062 against the First Security Bank and its agent Jerry Sullivan alleging counts of pre-petition fraud and deceit, constructive fraud, breach of fidicuary duty, bad faith, tortious interference with prospective advantage and negligent misrepresentation.
*94408/26/86 — Order entered finding the Debtors’ claim against First Security Bank had not been abandoned by the Trustee and was an asset of the estate and allowed the Trustee to employ special counsel.
08/27/86 — First Security Bank filed answer to Trustee’s complaint in adversary cause 286/0062.
08/29/86 — Bank filed a Memorandum Re: Abstention.
10/15/86 — Trustee filed Reply Memorandum Re: Abstention.
No formal motion or abstention requesting relief under 28 U.S.C. 1334 has been filed by either party. The closest motion to such request is the Debtors’ motion, but not joined in by the Trustee, of July 15, 1986, asking this Court to allow the state court action to proceed after a determination that such claim as an asset, had been abandoned by the Trustee. Obviously, the filing of the state court action in September, 1985, by the Debtors, met with the result that such action could not be prosecuted by the Debtors since it had never been abandoned as an asset. Relying on Sierra Switchboard Co. v. Westinghouse Electric Corporation, 789 F.2d 705 (9th Cir.1986), which specifically holds that abandonment of a Debtor’s assets cannot be accomplished without notice and hearing, this Court held the claim against the Bank was an asset of the estate, which must be prosecuted by the Trustee as the only and real party in interest. Clearly, then, the end run the Debtors sought to attain by the filing of state court action was brought to a halt.
The question of this Court’s jurisdiction to try the present adversary cause has, in my opinion, been waived. After the Debtors filed a motion to allow the state court proceeding to continue in the Debtors’ name, and before this Court entered its Order declaring that the claim had not been abandoned, the Trustee filed the present adversary case in this Court, asking for damages which constitute assets of the Debtors’ estate. Yet the Proof of Claim of the Bank is still outstanding and unsatisfied, so obviously any recovery against the Bank will have to ultimately affect that claim, either by way of set off or payment. The conduct of the Trustee is not seeking on her behalf any abstention, coupled with the conduct of the Bank in filing its answer requesting a decision in this adversary cause on the merits, without any affirmative defense attacking jurisdiction, constitute at a minimum implied waiver of lack of jurisdiction in this Court.
In In Re Castlerock Properties, 781 F.2d 159, 161-162 (9th Cir.1986), the Court held:
“Thus, the ‘essence of the jurisdictional system’ is the distinction between core and noncore matters. Lesser v. A-Z Associates, Inc. (In Re Lion Capital Group), 46 B.R. 850, 852 (Bankr.S.D.N.Y.1985).
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Further, we are persuaded that a court should avoid characterizing a proceeding as ‘core’ if to do so would raise constitutional problems. See Mohawk, 46 B.R. at 466; Morse Electric [Co., Inc. v. Logicon, Inc.], 47 B.R. [234] at 237-38 [ (Bankr.N.D.Ind.1985) ]. The apparent broad reading that can be given to Section 157(b)(2) should be tempered by the Marathon decision. [In re] American Energy, 50 B.R. [175] at 178 [ (Bankr.P.R.D.1985) ]. This circuit has interpreted Marathon as depriving the Bankruptcy Court of jurisdiction ‘to make final determinations in matters that could have been brought in a district court or a state court’. [Lucas v.] Thomas, 765 F.2d [926] at 929 [ (9th Cir.1985) ]. However, if the district court can review de novo, giving no deference to findings of the bankruptcy judge, initial proceedings can be held before a non-Article III court. Id. cf. Briney v. Burley, (In Re Burley), 738 F.2d 981, 986 (9th Cir.1984) (non-Article III Bankruptcy Appeals Panel constitutional where de novo review by court of appeals). Accordingly, we hold state law contract claims that do not specifically fall within the categories of core proceedings enumerated in 28 U.S.C. Section 157(b)(2)(B)-(N) are related proceedings *945under Section 157(c) even if they arguably fit within the literal wording of the two catch-all provisions, Sections 157(b)(2)(A) and (0). To hold otherwise would allow the Bankruptcy Court to enter final judgments that this court has held unconstitutional. Since we find the case before us as a ‘related proceeding’, the district court was correct in ruling that the Bankruptcy Court had no jurisdiction to enter judgment. 28 U.S.C. Section 157(c)(1).”
The case against jurisdiction of this court to try the tort claim based on personal injury because of Section 157(b)(5) and the final phrase of 157(b)(l)(0) clearly states personal injury tort or wrongful death claims are not core proceedings. But in this case the actions of the Trustee are more in the nature of property damage rather than personal injury.
After Marathon decided the jurisdictional grant in the 1978 Bankruptcy Code was unconstitutional, Congress in response, passed the 1984 Amendments describing core proceedings in Section 157. The matter of jurisdiction dependent on core proceedings is ably discussed in In Re I.A. Durbin, Inc., 62 B.R. 139, 141, 142-143, (S.D.Fla.1986) where District Judge Spell-man held:
“One line of cases relied on Northern Pipeline Construction Co. v. Marathon Pipeline Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed,2d 598 (1982) to support one method of determining the type of proceeding. These cases state that Marathon mandates that in a case solely involving state created rights (e.g. all common law causes of action) a bankruptcy court is without jurisdiction under Article III to adjudicate the claims if the claims would exist, independently of the bankruptcy proceeding. In other words, for a case to be considered a core proceeding, the case would not exist ‘but for’ bankruptcy. See In Re Nanodata Computer Corp., 52 B.R. 334 (Bankr.W.D.N.Y.1985); Zweygardt v. Colorado National Bank, 52 B.R. 229 (Bankr.D.Colo.1985); Mohawk Industries Inc. v. Robinson Industries, Inc., 46 B.R. 464 (D.Mass.1985) (breach of warranty is non-core because it is a ‘right traditionally cognizable under Article III courts); Shaford Companies Inc. v. Curr International Coffees, 52 B.R. 832 (Bankr.D.N.H.1985); Climate Control Engineers v. Southern Landmark, Inc., 51 B.R. 359 (Bankr.M.D.Fla.1985). * * * These courts stress, however, that a case does not become a core proceeding simply because it is within a 28 U.S.C. Section 157(b)(2) technical description. * * * To be core it must also arise under Chapter 11 or in a case arising under Chapter 11.
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Conceptually, the Marathon analysis is appealing. However, a closer look at what Marathon held reveals problems with the analysis. A plurality of the Supreme Court held in Marathon that Congress’ Bankruptcy Reform Act of 1978 involved an unconstitutional grant of power because it empowered Article I Bankruptcy Courts to hear controversies required by the Constitution to be heard by Article III courts. See Marathon, 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598. Partly in response to the Marathori holding, Congress enacted the 1984 amendments to the Bankruptcy Act. See Nanodata Computer Corp., 52 B.R. at 339.
Marathon did not explicitly discuss the situation present in the instant case. Rather, the courts applying the Marathon analysis relied on language in Marathon that merely implies that a purely state law claim cannot be heard by an Article III (sic) court under the constitution. See Marathon, 458 U.S. at 84, 102 S.Ct. at 2878. When the Supreme Court spoke about the state claims it did so in the context of showing how broad a jurisdictional grant Congress had given the Bankruptcy Courts in the 1978 Act. The Court did not say that Congress, if it narrowed the jurisdictional grant, would not authorize that core proceedings, which are also state law claims, could not be tried by a Bankruptcy Court. See *946Marathon, 458 U.S. at 84, 102 S.Ct. at 2878.
Congress was fully aware of the implications of the Marathon case when the 1984 amendments to the Bankruptcy Act were drafted. It is apparent that the provisions dealing with the Bankruptcy Court’s adjudicatory powers were specifically enumerated to avoid any conflicts with Marathon.
Numerous bankruptcy cases reject the notion that Marathon restricts the Bankruptcy Court from hearing all claims based upon purely state law causes of action. These cases point to the plain language of the amended act and defer to Congress’ legislative directives clearly indicated therein. They consider any case that falls within the 28 U.S.C. Section 157(b)(2) list of core proceedings to be a core proceeding as contemplated by Congress. See U.S.Code Cong., supra at 579, 594. Cf. Garcia v. United States, 469 U.S. 70, 105 S.Ct. 479, 483, 83 L.Ed.2d 472 (1984) (rejecting floor comments as precedent for legislative intent, preferring committee reports); Alexander v. Farmers State Bank, 49 B.R. 733, 736 (Bankr.D.N.D.1985). At least one 'authority contends that the last sentence of 28 U.S.C. Section 157(b)(3) explicitly rejects the Marathon analysis by. stating: ‘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’. See Collier on Bankruptcy, Section 3.01 at P. 3-34 (15th Ed.).
The courts not following the Marathon reasoning would find Durbin’s counterclaim to be a core proceeding under 28 U.S.C. Section 157(b)(2)(C) because it is a counterclaim against a claim filed against the estate. See Macon Pre-stressed Concrete Co. v. Duke, 46 B.R. 727 (Bankr.M.D.Ga.1985); Mauldin v. Peoples Bank of Indianola, 52 B.R. 838 (Bankr.N.D.Miss.1985) (court said in dicta that a 547(b)(2)(C) counterclaim might be a core proceeding although based on a purely state law cause of action). This court finds the reasoning of these courts, interpreting the statute on its face, more persuasive than the reasoning based on judicial inferences from Marathon’s language.”
The counterclaim in Durbin involved alleged violations of common law causes of action including trespass, conversion, tor-tious interference with business and contractual relationships and replevin.
Moreover, two recent United States Supreme Court cases which discuss Marathon, Thomas v. Union Carbide Agricultural Products Co., 473 U.S. 568, 105 S.Ct. 3325, 87 L.Ed.2d 409 (1985) and Commodity Futures Trading Commission v. Schor, — U.S. -, 106 S.Ct. 3245, 92 L.Ed.2d 675 (1986), lend support to the view expressed by Judge Spellman in Dur-bin., In Thomas, the court stated:
“[T]he court’s holding in [.Northern Pipeline ] establishes only that Congress may not vest in a non-Article III court the power to adjudicate, render final judgment and issue binding orders in a traditional contract action arising under state law, without consent of the litigants, and subject only to ordinary appellant review.”
473 U.S. at -, 105 S.Ct. at 3334-35, 87 L.Ed.2d at 422.
The Thomas decision rejects the plurality language in Marathon on the public rights/private rights analysis observing that “Congress, acting for a valid legislative purpose — may create a seemingly “private” right that is so closely integrated into a public regulatory scheme as to be a matter appropriate for — resolution with “limited involvement by the Article III judiciary”. Id., 473 U.S. at-, 105 S.Ct. at 3340, 87 L.Ed.2d at 428. Again, in Schor (Brennan and Marshall dissenting) the court upheld a regulation which allowed the Commodity Futures Trading Commission (CFTC) to adjudicate counterclaims arising out of commodity transaction through a complaint for reparation, which, of necessity, involved common law contract rights. The Schor opinion explains that Article III serves to protect both personal and structural interests, so that the private litigant has a guarantee of an impartial and *947independent federal adjudication, and the structural interests has an interest to afford an inseparable element of the constitutional system of checks and balances between the three powers of government. With regard to the structural concerns, the. court seemingly expanded the limitations Thomas placed on Marathon by rejecting the contention that the state law nature of a claim has any “talismanic power”.
“Although our precedents in this area do not admit of easy synthesis, they do establish that the resolution of claims such as Schor’s cannot turn on conclusory reference to the language of Article III. See, e.g. Thomas, 473 U.S. at -[105 S.Ct. at -]. Rather, the unconstitutionality of a given congressional delegation of adjudicative functions to a non-Article III body must be assessed by reference to the purposes underlying the requirements of Article III. See, e.g. id. at [105 S.Ct. at-]; Northern Pipeline, 458 U.S. at 64 [102 S.Ct. at 2867-68]. This inquiry, in turn, is guided by the principle that “practical attention to substance rather than doctrinary reliance on formal categories should inform application of Article III.” Thomas, supra, 473 U.S. at-, 105 S.Ct. at -. See also Crowell v. Benson, 285 U.S. 22 at 53, 52 S.Ct. 285 at 293, 76 L.Ed. 598.
* * * * * *
Of course, the nature of the claim has significance in our Article III analysis quite apart from the method prescribed for its adjudication. The counterclaim asserted in this case is a ‘private’ right for which state law provides the rule of decision. It is therefore a claim of the kind assumed to be at the ‘core’ of matters reserved to Article III Courts. See, e.g. Thomas, 473 U.S. at -[105 S.Ct. at -]; Northern Pipeline, 458 U.S. at 70-71, and n. 25 [102 S.Ct. at 2871 and, n. 25]; id. at 90 [102 S.Ct. at 2881] (Rehnquist, J. concurring in judgment). Yet this conclusion does not end our inquiry; just as this Court has rejected any attempt to make determinative for Article III purposes the distinction between public rights and private rights, Thomas, supra, [473 U.S.] at [-, 105 S.Ct. at -]. There is no reason inherent in separation of powers principles to accord the state law character of a claim talis-manic power in Article III inquiries. See, e.g. Northern Pipeline, 458 U.S. at 68, N. 20 [102 S.Ct. at 2870 n. 20]; id., at 98 [102 S.Ct. at 2885] (White, J., dissenting).
******
Accordingly, where private, common law rights are at stake, our examination of the congressional attempt to control the manner in which those rights are adjudicated has been searching. See, e.g. Northern Pipeline, 458 U.S. at 84 [102 S.Ct. at 2878]; id. at 90 [102 S.Ct. at 2881-82], (Rehnquist, J. concurring in judgment). In this case, however, ‘[l]ooking beyond form to the substance of what’ Congress has done, we are persuaded that the congressional authorization of limited CFTC jurisdiction over a narrow class of common law claims as an incident to the CFTC’s primary, and unchallenged adjudicative function does not create a substantial threat to the separation of powers. Thomas, supra at-[105 S.Ct. at-].
******
In so doing, we have also been faithful to our Article III precedents, which counsel that bright lines cannot effectively be employed to yield broad principles applicable in all Article III inquiries. See e.g. Thomas, supra. Rather, due regard must be given in each case to the unique aspects of the congressional plan at issue and its practical consequences in light of the larger concerns that underlie Article III. We conclude that the limited jurisdiction that the CFTC asserts over state law claims as a necessary incident to the adjudication of federal claims willingly submitted by the parties for initial agency adjudication does not contravene separation of powers, principles or Article III.”
— U.S. at -, -, -, 106 S.Ct. at 3255-56, 3259-60, 3261.
*948If the structural concerns in Marathon are now not automatically implicated by the presence of state law common law actions, then the constraints of such non-core edict are merely incidental to an adjudication under a federal scheme to determine non-dischargeability in the bankruptcy, forum. Certainly the limiting language in the plurality opinion in Marathon that there are only three exceptions to the absolute mandate of Article III: Territorial courts; courts martial, and courts that adjudicate disputes concerning public rights, has now been expanded in a constitutional sense.
In addition, Schor specifically held the right to trial before an Article III court could be waived, either expressly or impliedly.
“Our precedents also demonstrate, however, that Article III does not confer on litigants an absolute right to the plenary consideration of every nature of claim by an Article III Court. See, e.g., Thomas, supra, [473 U.S.] at - [105 S.Ct. at -]; Crowell v. Benson, supra [283 U.S. at 87, 52 S.Ct. at 306]. Moreover, as a personal right, Article Ill’s guarantee of an impartial and independent federal adjudication is subject to waiver, just ás are other personal constitutional rights that dictate the procedures by which civil and criminal matters must be tried. See, e.g. Boykin v. Alabama, 395 U.S. 238 [89 S.Ct. 1709, 23 L.Ed.2d 274] (1969) (waiver of criminal trial by guilty plea); Duncan v. Louisiana, 391 U.S. 145, 158 [88 S.Ct. 1444, 1452; 20 L.Ed.2d 491] (1960) (waiver of right to trial by jury in criminal case); Fed.Rule of Civ.Proc. 38(d) (waiver of right to trial by jury in civil cases). Indeed, the relevance of concepts of waiver to Article III challenges is demonstrated by our decision in Northern Pipeline, in which the absence of consent to an initial adjudication before a non-Article III tribunal was relied on as a significant factor in determining that Article III forbade such adjudication. See, e.g., 458 U.S. at 80, n. 31 [102 S.Ct. at 2876 n. 31]; id. at 91 [102 S.Ct. at 2881-82] (Rehnquist, J., concurring in judgment); id. at 95 [102 S.Ct. at 2884] (White, J., dissenting). See also Thomas, supra, [473 U.S.] at - [105 S.Ct. at -]. Cf. Kimberly v. Arms, 129 U.S. 512 [9 S.Ct. 355, 32 L.Ed. 764] (1889); Heckers v. Fowler, 2 Wall. 123 [69 U.S. 123,17 L.Ed. 759] (1865).”
— U.S. at-, 106 S.Ct. at 3256-57.
So I conclude the Trustee and the Defendants have waived any right to abstention or trial before a state or Article III court.
Finally, with the Proof of Claim of the Bank still on file, the action by the Trustee is certainly in the nature of a counterclaim against that claim. As such, a core matter is presented under Section 28 U.S.C. 157(c) (counterclaims by the estate against persons filing claims against the estate). See, In Re Durbin, supra, citing Macon Prestressed Concrete Co. v. Duke, 46 B.R. 727, and Mauldin v. Peoples Bank of Indianola, 52 B.R. 838.
The Trustee has further demanded a jury trial on all issues of the complaint. Opposition has been taken to such request by the Defendants by their answer (Fifth Affirmative Defense). A jury trial is proper in a non-core proceeding. In Re Leird Church Furniture Mfg. Co., 61 B.R. 444 (Bankr.E.D.Ark.1986); see also In Re Durbin, supra, at 144-145. Likewise, a jury trial is not available to the parties in a core proceeding. Clearly, on authority of Durbin, this Plaintiff is entitled to jury trial.
IT IS ORDERED this case is set for trial before the Court with a jury for January 6, 1987. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490375/ | ORDER ON SECOND AMENDED MOTION TO TAX ATTORNEY’S FEES AND COSTS AND ORDER ON HUR-SEYS’ MOTION TO TAX COSTS AND ORDER ALLOCATING INTEREST
ALEXANDER L. PASKAY, Chief Judge.
THE MATTERS under consideration in this Chapter 11 adversary proceeding are a *64Second Amended Motion to Tax Attorney’s Fees and Costs filed by Hallmark Builders, Inc. (Hallmark), and a similar motion filed by John W. and Mary Hursey (Hurseys), the plaintiffs involved in the above-captioned adversary proceeding. The Court heard argument of counsel, considered the record, and now finds and concludes as follows:
On September 26,1984, the Hurseys filed a complaint against Hallmark seeking a declaratory judgment determining “the rights and liabilities of the parties with regard to the subject real property and residence” under a contract entered into by the Hurseys with Hallmark for the construction of a residential property. The Hurseys contracted with Hallmark to build a single-family residence on property owned by the Hurseys, and the Hurseys conveyed legal title to the property to Hallmark in order to enable Hallmark to secure a construction loan. It was the clear intent of the parties that the property was to be deeded back to the Hurseys at the completion of the construction. In their complaint the Hurseys alleged numerous construction deficiencies by Hallmark. Based on these, the transaction was never closed.
Hallmark answered the complaint by denying all allegations set forth by the Hur-seys. Hallmark also filed a counterclaim and sought damages arising out of an alleged breach by the Hurseys of the construction contract. In due course the matter was tried before this Court, and on September 27, 1985, this Court entered its Findings of Fact, Conclusions of Law, and Memorandum Opinion. 54 B.R. 292. This Court found that the Hurseys were entitled to a conveyance of the subject property and to a reduction of the original purchase price by the amount of $22,751.00, the cost required to correct the construction defects. This Court also found that Hallmark was entitled to recover the interest it had paid on the construction loan from June 1984 through September 1985.
Hallmark filed a Motion for Rehearing, questioning the amount of credit granted to the Hurseys for the cost to correct the construction deficiencies. On March 81, 1986, this Court entered its Order on Motion for Rehearing and Amended Findings of Fact, changing the amount that the Hur-seys were entitled to reduce the purchase price from $22,751.00 to an amount “not to exceed $4,500.00.”
On April 22, 1986, a Final Judgment was entered in this cause. The Hurseys prevailed on their Complaint for Declaratory Relief, and Hallmark was ordered to re-convey the subject property to the Hurseys free and clear of all liens encumbering the property upon closing. The purchase price of the residence was reduced by $4,500.00. Hallmark was awarded $8,250.00 for payment of interest on the construction loan from June 1984 through September 1985. Each party was to bear its own costs and attorneys’ fees.
Hallmark filed a Motion for Rehearing of that Final Judgment on April 29, 1986, and on May 2, 1986, the Hurseys filed a Motion for New Trial and for Relief From Judgment. This Court granted the Hurseys’ Motion for New Trial, and reopened the evidence relating to the nature and extent of the cost to correct the construction deficiencies and to consider the argument of counsel as to how construction loan interest should be allocated.
At the hearing on August 12, 1986, this Court reduced the credit due to the Hur-seys for the construction deficiencies to $1,000.00, but took under advisement the question of whether Hallmark should be entitled to interest on the construction loan and whether Hallmark or the Hurseys are entitled to recover costs and attorneys’ fees.
The first issue to be examined is whether Hallmark is entitled to recover the interest it paid on the construction loan. In its Findings of Fact, Conclusions of Law, and Memorandum Opinion entered September 27, 1985, this Court found that because the Hurseys breached their contract with Hallmark by refusing to close when the agreement had been substantially performed, Hallmark was entitled to recover the contract price plus the additional inter*65est payable on the construction loan as a result of the Hurseys’ refusal to complete the transaction. Citing Hobbley v. Sears, Roebuck, and Co., 450 So.2d 332 (Fla. 1st D.C.A. 1984), this Court also held that the construction loan interest was an element of damages that naturally, proximately, and foreseeably resulted from the breach by the Hurseys, and therefore it was recoverable. The Hurseys argue that this construction loan interest is an item of special damage which must be specially pled, which Hallmark failed to do. While it is true that all special damages must be specifically stated in the pleadings pursuant to F.R.Civ.P. 9(g), which applies to all adversary proceedings pursuant to Bankruptcy Rule 7009, this Court is satisfied that the construction loan interest is an item of general damage that did not have to be specifically pled. Even though the construction contract did not refer to Hallmark’s obtaining a construction loan, such a construction loan was contemplated by the parties and interest on a construction loan is certainly an item of injury that is anticipated in the breach of a construction contract. No persuasive law has been presented to this Court which would alter this original finding. This Court’s original determination that Hallmark is entitled to construction loan interest in the amount of $8,250.00 stands.
The second matter under consideration is Hallmark’s Second Amended Motion to Tax Attorney’s Fees and Costs. The Final Judgment entered on April 22, 1986, provided that each party was to bear its own costs and attorney’s fees, and Hallmark’s Motion to Tax Attorney’s Fees and Costs was denied as moot by an Order also entered on April 22, 1986. Hallmark has renewed that Motion, alleging that the contract, which was the subject matter of this adversary proceeding and which the Hur-seys were found to have breached, provided for the award of costs and attorney’s fees to Hallmark if Hallmark were successful in litigation against the Hurseys.
It should be noted at the outset that this was all drafted by Hallmark; therefore, it should be construed against it. This Court’s review of the relevant contractual provision revealed no specific award of attorney’s fees in such a situation. Absent a clear statement awarding attorney’s fees in the contract, no attorney’s fee shall be awarded.
Hallmark further argues that it is entitled to recover its fees for services rendered post-judgment, because .the post-judgment relief sought by the Hurseys was a non-justiciable issue. This argument is without merit because the post-judgment relief sought by the Hurseys.was a new trial, relief which is undoubtedly appropriate for court review and which was, in fact, granted by this Court.
Based on the foregoing, this Court is satisfied that its original mandate that each party is to bear its own costs was appropriate and shall be reaffirmed.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Second Amended Motion to Tax Attorney’s Fees and Costs filed by Hallmark Builders, Inc., be, and the same is hereby, denied. It is further
ORDERED, ADJUDGED AND DECREED that Hurseys’ Motion to Tax Costs be, and the same is hereby, denied. It is further
ORDERED, ADJUDGED AND DECREED that Hallmark Builders, Inc., be, and the same is hereby, entitled to recover payment of interest on the construction loan from June 1984 through September 1985 in the amount of $8,250.00.
An Amended Final Judgment shall be entered in accordance with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490376/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THE MATTER under consideration in this Chapter 11 adversary proceeding is a Complaint for Declaratory Judgment filed by Riverdale Shopping Center and Development Company, Inc. (RSCD), the Debtor in the above-styled case. RSCD seeks a determination of its rights to and interest in certain real property located in Lee County, Florida. The relevant facts, as they appear from the record established at the final evidentiary hearing, are as follows:
In 1979, Robert K. Hughes as Trustee for the benefit of Hughes Enterprises (Hughes), Shirley Stewart, Gary Wonzer, Thomas Cronin, and King Symonds, held title to a tract of land consisting of approximately 13.2 acres in Lee County, Florida. In the spring of 1981, Gary Wonzer began plans to develop this real property along with a piece of property he owned in his individual capacity into a three phase project known as Forest Village Condominiums. Phase I and Phase II consisted of the 13.2 acres owned by Robert Hughes as Trustee, and Phase III consisted of the property owned individually by Gary Won-zer. Gary Wonzer prepared and submitted applications for zoning changes, obtained other permits and licenses, completed site engineering and obtained design and building plans, including a scale model of Phase I of the project. During this time Ronald D. and Linda H. Williams (Williams) expressed an interest in the Forest Village project, and after discussions with Gary Wonzer and others involved in the project, the Williams decided to purchase Hughes’ interest in the property.
On July 18, 1986, the Williams executed a Trust Agreement setting out the terms of the purchase and the terms and conditions of the appointment of Gary Wonzer as Trustee. The Trust Agreement also stated that:
The purpose of this Trust is to enter into a joint venture with Riverdale Shopping Center and Development Company to develop a condominium project known as Forest Village and to divide the profits from the development of the first 132 units as per the attached prospective, which is a material part of this Trust Agreement.
In August, 1981, the Hughes’ interest in the property was conveyed to Gary Wonzer as Trustee. In connection with this transaction, Hughes took back a mortgage encumbering the property conveyed in order to secure the unpaid balance of the purchase price.
Shortly after this transfer, in September, 1981 a Joint Venture Agreement was executed by Gary Wonzer and Jack Pope as officers of RSCD and by Gary Wonzer as Trustee for the Williams’ Trust. The Agreement set forth the limited purpose of the joint venture as acquiring and developing the property into Forest Village Condominiums, and stated that the property to be acquired was described in Schedule “A”. Unfortunately, Schedule “A” was never physically attached to the Joint Venture Agreement, although the uncontradicted testimony of Gary Wonzer established that the property involved in the Joint Venture Agreement was the same property described in the Trust Agreement executed by the Williams in July, 1981.
*78King Symonds’ and Thomas Cronin’s interests in the Phase I and II property was sold to Jacqueline Pope, J. Ed. Wonzer, and Thelma Wonzer on November 17,1981. On November 24, 1981, Jack Pope and Gary Wonzer, as officers of RSCD, and Gary Wonzer, individually and as Trustee, obtained a construction loan and executed a mortgage and note to Barnett Bank in the amount of $530,000. The note contained a future advances clause of up to $1,530,000. On this same date, Gary Wonzer, individually and as Trustee, deeded to RSCD the portion of the property that had been designated Building Area I — Phase I. On April 16, 1982, Gary Wonzer deeded to RSCD Building Area II — Phase I. Both of these parcels were ultimately released by Robert Hughes from the mortgage encumbering the parcels.
By the end of 1982 Buildings I and II in Phase I were completed and several units were sold. Five units in Buildings I and II were not sold, however, and were eventually lost to the construction lender in a foreclosure action. Because the Williams became concerned about the future of the project, the Trust Agreement was amended to provide that title to trust property could not be transferred without the express consent of the beneficiaries of the trust.
RSCD filed its Petition for Relief under Chapter 11 of the Bankruptcy Code in October, 1984. RSCD claimed as its only asset an interest in the proceeds of sale of the Phase I and II property and proposed a liquidating Plan of Reorganization in which the Phase I and. II property would be sold and the proceeds distributed pro rata pursuant to the Joint Venture Agreement. The Williams opposed the sale on the basis that RSCD did not own the property involved and therefore had no right to sell property in which it had no ownership interest. RSCD subsequently filed this Complaint for Declaratory Relief, seeking a determination of the parties right to and interest in this property.
The primary issue to be resolved is whether there is any legal enforceable agreement which would require that the remaining Phase I and Phase II properties be conveyed to RSCD even though construction on the condominium project has ceased and RSCD no longer desires to develop the project, but merely liquidate it. The Williams urge that the Joint Venture Agreement is not enforceable because it is too vague and ambiguous and because it lacks an essential term, specifically an adequate description of the property. RSCD contends that even though Schedule “A” was not attached to the Joint Venture Agreement and the Joint Venture Agreement did not contain a description of the property, all the parties to the contract knew exactly what property was to be developed.
There is no doubt that all the parties to the Joint Venture Agreement knew which property was described in the missing Schedule “A”. Although there was no actual description in the Joint Venture Agreement itself, it is without dispute that the Phase I and Phase II property as described in and attached to the Williams’ Trust Agreement is the same property that was to be developed pursuant to the Joint Venture Agreement. It was clearly the intention of all parties to the Joint Venture Agreement that the Williams’ Trust was to contribute the land held by the Trust to the Joint Venture Agreement, and RSCD was to develop that land. This Court is satisfied that the Joint Venture Agreement is not too vague and ambiguous nor does it lack an essential term that would make it unenforceable.
This does not mean, however, that RSCD is entitled to have the property conveyed to it. Just as it is clear that the intention of the parties was that the Williams’ Trust contribute the land held by the Trust to the project, it is equally clear that the parties intended that the land be developed by RSCD as Forest Village Condominiums. The parties did not intend and never contemplated a sale of this land as now proposed by RSCD. The Williams are under absolutely no obligation to contribute the property when the purpose of the Joint Venture Agreement has been frus*79trated and is no longer viable. The parties to the Agreement only intended for the joint venture to acquire the property in furtherance of the construction and management of the condominium project, and for no other reason. To interpret the Agreement otherwise would be to require the Williams’ Trust to convey property to achieve a purpose neither contemplated nor intended by the parties. At all material times, the parties intended the property to be transferred only to develop the property as a condominium project, an objective no longer possible.
Based on the foregoing, this Court is satisfied that RSCD has no ownership interest in the Trust property nor does it have a right to compel a conveyance and sale of this property. Thus, this adversary proceeding 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/8490377/ | ORDER ON OBJECTION TO CLAIM # 38 OF KROOTH & ALTMAN
ALEXANDER L. PASKAY, Chief Judge.
THIS CAUSE came on for consideration upon notice and hearing of an objection to Claim #38 of Krooth & Altman, filed by Mandalay Shores Cooperative Housing Association, Inc. (MSCHA), the Debtor in the above-captioned Chapter' 11 case. MSCHA asserts that Krooth & Altman’s claim, which is for legal services rendered to MSCHA in 1980 and 1981, is barred by the applicable statute of limitations. The Court has considered the objection together with the record, heard argument of counsel, and finds as follows:
In February 1980, MSCHA retained the law firm of Krooth & Altman to assist MSCHA in the purchase of the Mandalay Shores apartment project from the U.S. Department of Housing and Urban Development. Mr. F.J. Burr, president of MSCHA, and Daniel E. Mann, secretary of MSCHA, executed a retainer agreement on behalf of MSCHA on February 19, 1980. Krooth & Altman rendered services for MSCHA pursuant to this agreement through March 23, 1981, shortly before MSCHA filed its first Petition for Relief under Chapter 11 in this Court on April 3, 1981. Krooth & Altman filed a timely proof of claim for these prepetition legal fees, but was not paid before the case was dismissed on October 25, 1985, for failure to propose an adequate reorganization plan.
Upon dismissal of the 1981 petition, MSCHA filed a petition under Chapter 11 in the Bankruptcy Court for the Northern District of Illinois on November 4, 1985. Krooth & Altman again filed a timely proof of claim for the prepetition fees owed by MSCHA. This petition was also dismissed on December 19, 1985, but MSCHA appealed the Order of Dismissal to the District Court for the Northern District of Illinois.
While the appeal of the Order of Dismissal was still pending in the district court in Illinois, MSCHA filed a third petition under Chapter 11 in this Court on March 31,1986. Once again, Krooth & Altman filed a timely proof of claim for the prepetition legal fees. On August 8, 1986, MSCHA filed an objection to Claim #38 of Krooth & Altman, alleging that the claim is barred by the applicable Statute of Limitations, Fla. Stat.Ann. § 95.11(2)(b) (West 1982).
Fla.Stat.Ann. § 95.11(2)(b) provides that any action on a contract founded on a written instrument must be commenced within five years of the time the cause of action arose. Krooth & Altman’s cause of action arose on March 23, 1981, the last prepetition date that services were rendered to MSCHA. Applying § 95.11(2)(b) to the cold facts of this case, Krooth & Altman’s claim technically is barred by the Statute of Limitations because the five years during which Krooth & Altman could institute an action expired on March 23, 1986, eight days before MSCHA filed its third and current petition.
Fortunately for Krooth & Altman, this Court is not compelled to consider only the cold facts and, as a court of equity, can consider the totality of circumstances under which Krooth & Altman asserts its claim. In equity, a claimant should not be penalized for an unfortunate sequence of events which was wholly and exclusively in the control of MSCHA. Krooth & Altman asserted its claim against MSCHA at every opportunity and MSCHA has at all times *94been aware of Krooth & Altman’s claim. MSCHA’s repetitious petitions, the third filed while the dismissal of the second was still on appeal, are voluntary acts which may be construed as implied promises to pay. MSCHA cannot be allowed to seek the protection of the bankruptcy court in order to simply hide from its creditors and to await the expiration of the Statute of Limitations. In spite of the technical merits of MSCHA’s position, this Court is satisfied that Krooth & Altman’s claim is not barred by the Statute of Limitations and that the objection to Krooth & Altman’s claim should be overruled.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Objection to Claim # 38 of Krooth & Altman be, and the same is hereby, overruled, and Claim # 38 of Krooth & Altman be, and the same is hereby allowed as filed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490383/ | MEMORANDUM OF DECISION (OBJECTION TO CLAIM NO. 55 — U.S. CUSTOMS SERVICE)
DAVID N. NAUGLE, Bankruptcy Judge.
The U.S. Customs Service, an agency of the United States, filed its claim (No. 55) for $521.52 for a supplemental duty bill. The parties agree that the claim was filed after the bar date for timely claims, but the U.S. Customs contends that the lack of timeliness should be excused because of a lack of prejudice to the Debtor and the reason for the delay; namely, the false entry on the import certificate showing duty-free status.
The recent decisions of our Court of Appeals show a growing liberality in allowing valid claims even when the formal proofs of claim are late. See In re Pizza of Hawaii, Inc., 761 F.2d 1374 (9th Cir.1985); In re Sambo’s Restaurants, 754 F.2d 811 (9th Cir.1985).
In the case at bar, the United States concedes that the claim is not entitled to priority since it is out of the one-year time limit of 11 U.S.C. § 507(a)(7)(F).
In at least one case arising under the Bankruptcy Act of 1898 (P.L. No. 61), the Court of Appeals for the Ninth Circuit has allowed the use of equitable powers to prevent injustice in allowing late-filed claims. See In re Global Western Development Corp., 759 F.2d 724, 727 (9th Cir.1985).
However, whatever culpability Milcor and its agents may have had in placing a false or merely erroneous entry in the 1981 import certificate, the Debtor’s conduct has not been so inequitable as to justify vacating the bar date and allowing this late filed claim to be allowed, even as a general unsecured claim.
The attorney for the Debtor shall prepare and lodge a proposed order disallowing Claim No. 55. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490385/ | MEMORANDUM OPINION
ELIZABETH L. PERRIS, Bankruptcy Judge.
This matter arises upon the Defendant’s Motion to Dismiss for Lack of Jurisdiction, or in the Alternative, to Abstain. At the September 15, 1986 hearing, the Court noted that while the motion primarily raised issues of subject matter jurisdiction, the Defendant’s argument also raised the issue of this Court’s ability to assert personal jurisdiction over the Defendant. The Court ruled that it has subject matter jurisdiction over the proceeding, but declined to rule on the personal jurisdiction issue pending submission of briefs by the parties. Both parties have now filed briefs, and this opinion addresses the arguments raised therein.
FACTUAL AND PROCEDURAL BACKGROUND
On December 3, 1985 the Plaintiff, Northwest Pipe & Casing Co., (hereinafter “Northwest Pipe”), filed for protection under Chapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 101 et seq.
On January 10, 1986, Northwest Pipe filed a Complaint for Breach of Contract against the Defendant, Standard Wholesale Supply Co. (hereinafter “Standard Wholesale”), in the United States District Court for the District of Oregon. The complaint alleged subject matter jurisdiction arising from diversity of citizenship. It contained no allegation of federal question jurisdiction.1 On February 10, 1986, Standard Wholesale filed a Motion to Quash Service of Process, or in the Alternative to Dismiss. District Court Judge Owen Panner issued an opinion on May 16, 1986 granting Standard Wholesale’s Motion upon a finding that the District Court lacked personal jurisdiction over the Defendant. The Court entered a judgment dismissing the action on May 23, 1986, and Plaintiff did not appeal that judgment.
On July 21, 1986, Northwest Pipe filed another Complaint for Breach of Contract against Standard Wholesale, this time in the United States Bankruptcy Court for the District of Oregon. With the exception of the deletion of allegations as to the diversity of citizenship of the parties and the amount in controversy, the allegations of the complaint in the District Court and the complaint in this Court, including the relief sought, are identical. While the second complaint is devoid of any jurisdictional statement, the Plaintiff argues that it is based upon federal question jurisdiction over matters arising under Title 11 of the United States Code. 28 U.S.C.A. § 1334 (West Supp.1986).
*641At the time Northwest Pipe filed the complaint in District Court, at the time the parties argued the merits of the jurisdictional issue, and at the time the District Court entered its order dismissing the complaint, Plaintiff was involved in reorganization proceedings in this Court. It originally filed suit in District Court in hopes of keeping the Defendant unaware of the pendency of its Chapter 11 proceeding. Plaintiff believed its position in settlement discussions would be weakened if the Defendant knew of its financial difficulties.
Standard Wholesale’s motion is based on the principles of res judicata. It contends that the District Court’s dismissal for lack of personal jurisdiction over the Defendant precludes relitigation of the personal jurisdiction issue in this Court. Northwest Pipe argues in response that the doctrine of res judicata does not apply to issues of jurisdiction, and that even if it did, the only issue it would be precluded from relitigating is whether Defendant has sufficient minimum contacts with the state of Oregon in order to maintain an action based upon diversity of citizenship. Northwest Pipe contends that the issue of federal question jurisdiction was not raised in the prior proceeding, and therefore cannot be barred by the District Court dismissal.
ISSUE
Do the principles of res judicata apply to questions of personal jurisdiction? If so, is the Plaintiff precluded from raising all grounds for personal jurisdiction, or just those raised in the prior proceeding?
DISCUSSION
It is well settled that the principles of res judicata apply to the issue of personal jurisdiction in the same manner as any other issue. Baldwin v. Iowa State Traveling Men’s Assoc., 283 U.S. 522, 525-26, 51 S.Ct. 517, 517-18, 75 L.Ed.2d 1244 (1931); Kendall v. Overseas Development Corp., 700 F.2d 536 (9th Cir.1983); and Eaton v. Weaver Manufacturing Co., 582 F.2d 1250 (10th Cir.1978). The Plaintiff’s assertion otherwise is apparently caused by the confusing use, and misuse, of the term res judicata. The principle of res judicata contains two distinct branches: claim preclusion, commonly referred to as res judica-ta; and issue preclusion, commonly referred to as collateral estoppel. As explained by the Court of Appeals for the Ninth Circuit:
Res judicata encompasses two subsidiary doctrines, claim preclusion and issue preclusion. Under claim preclusion a final judgment on the merits of a claim bars subsequent litigation on that claim. Claim preclusion ‘prevents litigation of all grounds for, or defenses' to, recovery that were previously available to the parties, regardless of whether they were asserted or determined in the prior proceeding.’ The. related doctrine of issue preclusion, or collateral estoppel, bars re-litigation, even in an action on a different claim, of all ‘issues of fact or law that were actually litigated and necessarily decided’ in the prior proceeding. Americana Fabrics, Inc. v. L & L Textiles, Inc., 754 F.2d 1524, 1529 (9th Cir.1985) (Citations omitted.).
When a case is dismissed for want of personal jurisdiction, it does not result in a judgment on the merits of the claim. Fed. R.Civ.P. 41(b). Nor does it result in a final judgment for claim preclusion purposes because the only thing that has been litigated is the preliminary issue of personal jurisdiction; the merits of the claim have never been litigated. But, when dismissal for lack of personal jurisdiction is allowed to become final without appeal, there is a final determination of that single issue. Therefore, when the preclusive effect of the dismissal is raised in a subsequent suit, the outcome is determined by application of the rules of issue preclusion. Kendall v. Overseas Development Corp., 700 F.2d at 538 n. 2.
In Kendall v. Overseas Development Corp., 700 F.2d 536, the Ninth Circuit Court of Appeals addressed the application of issue preclusion to a prior determination of lack of personal jurisdiction. The Court instructed that if the litigation was be*642tween the same parties and based on the same cause of action, the trial court is to compare the pleadings and judgment and determine whether the plaintiff has pleaded any new facts that would support a different result on the issue of jurisdiction. In so doing, the Ninth Circuit adopted the analysis used by the Tenth Circuit in Eaton v. Weaver Manufacturing Co., 582 F.2d 1250, (10th Cir.1978).
In the case at bar, a comparison of the pleadings shows that no new facts have been pleaded in this second action. If the Court reads in the implicit reference to federal question jurisdiction which the Plaintiff claims to assert by merely filing in Bankruptcy Court, the only new factual allegation is that of federal question jurisdiction. Such allegation, which could have been pleaded in the prior action,2 but which the Plaintiff chose to forgo at that time, is not a new fact which will defeat the preclu-sive effect of the prior judgment. Eaton, 582 F.2d at 1257. The basis for federal question jurisdiction existed, and was known to the Plaintiff at the time the first complaint was filed in District Court. If the District Court complaint had been filed prior to the filing of the bankruptcy petition, the invocation of federal question jurisdiction in this proceeding would be a new fact. Since this ground for jurisdiction existed at the time of the District Court action, the Court cannot consider the assertion to be tantamount to pleading a new fact which cures the jurisdictional defect of the prior proceeding.
The Plaintiff argues that even if issue preclusion applies, it only prevents relit-igation of questions pertinent to diversity jurisdiction because that was the only issue litigated and actually decided in District Court. In other words, the Plaintiff asks the Court to define issue so that the only thing precluded is the actual legal arguments raised in the prior proceeding. The Ninth Circuit rejected such a narrow construction of the term issue in Starker v. United States, 602 F.2d 1341 (9th Cir.1979). In that case, the Court held that an earlier judgment between the plaintiffs son and the Government as to the applicability of 26 U.S.C. § 1031, acted to bar relitigation of the application of that stature in subsequent litigation involving substantially the same facts. The Court reached this conclusion despite the Government’s assertion of a new legal theory to support the statute's application. The Circuit Court relied partially upon the factors suggested in the Restatement of the Law (Second) Judgments to determine the scope of the term issue. 602 F.2d at 1344. While those factors are difficult to apply to personal jurisdiction questions, the Comments to Section 27 of that treatise make it clear that issue is to be defined broadly enough to preclude relitigation of all legal arguments in support of a particular position, whether or not those arguments were raised in the prior action. Restatement of the Law (Second) Judgments § 27, at 252-255 (1982).
It is also apparent that the Courts in Kendall and Eaton used the term issue to mean the entire subject of personal jurisdiction for which a factual basis existed in the prior action. In Eaton, the Court states that the plaintiff is precluded from raising a new argument in support of personal jurisdiction whether or not that specific argument was raised before, “since clearly the [argument] could have been presented as a basis of jurisdiction [in the earlier proceeding].” 582 F.2d at 1257.
Application of the doctrine of issue preclusion to bar the relitigation of the issue *643of personal jurisdiction in the case at bar does not work an unfairness on the Plaintiff. While the case is not on point, the Supreme Court decision in Brown v. Felson, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979) is instructive on the policy to be furthered by application of the principle of res judicata. In Brown, the Court refused to apply claim preclusion to bar relitigation of a cause of action which had been subject to a final judgment in a state court collection proceeding. The debtor sought to use res judicata to bar the bringing of a complaint to determine the dischargeability of the debt on the basis that the plaintiff could have, but chose not to, bring the complaint in state court on a non-discharge-able basis. The Supreme Court held that it would be unfair to force a plaintiff, involved in litigation with a non-bankrupt defendant, to litigate issues which had no special significance at that time, but which would take on special significance if the defendant should decide to file bankruptcy. To require plaintiffs to do so would only serve to unnecessarily complicate relatively simple cases.
This case is markedly different from Brown in that the first proceeding took place after the bankruptcy petition was filed, and it was the debtor who initiated the litigation. When the issue of personal jurisdiction was raised, the Debtor-Plaintiff had incentive to litigate the issue fully. Plaintiff knew, or should have known, that it could assert federal question jurisdiction in response to the Defendant’s motion. It chose not to, and must be bound by that decision. It is important to remember that this Court is a part of the District Court. A party acts at its own risk if it chooses to forgo asserting arguments in District Court with the assumption that if it loses there it can try again in the Bankruptcy Court.
The Court has read the cases cited by the Plaintiff and finds them unpersuasive. Miller v. Saxbe, 396 F.Supp. 1260 (D.D.C. 1975), does hold that dismissal on jurisdictional grounds is conclusive only on the jurisdictional arguments actually made, but in doing so runs contrary to what this Court considers to be the better reasoned cases. Another case cited by the Plaintiff is Johnston v. Earle, 162 F.Supp. 149 (D.Or.1958). That case stands for the proposition that a judgment rendered by a court lacking subject matter jurisdiction is a nullity, and matters decided in that proceeding can have no res judicata effect. The case has no bearing on the issue at hand.
The Defendant’s Motion to Dismiss is granted. In light of this ruling there is no reason to separately address the abstention issue.
This Memorandum Opinion shall constitute Findings of Fact and Conclusion of Law, and pursuant to Bankruptcy Rule 7052, they will not be separately stated. Counsel of Defendant is directed to lodge and serve a judgment in accordance with the views expressed herein.3
. The Court pursuant to Fed.R.Evid. 201(c), takes judicial notice of the complaint found in the District Court file, Civil Number 86-49-PA.
. 28 U.S.C.A. § 1334(b) (West Supp.1986) provides: "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." Although the District Court has referred “all cases under Title 11 and all proceedings arising under Title 11 or arising in or related to cases under Title 11”, Local Rule 2101-1, to this Bankruptcy Court, that act did not divest the District Court of jurisdiction over this proceeding. In fact, absent consent of the parties, the Bankruptcy Court lacks jurisdiction to enter a final Order in this non-core proceeding. In non-core proceedings, the Bankruptcy Court prepares Findings and Conclusions for submission to the District Court. The District Court reviews the Findings and enters a final Order. 28 U.S.C.A. § 157(c) (West Supp.1986).
. The parties, pursuant to 28 U.S.C. § 157(c)(2), have consented to entry of judgment by this Court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490386/ | *663MEMORANDUM ON MOTION FOR SUMMARY JUDGMENT
ROBERT L. KRECHEVSKY, Chief Judge.
I.
In this core proceeding, see 28 U.S.C. § 157(b)(2)(F), the plaintiff-trustee, Thomas W. Germain, Esq., seeks to avoid, as a preferential transfer, a prepetition lis pen-dens recorded against realty of the debtor’s estate. Nora M. Gawel, the defendant and the filer of the lis pendens, has moved for summary judgment in her favor after both parties filed a stipulation of facts. The following background is based upon this stipulation and the case file.
II.
John J. Gawel, the debtor in this chapter 7 case, filed his voluntary petition on November 21, 1985. At that time a marriage dissolution action, commenced by the defendant against the debtor, was pending in the Connecticut Superior Court. In her complaint the defendant requested dissolution of a marriage of twenty-two years duration, alimony, and an “[e]quitable distribution of all real and personal property.” At the commencement of her action, the defendant recorded, on February 15, 1985, a notice of lis pendens in the appropriate town office, describing the marital residence located on Studio Hill Road, Kent, Connecticut (residence). The debtor then held sole legal title to the residence. Following the filing of the debtor’s bankruptcy petition, this court, with the consent of the trustee, modified the automatic stay imposed by 11 U.S.C. § 362 to allow the Gawels to conclude their marriage dissolution action. The Connecticut Superior Court, on March 17, 1986, entered a final judgment dissolving the marriage and ordering the debtor “to convey all his right, title and interest in and to the [residence] to [the defendant]”, subject to existing mortgages, and “to pay the sum of One Dollar per year alimony until the [debtor] is discharged in bankruptcy and secures new employment.”
On August 14, 1986, the trustee commenced the present proceeding by complaint, contending that the lis pendens, filed by the defendant as an insider within one year of the filing of the bankruptcy petition, while the debtor was insolvent, was on account of an antecedent debt and voidable as a preference. He asserts, therefore, that the state court postpetition ruling requiring a transfer of the residence to the defendant is subject to his prior rights as a bankruptcy trustee. The defendant contends that, regardless of the existence of other elements of a preference, the trustee cannot avoid the lis pen-dens because its filing, as a matter of law, was not for or on account of an antecedent debt. Both parties agree in their memoran-da of law that the transfer of the residence to the defendant ordered by the state court was not as an award of alimony, but solely a division of marital property as authorized by state statute. The parties having agreed that there is no genuine issue as to any material fact, a ruling on the defendant’s motion for summary judgment is appropriate. See Bankr.R. 7056, Fed.R.Civ.P. 56(c).
III.
A.
Section 547(b) of the Bankruptcy Code provides that 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—
(B) between ninety days and one year before the date of the filing of the *664petition, 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.
As noted, the only issue before the court is whether the lis pendens filed by the defendant was filed “for or on account of antecedent debt”, § 547(b)(2). The defendant asserts that the debtor had no liability to her, contingent or otherwise, before she commenced the marriage dissolution action. She claims that the lis pendens gave statutory notice, as against subsequent encum-brancers, of her equitable claim of ownership in the residence, and that that claim does not constitute an antecedent debt. In short, she states the lis pendens was filed to give notice of the state court action in which she was seeking a transfer of the debtor’s legal interest in the residence to the defendant as the equitable owner of the residence, and the right to such a transfer did not arise until the marriage dissolution action was filed.
The trustee agrees that, under Connecticut law, a lis pendens is intended to give notice of a pending claim for equitable distribution of marital property. He contends, however, that a claim for equitable distribution of property arises at the time the marital relationship is created and, when the lis pendens is filed, the claim it purports to secure is one based upon an antecedent debt.
B.
Until recently, Connecticut law made no distinction between awards of “alimony” and “property division” in dissolution actions. Former Conn.Gen.Stat. § 46-21 provided for both awards of property and periodic payments under the heading “Alimony and change of name”. It was not until 1973 that the state legislature enacted separate statutes for “Assignment of property” and for “Alimony.” Conn.Gen.Stat. § 46b-81 governs property division and § 46b-82 authorizes alimony. Section 46b-81 provides as follows:
Assignment of property and transfer of title
(a) At the time of entering a decree annulling or dissolving a marriage ..., the superior court may assign to either the husband or wife all or any part of the estate of the other. The court may pass title to real property to either party or to a third person or may order the sale of such real property, without any act by either the husband or the wife, when in the judgment of the court it' is the proper mode to carry the decree into effect.
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(c) In fixing the nature and value of the property, if any, to be assigned, the court, after hearing the witnesses, if any, of each party ..., shall consider the length of the marriage, the causes for the annulment, dissolution of the marriage or legal separation, the age, health, station, occupation, amount and sources of income, vocational skills, employability, estate, liabilities and needs of each of the parties and the opportunity of each for future acquisition of capital assets and income. The court shall also consider the contribution of each of the parties in the acquisition, preservation or appreciation in value of their respective estates.
Connecticut courts recognize that “[t]he purpose of alimony is to meet one’s continuing duty to support, while the purpose *665of property division is to unscramble the ownership of property, giving to each spouse what is equitably his.” Weiman v. Weiman, 188 Conn. 232, 234, 449 A.2d 151 (1982) (citations omitted); Dubicki v. Dubicki, 186 Conn. 709, 714 n. 2, 443 A.2d 1268 (1982); Beede v. Beede, 186 Conn. 191, 195, 440 A.2d 283 (1982); McPhee v. McPhee, 186 Conn. 167, 170, 440 A.2d 274 (1982); see also H. Clark, Law of Domestic Relations § 14.8 (1968).
c:
The defendant filed the lis pendens pursuant to Conn.Gen.Stat. § 46b-80, which provides in relevant part:
Prejudgment remedies available; lis pendens; notice; effect
The following procedures shall be available to secure the financial interests of either spouse in connection with any [marital dissolution] complaint ... (2) at any time after the service of [the] complaint, if either party claims an interest in real property in which the other party has an interest, either spouse may cause a notice of lis pendens to be recorded [on that real property].... Such notice shall, from the time of the recording only, be notice to any person thereafter acquiring any interest in such property of the pendency of the complaint. Each person whose conveyance or encumbrance is subsequently executed or subsequently recorded ... shall be deemed to be a subsequent purchaser or encum-brancer, and shall be bound by all proceedings taken after the recording of such notice, to the same extent as if he were made a party to the complaint.
This portion of § 46b-80 was passed in response to Atlas Garage and Custom Bldrs., Inc. v. Hurley, 167 Conn. 248, 355 A.2d 286 (1974). In Atlas Garage, the Connecticut Supreme Court held that an attachment filed against the marital residence at the commencement of a marriage dissolution action did not secure an eventual award of the residence as a property division. “[A] remedy by attachment is limited to actions to recover a sum of money only, and in such a case it cannot be employed as a means of recovering specific property.” 167 Conn. at 258, 355 A.2d 286. Section 46b-80 was enacted to provide a prejudgment remedy to secure the recovery of specific property in marriage dissolution actions. It is clear that § 46b-80 is intended to afford security for an eventual transfer of realty as a property division under § 46b-81.
In In re Ottaviano, 63 B.R. 338 (Bankr.D.Conn.1986), this court held that a lis pen-dens filed at the commencement of a marital dissolution action was not a fraudulent transfer under 11 U.S.C. § 548. In that proceeding, however, the marital residence was awarded by the state court as lump sum alimony under § 46b-82, not as a property division under § 46b-81. The lis pen-dens in Ottaviano thus served to secure a change in ownership of the husband’s one-half interest in the marital residence. Ot-taviano, therefore, is unlike this case, which is more akin to the traditional use of lis pendens. The lis pendens in the present proceeding served to secure a transfer of legal title to the defendant as a property division, “unscrambl[ing] the ownership of property, giving to each spouse what is equitable his,” Weiman v. Weiman, supra. The defendant’s lis pendens was notice of an equitable interest that did not appear of record, recorded in order that subsequent purchasers or encumbrancers should not henceforth take free and clear of that equitable interest. At the time the lis pen-dens was filed, the defendant equitably owned the interest that was later awarded her by the state court decree. That award could have been defeated by a prior transfer by the debtor if the lis pendens had not been recorded. Her status at the commencement of the marriage dissolution action was similar to that of a purchaser for value from the debtor who failed to record the deed immediately. The defendant’s filing of the lis pendens was no more a transfer on account of an antecedent debt than would be a purchaser’s recording of a deed within the appropriate preference period. This analysis is supported by the ruling by the Bankruptcy Appellate Panel in Saghi v. *666Walsh (In re Gurs), 34 B.R. 755 (Bankr. 9th Cir.1983). In that case, the defendants had filed a prepetition lis pendens against realty of the debtors, claiming that a series of real estate transactions had left the debtors with only “bare legal title” to the realty. The court in a previous ruling held the lis pendens valid as against the trustee’s claim under § 544(a)(3), the “strong arm” clause. 27 B.R. 163, 165. In response to the trustee’s claim that the lis pendens constituted a preference under § 547, the court stated:
The filing of this lis pendens cannot be characterized as a transfer of the debt- or’s property nor can it be characterized as a transfer on account of antecedent debt. To argue otherwise confuses avoidance of a transfer of an interest in the debtor’s property with avoidance of an act that perfects, as against potential bona fide purchasers, a claim of ownership. Section 547 permits the avoidance of the former not the latter.
34 B.R. at 757 (emphasis in original).
Hampton v. Hampton (In re Hampton), 43 B.R. 633 (Bankr.M.D.Fla.1984), cited by the trustee, better supports the contention of the defendant. In Hampton, the bankruptcy court found that the “special equity” accorded by Florida law to a spouse (wife) in the real property acquired during a marriage vests in the wife during the marriage. A marriage dissolution action was pending in state court at the time of the filing of the debtor-husband’s bankruptcy petition, and the Florida state court, postpetition, awarded the realty to the wife. Judge Paskay held that at the time the realty was acquired, it was impressed with a resulting trust in favor of the wife to the extent of her special equity, and that therefore, “the husband [debtor] held only bare legal title at the time he filed the Chapter 11 petition”, 43 B.R. at 636. The court recognized the wife’s entitlement to the realty despite the fact that, unlike the situation here, the wife had not filed any lis pendens or other notice at the time she filed her marriage dissolution action. The wife’s special equity was held valid as against the estate’s claim under 11 U.S.C. § 544, even though it constituted an unrecorded interest. Hampton does not support the trustee’s position.
IY.
A lis pendens filed at the commencement of a marital dissolution action to secure the eventual transfer of a residence as a property division under Conn.Gen.Stat. § 46b-81 is not a transfer on account of an antecedent debt. The defendant’s motion for summary judgment is granted, and a judgment may enter dismissing the trustee’s complaint. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490387/ | ORDER ON: EMERGENCY MOTION FOR SANCTIONS INCLUDING QUASHING OF MOTION FOR EXTENSION OF TIME TO FILE AN APPEAL BY DEL ROSSO, ET AL.; MOTION (1) TO COMPEL AND FIX DATE FOR DEPOSITIONS; (2) FOR SANCTIONS INCLUDING CONTEMPT, ATTORNEYS FEES AND COSTS; PURSUANT TO B.R. 7037 AND F.R.C.P. 37; MOTION FOR CONTEMPT OF COURT, PENALTIES AND SANCTIONS AGAINST FRANK PETTINELLI, EUGENE PETTINELLI, ANTHONY DEL ROS-SO AND ANDRE BUEHLER; AND MOTION FOR SANCTIONS INCLUDING ATTORNEYS FEES AND COSTS
ALEXANDER L. PASKAY, Chief Judge.
THE MATTERS under consideration in this Chapter 11 case are four motions, three filed by Skyway Development Corporation (Skyway), the Debtor involved in the above-captioned case, and one filed by Anthony Del Rosso and Eugene Pettinelli. Skyway’s three motions are titled: (A) Emergency Motion for Sanctions Including Quashing of Motion for Extension of Time to File an Appeal of Del Rosso, et al.; (B) Motion (1) to Compel and Fix Date for Depositions; (2) For Sanctions Including Contempt, Attorneys Fees and Costs, pursuant to B.R. 7037 and F.R.C.P. 37; and (C) Motion for Contempt of Court, Penalties and Sanctions Against Frank Pettinelli, Eugene Pettinelli, Anthony Del Rosso and Andre Buehler. The motion filed by Anthony Del Rosso and Eugene Pettinelli is titled: Motion for Sanctions Including Attorney’s Fees and Costs against Skyway. The facts relevant to these matters, as appears from the record are as follows:
The underlying controversy stems from events which began on May 2, 1986, when Anthony Del Rosso (Del Rosso), Andre B. Buehler (Buehler), Frank J. Pettinelli (Frank), and Eugene F. Pettinelli (Eugene), *676collectively referred to as “Claimants” in this Chapter 11 case, filed a Motion for Extension of Time to File an Appeal. Their Motion, filed pursuant to Bankruptcy Rule 8002(c), essentially stated that the delay for filing a timely appeal was attributable to “excusable neglect.” The appeal sought to be filed by the Claimants was directed to this Court’s Order entered on Motion for Reconsideration and Rehearing of Anthony N. Del Rosso, et al., entered on April 21, 1986. The motion sought reconsideration of a previous order of this Court which denied the motion filed by the Claimants to extend time to file an appeal. It should be noted that the time for appeal of the April 21, 1986, Order expired on May 1, 1986.
On May 14, 1986, Skyway filed an Emergency Motion for Sanctions Including a Motion to Quash the Motion of the Claimants for Extension of Time to File an Appeal (First Sanctions Motion). The claim of the First Sanctions Motion of Skyway is based on the following facts: On Monday, May 12, 1986, counsel for Skyway was served with a Notice of Hearing issued by the Clerk of the Bankruptcy Court setting the Claimants’ Motion for Extension of Time to File an Appeal for hearing on Friday, May 16, 1986, at 3:15 p.m. The Notice of Hearing was filed May 6, 1986. In addition, it appears that the Motion for Extension of Time to File an Appeal was not served upon Skyway.
On Monday, May 12, 1986, counsel for Skyway issued a Notice of Taking Deposition Duces Tecum. The Notice was transmitted on that date by electronic Zap Mail through Federal Express and was received later that day by Claimants’ counsel, Mr. Stevens. The deposition notice required the appearance of the Claimants at the office of their counsel in Tampa, Florida, on Wednesday, May 14, 1986, at 2:00 p.m. Mr. Stevens immediately transmitted the deposition notice to each of the four Claimants by Zap Mail by Federal Express at 8:00 a.m. on Tuesday, May 13, 1986. Sky-way asserted that the depositions noticed were needed to permit the production of a transcript of the depositions on an expedited basis in time for the Friday, May 16, 1986, hearing on the motion of the Claimants which sought an extension to file a Notice of Appeal based on “excusable neglect.”
On May 14, 1986, the date noticed for the depositions, counsel of Skyway traveled to Tampa from Miami in order to attend the scheduled depositions of the Claimants. However, none of the four Claimants appeared at the deposition even though they did not seek or obtain a protective order excusing them from attendance. Based on this, counsel for Skyway filed his first Motion to Impose Sanctions on May 14, 1986. In this connection the following facts are relevant and should be noted:
At approximately 2:45 p.m. on May 14, 1986, the day of the scheduled depositions, Mr. Stevens, who was then counsel of record for the Claimants, called Del Rosso in New York. In that conversation Del Rosso acknowledged that he had received the notice for the deposition, which arrived in his office on May 13, 1986, at 11:15 a.m. by Zap Mail, but claims that he did not read the deposition notice until May 14, 1986, at 1:00 p.m. In this connection it should be noted that Del Rosso has been a practicing attorney in the City of New York for over 30 years. For this reason this Court finds it very odd and difficult to understand how an attorney with such experience did not have the professional courtesy to call his local counsel at once when he actually read the deposition notice at 1:00 p.m. on May 14, 1986, and did not notify his local counsel that he would be unable to attend the scheduled deposition.
The substance of the dialogue between Mr. Stevens and Del Rosso is in dispute. Mr. Stevens testified that Del Rosso requested him to state to the Court that he received no notice of the deposition, but Mr. Stevens informed Del Rosso that he was unwilling to fabricate a story and represent facts which are not true. While it is true that Del Rosso denied ever having made such statements to Mr. Stevens, in light of the surrounding circumstances this Court is inclined to believe the version re*677cited by Mr. Stevens to be representing the true facts of what actually transpired.
On May 16, 1986, a hearing was held on the Motion for Extension of Time to File an Appeal filed by the Claimants. At this hearing Del Rosso was cited for contempt by this Court because of his violent outbursts and his repeated disrespect for this Court after having been admonished repeatedly to behave in a professional manner. At the conclusion of the hearing this Court ordered Del Rosso to appear before the district court on the following Monday, May 15, 1986, at 9:00 a.m. and show cause why he should not be punished for his contemptuous conduct.
On June 26, 1986, this Court entered an Order on Motion for Extension of Time to File an Appeal. The Court determined that nothing was alleged in the motion filed by the Claimants and there was nothing established at the hearing which would have justified a finding of “excusable neglect”. Accordingly, the Motion for Extension of Time to File an Appeal was denied. As a consequence, Skyway’s Emergency Motion for Sanctions (First Sanctions Motion) filed on May 14, 1986, remained the only matter left to be determined at that time.
Albeit that was not the end of the tug-of-war between counsel for Skyway and Del Rosso. On May 23, ,1986, counsel for Sky-way re-noticed the depositions of all four Claimants, which rescheduled them for June 3, 1986, to commence at 2:00 p.m. and to be concluded by 5:00 p.m. at Mr. Stevens’ office in Tampa. On June 3, 1986, Malka Isaak filed a Notice of Appearance as co-counsel for the Claimants and filed an Emergency Motion for Protective Order at 2:23 p.m. on June 3, 1986. As indicated above, the depositions were scheduled to begin at 2:00 p.m. Thus, the Emergency Motion for Protective Order filed by Ms. Isaak was clearly untimely. Because the undersigned was in Orlando on that date holding court, Ms. Isaak requested that her Emergency Motion for Protective Order be heard by the District Court.
To further complicate matters, Skyway’s counsel was delayed in his arrival from Miami due to a flight scheduling problem at the Miami Airport and did not arrive in Tampa until sometime after 2:00 p.m., the hour at which time the deposition scheduled by him was to commence. After his arrival Ms. Isaak agreed to proceed to the district court and sought and ultimately obtained a hearing on her motion for Protective Order. The district court after having heard counsel for the parties in camera deferred ruling on the Motion to Impose Sanctions and refused to grant a Protective Order. After the conclusion of the hearing at the district court Ms. Isaak conferred with Del Rosso and Eugene (the only two claimants who were present) and unequivocally stated to counsel for Skyway that her clients would absolutely refuse to be deposed, except to go on the record for the limited purpose of stating that they would not answer any questions.
In the meantime, the court reporter waiting to record the depositions was called and released by Skyway’s counsel. At approximately 6:00 p.m. Ms. Isaak reversed her earlier position and stated that Del Rosso and Eugene had changed their minds and decided to agree to be deposed. Thereafter, she also stated that she could not assist them at the deposition because she had a previous committment. Needless to say, the depositions were not held on June 3, 1986, and counsel for Skyway returned to Miami.
On July 3, 1986, this Court entered an Order Denying Motion for Protective Order as having been rendered moot. Del Rosso and Eugene’s Motion for Sanctions Including Attorney’s Fees and Costs was based on Skyway’s counsel arriving late in Tampa for the scheduled depositions and the alleged refusal by Skyway’s counsel to take their depositions later that day after the conclusion of the hearing in the district court.
Based on these events, on June 18, 1986, Skyway filed a Motion (1) To Compel and Fix Date for Depositions; (2) For Sanctions Including Contempt, Attorneys Fees and Costs; Pursuant to B.R. 7037 and F.R.C.P. 37 (Second Sanctions Motion of Skyway). *678On July 7, 1986, this Court entered an Order on Debtor’s Motion to Compel and to Fix Date for Depositions; and for Sanctions, and ordered Del Rosso, Buehler, Frank and Eugene to appear for depositions at Ms. Isaak’s office beginning at 10:00 a.m. on July 15, 1986.
On July 7, 1986, Ms. Isaak on behalf of the Claimants filed a Motion for Rehearing of the Order entered on June 26, 1986, which denied their Motion for Extension of Time to file an Appeal. On July 25, 1986, the Claimants filed an Amended Motion for Rehearing of Order Denying Motion to Extend Time to File an Appeal. These two motions are particularly relevant to the instant sanctions motions filed by Skyway because the original Motion for Extension of Time to File an Appeal was the motion which generated the sanctions motions, and those motions kept the original sanction motion alive. On July 29, 1986, this Court entered an Order on Amended Motion for Rehearing; and on July 30,1986, this Court also entered an Order on the original Motion for Rehearing and denied both motions.
On July 11, 1986, the Claimants filed an Emergency Motion for Rehearing/Motion for Protective Order. On July 11, 1986, this Court entered an Order on Emergency Motion for Rehearing/Motion for Protective Order and denied the same. Thereafter, on July 15, 1986, the Claimants filed a motion entitled “Second Emergency Motion for Protective Order” at 1:25 p.m. The depositions of the Claimants were scheduled to begin at 10:00 a.m. and thus, the motion was obviously filed out of time. It should be noted that Eugene did arrive for his deposition and the Second Emergency Motion for Protective Order was filed only to excuse Del Rosso, Buehler and Frank. The deposition of Eugene commenced but was interrupted because of a request for an emergency hearing sought by counsel for Skyway who sought a determination by this Court whether reasonable grounds existed for the non-attendance of the other three scheduled deponents.
The hearing in chambers revealed the following chain of events. On July 7, 1986, this Court entered an Order on Debtor’s Motion to Compel and Fix Date for Depositions and for Sanctions. On July 9, 1986, counsel for Skyway re-noticed the depositions of the Claimants to be held on July 15, 1986, in Tampa. The notice of depositions was mailed by counsel for Skyway on July 7, 1986. It was allegedly received by the office of Ms. Isaak on July 9, 1986. The Claimants were not notified by Ms. Isaak and advised by phone that the depositions are now rescheduled for July 15, 1986. In spite of this, it was not until Friday, July 11,1986, that an Order heretofore entered on July 7 by this Court which directed the depositions to be taken on July the 15th was in the Federal Express mail, but earmarked only for Monday delivery as opposed to an overnight delivery which would have arrived in New York on July 12,1986, on Saturday. Thus, the notice for the July 15, 1986, depositions was not received by Del Rosso until Monday, July 14, 1986. Notwithstanding the late hour of receipt of the deposition order, Eugene who received the deposition order on Monday morning, July 14, 1986, appeared to be deposed at the appropriate time on July 15, 1986.
On July 24, 1986, this Court entered an Order Denying Second Emergency Motion for Protective Order and Compelling Attendance. The July 24, 1986, Order memorialized the in camera ruling of July 15, 1986, and provided as follows:
(1) Del Rosso, Frank and to the extent his deposition was not concluded Eugene shall all appear for depositions to be conducted on July 22, 1986, at 2:00 p.m. at the offices of Skyway’s counsel;
(2) the Court deferred consideration of sanctions with respect to the July 7, 1986, order until the hearing scheduled for July 31, 1986, at 4:00 p.m. on Sky-way’s two pending Motions for Sanctions;
(3) Del Rosso must furnish Skyway’s counsel with a sworn certificate from Dr. Florencio A. Gomez by July 18, 1986, which shall set forth the precise diagno*679sis of Del Rosso’s medical condition on July 15, 1986, and the dates of hospital admission and discharge; and
(4) Buehler shall furnish forthwith a verified statement certifying as to the dates upon which he was unreachable while on vacation.
On July 22, 1986, Frank filed an Emergency Motion for Protective Order and for a Hearing at 10:45 a.m. Skyway’s counsel was served with the motion at approximately 1:20 p.m. by Federal Express Zap Mail. Shortly thereafter at approximately 1:40 p.m. this Court entered an Order on Emergency Motion for Protective Order and for a Hearing and denied the same on the grounds that the Motion was both untimely filed and without merit. Ultimately Del Rosso’s deposition commenced in Miami and ended fortuitously at approximately 11:00 p.m. when the court reporter’s supply of recording paper was exhausted. It should also be noted that Eugene was present in Miami to continue his unfinished deposition which had been initiated on July 15, 1986, in Tampa, but since the court reporter ran out of recording paper, Eugene’s deposition was not resumed. Neither Frank nor Buehler appeared, and their depositions were not taken.
On July 31, 1986, Skyway filed a Motion for Contempt of Court, Penalties and Sanctions Against Frank Pettinelli, Eugene Pet-tinelli, Anthony Del Rosso and Andre Buehler (Third Sanctions Motion of Sky-way). This Motion is, in essence, a recap of the First and Second Sanction Motions filed by Skyway. Contained in the motion is a proffer of evidence of attorney fees and costs claimed to have been expended by Skyway in excess of $10,000.00.
The salient facts, which according to Skyway warrant the imposition of sanctions on all the Claimants pursuant to F.R. C.P. 37(d) adopted by Bankruptcy Rule 7037, grant the authority for this Court to order sanctions for failure of a party to attend depositions, and the Rules provide as follows in pertinent part:
[T]he Court in which the action is pending on motion may make such orders in regard to the failure as are just.... In lieu of any order or in addition thereto, the Court shall require the party failing to act or the attorney advising him or both to pay the reasonable expenses, including attorney’s fees, caused by the failure, unless the Court finds that the failure was substantially justified or that other circumstances make an award of expenses unjust.
MOTION TO IMPOSE SANCTIONS AGAINST ALL CLAIMANTS
It should be noted at the outset, and these comments should apply to all the claimants. It is evident that there is an ongoing war between counsel of Skyway and primarily between Del Rosso. The controversy in this instance relates only to the issue of whether or not failure of the Claimants to timely file a notice of appeal should be permitted for excusable neglect. Thus, all the attempted discovery had nothing to do with the basic merits of the right of these Claimants to prosecute an untimely appeal from an order entered by this Court a long time ago and a long time after the plan of reorganization submitted by Skyway was confirmed. The underlying claim of these Claimants involves the binding effect of the Order of Confirmation of the reorganization plan which gave stockholders a choice either to retain their stock-holdings or to receive a cash payment for the stock, and in the event they fail to exercise an option they are deemed to have accepted a cash payment. Thus, it is obvious that this limited issue certainly did not justify and warrant any extensive depositions. especially as they were directed to Buehler and Frank, who never really actively participated in person at any time in this Chapter 11 case and always appeared through Del Rosso, who claimed to have represented them.
With these preliminary remarks in mind, this Court will consider first the conduct of Del Rosso. The First Deposition was scheduled for May 14, 1986, by notice sent by counsel for Skyway on May the 12th. Obviously, contrary to the conten*680tion of counsel for Skyway, there was no dire emergency to notice someone from New York to appear in Tampa to be deposed on two days notice. For this reason it is evident that the notice was less than reasonable, and no imposition of sanctions is justified on any of the Claimants, including Del Rosso, for the failure to appear at the first deposition.
The second deposition was scheduled by counsel for Skyway to be held in Tampa on June 3, 1986, to commence at 2:00 p.m. The notice for this deposition was sent on May 23, 1986, and theoretically this was a timely notice. Del Rosso appeared and so did Eugene. Mr. Nieren-berg, counsel for Skyway, did not arrive on time. Thus, the deposition couldn’t have commenced to begin with at the scheduled hour. Moreover, there was a motion filed for protective order by counsel for the Claimants, albeit, not until 2:15, or after the time the deposition was originally scheduled to commence. Be as it may, as noted earlier, Del Rosso and Eugene appeared, but upon the advice of counsel initially refused to be deposed, although later on they changed their minds and were willing to proceed. Neither Buehler nor Frank appeared at the second deposition and no protective order was sought or obtained on their behalf. Based on the foregoing, this Court is satisfied that no sanctions would be warranted under the circumstances to be imposed on Eugene or Del Rosso.
The third deposition of the Claimants was scheduled by counsel for Skyway on July 15, 1986. At the scheduled time Eugene appeared and was, in fact, deposed. Del Rosso did not appear, and this is the deposition in which Mr. Del Rosso didn’t appear even though he was well aware of the scheduled deposition. Based on the foregoing, this Court is satisfied that no sanctions shall be imposed against Eugene, but Del Rosso’s willful failure to attend the deposition warrants the imposition of sanctions.
The fourth deposition was scheduled in Miami to be held on July 22. The notice for this deposition was actually scheduled by an Order of this Court announced at the in camera hearing which was held on July 15, 1986. Del Rosso did appear in Miami and was deposed. Euegene also appeared, but his deposition was not resumed. Frank and Buehler never appeared and never were deposed. Based on the foregoing, there is no sanction warranted in connection with the fourth deposition either on Del, Rosso or Eugene. This leaves for consideration the Motion to Impose Sanctions Against Frank and Buehler.
While this Court has serious misgivings whether or not Frank or Buehler could have possibly furnished any meaningful information on the issue of excusable neglect, nevertheless, they failed to seek a protective order and ignored all notices of depositions and thus violated the requirement of properly noticed parties to appear and submit to deposition.
It further appears that Buehler had no actual knowledge or notice of the First Deposition. There is some doubt whether or not Buehler had actual knowledge or notice of the second deposition. On September 5, 1986, an affidavit of Buehler was filed with this Court in which Buehler stated that he was on vacation during the month of July and received no mail while sailing on the Great Lakes and the St. Lawrence Seaway. Accordingly, Buehler claims he had no actual knowledge or notice of the third and fourth Depositions. Based on the foregoing, this Court is satisfied that it would be improper to impose sanctions on Buehler.
This is, however, not the case concerning Frank, and this Court is satisfied that sanctions shall be imposed for Frank’s failure to appear at the second, third, and fourth depositions. There is no doubt that Frank received all notices concerning the second, third, and fourth depositions, and he simply ignored all notices and elected neither to seek a protective order excusing him from attending nor to attend any of the depositions.
*681This leaves for consideration the counter attack by counsel for the Claimants by Ms. Isaak who also filed her motion and sought imposition of sanctions on Mr. Nierenberg, counsel for Skyway. The imposition of sanctions according to Ms. Isaak is justified because Mr. Nierenberg did not appear on time for the June 3, 1986, or the second deposition. This argument is specious for the obvious reason, that Ms. Is-aak filed the Motion for Protective Order and sought to block the deposition, so whether or not Mr. Nierenberg arrived on time was of no consequence. There is nothing in this record that would justify imposition of sanctions on Mr. Nierenberg.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Emergency Motion for Sanctions Including Quashing of Motions for Extension of Time to File an Appeal by Del Rosso, et al., be, and the same is hereby, granted. It is further
ORDERED, ADJUDGED AND DECREED that the Motion (1) to Compel and Fix Date for Depositions; (2) For Sanctions Including Contempt, Attorneys Fees and Costs; Pursuant to B.R. 7037 and F.R.C.P. 37 be, and the same is hereby, granted in part and denied in part; the sanctions are granted as to Anthony Del Rosso and Frank Pettinelli and the contempt is denied as to all four claimants. The Order to Fix Date for Depositions is denied as moot. It is further
ORDERED, ADJUDGED AND DECREED that the Motion for Contempt of Court, Penalties and Sanctions Against Frank Pettinelli, Eugene Pettinelli, Anthony Del Rosso and Andre Buehler be, and the same is hereby, granted in part and denied in part; the Motion to Impose Sanctions is granted as to Anthony Del Rosso and Frank Pettinelli but denied as to Eugene Pettinelli and Andre Buehler. It is further
ORDERED, ADJUDGED AND DECREED that the Motion for Sanctions Including Attorney’s Fees and Costs filed by Anthony Del Rosso and Eugene Pettinelli be, and the same is hereby, denied. It is further
ORDERED, ADJUDGED AND DECREED that Anthony Del Rosso shall pay to counsel for Skyway the sum of $1,205.00 within 30 days from the date of entry of this order. It is further
ORDERED, ADJUDGED AND DECREED that Frank Pettinelli shall pay to counsel for Skyway the sum of $755.00 within 30 days from the date of entry of this order. It is further
ORDERED, ADJUDGED AND DECREED the Motion to Impose Sanctions concerning Eugene Pettinelli and Andre Buehler be, and the same is hereby, denied. It is further
ORDERED, ADJUDGED AND DECREED that if the sanctions are not paid to Skyway by Anthony Del Rosso and Frank Pettinelli within the proscribed 30 day period, then by appropriate motion this Court will consider such motion, if any, and make an appropriate determination. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490388/ | MEMORANDUM OPINION AND ORDER RE: COMPLAINT OF FARMERS STATE BANK SEEKING DECLARATORY JUDGMENT AS TO PRIORITY OF HOG SALE FUNDS AND CROSS-COMPLAINT OF INTERVENOR, UNITED STATES OF AMERICA, TO DETERMINE THE NATURE, EXTENT, AND PRIORITY OF LIENS
WILLIAM B. LEFFLER, Bankruptcy Judge.
At issue is whether Farmers State Bank (the Bank) possesses a security interest in the proceeds realized from the sale of 110 hogs formerly belonging to the Debtors by virtue of “present and future debt clauses” contained in security agreements executed by the parties.
This is a case of first impression for this Court. The following constitute findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052.
Billy and Mable Ethridge filed a Petition for Relief under Chapter 11 of the Bankruptcy Code on March 3, 1986. Prior to that time they were in the business of “trucking and farming.” In that capacity, Mr. Ethridge obtained several loans from Farmers State Bank and from the Farmers Home Administration (F.H.A.). It is the Bank’s contention that security agreements executed by Mr. Ethridge in connection with these loans entitle it to proceeds from the sale of 110 feeder pigs which the Farmers Home Administration claims it has a security interest in.
*877The record reflects that, with respect to the Bank’s claim; three promissory notes and security agreements are at issue. The first, executed on May 31, 1985 by Mr. Ethridge, grants the Bank a security interest in a 1980 Hay Baler and 4-Row MF Planter in exchange for a $4,225.40 principal amount loan. The second, executed on September 30, 1985, grants the Bank a security interest in a 1977 Inti. Truck Transtar; a 1975 Inti. Transtar Trailer; a 1982 Lufkin 45 ft. Trailer Flat Bed; two Certificates of Deposit, plus increases, in the amounts of $6,821.92 and $5,000.00; a Chevrolet 2V2 Ton Truck, and a Flat Bed and Trailer 45 ft. in exchange for a loan in the principal amount of $52,650.06. The third, executed on October 25, 1985, grants the Bank a security interest in 300 feeder pigs and a second lien on a 1975 International Truck in exchange for a loan in the principal amount of $10,581.24.
All three security agreements contain the following statements:
Security: I am giving a security interest in
(1) The goods or property being purchased.
(2) Collateral securing other loans with you may also secure this loan.
(3) My deposit accounts and other rights to the payment of money from you.
Preceding each of the above sentences are boxes which are apparently to be checked to indicate whether the security described therein is granted by the particular security agreement. With respect to the security agreements at issue here, the first one, dated May 31, 1985, contains an “X” in the box preceding the first sentence only, i.e. to indicate a security interest only in the goods or property being purchased while the second and third agreements contain “X’s” preceding each sentence.
In addition, each agreement contains the clauses set forth below on their reverse sides.
Other security — I agree that any present or future agreement securing any other debt I owe you will also secure this debt....
Secured, Obligations — This security interest will secure the payment of the note total_ It will also secure ... any other debt I owe you now or hereafter. This security interest will survive even if there are no debts owed to you until this security interest is formally discharged in writing.
The above described clauses contained in the security agreements along with the UCC-1 filed on the pigs which covers “proceeds” form the basis for the Bank’s claim to the proceeds at issue.
According to the statements of counsel and Mr. Ethridge’s testimony, the collateral for the first loan has been surrendered to the Bank leaving a deficiency balance due on the note, the second loan is underse-cured, and the third loan has been repaid in the amount of $10,581.24 which was realized from the sale of 300 feeder pigs.
The FHA has intervened in this proceeding with an objection to the Bank’s claim based upon security agreements executed by Mr. Ethridge in its favor. These agreements reflect the following transactions:
1) A $100,000.00 loan obtained on September 7, 1982 secured by crops, equipment, and hogs;
2) An $89,910.00. loan obtained on May 23, 1983 secured by crops, equipment, and hogs;
3) A $126,244.11 loan obtained on May 11, 1984 secured by crops, equipment, and hogs; and
4) A $129,704.00 loan obtained on June 7, 1985 secured by crops, equipment, and hogs.
Moreover, each of these security agreements grants the FHA a security interest in “all livestock ... now owned or hereafter acquired.”
It is the contention of the FHA and the Debtors that these agreements and the June 7, 1985 security agreement in particular grant the FHA a security interest in the 110 hogs and their proceeds at issue here. According to Mr. Ethridge, this is because these hogs were purchased with funds loaned by the FHA rather than funds *878loaned by the Bank. He further testified that the hogs were distinguishable because of their ages and sizes and that none of the hogs from either group were bred.
Each of the security agreements in question, both in favor of the Bank and the FHA, are represented by duly filed UCC-1 statements reflecting the respective lender’s security interests. Therefore, as indicated above, the question becomes which of these creditors is entitled to the proceeds from the sale of 110 hogs by the Debtors.
The validity and priorities among conflicting security interests are governed in Tennessee by the Uniform Commercial Code, T.C.A. § 47-9-101 et seq. Pursuant to these statutes, a security interest must “attach” in order to be enforceable. “Attachment” requires that the debtors have rights in the collateral constituting security, that the creditor give value for the security interest, and, as is pertinent here, that the “debtors sign a security agreement which contains a description of the collateral.” T.C.A. § 47-9-203. A “description” is considered sufficient if it “reasonably identifies what is described.” T.C.A. § 47-9-110.
The specific “priority” statute is T.C.A. § 47-9-312 which provides in pertinent part:
(4) A purchase money security interest in collateral other than inventory has priority over a conflicting security interest in the same collateral or its proceeds if the purchase money security interest is perfected at the time the debtor receives the collateral or within twenty (20) days thereafter.
(5) In all cases not governed by other rules stated in this section,.... priority between conflicting security interests in the same collateral shall be determined according to the following rules:
(a) Conflicting security interests rank according to priority in time of filing or perfection....
Purchase money security interests are defined at T.C.A. § 47-9-107 as a security interest (1) taken or retained by the seller of the collateral to secure its price or (2) taken or retained by a person who by making advances ... gives value to enable the debtors to acquire rights in or the use of collateral if such value is so used.
Upon application of these rules to the present facts, it is clear that the Bank holds a purchase money security interest in the 300 feeder pigs and their proceeds by virtue of the language contained in the October 25, 1985 security agreement. It is equally clear from the provisions set forth above which describe the collateral given as security for each of the Bank’s notes that there are no provisions which “reasonably identify” any other pigs as collateral as required by T.C.A. § 47-9-110. There is simply no mention of a security interest being taken in any livestock other than the 300 feeder pigs. Nonetheless, the Bank contends that the “cross collateralization” clauses set forth above and contained in its agreements with the Debtors entitle it to the present proceeds.
Under Tennessee law, cross-collaterization or “present and future debt clauses” are recognized as valid and enforceable. Johnson v. Midland Bank and Trust 715 S.W.2d 607, 610 (M.D.Tenn.1986) citing McGavock v. Deery 41 Tenn.(1Cold.) 265 (1860), Murdock Acceptance Corp. v. Jones 50 Tenn.App. 431, 362 S.W.2d 266 (M.D.Tenn.1961), and Wright v. Lincoln County Bank 62 Tenn.App. 560, 465 S.W.2d 877 (M.D.Tenn.1970). The Johnson case and those cited therein involved Deeds of Trust which contained provisions whereby the real estate securing specific loans was to also secure “any present or future debt owing.” The Court determined that by such language, the parties intended for the Deeds of Trust to secure “any” indebtedness including that which was originally unsecured.
The same determination may be made in the case at bar. However, in accordance with the Johnson case, supra, and T.C.A. § 47-9-203 and § 47-9-110, this determination only recognizes the Bank’s right to look to the collateral described in the security agreements as security for the Debtors’ total indebtedness. Moreover, by the *879terms of the agreements themselves, only the security interests granted are to secure the Bank’s present or future indebtedness. This Court cannot extend the Bank’s security interests beyond those described in the agreements.
In light of the above determination and the FHA’s prior perfected security interest in the Debtors’ “livestock,” it is apparent that the FHA is entitled to the proceeds at issue.
For the above reasons, it is THEREFORE HEREBY ORDERED THAT
The claim of the Bank to priority of the hog sale funds is denied; and
The FHA is entitled to said funds by virtue of its prior perfected security interest. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490389/ | ORDER ON RENEWED MOTION FOR TEMPORARY RESTRAINING ORDER AND MOTION FOR CONTEMPT
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 liquidation case, and the matter under consideration is a Renewed Motion for a Temporary Restraining Order filed by special counsel for the estate, Mr. Jawdet Rubaii. Mr. Rubaii also filed a Motion for Contempt against the defendants named in the above-captioned adversary proceeding. At the duly scheduled and noticed hearing this Court heard argument of counsel and considered the record which reveals the following facts relevant and germane to the two motions under consideration.
During the course of the administration of the estate of PMI the Trustee filed an application and sought an authorization to employ special counsel to prosecute on behalf of the estate a damage claim against the lawfirm of Johnson, Blakeley, Pope, Bokor & Ruppel, P.A. The suit to be filed was based on a claim of malpractice by the lawfirm which represented the Debtor pri- or to the commencement of this case. The application of the Trustee was granted, and Mr. Jawdett Rubaii was authorized to be employed as special counsel for the estate and he filed a Complaint in the Circuit Court in and for Pinellas County on behalf of the estate against the Defendants named in the above-captioned adversary proceeding. In due course the matter was tried in state court, and the jury returned an adverse verdict to PMI and the Court entered a final judgment in favor of the Defendants and based on the verdict and dismissed the Complaint with prejudice.
After the entry of the judgment, the Defendants filed a motion in the Circuit Court and sought taxation of costs. It appears that although no hearing was scheduled in the Circuit Court on the defendants’ Motion to Tax Costs at that time, on August 19, 1986, Mr. Rubaii filed a Complaint in this Court and sought an injunction prohibiting the defendants to proceed with their request to tax costs. On the same date Mr. Rubaii also filed a Motion for Temporary Restraining Order. The motion was filed in this Court, but because of absence of the undersigned, based on the alleged emergency Mr. Rubaii requested that his motion be considered by *891the district court. The Honorable William Terrell Hodges, the Chief District Judge, promptly considered the motion and on September 12, 1986, entered an order and denied the Motion for Temporary Restraining Order without prejudice.
Thereafter, the Defendants requested the Circuit Court and obtained a hearing on their Motion to Tax Costs on September 15, 1986. On September 19, 1986, Mr. Rubaii on behalf of the estate filed a Notice of Appeal which challenged the order of the district court which denied his original Motion for Temporary Restraining Order. At the same date he also filed a. Motion for Leave to Appeal the September 12, 1986, order and also filed a Motion to Reconsider the September 12,1986, order. In addition, Mr. Rubaii filed a Motion in this Court on October 21, 1986, and sought to hold the defendants in contempt and an order declaring that the post cost judgment entered by the Circuit Court in the interim is void and unenforceable. The cost judgment was entered by the Circuit Court on October 27, 1986. On October 29, 1986, Mr. Rubaii filed in the Circuit Court a Motion to Reconsider and Vacate the Cost Judgment, and on October 31, 1986, filed a new Emergency Motion and sought a declaration by this Court that the cost judgment entered by the Circuit Court is void.
On November 6, 1986, Mr. Rubaii also filed a Motion, again seeking to hold the Defendants in contempt. He also sought again an order declaring the cost judgment void, just as he did earlier on October 29, 1986. Lastly, on November 6, 1986, Mr. Rubaii filed a Renewed Motion for Temporary Restraining Order, the very same motion which was denied by the district court earlier by the entry of an Order on September 12, 1986, the very same order which is currently involved in his appeal and the very same motion by which Mr. Rubaii seeks a reconsideration and rehearing on the Order of the District Court denying his final Motion for Temporary Restraining Order.
The entire thrust of all these various and sundry motions filed by Mr. Rubaii centers around one single proposition. First, Mr. Rubaii contends that the defendants violated the automatic stay imposed by § 362 of the Bankruptcy Code by proceeding with their Motion to Tax Costs in the Circuit Court, and therefore, should be cited for contempt and punished accordingly. As a corollary to this proposition Mr. Rubaii urges that the cost judgment entered by the Circuit Court on October 27, 1986, is void in any event as a matter of law because it was entered in violation of the automatic stay.
Considering first the motion which seeks an injunctive relief not only by the Prayer for Relief set forth in the original Complaint filed on August 19, 1986, but also by the several Motions for Temporary Restraining Order, it is clear that all of them are without any merit and should be denied.
First, in light of the fact that the very same matter is currently pending before the district court, it would be unseemly for this Court to enter a dispositive order on these motions. Second, based on the representation by counsel for the defendants that they definitely do not intend to proceed with execution on the cost judgment entered by the Circuit Court, there is no basis to grant a Temporary Restraining Order simply because Mr. Rubaii failed to establish an immediate and irreparable harm or injury. Third, because the contempt sought by Mr. Rubaii inextricably involves the legal validity of the cost judgment, it is appropriate to this Court to proceed first to determine whether or not the automatic stay imposed by § 362 applied in this instance and prohibited these defendants from proceeding with their Motion to Tax Costs in the state court litigation in which they were successful. This is so because if the automatic stay did not apply, the Defendants could not be found to have violated same; therefore, they could not be punished for contempt.
In support of his claims, Mr. Ru-baii relies on § 362(a)(4) of the Bankruptcy Code and contends that acts of the defendants were acts “to perfect or enforce any *892lien against the property of the estate.” A Motion to Tax Costs by a successful litigant can by no stretch of the imagination be construed to be the conduct proscribed by this sub-clause of § 362(a)(4). This is so because these Defendants did not seek to impose or enforce a lien against the properties of the estate. The difficulty with the proposition urged by Mr. Rubaii is that the automatic stay designed for the protection of the estate was enacted by Congress and to prohibit an interference with the properties of the estate by creditors who attempt to enforce a claim which was a claim existed on the date of the commencement of the case and was not designed to deal with claims which arose after the commencement of the case. In re Begley v. Philadelphia Electric Co., 760 F.2d 46 (3d Cir.1985). This interpretation is consistent with the general proposition that post-petition claims are not claims in the orthodox sense and recognized and allowable against the estate only if they would qualify under § 503 to be allowed as an expense of administration. Moreover, in this particular situation it is absurd to urge that counsel for the estate who proceeded and sued a third party in a non-bankruptcy forum, an act which certainly did not require court permission and immunized the unsuccessful Plaintiff for any claim by the defendant sued by the estate. It makes no difference if this attack was launched by the Defendant by way of a counterclaim or merely, like in the present instance by an attempt to recover costs and expenses incurred in connection with their successful defense of a lawsuit filed against them by the estate.
It defies logic and common sense to accept the proposition that while the estate is free to sue third parties, third parties’ hands are tied and they cannot resort to all remedies available under the applicable state law to successful litigants, including the right to seek and obtain a judgment taxing costs. In this particular case Mr. Rubaii selected the forum in which he decided to litigate this claim. By doing so he elected to abide by the rules and regulations and legal principles governing lawsuits in that forum. It ill behooves Mr. Rubaii indeed to urge that he was only willing to undertake the certain parts of the Rules which were beneficial to him, but he cannot be exposed to rules and procedures which may be used against him in the event he was unsuccessful in his lawsuit. This is what happened here precisely.
Having concluded that the automatic stay does not apply, this Court is satisfied that the several motions of Mr. Rubaii to hold these Defendants in contempt are equally without merit, including the Motion to Declare the State Court Judgment Void.
As noted earlier, counsel for the defendants stated in open court that they do not desire and intend to proceed and execute on the cost judgment but merely obtained a determination of the amount which determination they accept not to be the binding effect on this Court and shall not operate res judicata in the event they seek an allowance of the cost judgment as a cost of administration pursuant to § 503 of the Bankruptcy Code.
Based on the foregoing, it is evident that any injunctive relief on general equitable propositions which might be urged is equally without merit at this time since there is no immediate or irreparable harm which might be visited upon the estate in the event the relief is not granted.
This leaves for consideration a motion filed by these defendants who seek an imposition of sanctions pursuant to Bankruptcy Rule 9011 F.R.C.P. 11 and 28 U.S.C. § 1975. The Motion will be considered separately and a separate order will be entered on said motion in due course. In light of the fact that Mr. Rubaii sought leave to file a memorandum of law in opposition of the motion, which motion was granted, ruling shall be deferred on the motion pending the receipt of the memoranda submitted by Mr. Rubaii within ten days from the date of this order.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Renewed Motion for Temporary Restraining Order, the Motions for Contempt, and to Declare Cost Judgment *893Void filed on October 31, 1986, be, and the same are hereby, denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490391/ | OPINION
EMIL F. GOLDHABER, Chief Judge:
The issue at bench is whether the withdrawal of funds deposited by prospective purchasers of the debtor’s assets into a bank account opened in the name of the debtor constituted a preferential transfer under 11 U.S.C. § 547(b) of the Bankruptcy Code (“the Code”). For the reasons set forth below, we conclude that the requisite *28elements of a preferential transfer under § 547(b) have not been shown, and, accordingly, we will enter judgment in favor of the defendants.
The facts of this case are as follows:1 The instant proceeding has a rather complicated procedural history in that numerous hearings have been held regarding the issue that is currently before this court. Specifically, the debtor’s petition in bankruptcy was filed on December 13,1983. In July, 1985, this adversary action was brought by the trustee against the defendants, Thomas Mahoney (“Mahoney”) and Marvin Greenberg (“Greenberg”). A trial was held in October, 1985, at which time the trustee put on its case in chief. The defendants moved for summary judgment based on the trustee’s failure to present a prima facie case. We granted the defendants’ motion but subsequently vacated our order after reconsideration on the ground that the summary judgment motion was technically improper. We then held a hearing in April 1986 so that the defendants could present their case in chief. At that time, the defendants made a motion for involuntary dismissal pursuant to Federal Rule of Civil Procedure 41(b) and Bankruptcy Rule 7041 and then placed their case in chief on the record. Subsequently, in August, 1986, we issued an order scheduling another hearing to determine the exact amount of money, if any, that was deposited by the debtor into the bank accounts in question.
In our August, 1986 opinion, 63 B.R. 113, we found the following facts: Mahoney and Greenberg entered into a conditional agreement with the debtor, American Plastics, Inc., to purchase all of the debtor's stock and an assumption of its liabilities for the sum of $1.00. The sale was contingent on the success of Mahoney and Greenberg in negotiating reductions in the claims of the debtor’s obligees.
To facilitate the conditional sale, Maho-ney and Greenberg, with the debtor's consent, opened a savings account and a checking account in the debtor’s name at First Pennsylvania Bank. Mahoney deposited approximately $11,000.00 into these accounts in order to pay some of the debtor’s current bills. The parties agreed that the funds disbursed from the accounts to satisfy the debtor’s obligations represented funds advanced by Mahoney and Green-berg to the debtor. Neither the debtor nor its agents or employees had any authority to sign.checks and never had physical possession of the account. Mahoney and Greenberg were the only individuals authorized to withdraw funds from the accounts.
A short time after the parties agreed to the conditional sale of the debtor’s assets, Mahoney and Greenberg discovered that the debtor had substantially understated its liabilities and, consequently, the purchase agreement disintegrated. Mahoney and Greenberg then withdrew all of the funds remaining in the bank accounts. Subsequently, the debtor filed a petition for relief under chapter 7 of the Code, and the trustee then commenced the instant adversary proceeding in order to recover the sum of $8,767.48 withdrawn by Maho-ney and Greenberg from the accounts.
We found in our August, 1986, decision that Mahoney and Greenberg had overcome the presumption under Pennsylvania law that funds deposited in a bank account belong to the party named in the account. See Egbert v. Payne, 99 Pa. 239 (1882). The defendants sufficiently established that the funds in the bank accounts were initially theirs. We noted, however, that there was some evidence that funds belonging to the debtor were deposited into the defendants’ accounts for the repayment of certain unsecured loans made to the debtor. Consequently, we ordered another hearing on the matter to determine the amount of money deposited by the defendants and the amount of money deposited by the debtor.
The trustee has the burden of showing a preferential transfer under *29§ 547(b) of the Code. At the final eviden-tiary hearing on this matter, the burden was on the trustee to show the amount,'if any, of money deposited by the debtor into the defendants’ accounts. However, despite the fact that the trustee was given another chance to prove his case, the facts elicited at the final hearing were essentially the same facts already found by this court. The purpose of the hearing was to determine the application of funds disbursed from the accounts and whether the debtor had deposited funds into the defendants’ accounts. The trustee merely reestablished the theory of his case which was that monies in a bank account in the debt- or’s name presumptively belong to the debtor. There was no evidence whatsoever indicating the amount of money deposited by the debtor or the application of funds disbursed from the accounts. Accordingly, judgment will be entered in favor of the defendants.
The defendants ask for attorney’s fees in the instant case on the ground that the trustee violated his duty under Bankruptcy Rule 9011. The defendants claim that the instant action was “technical” and designed to confuse the facts, augment litigation costs, and hide the truth with actual knowledge that the allegations set forth in the trustee’s complaint were false and without proper investigation. We find no merit in any of these contentions and therefore will deny the request for attorney’s fees.
. 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/8490392/ | OPINION AND ORDER
EMIL F. GOLDHABER, Chief Judge:
The issue before us arises out of the claim of The Philadelphia Savings Fund Society (now named Meritor Savings Bank) for post-petition interest on its secured claim at the contract rate to the extent of its security.
This question having been before us on four prior occasions (In re Robert A. Evans, 20 B.R. 175; In re Einspahr, 30 B.R. 356; In re McCall, 57 B.R. 642; In re Nesmith, 57 B.R. 348) we see no reason for repeating the rationale we have set forth in those cases.
An appropriate order follows.
ORDER
AND NOW, to wit, this 8th day of December, 1986, it is hereby
ORDERED that Philadelphia Savings Fund Society (now named Meritor Savings Bank) is entitled to receive post-petition interest on its secured claim, at the rate of 11% as set forth in its mortgage note; and it is further
*30ORDERED that the debtor’s objections to Philadelphia Savings Fund Society’s claim are hereby DISMISSED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490393/ | ORDER CONFIRMING DEBTOR’S SECOND PLAN
THOMAS C. BRITTON, Chief Judge.
A confirmation hearing was held October 20 on this chapter 11 debtor’s Second Plan (C.P. No. 282). The debtor’s major secured creditor has objected to confirmation (C.P. No. 335). The debtor has responded to that objection (C.P. No. 337).
I find that the debtor has satisfied each of the requirements of 11 U.S.C. § 1129(a) except the requirement of subsection (8) that each impaired class has accepted the plan. Class 3 consists of a single creditor, the objecting secured creditor Chisholm. It is impaired by this plan and it has rejected the plan. Although Chisholm has stated other objections to the plan, they are without substance and do not require further discussion.
The debtor has requested cram down pursuant to the provisions of § 1129(b). (C.P. No. 347). I am persuaded that the debtor has met the requirements of § 1129(b) entitling it to confirmation notwithstanding Chisholm’s rejection of the plan.
This plan provides that Chisholm retain its lien securing its claim in accordance with the requirement of § 1129(b)(2)(A)(i) (I).
This plan provides for the total allowed amount of Chisholm’s secured claim in deferred cash payments over 15 years at an interest rate of 8.6% per annum. Section 1129(b)(2)(A)(i)(II) requires that:
“each holder of a claim of such class receive on account of such claim deferred cash payments totaling at least the allowed amount of such claim, of a value, as of the effective date of the plan, of at least the value of such holder’s interest in the estate’s interest in such property. ” (Emphasis added.)
I find that this plan meets the quoted requirement. The stipulated rate of interest provides the creditor with a present value equal to its claim. The stipulated rate of interest is the present contractual interest stipulated in the note and mortgage held by Chisholm. It is also well above the six percent rate presently set under 26 U.S.C. § 6621, the interest rate presently applicable to federal judgments (5.79%), and the current rate for Treasury Bills (5.18% and 5.44%). The foregoing indicia of an appropriate discount rate to provide present value in the bankruptcy context have been noted in In re Southern States Motor Inns, Inc., 709 F.2d 647 (11th Cir.1983). In the absence of contrary evidence (and there has been none in this case) these indicia furnish at least a prima facie measure of an appropriate discount rate.
Because the debtor has satisfied the requirements of § 1129(b)(2), I find that the plan is fair and equitable with respect to Class 3 and, therefore, is entitled to confirmation notwithstanding the rejection of the plan by that impaired class.
Chisholm has also argued that the plan is unrealistic or impossible on its face and, therefore, should be denied confirmation under § 1129(a)(ll). Specifically, the financing for this plan permits the First Nationwide Bank to withdraw its existing commitment if the debtor fails to obtain within 45 days from the date of the commitment final court approval of confirmation. Chisholm asserts that it will appeal any confirmation order and no appeal could be resolved within such a brief interval, and, therefore, this commitment is meaningless.
*203Of course, Chisholm has an absolute right to appeal the confirmation order. The Bank has the right to avoid its commitment and it may well elect to do so. It has not yet done so. These circumstances, standing alone, do not warrant a finding that the proposed financing and, therefore, the proposed plan have been presented in bad faith or that they are necessarily doomed from the outset. The debtor is entitled to a confirmation order notwithstanding the possibility which could be avoided entirely by Chisholm’s election not to appeal.
In the event that Chisholm elects to appeal and fails to prevail and in the event that the lender elects to avoid its commitment because of the appellate delay, the debtor is entitled, as I see it, to appropriate equitable relief in compensation for its frustrated opportunity to preserve its property interest through a plan which met every requirement of the statute. The debtor could not seek such relief (should that become necessary) without the finding to which it is entitled now. An objecting creditor ought not to be permitted to frustrate with impunity a cram down expressly permitted under § 1129(b) merely by taking an appeal and thus destroying the presently available and committed financing.
The debtor’s Second Plan is confirmed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490394/ | ORDER DENYING MOTION OF STAPLES MANAGEMENT
THOMAS C. BRITTON, Chief Judge.
The motion (C.P. No. 19) of Staples Management, Inc., to defer dismissal of this case, to redesignate the representative of the debtor-in-possession, to extend time for a plan, and to compel compliance with a discovery order directed to the debtor’s president, was heard on December 8. It is denied.
Staples claims to be the 51% owner of a corporation which, in turn, owns all the stock of the debtor. This case was dismissed November 26 (C.P. No. 21) when the debtor failed to file a plan and disclosure statement within the deadline previously established by this court. The debtor does not presently dispute the appropriateness of that order. This motion did not reach me before entry of the foregoing order. Therefore, I have treated this motion as a timely motion for rehearing and reconsideration.
*246Movant asserts that the bankruptcy petition on behalf of the corporation was filed without the knowledge or consent of Staples and Staples is not satisfied with the way the case was handled on behalf of the debtor, and Staples now wishes to reinstate the case and be given an opportunity to try again under its own leadership. The petition appears regular upon its face. It is not suggested that the signature of its president is a forgery or that he did not then hold office or that his action was ultra vires.
The motion is denied for two reasons. In the first place, it comes much too late. Movant concedes that it first became aware of the pending bankruptcy the latter part of October and filed its appearance through counsel on November 4. It should have immediately challenged the authority of the corporate representation or it should have supplanted that representation. It has done neither.
The deadline for the plan, November 18, was established on the motion of a mortgagee which held a foreclosure decree and which had been denied stay relief to afford this debtor a reasonable opportunity to present a plan. This debtor failed to comply with that order and the case was dismissed pursuant to that order.
There is no requirement that a majority shareholder or any shareholder in the debtor corporation receive notice of the filing of a bankruptcy petition. It is the responsibility of shareholders to select appropriate representatives and to supervise the actions of those representatives. If this movant in fact indirectly controlled the debtor corporation, it should have taken steps long ago to assure adequate representation of its interest through the board and officers of the corporation.
The bankruptcy proceeding is not the forum to seek new representation. As a leading commentator noted:
“[I]t is outside the scope of bankruptcy to go into conflicting claims of stockholders....” 6 Remington, § 2890 at 510, cited with approval in, Matter of First Colonial Corp. of America, 693 F.2d 447, 451 (5th Cir.1982).
Secondly, a stockholder of á parent corporation is not a party in interest entitled to intervene in the reorganization proceeding of its subsidiary. Weissman v. Hassett (In re O.P.M. Leasing Services, Inc.), 21 B.R. 983, 986 (S.D.N.Y.1981).
If, as movant intimates, the debtor’s representation in the prebankruptcy foreclosure proceeding and in the bankruptcy proceeding amounted to a fraud on the corporation, that contention may be presented to the State court which has jurisdiction of the foreclosure proceeding (which has been stayed pending this bankruptcy proceeding). The State court is a court of equity with complete jurisdiction to consider not only that issue but also the lawful authority of the corporate representation. Both these issues are entirely governed by State law and can be litigated in the State forum more appropriately than here.
It is apparent, of course, that though this movant questions the authority of the debt- or’s representative to file this bankruptcy, movant now wants the bankruptcy reinstated. This constitutes a ratification of the filing. It has, therefore, ratified the action which it wishes to challenge. The actual relief sought by movant, I believe, is leave to relitigate the corporate reorganization. That relief would severely prejudice the rights of the mortgagee and movant has provided no predicate for me to accommodate it at the expense of the innocent third party, the mortgagee. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490395/ | ALBERT E. RADCLIFFE, Bankruptcy Judge.
This is an adversary proceeding to determine the dischargeability of a debt under 11 U.S.C. 523. The debt is evidenced by a state court judgment that has been rendered in favor of plaintiff, against defendant. Plaintiff contends that the debt arises from fraud or defalcation while acting in a fiduciary capacity, embezzlement, larceny, or willful and malicious injury by the defendant to the plaintiffs property. Thus the debt is non-dischargeable under 11 U.S.C. 523(a)(4) & (6). Defendant denies any intentional wrongdoing.
Although plaintiff had taken the position, in the pre-trial order, that the state court judgment was binding on the issues presented in this case under the doctrines of res judicata and/or collateral estoppel, plaintiff conceded at trial that neither of these doctrines would have any application in this case.
Pursuant to a pre-trial stipulation, the court received the following documents into evidence at the trial herein:
1. The fourth amended complaint filed on behalf of plaintiff’s predecessor in interest in the case of Air Traffic Conference of America v. Shah H. Nercessian, filed in the Circuit Court of the State of Oregon for the County of Lane, Case Number 16-81-06282 (the state court proceeding);
2. The transcript of the trial held in the state court proceeding on November 3, 1982 containing the testimony of Richard Sussmeier, assistant manager of the Financial Recovery Department for Air Traffic Conference of America and the debt- or/defendant herein, Shah H. Nercessian; 3. The judgment entered in the state court proceedings signed by Circuit Court Judge Douglas R. Spencer on January 17, 1983;
4. The sales agency agreement between Air Traffic Conference of America and the defendant; and
5. The declaration of defendant entitled “Notice and Declaration of Shah Nerces-sian to Union Bank” dated February 7, 1979 and,
In addition, the court received, without objection, plaintiffs exhibit # 7, the affidavit of Robert Buchanan, the manager of the Financial Recovery Section of Air Traffic Conference of America, made in the state court proceeding and plaintiffs exhibit # 6, a summary of testimony summarizing the testimony of Richard Sussmeier and Shah Nercessian as more particularly set forth in the transcript of the state court trial.
Pursuant to the stipulation, the court then heard oral argument from counsel, determined that this adversary proceeding is a core proceeding as defined in 28 U.S.C. 157 and took this matter under advisement.
Certain facts are established by agreement of the parties as set forth in the pre-trial order, entered herein on March 20, 1986, as follows:
1. Plaintiff is a corporation organized under the laws of the state of Delaware and is the agent of all domestic and foreign airlines operating within the United States. Plaintiff is the successor in interest to Air Traffic Conference of America (“ATC”), an unincorporated trade association which was authorized by individual air carriers to enter into contracts with travel agencies, arrange for collection and payment of ticket obligations and otherwise act on behalf of the air carriers.
2. Defendant is the debtor in this Chapter 7 case.
3. On January 17,1983, a judgment was rendered in favor of ATC against defendant in the state court proceeding. The judgment awarded plaintiff $189,682.28, together with costs against defendant.
*249In addition, the following uncontroverted facts were established by the evidence produced at trial:
4. Plaintiff is authorized by individual air carriers or airlines to collect monies owing to them and to conduct legal proceedings on their behalf. In addition, one of plaintiffs main functions is to oversee compliance with the standard sales agency agreement such as the one introduced into evidence at trial.
5. In 1974, plaintiffs predecessor, Air Traffic Conference of America (ATC) entered into the sales agency agreement that was received into evidence with Leisure World Travel, Inc., a Los Angeles based travel agency (travel agency), whereby certain air carriers agreed to issue airline ticket stock to the travel agency for the purpose of selling tickets, as an agent, for travel on said air carriers. Validator identification plates were also turned over to the travel agency, as agent, for the issuance of said tickets. On or about May 1, 1975, these parties entered into an amendment of the sales agency agreement whereby it was agreed that all monies collected by the travel agency, as agent, for air transportation services and tickets sold would remain the property of the individual air carriers and would be held in trust by the travel agency until satisfactorily accounted for to ATC.
6. Under the terms of the sales agency agreement, the travel agency was authorized to sell airline tickets, collect the proceeds therefrom and deposit the proceeds, less applicable commissions, into an area depository bank. The individual air carriers would then draw their respective share of the proceeds from this account.
7. In order to properly issue and document an airline ticket under the agreement, the travel agency needs, among other items, blank ticket stock, supplied by plaintiff and the appropriate air carriers’ identification or validator plates. Plates are supplied by each airline, at its discretion, to the agency. When the agency issues a ticket, the applicable plate is embossed on a blank ticket stock.
8. Paragraph 4 of the sales agency agreement provides in pertinent part that:
“All ticket forms and exchange orders supplied by or on behalf of the Carrier to the Agent shall be held in trust by the Agent until issued to the Agent’s clients to cover transportation purchased, or otherwise satisfactorily accounted for to the Carrier, or to the senior office of the ATA Economics and Finance Department or his designee, and will be surrendered upon demand, together with all airline identification plates, to the senior office of the ATA Economics and Finance Department or his designee, or his designated representative, acting pursuant to the Air Traffic Conference Agency Resolution. ...
The Carrier, may at its option, provide the Agent with one or more airline identification plate(s) for use in the issuance of tickets in said validator machine or ticket writer, such airline identification plates shall remain the property of the Carrier, and shall be returned to it upon demand or upon the termination of this agreement as between the Agent and the Carrier.”
On the back of each of the plates is the statement “This is the property of (name of appropriate air carrier inserted here)” (parenthesis added).
9. Before an agency can be sold and the identification plates and blank ticket stock transferred to a buyer, proposed change of ownership forms listing the new buyer and other pertinent information must be submitted to the plaintiff and the new buyer must receive plaintiff’s approval.
10. Plaintiff investigates the proposed buyer after change of ownership forms are received by plaintiff, and decides whether or not to grant approval. Final approval, if granted, usually comes ninety (90) to one hundred twenty (120) days after the proposed change of ownership forms are submitted. During the investigation period, plaintiff may grant temporary approval during which time the agency seller and buyer are jointly and severally liable for *250any damages suffered by any air carrier under the sales agency agreement.
11. Defendant purchased the corporate stock of the travel agency for $113,000 in June, 1978. Proposed change of ownership forms were submitted and defendant took control of the travel agency. ATC gave defendant temporary approval on September 14, 1978.
12. By this time, defendant had decided to sell the agency and had reached an agreement with new buyers, the Suichs. On September 28, 1978, defendant wrote ATC asking for the necessary change of ownership forms.
13. The next day ATC sent the Suichs a mailgram notifying them that defendant could not sell the travel agency because he had not yet received final approval to buy it. The Suichs then notified defendant.
14. During this time, defendant found new buyers, the Minelians. On October 9, 1978, defendant transferred all of the travel agency’s corporate stock to Jenevieve Minelian, who, the next day, transferred it to her father, Levon Minelian. They agreed to pay defendant $161,000 for the purchase of the agency; $89,000 as a cash down payment and the balance of $72,000 payable in ninety (90) days. Defendant turned over the blank ticket stock and airline identification plates on hand to the Minelians and they began to operate the business.
15. By letter dated November 6, 1978, defendant wrote ATC advising that the proposed sale (presumably to the Suichs) had been cancelled. There was no mention, in this letter, about the sale to the Minelians, which had already been consummated. According to the affidavit of Robert Buchanan, this letter was received by ATC on December 18, 1978.
16. From mid October to late November, 1978, defendant worked with the Mine-lians supervising the travel agency’s operation. On November 20, 1978, defendant received his own final approval as the buyer of the travel agency. That same day he filled out change of ownership forms, listing the Minelians as the new owners, and gave the forms to the Minelians’ attorney for submission to ATC. Shortly thereafter, defendant left Los Angeles and relinquished total control of the travel agency, including the blank ticket stock and airline identification plates to the Minelians.
17. In early January, 1979, defendant returned to Los Angeles to collect the balance due him from the Minelians on the purchase price of the travel agency.
18. On February 7, 1979, defendant signed the declaration entitled “Notice and Declaration of Shah Nercessian to Union Bank” that has been received into evidence in this case. The declaration recites in pertinent part as follows:
“This declaration gives notice that I Shah Nercessian claim any moneys on deposit with UNION BANK for the account of or utilized by SST Travel Corporation dba Leisure Travel International....
In addition, Leisure Travel International conducts the business of a travel agency pursuant to Airline Regulatory Agency license appointments (from the ATC and IATA) in my personal name and for which I am personally liable. The funds in the accounts at the bank are utilized primarily to pay the airlines and agencies aforementioned for the airline tickets and related products sold by the business, Leisure Travel International. If Corporate funds are diverted or Corporate obligations to the airlines and regulatory agencies are not met then I, Shah Nerc-essian am personally responsible.
On the basis of my own personal knowledge and belief I, Shah Nercessian further state that the current operators Le-von and/or Jenevieve Minelian or either of them have or have permitted their agents to divert funds and assets of the corporation to their own personal use in lieu of meeting corporate obligations for which I am personally liable....
By this declaration you are hereby directed to refuse access to, delivery or payment of any funds, checks, notes or other instruments requiring payment of money by or from the SST TRAVEL CORPO*251RATION dba Leisure Travel International account 122000771300783752 by Levon or Jenevieve Minelian, their agents, attorneys, servants and employees and by any other person in whose name or for whose benefit the said account stands or is held with the exception that you are to continue to honor the prearranged drafts on the account for the benefit of the Air Traffic Conference (ATC) who shall continue to have a right to their funds from the account....
I declare under penalty of perjury that the foregoing is true and correct.”
19. In late February, 1979, defendant filed suit for the balance of the purchase price due him. Shortly thereafter, he again left the Los Angeles area. Defendant received $35,000 in settlement resulting from the suit.
20. On March 2, 1979, defendant again wrote ATC asking for necessary change of ownership forms. With a letter dated April 1, 1979, the Minelians submitted to ATC the change of ownership application defendant had signed in November, 1978. According to the affidavit of Robert Buchanan, this was received by ATC on May 29, 1979. These forms reflected incorrect information concerning the travel agency’s then current ownership and management.
21. On April 24, 1978, TWA Airlines informed ATC that the travel agency had failed to deposit ticket proceeds and was therefore declaring the travel agency in default of the sales agency agreement. This was ATC’s first notice of any problems at the travel agency (affidavit of Robert Buchanan).
22. On May 7,1979, ATC removed all of the blank stock and identification plates from the agency. ATC then conducted audits of the travel agency sales and discovered approximately $218,000 in unreported sales, most of which took place between March and May, 1979. ATC later received $28,000 from defendant’s bond company, leaving a balance due of $189,682.28, the amount of the state court judgment.
23. According to the testimony of Richard Sussmeier and the affidavit of Robert Buchanan, ATC did not ever give any temporary or final approval for defendant to transfer the travel agency to any other party and the application form received by ATC on May 29, 1979, from the Minelians was never acted upon because the agency had already been declared to be in default of the sales agency agreement by TWA Airlines.
24.Defendant’s Chapter 7 petition was filed herein on April 24, 1985.
The issues to be resolved by this court include the following:
1. Whether or not the actions of defendant, Shah Nercessian, were such that he has committed embezzlement of the plaintiff’s property?
2. Whether or not the actions of defendant, Shah Nercessian, were such that he has committed a willful and malicious injury to the plaintiff’s property?
3. Whether or not the actions of defendant, Shah Nercessian, were such that he has committed a fraud or defalcation while acting in a fiduciary capacity with the plaintiff?
The pertinent portions of 11 U.S.C. 523 relied upon by plaintiff are as follows:
“(a) A discharge under Section 727, ... of this title does not discharge an individual debtor from any debt ...
(4) for fraud or defalcation while acting in fiduciary capacity, embezzlement, or larceny; ...
(6) for willful and malicious injury by the debtor to another entity or to the property of another entity; ...”
Defendant testified that in late November, 1978, he had contacted one of the plaintiff’s representatives over the telephone and advised that the Minelians were the new owners of the travel agency. He further testified that he had been involved in four (4) previous travel agency transfers and that in each case, blank ticket stock and airline identification plates were transferred and the buyer took control of the agency before receiving temporary or final approval from the plaintiff or its predeces*252sor, ATC. He, therefore, maintains that this is an industry custom. Defendant testified that he was not personally aware of the contents of the declaration he signed dated February 7, 1979, requesting the Union Bank to freeze the travel agency’s account. He testified that he simply signed that document at the request of his California attorney without reading it. Defendant maintains that, at most, his conduct amounts to negligence and a breach of contract. Accordingly, the debt owing to plaintiff, as evidenced by the state court judgment, is dischargeable in bankruptcy.
“Regardless of whether or not a fiduciary relation is found, section 523(a)(4) of the Code would deny discharge of a debt resulting from the debtor’s embezzlement or larceny of funds.” Great American Insurance Company v. Storms (In re Storms), 28 B.R. 761, 764, (Bankr.E.D.N.C.1983). Embezzlement has been defined as an intentional misappropriation of money or property of another that has been lawfully received, but knowingly and wrongfully misused by the “embezzler”. Central Investors Real Estate Corp. v. Powell (In re Powell), 54 B.R. 123 (Bankr.D.Or.1983), Great American Insurance Company v. Storms (In re Storms), supra., Air Traffic Conference of America v. Chick (In re Chick), 53 B.R. 697, 703 (Bankr.D.Or.1985). The property converted or mi-sued need not always be cash or cash equivalents. Gribble v. Carlton (In re Carlton), 26 B.R. 202 (Bankr.M.D.Tenn.1982).
In this case, it appears that the defendant came into possession of the blank ticket stock and airline identification plates lawfully. Does his transfer of the ticket stock and identification plates to the Minelians without the prior approval of the plaintiff or appropriate airlines, constitute a knowing and wrongful misuse or conversion on his part?
It is true that the defendant testified that, based upon his experience, it is a custom in the travel industry for the seller of a travel agency to transfer control of the agency to a buyer prior to receiving either temporary or permanent approval from plaintiff. Further, defendant testified that he informed one of plaintiff’s representatives over the telephone in late November, 1978 that the Minelians were the new owners. Defendant, however, produced no notation, letter of confirmation or any other evidence of this telephone call. He could not identify the representative he spoke with. Defendant admits to sending his letter dated November 6, 1978 to plaintiff indicating that a proposed sale of his travel agency to the Suichs had been cancelled.
According to the affidavit of Robert Buchanan and the testimony of Richard Suss-meier, plaintiff believed that the defendant remained the owner and in control of the travel agency. Plaintiff had no notice that the agency had been transferred to the Minelians. Indeed, Mr. Sussmeier testified that, in his opinion, at the time the airline identification plates and ticket stock were removed from the travel agency in May, 1979, the defendant was still the legal owner of the travel agency.
Plaintiff maintains that it has a strong interest in approving those persons who will have possession and control of blank ticket stock and airline identification plates since possession of such items enables those in possession to, essentially, print money. This contention is borne out by the facts in this case where the Minelians were able to sell airline tickets to their customers and, by failing to report the sales, retain approximately $218,000 in funds which should have been transmitted to the appropriate airlines. Mr. Sussmeier testified that plaintiff would investigate the proposed new owner of a travel agency when a change of ownership application is submitted. It is clear to this court, from Mr. Sussmeier’s testimony, that approval is not automatic.
Defendant argues that if any conversion or embezzlement occurred, there was no intentional wrongdoing on his part as he received no benefit from any such embezzlement or conversion. This argument clearly lacks merit. The sale of the travel agency by defendant to the Minelians en*253abled the defendant to receive approximately $124,000 in sale proceeds.
Defendant contends, as stated above, that, at most, his actions in transferring the ticket stock and identification plates to the Minelians amounts to no more than a breach of contract or simple negligence. In support of this contention, defendant points out that no punitive damages were awarded in the state court judgment.
This court will not speculate on the state court’s rationale in its decision concerning punitive damages and the judgment itself is silent in that regard. This court finds that defendant misled the plaintiff with his letter to the plaintiff dated November 6, 1978.
As a further indication of the defendant’s intentions in this case, the “Notice and Declaration of Shah Nercessian to Union Bank” is significant. In this document of February, 1979, defendant declared, that on his own personal knowledge and belief, he believed that the Minelians were diverting funds and assets to their own personal use in lieu of making payment to the appropriate airlines. Although he attempts, by his testimony, to negate the importance of this document, he testified that he did have suspicions. Specifically, he suspected that Jenevieve Minelian had a drug problem and that she might divert funds to support her habit. Defendant admits, in his testimony, that he never contacted the plaintiff about these suspicions.
This court finds that defendant’s testimony lacks credibility. Specifically, this court finds that no notice of the transfer of the blank ticket stock and identification plates from the defendant to the Minelians was ever given to ATC by defendant and that defendant’s testimony concerning industry custom should not be given any weight, considering the testimony and evidence offered by plaintiff. This court adopts the plaintiff’s version of the facts in this case where there is a disagreement as to the facts.
This court finds that defendant knowingly and wrongfully misused and converted the blank ticket stock and airline identification plates that had been entrusted to him by the plaintiff and various air carriers. It follows that defendant has committed an embezzlement which renders his debt to the plaintiff, as evidenced by the state court judgment, non-dischargeable in bankruptcy pursuant to 11 U.S.C. 523(a)(4).
In the alternative, this court finds that defendant has committed willful and malicious injury to the property of the plaintiff which renders his debt to plaintiff non-dischargeable pursuant to 11 U.S.C. 523(a)(6). The Ninth Circuit Court of Appeals has recently defined the term “willful and malicious” as follows:
When a wrongful act such as conversion, done intentionally, necessarily produces harm and is without just cause or excuse, it is willful and malicious even absent proof of a specific intent to injure. In re Cecchini, 780 F.2d 1440, 1443 (9th Cir.1986).
Although defendant may have had no specific intent to cause injury to the plaintiff, under the definition of “willful and malicious” as set forth above and for the reasons stated in this opinion, this court finds that defendant’s actions constitute a willful and malicious injury to the plaintiff’s property.
The state court found that defendant had breached a fiduciary duty owed to the plaintiff and the existence of such a fiduciary obligation was admitted by defendant. In light of this court’s findings as to embezzlement and willful and malicious injury, however, this court will not address that issue.
Finally, defendant argues that his acts did not cause any injury to the plaintiff as most of the unreported sales occurred between March and May, 1979, long after he had relinquished control of the travel agency-
It was, however, defendant’s transfer of the blank ticket stock and identification plates that enabled the Minelians to cause the injury which occurred in this case. Without these items, the Minelians would *254not have been able to print tickets, collect and convert monies.
Defendant gave the Minelians the means to commit fraud. He did not notify the plaintiff of the transfer of the blank ticket stock and identification plates to the Mineli-ans. Indeed he misled plaintiff into the assumption that defendant was still the owner/operator of the travel agency.
Plaintiff did not become aware that the Minelians had control of the ticket stock and plates until the damage had already occurred. Plaintiff acted promptly to protect its rights when it became aware of problems existing at the travel agency.
The state court found satisfactory causation to enter its judgment. Based upon an independent examination of the evidence in this case, this court agrees.
This Opinion shall constitute findings of fact and conclusions of law under Federal Rule of Civil Procedure 52 as made applicable to this court by Bankruptcy Rule 7052, they shall not be separately stated. A judgment consistent hereiwth shall be entered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490396/ | ORDER ON MOTION FOR REHEARING OF FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THE MATTERS under consideration are a Motion for Rehearing of Findings of Fact, Conclusions of Law, and Memorandum Opinion filed by the Third-Party Defendants, David Stempler (Stempler) and Southern International Airways, Inc. (SIA) and a Motion for Rehearing filed by the Defendant/Third-Party Plaintiff, Chris C. Larimore, Trustee (Trustee) in the above-captioned adversary proceeding. Upon reconsideration the Court finds as follows:
The Trustee’s Motion for Rehearing correctly recites that Dolphin Leasco, Inc., (Dolphin) bore the burden of proof at the final evidentiary hearing on the number and the complete description of each and every missing part from the two aircraft. A two-prong valuation was also required:
(1) establish the allowable claim of Dolphin; and
(2) establish the value of any claim of the Trustee against Stempler and SIA.
On March 28, 1985, this Court entered an order which unequivocally placed the burden of proof on valuation of the missing parts squarely on Dolphin. The Trustee also correctly recites that Dolphin’s expert witness, Mr. Eddy, did not refer to the Cardex System while testifying on his valuation figures of the missing parts. Mr. Eddy specifically testified that his figures for parts, values and cost of installation were based on new or like new parts with no elapsed time thereon. Finally, the Trustee alleges that it would be inequitable for Dolphin to be allowed a second opportunity to prove its case and the Trustee claims extreme prejudice would result since it cannot produce an expert witness at a further evidentiary hearing on values. As a result, the Trustee seeks an Order Vacating and setting aside the Third Ordering Paragraph of this Court’s Findings of Fact, Conclusions of Law and Memorandum Opinion, 64 B.R. 199, which would preclude the necessity of a further evidentiary hearing on values in this matter.
Stempler and SIA allege that this Court erred in three respects indicated as follows:
(1) It was error for the Court to conclude that Stempler breached any fiduciary duty to the Debtor’s estate;
(2) It was error for the Court to conclude that the removal of parts from one aircraft to another was “carried on in order to benefit SIA, at the expense of the Debtor.” (Opinion, at 6); and
(3) It was error for the Court to schedule a further evidentiary hearing to consider the question of damages for the following reasons:
(A) Dolphin had the responsibility to present whatever evidence that was available to it in support of its claim for damages;
(B) Dolphin had the burden of proof with regard to the value of the missing parts per this Court’s Order entered on March 28, 1985; and
(C) Scheduling a further evidentiary hearing would be inequitable in this case, since the Cardex System was available to Dolphin at times material to this action, and Stempler and SIA should not be adversely affected by Dolphin’s failure to present this evidence at the final evidentiary hearing.
The remedy sought by Stempler and SIA is, if in fact Dolphin failed to carry its burden of proof and prove its claim, to disallow the claim in to to.
It should also be noted that counsel for Dolphin moved ore tenus for a Motion for Rehearing and alleged this Court committed error in failing to award damages to Dolphin for “loss of use” of the two aircraft. The ore tenus Motion for Rehearing by Dolphin was untimely pursuant to Bankruptcy Rule 9023 (10 days to file motion) and, therefore, should be denied.
*263Upon further reconsideration, this Court is satisfied that Dolphin carried its burden of proof and there is sufficient evidence in the record to support a finding by this Court of the value of the missing parts from the two Martin aircraft. Dolphin, through the expert testimony of Mr. Eddy, provided value evidence with respect to the January 27, 1982, inventory (Plaintiff’s Exh. # 3) which this Court rejected, as being prepared with an eye toward litigation and, therefore, less reliable and credible. (Opinion, at 8). This Court previously held that for purposes of assessing damages and values for the missing parts, the November 18, 1981, inventory would be used. (Trustee's Exh. # 1). After a comparison of the two inventories of missing parts, this Court has used the uncontroverted values entered into evidence for the January inventory and used these values for the missing parts on the November inventory. As indicated earlier in this Court’s prior opinion, the inventories had several discrepancies, and thus, for the missing parts on the January inventory which are not included on the November inventory — no value for missing parts will be assessed. Moreover, the value of the missing parts from the November inventory which had no value introduced into evidence from the January inventory will also not be assessed any value. Dolphin could have introduced evidence of value on both lists, but chose only to proffer evidence of value for those parts on the January inventory and accordingly must bear the consequences of their litigation strategy.
The Court is satisfied from the record and testimony of Mr. Eddy that only one part was proved to be missing from the Martin N255 aircraft; the primary compressor with a value of $15,000.00 and $2,000.00 for primary installation is the total amount of damages which shall be awarded for that aircraft. No inventory was furnished as to the Martin N255, but Dolphin did carry its burden as to the missing primary compressor.
The following list is a compilation of parts of the Martin N258 from the January inventory which were not contained in the November inventory, together with values, and these parts will not be assessed values for damages in this proceeding:
Parts Replacement Value
1. Right Voltage Control Panel 760.00
2, Left Voltage Control Panel 760.00
5. Stabilizer Actuator Jack 2,600.00
6. Stabilizer Actuator Stop 100.00
15. Propeller Assembly 5,000.00
17. Propeller Anti-Ice Hardware 460.00
19. Propeller Reverse Control Box 250.00
27. ADI Pump 760.00
28. L.H. ADI Pressure Transmitter 200.00
30. ADI Filler Cap 75.00
33. Brush Block Contractor 475.00
35. Brush Block Brushes 45.00
36. Carburetor Mixture Stop L & R 200.00
41. Galley 1,500.00
46. Intercom Button 35.00
47. Primary Compressor (N255) 15,000.00
TOTAL; $28,080.00
The total sum for the values for the missing parts from the January inventory was $50,703.00. The discrepancies total $28,-080.00 which must be subtracted from $50,-703.00 which equals $22,623.00. The amount of $22,623.00 is the value assessed to the missing parts of the Martin N258 aircraft.
The next issue which must be determined is the amount which must be assessed for the primary installation of the new parts in the Martin N258. The January inventory totalled $89,383.26 for both parts and labor. The apportionment between parts and labor would be $50,703.00 for parts and $38,-680.26 for labor. The value of the missing parts from the January inventory was reduced approximately by three-fifths and accordingly the labor should be reduced respectively. As a result, the amount for primary installation as calculated by this Court for the Martin N258 equals the sum of $15,472.14.
The total damage values for the two Martin aircraft as calculated from the evidence presented at the final evidentiary hearing by Dolphin are as follows:
Martin N255 Valne
1. missing parts 15,000.00
2. labor 2,000.00
Martin N258
1. missing parts 22,623.00
2. labor 15,472.14
TOTAL: $55,095.14
*264The final issue to be determined is whether or not the amount of $55,095.14 should be reduced by a reference to the Cardex System. Dolphin argues that the core value of 30% put forth by opposing counsel for Stempler and SIA and the Trustee is “smoke” and not really an issue involved herein. The core value only pertains to the value of used parts; the used parts (missing parts) went on the planes of Stempler and SIA and the core value is no longer relevant to the value of new parts needed to replace the missing parts. The Court, after clearing the smoke is satisfied that the core value of 30% is irrelevant to the damages involved herein. Furthermore, if reference to the Cardex System were applicable for the purpose of reducing the value of the new parts to a core value of 30% of the new value, then Stempler and SIA and the Trustee, while they had ample opportunity, failed to cross-examine Mr. Eddy, Dolphin’s expert, by testing his testimony by a specific reference to the Cardex System which was available and present in the courtroom during the final evidentiary hearing.
Based on the foregoing, this Court upon reconsideration is satisfied that Dolphin carried its burden of proof and the evidence was sufficient to determine the value of the missing parts from the two Martin aircraft together with primary installation thereof. The Cardex System was irrelevant to this value determination since Stempler and SIA and the Trustee failed to use any of the information contained therein on cross-examination of Mr. Eddy, Dolphin’s expert.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Rehearing filed by the Trustee be, and the same is hereby, granted and the Third Ordering Paragraph of this Court’s Findings of Fact, Conclusions of Law and Memorandum Opinion is hereby vacated. It is further
ORDERED, ADJUDGED AND DECREED that the Motion for Rehearing of Findings of Fact, Conclusions of Law and Memorandum Opinion filed by Stempler and SIA be, and the same is hereby, granted in part and denied in part. The motion is granted as it pertains to the scheduling of a further evidentiary hearing as the Third Ordering Paragraph of the Findings of Fact, Conclusions of Law and Memorandum Opinion is hereby vacated, but the Motion is denied in all other respects. It is further
ORDERED, ADJUDGED AND DECREED that the ore terms Motion for Rehearing by Dolphin be, and the same is hereby, denied as untimely. It is further
ORDERED, ADJUDGED AND DECREED that Stempler and SIA be, and the same are jointly and severally liable for $55,095.14 to be paid by the estate of the Debtor to Dolphin. It is further
ORDERED, ADJUDGED AND DECREED that the Findings of Fact, Conclusions of Law and Memorandum Opinion entered on July 28, 1986 be, and the same is hereby, affirmed in all other respects. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490397/ | MEMORANDUM OF OPINION
JOHN C. AKARD, Bankruptcy Judge.
Brints Cotton Marketing, Inc. (BCMI) provided a cotton marketing service to farmers. The farmer delivered warehouse receipts for cotton to BCMI and entered into an “on-call” contract with BCMI. The farmer received from BCMI an amount equal to the Commodity Credit Corporation loan value attributable to the cotton, less certain charges for BCMI. The farmer would have a specified length of time in which to “call” his contract. When the contract was called, BCMI would pay the farmer the amount by which the market price for cotton on the date of the call exceeded the Commodity Credit Corporation loan value. See, Addison v. Langston (In re Brints Cotton Marketing, Inc.), 737 F.2d 1338 (5th Cir.1984).
In February, 1982, Darrell Hunt (Hunt) signed on-call contracts with BCMI. The warehouse receipts for Hunt’s cotton were not delivered until November, 1982, at which time Hunt received the loan value. In February, 1983, when the contracts had not been called, Hunt and BCMI entered into an agreement allowing him to “roll over” his contracts so he would have another 90 days in which to call them. On or about March 22, 1983, Hunt contacted BCMI and called his contracts. BCMI issued three checks to Hunt dated March 22, 1983, totaling $5,279.29. On March 31, 1983, these checks were paid by the First National Bank, Lubbock, Texas from funds held in the BCMI regular checking account.
On May 24, 1983, BCMI filed for relief under Chapter 7 of the Bankruptcy Code. David R. Langston, the Trustee-in-Bankruptcy for BCMI, filed this proceeding to set aside the $5,279.29 payments to Hunt as preferences under 11 U.S.C. § 547.1
Preferential Transfer?
In order to recover a preferential transfer, the Trustee must establish that the transfer was:
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 within 90 days before the date of the filing of the petition; and
5. Which enables the creditor to receive more than such creditor would receive in a liquidation under Chapter 7.
11 U.S.C. § 547.
Hunt is a creditor of BCMI. The Debtor is presumed to be insolvent during the 90 days immediately preceding the date of the filing of the petition. 11 U.S.C. § 547(f). *356Hunt did not dispute that the Debtor was insolvent during that period and there was a specific finding by the prior Judge of this Court that BCMI was insolvent in March, 1983. Echols v. Langston (In re Brints Cotton Marketing, Inc.), No. 583-0147, Bankr.N.D.Tex. March 2, 1984, at 40-42.
The Proofs of Claim filed in this case exceeded $3 million while the liquid assets of BCMI on the date of bankruptcy totaled less than $250,000. When the monies presently in the possession of the Trustee are added to any monies which he might receive in the future (if he is successful in his litigation against other parties), it is probable that the dividend to unsecured creditors will be far less than 100%. Echols, supra, at 39-40.
Clearly the transfer occurred within 90 days of the filing of the Bankruptcy Petition.
When Was the Debt Incurred?
The question before the Court is whether the payments to Hunt were “for or on account of an antecedent debt owed by the debtor before such transfer was made.” 11 U.S.C. § 547(b)(2).
The Trustee contends that BCMI incurred the debt when Hunt delivered the warehouse receipts. Hunt contends the debt was not incurred until he called the contract and established the amount due him.
When Hunt delivered the warehouse receipts to BCMI in November, 1982, he fully performed his part of the contract and BCMI obtained title to the cotton. Apparently some of BCMI’s financial difficulties arose from the fact that BCMI expected the price of cotton to fall and sold the cotton before the farmers called their contracts. When the price of cotton rose and farmers began calling their contracts, BCMI suddenly found that it had sold cotton for less than it was obligated to pay the farmers. It is the delivery of the goods, in this case cotton represented by warehouse receipts, that established the obligation to pay. TEX.BUS. & COM.CODE ANN. § 2.507 (Vernon 1968).2
A “debt” means liability on a claim, 11 U.S.C. § 101(11) and a “claim” means a “right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured,” 11 U.S.C. § 101(4)(A). Thus, the debt arose at the time the warehouse receipts were delivered to BCMI and it makes no difference that the debt was unliquidated because the contract had not been called at that time.
In an analogous situation, the prior Judge of this Court held that telephone charges were incurred at the time the call was made, even though the Debtor did not know at that time the amount of the charges and the bill was delivered at a later date. Bass v. Southwestern Bell Telephone Co. (In re Ray W. Dickey & Sons, Inc.), 11 B.R. 146 (Bankr.N.D.Tex.1980). See also, Sandoz v. Fred Wilson Drilling Co. (In re Emerald Oil Co.), 695 F.2d 833 (5th Cir.1983) (holding that the date of delivery determined when the debt arose; not the date the invoice was issued), and Scherling v. Texaco International Trade, Inc. (In re Transpacific Carriers Corp.), 50 B.R. 649 (Bankr.S.D.N.Y.1985) (holding that payment made pursuant to a subsequently honored check was deemed made when the check was delivered).
This case has a fact pattern similar to that of Dickinson v. Meredith (In re Wathen’s Elevators, Inc.), 37 B.R. 870 (Bankr.W.D.Ky.1984). Wathen’s acted as a merchandiser of grain rather than as a grain storage warehouse. In October and November, 1981, Meredith delivered 3,543 bushels of grain to Wathen’s. He received a “scale ticket” indicating the date and amount of delivery, the producer’s name and a notation of “deferred settlement” with each delivery. Meredith received no *357warehouse or grain storage receipts. On February 23, 1982, Meredith informed Wathen’s that he wanted to “cash in.” This demand triggered a final accounting of the grain previously left at the elevator on “deferred settlement.” Meredith testified that he did not receive payment upon delivery because he wanted to wait for a better price for his grain and that he couldn’t settle until January 1, 1983 for tax reasons. Id. at 874 n. 19. The Court found that the payment to Meredith was a preference and stated:
Prior to delivery, Wathen’s could never have to issue a settlement check — there being nothing to settle. All dates subsequent to delivery are identical for on any given day Meredith could have activated the payment process by making demand. Simply put, without delivery there is no obligation to pay, and at any time after delivery, at seller’s choice, the elevator must pay. For preference purposes, then, the debt is “incurred” at delivery.
Id. at 872.
Hunt argues that he did not incur the debt until he became legally bound to pay, citing Barash v. Household Finance Corp., 658 F.2d 504 (7th Cir.1981). In Barash, the Court held that the debt in question became due at the time the note was signed and that payments made on unsecured obligations within 90 days of the filing of the Bankruptcy Petition constituted preferences. This decision supports this Court’s conclusion that the debt became due upon delivery of the warehouse receipts.
Hunt cited Nolden v. Van Dyke Seed Co. (In re Gold Coast Seed Co.), 751 F.2d 1118 (9th Cir.1985). In that case, the Debtor signed contracts in September and November, 1979 to purchase seed from the Van Dyke Seed Company at specified prices. The seed was shipped to the Debtor in February, 1980 and he paid for it in April, 1980, within 45 days of the time shipment began. The Court held that this was a payment of a debt incurred in the ordinary course of business and not later than 45 days after the debt was incurred. The Court concluded that the debt arose when the seed was delivered; precisely the same conclusion reached by this Court in this case.
Hunt also cited Iowa Premium Service Co. v. First National Bank in St. Louis (In re Iowa Premium Service Co.), 695 F.2d 1109 (8th Cir.1982) and Ford Motor Credit Co. v. Ken Gardner Ford Sales, Inc. (In re Ken Gardner Ford Sales, Inc.), 10 B.R. 632 (Bankr.E.D.Tenn.1981) at 646. These cases deal with the accrual of interest and hold that interest is not due until accrued. In the instant case, the BCMI debt became due upon the delivery of the warehouse receipts, even though the exact purchase price remained to be determined.
Ordinary Course of Business?
Hunt further asserted that payment was made within 45 days after the debt was incurred in the ordinary course of the business of both parties and was made according to ordinary business terms; thus exempting it from the preference requirements of 11 U.S.C. § 547(c)(2). He contended that the “rollover” of the contract in February, 1983 created a new obligation. This is certainly not the case, however, since the obligation was created when the warehouse receipts were delivered. BCMI simply granted an extension of the time for Hunt to call the contract. Hunt did not show that any new consideration was paid to BCMI for this extension — although the payment of consideration would not change the result.
For the reasons stated herein, the Court holds that the $5,279.29 paid by BCMI to Hunt on March 31, 1983, constituted preferences which may be recovered by the Trustee-in-Bankruptcy.
Order accordingly.3
. These transactions occurred prior to the changes made in § 547 by the Bankruptcy Amendments and Federal Judgeship Act of 1984.
. The Texas Business and Commerce Code is the Texas adaptation of the Uniform Commercial Code.
. This Memorandum shall constitute Findings of Fact and Conclusions of Law pursuant to Bankruptcy Rule 7052. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490398/ | OPINION
EMIL F. GOLDHABER, Chief Judge:
The issue for resolution is whether we should grant an employee’s motion to vacate our recent order denying priority status for severance pay under 11 U.S.C. § 507(a)(3) of the Bankruptcy Code (“the Code”) when his employment was terminated outside the ninety day pre-petition period but payments were scheduled to be made during the pre-petition period. For the reasons set forth below, we will deny the employee’s motion to vacate.
The uncontested facts of this case are as follows: The claimant, Nicholas J. Page (“Page”), was employed by the debtor, General Information Services, Inc., (“GIS”) under the terms of an employment contract which provided in pertinent part: “If the company terminates this agreement without reasonable cause, the company shall continue to pay you the pay schedule outlined in Schedule A for a period of three months following such termination.” Page was terminated on January 11, 1985, and GIS filed a chapter 11 petition on May 2, 1985.
Subsequently, Page filed a claim in these proceedings seeking to have an allowed claim of $10,764.67. Following a hearing on the objection of GIS to Page’s claim, this court issued an opinion and order that held that the predominant basis for Page’s dismissal was simply a cost cutting measure. Thus, Page’s dismissal was not “for cause” and he was entitled to three months severance pay. We then reduced Page’s claim from $10,704.67 to $7,783.16, 57 B.R. 349, and stated that “distribution was subject to the limitation of § 507(a)(3)(A) and (B) of the Code.”
In his amended claim, Page seeks to have two thousand dollars of his allowed claim of $7,783.16 be treated as a priority claim pursuant to § 507(a)(3)(A) and (B) of the Code which provides in pertinent part:
(a) The following expenses and claims have priority in the following order:
(3) Third, allowed unsecured claims for wages, salaries, or commissions, including vacation, severance, and sick leave pay—
(A) earned by an individual within 90 days before the date of the filing of the petition or the date of the cessation of the debtor’s business, whichever occurs first; but only
(B) to the extent of $2,000.00 for each such individual.
Page argues that the severance pay he received during the pre-petition period constitutes monies “earned” within the meaning of § 507(a)(3)(A) and (B). We disagree. Although the employment agreement between Page and GIS provided that if Page were terminated without cause he would receive, as severance, pay for the three month period following termination; priority status under § 507(a)(3)(A) and (B) is not determined by the manner in which payments are made. Rather, as the District Court for the Eastern District of Pennsylvania held in In re Crouthamel Potato Chip Co., 52 B.R. 960 (E.D.Pa.1985); rev’d on other grounds, 786 F.2d 141 (3d Cir.1986):
... [T]he question for the court is not when, as a matter of accounting, the employee could obtain the funds but when, as a matter of contract, the employees right to receive those funds was fixed and could not be taken from him by the occurrence of some contingent event. See United States v. Munro-Van Helms Co., 243 F.2d 10, 14 (5th Cir.1957) (“On *421that day their rights became unconditional and absolute and those rights then accrued.”)
Id. at 965. In the case at bench, under the Crouthamel rationale, as a matter of contract, Page’s right to receive severance pay was fixed and unconditional on the date of his termination. The fact that payments, “as a matter of accounting,” were to continue over a three months period following his termination is irrelevant for the purpose of determining priority status under § 507. Accordingly, since Page’s right to severance pay was “fixed” more than ninety days prior to the filing of the bankruptcy petition, his claim will be allowed as an unsecured claim only. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490401/ | ORDER GRANTING RULE 11 SANCTIONS AGAINST ATTORNEY WILLIAM NEEDLER
ROBERT G. MOOREMAN, Chief Judge.
Having had the issue of sanctions under advisement since September 9, 1986 and having fully reviewed the record in this matter and the pleadings and arguments of counsel regarding the imposition of sanctions, this Court finds and concludes as follows:
FACTS
On March 2, 1986, this Court approved the sale by the trustee of the OSO ranch, which was part of the bankruptcy estate in this matter. Although objections had been made by the debtors to the sale, those objections were withdrawn prior to the approval of the sale. See Order For Sale of Real Property Free and Clear of Liens, filed March 2, 1986, B-83-2882, Docket #496. No motions for reconsideration or notices of appeal were filed after the issuance of the above Order.
Ninety days later, newly-appointed counsel for the debtor William Needier filed the complaint giving rise to this adversary proceeding. Named in the complaint are the trustee, John Anderson; Edward Quinif, the purchaser of the OSO ranch; Robert Riter, Harold Christopherson, potential purchasers of other properties of the estate at the time of the complaint, and the Valley National Bank. The complaint requested in part the removal of the trustee as well as an injunction against any sales of property of the estate. The contentions in the complaint address the issues of whether the trustee qualified as a disinterested party as well as whether he had performed his duties properly, referring in part to the sale of the OSO ranch. The complaint also alleged that the trustee is not a disinterested party entitled to remain in his position; that the trustee is attempting to liquidate the debtors in violation of the bankruptcy code provisions relating to farmers; and that the trustee has failed to consider the tax implications of the sales of the property of the estate.
The defendants to this adversary complaint moved for dismissal based upon the failure to state a claim upon which relief could be granted pursuant to Bankruptcy Rule 7012(B) and Rule 12(b)(6), F.R.C.P. At the hearing on the motions to dismiss, this Court found them to well-taken and thereby dismissed the adversary action. In addition, the moving parties requested that attorneys’ fees be awarded based upon a violation of Rule 11, F.R.C.P., Bankruptcy Rule 9011, as well as 28 U.S.C. Section 1927. For the reasons set forth below, this Court will award sanctions against the debtors’ counsel, Mr. William L. Needier of William L. Needier & Associates, Ltd.
DISCUSSION
Bankruptcy Rule 9011, which incorporates the language set forth in Rule 11, F.R.C.P., provides in part as follows:
*645The signature of an attorney or a party constitutes a certificate by him that he has read the document; that to the best of his knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law; and that it is not interposed for any improper purpose, such as to harass, to cause delay, or to increase the cost of litigation. * * * If a document is signed in violation of this rule, the court on motion or on its own initiative, shall impose on the person who signed it, the represented party, or both, an appropriate sanction, which may include an order to pay to the other party or parties the amount of the reasonable expenses incurred because of the filing of the document, including a reasonable attorney’s fee.
Bankruptcy Rule 9011 (emphasis added). The standards to be applied under this rule were discussed in Zaldivar v. City of Los Angeles, 780 F.2d 823 (9th Cir.1986). As set forth in Zaldivar, there are two separate determinations contained in this provision: frivolousness and improper purpose. Id., 830-832. As will be shown below, Mr. Needler’s actions in this matter meet both requirements of Bankruptcy Rule 9011, thereby requiring the imposition of sanctions.
FRIVOLOUSNESS
Pursuant to this portion of the rule:
[Sanctions shall be assessed if the paper filed in [bankruptcy] court and signed by an attorney or an unrepresented party is frivolous, legally unreasonable, or without factual foundation, even though the paper was not filed in bad faith.
Id., at 831. As set forth in the facts above, this Court found in its Order of March 2, 1986 that all objections to the sale of the OSO ranch property by the trustee had been withdrawn. Debtors did not seek a motion for reconsideration or leave to appeal. No stay of that action was sought.
This Court approved Mr. Needler’s application for limited admission on May 23, 1986. Notwithstanding the fact that the debtors did not seek review of the sale, approximately ninety days after the entry of the March 2nd Order, and after only one week of obtaining limited admission in the case, Mr. Needier filed an adversary complaint naming both the trustee and the purchaser of the OSO ranch, requesting, in part, replacement of the trustee and a stay of the sale based upon his contention that the sale price was too low and made for the benefit of one of the creditors.
This portion of the adversary complaint can only be described as an impermissible collateral attack upon the March 2, 1986 Order authorizing the sale of the OSO ranch. It is clear from the record that all objections to the sale of the OSO ranch, including that of the debtor, were withdrawn prior to the occurrence of the sale. Had Mr. Needier made the reasonable inquiry necessary under this rule, it would have been clear that the opportunity to object to the sale had not only passed but that the debtors had withdrawn their objection, thereby removing the basis for any further challenges to the sale. The filing of this adversary complaint was therefore without legal basis, factual foundation and is therefore frivolous in this regard. Notwithstanding Mr. Needler’s delayed appearance in this matter, he is as a matter of law familiar with the standards imposed upon counsel under Rule 11, F.R.C.P. See In re TCI LTD., 769 F.2d 441 (7th Cir.1985) (affirming the imposition of sanctions upon Mr. Needler’s firm for violations of Rule 11, F.R.C.P. and 28 U.S.C. Section 1927). His admission to this Court after the original filing of this matter does not excuse his responsibility to comply with Bankruptcy Rule 9011. In addition, the facts in TCI are substantially similar to those presented herein, i.e. that a member of Mr. Needler’s firm was attempting to set aside a previous sale without setting forth a sufficient legal basis to support such a finding despite the allowance of several amendments to the pleadings and that he acted with sufficient notice or knowledge of the problems he was creating.
*646IMPROPER PURPOSE
Under this provision of the rule, the attorney must certify that the pleading filed “is not interposed for any improper purpose, such as to harass, to cause delay, or to increase the cost of litigation.” The Court in Zaldivar made the following statement in this regard:
Harassment under Rule 11 focuses upon the improper purpose of the signer, objectively tested, rather than upon the consequences of the signer’s act, subjectively viewed by the signer’s opponent.
Zaldivar v. City of Los Angeles, supra, at 832. The Ninth Circuit went on to point out that “[wjithout question, successive complaints based upon propositions of law previously rejected may constitute harassment under Rule 11.” Id.
In the present case, this Court must objectively review Mr. Needler’s intent in signing the adversary complaint in this matter. As mentioned above, it is abundantly clear from the record that all objections and/or complaints to the sale had been withdrawn prior to the sale, including those of the debtors. Further, no review was sought from the Order of March 2, 1986, authorizing the sale. Accordingly, from an objective viewpoint, the Order was not reasonably subject to challenge in this forum. The result to be achieved from this portion of the adversary complaint was to harass or intimidate the purchaser of the property and the trustee for acting pursuant to the authority of this Court, delay any further proceedings and to increase the cost of the litigation by requiring numerous pleadings in response to the complaint and request for temporary restraining order. Mr. Needier has neither set forth factual evidence nor a legal basis to support the portion of his complaint challenging the prior court-approved sale and this Court finds and concludes that there is no basis for such an action.
Pursuant to Bankruptcy Rule 9011 and Rule 11, F.R.C.P., upon finding a violation to have occurred, this Court is required to impose sanctions upon the person who signed the document, the represented party, or both. In this instance, sanctions will be imposed only upon Mr. Needier as the complaint bears his signature and it appears from the record that he was the impetus for this complaint.
In regard to the remainder of the allegations of the complaint, this Court will not award sanctions. Although the allegations were raised improperly by way of an adversary complaint and were properly dismissed, they do not fall within the requirements of the rule.
AMOUNT OF SANCTIONS
Two applications for attorneys fees have been filed in this matter: Valley National Bank and Edward Quinif. The record does not reflect an application for fees by the trustee. In light of the above disposition, such an application by the trustee may be filed no later than ten (10) days from the entry of this order. In regard to the two applications before this Court, it should be noted that there have been no objections to the amounts requested.
The application submitted by counsel for Edward Quinif indicates that attorneys’ fees in the amount of $1,577.00 were incurred in responding to the adversary action filed by Mr. Needier. As Mr. Quin-if’s participation in the bankruptcy proceedings was limited to the purchase of the OSO ranch, his inclusion in the adversary action was limited to that portion of the complaint. Therefore, he is entitled to recover the entire amount of the fees incurred in defending against the complaint in question as all of the fees arose in regard to the improper portion of the complaint. Accordingly, Mr. Needier shall personally pay to counsel for Mr. Quinif the amount of $1,577.00.
In regard to the application submitted by the Valley National Bank, a somewhat different analysis is required. While Valley was required to respond to the defective portion of the adversary complaint, they also incurred attorneys’ fees for responding to the remainder of the complaint, for which no sanctions are awarded herein. The application for fees *647submitted by Valley requests an award of $499.00. This amount must be allocated proportionately to the improper actions on the complaint filed by Mr. Needier. A review of the record in this matter indicates that approximately thirty percent of the matters in the complaint represent the portion upon which sanctions are being imposed. Accordingly, Valley is entitled to recover $150.00 from Mr. Needier.
CONCLUSION
In conclusion, based upon the above discussion as well as all of the pleadings and arguments by the movants, Mr. Needier violated Bankruptcy Rule 9011, incorporating Rule 11, F.R.C.P., by filing the adversary complaint in question. Sanctions will be imposed under this rule personally upon Mr. Needier. The movants are entitled to recover reasonable attorneys’ fees, which this Court finds and concludes to be a reasonable sanction in light of the violation.
Based upon the foregoing,
IT IS ORDERED that based upon a violation of Bankruptcy Rule 9011, incorporating Rule 11, F.R.C.P., sanctions shall be imposed personally upon counsel for the debtor, Mr. William Needier.
IT IS FURTHER ORDERED that Mr. Needier personally pay the following amounts, without reimbursement from his client or the estate, no later than December 31, 1986:
Counsel for Edward Quinif: $1,677.00
Counsel for Valley National Bank: $ 150.00
IT IS FURTHER ORDERED that the trustee may file an application for attorneys’ fees consistent with the above disposition no later than ten (10) days after the entry of this Order. Upon a determination of the reasonable fees, if any, to which the trustee is entitled based upon the violation of Bankruptcy Rule 9011, this Court will direct Mr. Needier to pay to the trustee this amount as well as the above award.
IT IS FINALLY ORDERED that the failure to comply with the orders of this Court may result in the imposition of sanctions including, but not limited to, revocation of limited admission to this Court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490402/ | MEMORANDUM OF DECISION
ROBERT L. KRECHEVSKY, Chief Judge.
The trustee’s motion for a determination of priorities among three competing liens attaching to the proceeds from a sale of estate property gives rise to this core proceeding.1 See 28 U.S.C. § 157(b)(2)(E). No evidentiary hearing has been held, the lien claimants, the trustee and the debtors having stipulated to most of the following background. Additional facts have been *666culled from the debtors’ joint bankruptcy petition and the case file.
I.
Pursuant to court authority, Martin W. Hoffman, trustee in this chapter 7 case, sold 51-53 Henry Street, Hartford, Connecticut (the realty) at private sale, with all encumbrances of record ordered to attach to the proceeds of sale. The sale, concluded on December 31, 1985, resulted in the trustee’s receipt of $120,601.51. After paying or providing for the payment of the first three mortgages on the realty and expenses of the sale, including the trustee’s fees, a balance of $14,010.05 remained.
Better Loan Society, Inc. (Better Loan) holds the lien first in time of the three liens in issue, a prejudgment attachment in the amount of $2,500.00, recorded on January 8, 1985.2 Better Loan claims the balance due on its debt is $1,808.35, plus interest.
The State of Connecticut (State) filed a tax lien for $6,798.98 on February 15,1985, based upon unpaid sales and use taxes due from Valerie Cuni and Salvatore Cuni, the debtors, as the responsible officers of Cuni, Inc.3
The United States filed a tax lien for $10,650.42 on March 27, 1985, for unpaid withholding and FICA taxes. The lien is based upon the debtors’ liability as the persons responsible for Cuni, Inc.’s failure to pay its withholding and FICA taxes.
II.
THE BETTER LOAN LIEN
The lien rights of Better Loan arise under Conn.Gen.Stat. §§ 52-278a et seq., which authorize prejudgment attachment of property, when there is probable cause that a judgment will be rendered in favor of a plaintiff, in order to secure such judgment. Better Loan contends its lien, although prior in time to the liens of both the State and the United States, is superior only to the lien of the State, for reasons explained in sections III and V, infra.
III.
THE UNITED STATES LIEN
The United States lien rights derive from 26 U.S.C. §§ 6321 et seq., which make any person, such as an officer or employee of a corporation, who is under a duty to and willfully fails to pay withholding and FICA taxes, liable for a penalty equal to the unpaid taxes. The government is given lien rights against such person’s property. Federal tax liens are subject to the generally accepted rule that liens prior in time are prior in right. Settled case law, however, requires that for a competing nonfederal lien that is first in time to be granted priority over a federal tax lien, the competing lien must be perfected or “choate” in the sense that there is nothing more to be done when the federal lien arises. “A state-created lien is not choate until the ‘identity of the lienor, the property subject to the lien, and the amount of the lien are established’.” United States v. Kimbell Foods, Inc., 440 U.S. 715, 722 (1979) (citations omitted). Accordingly, as Better Loan concedes, its prejudgment attachment lien, not having been reduced to judgment prior to the filing of the federal lien, was inchoate and therefore inferior to the United States lien. See United States v. Security Trust & Savings Bank, 340 U.S. 47 (1950). There is no dispute in this proceeding as to any of the foregoing. The main issue is the claim of the United States that its tax lien, although not prior in time, is superior to the tax lien of the State, based upon the facts the State has acknowledged in a stipulation signed by all the appearing parties and filed on October 14, 1986, with the court (the stipulation). The pertinent provisions of the *667stipulation are set forth in section IV, infra.
IY.
THE STATE OF CONNECTICUT LIEN
In 1982, the Connecticut General Assembly first enacted legislation imposing personal liability on corporate officers responsible for payment of corporate sales and use taxes. Conn.Gen.Stat. § 12-414a provides:
Personal liability of corporate officers for willful nonpayment of taxes collected
If any corporation, required in accordance with section 12-414 to file any return for purposes of the sales and use tax, fails to file such return or pay to the commissioner of revenue services the amount of tax related thereto, any officer of such corporation responsible for or having supervision of the filing of such return or payment of such tax who willfully failed to file such return or pay such tax shall be personally liable for the total amount of such tax and any penalty or interest attributable to such failure, provided the amount of such tax, penalty or interest with respect to which such officer is personally liable under this section shall only be imposed against such officer in the event that such tax, penalty or interest attributable to such officer’s failure cannot otherwise be collected from the corporation itself in accordance with section 12-420. The amount of such tax, penalty or interest with respect to which such officer may be personally liable under this section shall be collected in accordance with said section 12-420 and any amount so collected shall be allowed as a credit against the amount of such tax, penalty or interest due and owing from such corporation. The dissolution of such corporation shall not discharge such officer in relation to any personal liability under this section for willful failure to file such return or pay such tax prior to dissolution, except as otherwise provided in this section.
Conn.Gen.Stat. § 12-420 governs collection of sales and use taxes, and provides in part as follows:
The amount of any tax, penalty or interest due and unpaid ... may be collected under the provisions of section 12-35. The warrant therein provided for shall be signed by the commissioner or his authorized agent. The amount of any such tax, penalty and interest shall be a lien, from the last day of the month next preceding the due date of such tax until discharged by payment, against all real estate of the taxpayer within the state, and a certificate of such lien signed by the commissioner may be filed for record in the office of the clerk of any town in which such real estate is situated, provided no such lien shall be effective as against any bona fide purchaser or qualified encumbrancer of any interest in any such property....
The collection provisions of Conn.Gen.Stat. § 12-35 state in part:
Upon the failure of any person to pay any tax ... due [the state] within thirty days of its due date, the state collection agency charged by law with the collection of such tax may make out and sign a warrant directed to any serving officer for distraint upon any property of such person found within the state, whether real or personal. An itemized bill shall be attached thereto, certified by the state collection agency issuing such warrant as a true statement of the amount due from such person. Such warrant shall have the same force and effect as an execution issued pursuant to chapter 906. Such warrant may be levied on any real property or tangible or intangible personal property of such person, and sale made pursuant to such warrant in the same manner and with the same force and effect as a levy of sale pursuant to an execution....
The stipulation contains the following description of the State’s customary procedures in collecting taxes from corporate officers, and those that occurred in the present proceeding.
*668After a notice of Corporate Assessment has been issued and is determined to be uncollectible, the customary procedure followed by the Connecticut Department of Revenue Services for collecting against Corporate Officers under Conn. Gen.Stat. 12-414(a) [sic] is to send the responsible officer an initial warning letter setting forth the unpaid sales and use tax obligation of the Corporation, the fact that Conn.Gen.Stat. 4-414(a) [sic] imposes personal liability on responsible corporate officers, and the agencies [sic] intentions to proceed after 15 days against the officers. If the tax has not been paid within 15 days, the Department mails a letter to the corporate officer with an attached itemization of the tax liability stating that it considers the corporate officers liable for the tax. The letter further states that this letter and attachment constitutes [sic] a notice of assessment which becomes final if the corporate officers do not file with the Department a petition for reassessment within 30 days. No such letters were mailed to Salvatore or Valerie Cuni with respect to the unpaid liabilities [sic] of Cuni, Inc.
In the instant matter Salvatore Cuni had telephoned John Fannelli, Assistant Director of the enforcement and collection division of the Conn. Department of Revenue Services, and urged and requested the Department of Revenue Service [sic] to file the tax lien on the 51-53 Henry Street property.
Stipulation at 3-4. The United States memorandum of law raises three contentions as to why the State lien is either entirely invalid or inferior to the United States lien, based upon the stipulated facts applied to the foregoing statutes.
V.
A.
The United States first argues that the debtors never became liable for the unpaid sales and use taxes due from Cuni, Inc. and that the State lien is correspondingly invalid because the State failed to proceed first against the corporation and to exhaust its statutory remedies. Although not specifically so stated in the stipulation, it appears from the memoranda of the State and the United States that the State did not issue the warrant referred to in § 12-35 against Cuni, Inc. when, on February 6, 1985, it received the Cuni, Inc. tax returns without any payments. Instead, at the direction of Salvatore Cuni, the State proceeded to file a tax lien against the debtors’ realty on February 15, 1985. The United States contends that the State’s failure to issue a warrant against Cuni, Inc. and attempt to levy upon it before proceeding against the debtors invalidates the State lien. The United States claims that these steps are “prerequisite” to making the debtors personally liable for the sales and use taxes.
I do not agree with this reading of § 12-414a. The statutory requirement of having the State first pursue collection against the corporation before charging the responsible officer is intended only as protection for such officers. See 25 Conn.H.R. Proc., Pt. 14, 1982 Sess., pp. 4495-4499 (floor discussion of § 12-414a limited to concern over undue exposure of corporate officers). Those officers have the right to waive such provisions. The United States has set forth nothing to contradict this obvious reading of the statute. Cuni, Inc., at the time concerned, was undoubtedly assetless, with both the United States and the State seeking to impose personal liability upon the debtors. The United States has not shown how it was prejudiced by the State forgoing a purposeless attempt to collect initially from the corporation.
The debtors requested the State to place a lien on their property, clearly admitting their liability for the entire tax and waiving the statutory condition that the State first attempt to collect from their worthless corporation. In light of such a waiver, the argument of the United States, for which it cites no authority, that the failure of the State to comply with § 12-414a before exercising its rights against the debtors voids the State lien, is meritless.
*669B.
The United States next argues that the “lien ... against all real estate of the taxpayer” provided by § 12-420 covers only realty owned by the party primarily liable for the tax, in this case, Cuni, Inc. Therefore, it says, the State has no such remedy against the responsible corporate officer, because “taxes do not rise to a lien status unless expressly so provided by statute.” United States memorandum at 7.
This argument is unavailing. The term “taxpayer” admittedly is nowhere defined in the Connecticut statutes, but “the words of a statute are to be construed with common sense and ‘according to the commonly approved usage of the language.’ ” State v. Pellegrino, 194 Conn. 279, 284, 480 A.2d 537 (1984) (citations omitted). The term’s most natural meaning should be, akin to the one in the Internal Revenue Code, any person subject to a tax. See 26 U.S.C. § 7701(a)(14). If the debtors were liable for state sales and use taxes under Conn. Gen.Stat. § 12-414a, then they were “taxpayers”, and § 12-420 affords the State a lien on the debtors’ realty.
C.
The final position of the United States is that the State tax lien was not sufficiently choate to be granted priority over the United States tax lien. See section III, supra. One element supporting a claim of inchoateness in the view of the United States is the State’s failure to issue a warrant and to attempt to levy upon corporate property before imposing personal liability on the debtors. Because of this failure to make an independent determination that Cuni, Inc. could not pay the taxes, the United States concludes “there can be no personal liability for the corporation’s unpaid taxes and therefore the identity of the person individually liable, the identity of the lienor, is unknown and the State’s lien in [sic] thus inchoate.” United States memorandum at 13. Furthermore, the United States asserts, the State has made no determination of “the amount of the unpaid tax attributable to some failure of the corporate officers against whom personal liability is sought”, and “certainty regarding the amount of the lien” is not established. Id.
Having decided in section A, supra, that the debtors’ request to the State, that the State forgo the collection procedures against an assetless corporation, does not affect the validity of the State’s lien on the debtors’ property, I further conclude that the State’s lack of action against the corporation does not affect the choateness of its lien so as to give priority to the federal tax lien. Despite the contentions of the United States, the identity of the lienor, the property subject to the lien, and the amount of the lien were all established before the filing of the federal lien. See United States v. Vermont, 377 U.S. 351, 84 S.Ct. 1267, 12 L.Ed.2d 370 (1964) (application of test of choateness to state tax lien); United States v. Herzog (In re Thriftway Auto Rental Corp.), 457 F.2d 409 (2nd Cir.1972) (application of test of choateness to New York City tax lien); cf. Priest v. Progressive Savings & Loan Ass’n (In re Priest), 712 F.2d 1326 (9th Cir.1983) (California tax lien found to fail choateness test). In summary, all arguments of the United States as to why it is entitled to priority over the State lien are found insufficient.
VI.
Better Loan has conceded that its prejudgment attachment lien is inferior in right to the United States tax lien. Better Loan asserts, however, that its lien is superior and prior in right to the State’s tax lien because it is prior in time. See § 12-420, supra (tax lien not “effective as against ... a qualified encumbrancer”). The State does not contend to the contrary. The result of all of this is that the State lien is superior to the United States lien, which is superior to the Better Loan lien, which is superior to the State lien. When faced with this “circular priority” problem, the rule of United States v. City of New Britain, 347 U.S. 81, 74 S.Ct. 367, 98 L.Ed. 520 (1954), applies. The amount of the State lien which has priority over the United *670States lien is set aside as a fund. From this fund, the Better Loan lien, which has a priority over the State lien according to state law, is satisfied. The balance of the fund is payable to the State. The United States receives all remaining monies. See also McKee-Berger Mansueto, Inc. v. Board of Educ., 691 F.2d 828, 834 (7th Cir.1982). The Better Loan and State liens, as fully secured liens, are entitled to interest to date of payment. It is
SO ORDERED.
. There is a fourth recorded lien held by one Theodore Jedidian, but the lien looks to be void on its face. Jedidian has not appeared in the proceeding, and a judgment of default is entered for his failure to appear and defend, and the lien is avoided.
. All three recordings referred to were made, in accordance with Connecticut law, against the realty by the filing of lien documents in the Town Clerk’s office of Hartford, Connecticut.
. Cuni, Inc., a Connecticut corporation in which the debtors are the stockholders, did business as Bogart's Cafe at a shopping center located in Marlborough, Connecticut. Salvatore Cuni is the corporation’s president. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490403/ | ORDER
JOHN L. PETERSON, Bankruptcy Judge.
This adversary proceeding was commenced September 25, 1986, by the Farmers and Merchants Bank of Beach, North Dakota, (hereinafter Bank), to determine the extent of the Bank’s security interest in property of the Debtors and to determine whether documents executed by the Debtors constitute personal guarantees for the corporate obligation. On the same date, *837the Bank filed a motion for relief from the automatic stay to foreclose on the collateral subject to their security interest. The Debtors resist the motion on the grounds the Bank is adequately protected and dispute the Bank’s claim in the motion that the individual Debtors personally guaranteed the corporate obligation. After a preliminary hearing on the motion, final hearing was set for November 20, 1986. Meanwhile, the Debtors’ answer in the adversary matter was filed October 16, 1986, placing the cause at issue, and thus both matters were heard November 20, 1986. The Court, in receipt of the parties post-trial memorandums, deems the matter submitted. Due to the overlap and interrelationship between the motion and the complaint, both matters will be treated together-in this opinion.
The Debtors in this action are Douglas Hereford Ranch, Inc.; Paul 0. Douglas; Constance F. Douglas; and Cleone E. Douglas, each case having been filed separately, but consolidated by Order of this Court January 20, 1986.1 The individuals are all shareholders of Douglas Hereford Ranch, Inc., with Paul 0. Douglas, President, and Cleone E. Douglas, Secretary/Treasurer. Douglas Hereford Ranch is presently in default on its obligations to the Bank, as evidenced by three notes, which stand as follows:
(#1) Note 110190
Date executed May 9, 1984
Face amount $367,086.61
Interest rate per annum 13V2%
Due Date May 9, 1985
Default Date May 9, 1985
Principal balance due $318,334.34
Interest due to 10/31/86 (petition date) $69,628.74
Daily accrued on interest $117.74
Party executing note: Douglas Hereford Ranch, Inc.; Paul O. Douglas; Cleone E. Douglas
(#2) Note 112981
Date executed June 24, 1985
Face amount $3,500.00
Interest rate per annum 12%
Due date Nov. 1, 1985
Default date Nov. 1, 1985
Principal balance due $3,500.00
Interest due to 10/31/85 $145.83
Daily accrual on interest $1.15
Party executing note: Douglas Hereford Ranch, Inc.; Cleone E. Douglas
(#3) Note 110191
Date executed May 9, 1984
Face amount $85,000.00
Interest rate per annum »h%
Due date April 18, 1985
Default date April 18, 1985
Principal balance due $1,330.82
Interest due to 10/31/85 -0-
*838(#3) Note 110191
Daily accrual on interest $.31
Party executing note: Cleone Douglas
Thus, when combined, the obligation of Douglas Hereford Ranch, Inc. to the Bank stands at:
Principal balance - $323,165.16
Accrued interest to 10/31/85 - 69,774.57
Daily accrual of interest since 10/31/85 - 119.20
There appears to be no issue as to the balance of the obligation. The real issue involves whether documents executed by the Douglases constitute guarantees for the corporate debt.
On or about December 27, 1974, Cleone E. Douglas and Morris B. Douglas entered into an agreement, prepared by Farmers and Merchants Bank on Farmers and Merchants Bank letterhead which recites:
For value received and for the purpose of enabling Morris B. & Cleone E. Douglas to guarantee their indebtedness to you and to obtain credit from you, and for the purpose of securing their present or any future indebtedness to you, and to obtain credit from you, and for the purpose of securing their present or any future indebtedness to you, of any kind and character, however incurred, or created, We, the undersigned hereby guarantee the prompt payment, at maturity, of all notes given by the Corporation to you, and guarantee all of their corporate indebtedness to you present, and future, of any kind, and character.
Notice of acceptance of this guarantee; and notice of nonpayment and protest, or of the creation or of the existence of the indebtedness, or liability covered by the within named corporation, are hereby waived.
This instrument shall apply to all existing and to all future indebtedness and liability until written notice to you, from the undersigned, is given, not to make any further advances upon the faith thereof. (Emphasis supplied)
The document was then signed by Cleone E. Douglas and Morris B. Douglas, and duly notarized.
On or about January 8, 1975, Paul 0. Douglas and Connie F. Douglas (Constance) executed, signed and caused to be notarized a document identical to the preceding, the only change being the names of the parties to the document. Shortly before execution of the document the Douglas ranching operation was incorporated into Douglas Hereford Ranch, Inc. The documents in question were discussed by the parties and Mr. James Vols, then an officer with the Bank. The testimony of Paul Douglas, Constance Douglas and Cleone Douglas is consistent in their belief that at the time the purported guarantees were executed their purpose was to allow the Douglases to engage in transactions on behalf of the corporation, such as signing and depositing checks and conducting business transactions. The Douglases deny they were ever informed nor was it explained that execution of the documents would render them personally liable for the corporate debt and that they had no intention of agreeing to such a bargain. The Douglases contend they were not aware the documents were being treated as personal guarantees until the notes were called and demand was personally made in late 1984 or early 1985.
On additional comment should be noted. While there appears to be a dispute between the parties as to the effect and intent of the documents in question, no issue of fraud or misrepresentation has either been raised in the pleadings or at trial.
A few principles of basic contract law must be considered in reaching a decision on the issue.2 The construction of a written contract to determine its legal effect is always a question of law for the court to decide. Hager v. Devil’s Lake Public School District, 301 N.W.2d 630 (N.D. *8391981). The object of interpreting and construing a contract is to give effect to the mutual intention of the parties. Section 9-07-03 North Dakota Century Code (NDCC); Hoge v. Burleigh County Water Management District, 311 N.W.2d 23, (N.D.1981). Whenever a contract is reduced to writing, however, the intention of the parties is to be ascertained from the writing done, if possible. Section 9-07-04; Hager, supra. When the language of the contract is clear and unambiguous, there is no reason to inquire further into extrinsic matters. Hager, supra; Hoge, supra. When the terms of a contract are ambiguous and not clear, the terms should be strictly construed against the party who caused the uncertainty to exist. Section 9-07-19 NDCC; Oakes Farming Association v. Martinson Brothers, 318 N.W.2d 897, (N.D.1982).
With those principles in mind our attention turns to the documents in question. A fair reading reveals that the terms clearly reflect the intention of the parties. The undersigned parties, Cleone E. Douglas on December 27, 1974, and Paul O. Douglas and Connie F. Douglas on January 8, 1975, guarantee the payment of all notes, then existing and future indebtedness, of the corporation to the Bank. Since each person who signed the document is the shareholder of the debtor corporation, no other interpretation can be drawn from the documents, otherwise the execution of the document would be an idle act, and the law does not favor idle acts. As the documents clearly express the intent of the parties on their face, there is no basis to use or consider extrinsic evidence to find the intentions or impressions of the Doug-lases when the documents were executed. As to the Defendants’ contentions that they were unaware of the legal significance of the documents at the time of execution, such argument provides no relief. As stated in Hanes v. Mitchell, 49 N.W.2d 606, 610, (N.D.1951):
“It is the duty of every contracting party to learn and know its contents before he signs and delivers it. He owes this duty to the other party to the contract, because the latter may, and probably will, pay his money and shape his reliance upon the agreement. To permit a party, when sued on a written contract, to admit that he signed it but to deny that it expresses the agreement he made or to allow him to admit that he signed it but did not read it or know its stipulations would absolutely destroy the value of all contracts.”
The document is a single paper, consisting of three paragraphs, and lends itself to but one interpretation, that Cleone E. Douglas, Paul O. Douglas and Consance F. Douglas personally guarantee the corporate indebtedness of Douglas Hereford Ranch, Inc. to Farmers and Merchants Bank of Beach, North Dakota.
Relief From Stay
The Bank requests lifting of the automatic stay to foreclose on their security interest in property of the Debtors, consisting of machinery, equipment, livestock, feed, supplies, real estate and the personal guarantees previously referenced. The Debtors resist the motion, asserting the property in question is necessary to an effective reorganization.
Section 362 provides:
“(d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay ..., such as by terminating, annulling, modifying, or conditioning such stay—
(1) for cause, including the lack of adequate protection if 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.
******
(g) In any hearing under subsection (d) or (e) of this section concerning relief . from the stay of any act under subsection (a) of this section—
*840(1) the party requesting such relief has the burden of proof on the issues of the debtor’s equity in property; and
(2) the party opposing such relief has the burden of proof on all other issues.”
It is clear from the evidence presented at the November 20, 1986 hearing that the Debtors’ obligation to the Bank stands at $323,165.16 principal, with $69,774.57 accrued interest, through the date of the petition, October 31, 1985. However, no evidence was presented by the Bank as to the Debtors’ lack of equity in the collateral. Accordingly, the Bank’s request for lifting of the automatic stay must fail. § 362(g)(1). Additionally, the case has arrived at the point where the feasibility of a Plan of Reorganization is ripe for decision. Lifting of the stay at this time to allow foreclosure and repossession would seriously impair the Debtors’ efforts at reorganization. If the Debtors become unable to confirm a Plan of Reorganization, the Bank’s motion may again become appropriate.
IT IS ORDERED:
(1) That the documents executed December 27, 1974 by Cleone E. Douglas, and January 8, 1975 by Paul 0. Douglas and Connie F. Douglas, constitute personal guarantees of the corporate indebtedness of Douglas Hereford Ranch, Inc. to Farmers and Merchants Bank and that the Bank may turn to said individuals for collection of the balance due on three notes outstanding, Nos. 110190, 112981 and 110191;
(2) The Clerk is directed to enter judgment accordingly;
(3) That Farmers and Merchants Bank’s request for termination of the automatic stay under 11 U.S.C. § 362 is denied, with the Bank granted leave to renew said motion pending the outcome of the Debtors’ Plan of Reorganization.
This opinion constitutes Findings of Fact and Conclusions of Law, pursuant to Rule 52 F.R.Civ.P. and Rule 7052, Bankruptcy Rules.
. The Court notes that in the Debtors’ motion of January 14, 1986, for consolidation of these cases, Paragraph 2, which was relied upon in part on the January 20, 1986 Order of Consolidation, states that a reason for consolidation of the individual cases is the existence of the personal guarantees of Paul O. Douglas, Constance F. Douglas and Cleone E. Douglas of the Douglas Hereford Ranch, Inc. obligation to Farmers and Merchants Bank. Debtors now take a contrary position.
. Both parties agree this issue must be settled under North Dakota law, the place of execution and performance of all documents. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490405/ | *5FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER RE: MOTION TO DISMISS AMENDED COMPLAINT
JON J. CHINEN, Bankruptcy Judge.
On September 12, 1985, Marvelene Crawford (“Plaintiff”) filed an Amended Complaint. Thomas Joseph Merino (“Defendant”) filed a Motion to Dismiss the Amended Complaint on October 18, 1985. A hearing was held on February 13, 1986 on the Motion to Dismiss, at which time Terry G. Opperman, Esq., appeared on behalf of the Plaintiff and Preston A. Gima, Esq., appeared on behalf of the Defendant. The Court ruled that it has jurisdiction and took under advisement the question of whether it should grant the Motion to Dismiss. It now renders these Findings of Fact, Conclusions of Law, and Order.
Factual Background
On March 7, 1984, the Plaintiff filed an action (Civ. No. 81935) in the Circuit Court of the First Circuit, State of Hawaii, against the Defendant and members of his family, alleging, among other things, fraud involving a “gypsy scam” perpetrated on the Plaintiff, whereby Defendant obtained certain sums of money from the Plaintiff. The Defendant then filed Chapter 7 Bankruptcy Petition (Bk. No. 84-00492) on October 11,1984, in this court, which stayed the Circuit Court action. The Plaintiff responded by filing a Proof of Claim on November 11, 1984, in the Defendant’s bankruptcy action.
On May 6, 1985, the Plaintiff filed an adversary complaint (Adv. No. 85-0064) in the form of a Motion to Object to Dis-chargeability of Debt. Defendant, on June 6, filed a Motion to Dismiss the Motion to Object to Dischargeability of Debt, based in part on an objection that the Plaintiff’s Motion was not in the form of a Complaint. In a hearing held August 29 before this Court, the Plaintiff was granted leave to amend her complaint and filed said Amended Complaint and Demand for Jury Trial on September 12. The Defendant filed a Motion to Dismiss the Amended Complaint alleging that it did not contain a jurisdictional statement or a prayer for relief. Following the hearing on February 13, 1986, both parties filed supplemental mem-oranda that have been considered in this opinion.
In addition, at a hearing on July 22 before this court regarding the Defendant’s Chapter 7 proceeding, the Defendant recognized in a written statement that the amount owed by him to the Plaintiff was eighty-thousand dollars ($80,000.00).
Discussion
Rule 8 of the Federal Rules of Civil Procedure is made applicable to adversary proceedings in bankruptcy by Bankruptcy Rule 7008. The basic requirement of Rule 8 is that a complaint contain (1) a statement of jurisdiction, (2) a statement of the claim and (3) a demand for relief. Fed.R.Civ.P. 8(a). Rule 8 has been liberally construed. In particular, the Federal Rules of Civil Procedure
reject the approach that pleading is a game of skill in which one misstep by counsel may be decisive to the outcome, and instead forward the principal that the purpose of pleading is to aid in gaining a decision on the merits.
Conley v. Gibson, 355 U.S. 41, 48, 78 S.Ct. 99, 103, 2 L.Ed.2d 80 (1957).
All that is required by the Rules is “a short and plain statement of the claims that will give the opposing party fair notice of the nature of the claim and the grounds upon which it rests.” Id. at 47, 78 S.Ct. at 103.
In De la Cruz v. Tormey, 582 F.2d 45 (9th Cir.1978), the court admonished that a complaint must not be dismissed for failing to state a claim unless it appears certain that the plaintiff is not entitled to relief under any set of facts which could be proved in support of his claim. Id. at 48; see also, Conley, 355 U.S. at 45, 78 S.Ct. at 101. The federal courts view with disfavor motions to dismiss action for failure to state a claim upon which relief can be granted and impose a heavy burden on those who seek dismissal. Tormey, 582 F.2d at 48.
*6In 28 U.S.C. § 157 provides that 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. Objections to discharge is a core proceeding. 28 U.S.C. § 157(b)(2)(J). The instant case involving a complaint objecting to discharge. The court, therefore, finds that it has jurisdiction over this matter.
The fact that the original document was entitled "Motion to Object to Dischargeability of Debt” should not be controlling as to form. Filed as an adversary complaint, the substance of the document is sufficient to give notice to the defendant regarding the “nature of the claim and grounds upon which it rests.” Conley, 355 U.S. at 47, 78 S.Ct. at 103. In a bankruptcy context “great liberality is afforded in the pleading of fraud.” In re Germain, 144 F.Supp. 678, 683 (S.Cal.1956). In the instant case, the Defendant has not objected to the form of pleading fraud. Based on the foregoing, in both the original motion and the Amended Complaint, the court finds that the claim is sufficiently stated to satisfy Rule 8.
Defendant has objected that the Plaintiff did not include a prayer for relief in her Amended Complaint. The Plaintiff originally initiated an action in state court to recover from her injuries allegedly caused by Defendant. That action was subsequently stayed by the Defendant’s Chapter 7 bankruptcy filing. The Defendant recognized in a written statement, on July 22, 1985, that eighty thousand dollars ($80,-000.00) was owed by Defendant to the Plaintiff. In her adversary action filed in the bankruptcy court, the Plaintiffs motion concluded with the following statement: “For all these reasons, the debt in question should not be discharged.” For the reasons mentioned above, the court finds the Plaintiff’s statement to be a demand for relief sufficient to satisfy the requirements of Rule 8. There is no indication whatsoever that the Plaintiff has acted in bad faith or sought in any way to delay this proceeding. Plaintiff sought to put the Defendant on notice of the charges against him and of the relief demanded. The Court will not deny the Plaintiff her right to be heard on the merits nor allow “one misstep by counsel [to be] decisive [of] the outcome.” Conley, 355 U.S. at 48, 78 S.Ct. at 103.
The court orders the Plaintiff to correct the defects in her amended complaint by filing a second amended complaint on or before 4:00 p.m. on July 31, 1986. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490406/ | MEMORANDUM OPINION
MARK B. McFEELEY, Bankruptcy Judge.
This matter came before the Court on October 2, 1986, for trial on the merits of debtor’s complaint for declaratory judgment and equitable relief. At that time, the Court ordered the complaint dismissed with prejudice as against Sheriff Coussons. The only issue remaining is the legal effect of the document executed by debtor purporting to withdraw debtor’s waiver of exemption and release of property.
On September 3, 1985, a writ of execution was delivered to the Luna County Sheriff’s Office for service on debtor Donald Lee Hoffner, which writ of execution was based on a judgment obtained by John Schaber (“Creditor”). Service of the writ was made on debtor on September 25,1985, when he came into the Sheriff’s Office. During the course of this visit, Sheriff Coussons discussed with debtor the writ of execution and exemptions available to him under state law, following which debtor voluntarily executed a document waiving his vehicle exemption and releasing his 1973 Escapade motor home to the Luna County Sheriff's Office for levy to satisfy the judgment on the writ of execution (“Waiver and Release”). Instead of remov*71ing the motor home from its location on that day, Sheriff Coussons agreed to let debtor have a couple of days to remove his possessions.
The following day, September 26, 1985, debtor returned to the Sheriff’s Office with an executed document purporting to withdraw the Waiver and Release (“Withdrawal of Waiver”). Then, on September 27, 1985, debtor executed a document noticing his intent to claim a personal property exemption in lieu of a homestead exemption and describing his personal property and its value (“Notice of Intent”). On October 2, 1985, the Sheriff’s Office removed the motor home from its location on the property of Nancy Ann Nunn.
Debtor filed his chapter 7 bankruptcy petition on October 16, 1985. On November 12, 1985, debtor filed his schedules claiming the 1973 Escapade motor home exempt under the § 522(d)(1) federal homestead exemption.
Debtor first maintains that the September 26 Withdrawal of Waiver is effective to negate the September 25 Waiver and Release. Debtor then argues that the Notice of Intent is invalid and that he should be allowed an exemption in the motor home as his homestead. As grounds for this, debt- or asserts that the Notice of Intent to claim a personal property exemption in lieu of a homestead exemption is by its own terms only valid where debtor does not own a homestead.
Conversely, creditor argues that the Withdrawal of Waiver was legally effective and that the Notice of Intent is valid because debtor understood the process by which he claimed an exemption of personal property in lieu of a homestead exemption.
The Court must address itself to two questions in order to resolve the present dispute. First, the Court must determine the legal effect of the Withdrawal of Waiver. Second, if the Withdrawal of Waiver is held to be ineffective, the Court must determine if a debtor can claim a homestead exemption on particular property where he has previously waived a vehicle exemption on the same property and where the creditor has acted in reliance on the first waiver of exemption.
As to the first issue before it, the Court finds that the Withdrawal of Waiver is not effective in rendering debtor’s Waiver and Release inoperative. Existing case law suggests that where a debtor, present at the time of levy on his property, executes a document, waiving a claim of exemption, the debtor is later estopped from asserting that same claim or withdrawing the waiver. See Angell v. Johnson, 51 Iowa 625, 2 N.W. 435 (1879). The debtor must, at the time of levy
in some manner, indicate to the officer his purpose to claim the property as exempt. That the exemption is personal there can be no doubt; that it may be waived is equally clear. By making the levy the officer incurs responsibility, and expenses are incurred. This can be avoided if the claim is made before the levy.
Angell, 2 N.W. at 436.
Here, the officer levied on the motor home on September 25, 1985, the date on which the Waiver was executed by debtor, even though actual physical possession of the motor home was not had until a later date. The delay in the taking of physical possession was merely for the convenience of debtor. The withdrawal of waiver was not given to the Sheriff’s Office until the next day. However, even if the exemption had been effective, when debtor filed bankruptcy he applied his motor vehicle exemption under § 522(d)(2) to a 1959 Ford truck. Thus, regardless of whether the Withdrawal of Waiver was effective, debtor waived his vehicle exemption on the 1973 Escapade motor home.
As to the second issue, it is the view of this Court that a debtor cannot waive an exemption on property as a motor vehicle and later be heard to claim a homestead exemption on that same property, particularly when a creditor has acted in reliance on that waiver. It would be inequitable for this Court to allow a debtor to waive an exemption on particular property, stand by *72while a creditor takes possession of that property and then select a different exemption under which to reclaim the property. A debtor must determine how he will classify his property for exemption purposes and stick to that determination.
Therefore, this Court finds that debtor is not entitled to claim his 1973 Escapade motor home exempt as a homestead under § 522(d)(1).
This memorandum constitutes the Court’s 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/8490407/ | ORDER DENYING CONFIRMATION OF PLAN
FRANCIS G. CONRAD, Bankruptcy Judge.
The debtor’s amended Plan of Reorganization came on for a confirmation hearing on November 25, 1986. One creditor objected to the Plan. Unfortunately for the debtor, this one objection prevents us from confirming the Plan.
The debtor is a Vermont corporation whose principal business was designing and marketing fireplace inserts. The debt- or did not itself manufacture the inserts, but after receiving an order from a customer, purchased the inserts from someone else and resold them to the customer. This procedure usually involved receiving a small deposit from the consumer.
The debtor filed a voluntary Chapter 11 petition on June 13, 1985. After unsuccessful efforts to rehabilitate itself as a going concern, it filed a Disclosure Statement, with supplemental disclosure, which we approved on October 14, 1986. Our approval directed the debtor to submit its liquidating Plan of Reorganization for balloting.
At the confirmation hearing, the debtor established that the Plan was overwhelmingly accepted by all creditors required to ballot. An objection to the Plan, however, was filed by Kermit F. Price, from whom the debtor had received a deposit of $400.00 for a fireplace insert. Price did not ballot on the Plan. Price states in his memorandum in support of the objection to confirmation that he is an 11 U.S.C. § 507(a)(6) claimant;1 that the debtor’s Plan fails to include a separate priority classification of § 507(a)(6) claims; that the debtor’s Plan provides only for allowed claims entitled to priority under 11 U.S.C. § 507(a)(3) and (7);2 and that § 507(a)(6) claims may not be classified with other unsecured claims because they are not substantially similar.
Specifically addressing Price’s arguments, the debtor’s attorney asked that we interpret the overwhelmingly favorable vote of the unsecured Class 3 creditors, which class includes Price, as an agreement to the different treatment that the Code allows under 11 USC § 1129(a)(9)(B).3 Under this interpretation, the debtor believes the Plan conforms to the statutory requirements of 11 USC § 1129(a) and may be confirmed.
There is no factual dispute over Price’s claim. The debtor is a retailer and Price is *89a consumer. He is listed in the debtor’s bankruptcy petition on Schedule A, “Statement of All Liabilities of Debtor ... (c) deposits by individuals” as a noncontin-gent, undisputed, and liquidated claim of $400.00. The debtor does not dispute the amount of the claim, nor that Price is a § 507(a)(6) claimant. With no factual questions in this proceeding, the legal issue we must decide is whether a Chapter 11 liquidation Plan of Reorganization may be confirmed without specifically providing for the rights of § 507(a)(6) claimants.
Because the presumption in a bankruptcy case is that the debtor’s limited resources will be equally distributed among his creditors, statutory priorities are narrowly construed. Joint Industry Board v. United States, 391 U.S. 224, 228, 88 S.Ct. 1491, 1493, 20 L.Ed.2d 546 (1968); Trustees of the Amalgamated Insurance Fund v. McFarlin’s, Inc., 789 F.2d 98, 100 (2nd Cir.1986). See In re Pulaski Highway Express, Inc., 14 C.B.C.2d 417, Bkrtcy.L. Rptr., paragraph 71156, 57 B.R. 502 (Bkrtcy.M.D.Tn.1986), (priority statutes are strictly construed.)
Section 507(a)(6) is a new priority for consumer creditors. It was added for the first time in the 1978 Bankruptcy Code as a result of testimony before the Subcommittee on Civil and Constitutional Rights concerning the problems that consumers have encountered with bankrupt retail businesses with whom the consumers have deposited money for goods and services. See Hearings on HR 31 and HR 32, pt. 3, at 1699-1723-36, 94 Cong., 2nd Sess. Section 507(a)(6) gives a priority in the distribution of a bankrupt debtor’s assets to consumers who have deposited or made partial payments for the purchase or lease of goods that were not otherwise delivered or provided. There was no similar provision in the former Bankruptcy Act. The section was added in order to remedy the problem of consumers’ ignorance about their unsecured status and because many consumers were left “holding the bag” when a merchant filed for protection under the bankruptcy laws. See House Report No. 95-595, 95th Cong., 1st Sess., pg. 188 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5787, 6148.
It is axiomatic that words used in a statute are to be given their ordinary meaning in the absence of persuasive reasons to the contrary. Burns v. Alcala, 420 U.S. 575, 95 S.Ct. 1180, 43 L.Ed.2d 469 (1975). As we have had the occasion to observe:
The maxim of statutory construction, ex-pressio unius est exclusio alterius, teaches us that the expression or the inclusion of one thing is the exclusion of another. Ford v. United States, 273 US 593, 71 L.Ed. 793, 42 S.Ct. 531 (1921). This maxim also applies to enumerated exceptions. Where there is an express exception, it comprises the only limitation of the statute and no other exception will be implied. Andrus v. Glover Construction Co., 446 US 608, 64 L.Ed.2d 548, 100 S.Ct. 1905 (1980).
In re Burke Mountain Recreation, Inc. (Burke Mountain Recreation, Inc. v. Vermont Development Credit Corporation), 64 B.R. 799, 802 (Bkrtcy.D.Vt.1986) (on appeal). 11 U.S.C. § 1129(a)(9)(B) is a limiting statute. Only a holder of a claim of the kind specified in § 1129(a)(9)(A) and (B) may agree to a different treatment of the claim. 11 U.S.C. § 1129(a)(9). The statute does not compel the holder of the enumerated priority claim to accept a different treatment. If the holder of a § 507(a)(6) claim does not agree to a different treatment of its claim, then § 1129(a)(9)(B) clearly indicates that a class of claims must be specified within the Plan that provides for deferred cash payments of a value equal to the allowed amount of such claims on the effective date of the Plan if such class accepts, or cash on the effective date of the Plan equal to the allowed amount of such claim if the class rejects the Plan. Nor does an affirmative vote on the Plan by a priority claimant under § 507(a)(6), in itself, constitute an agreement to different treatment.
With the exception of 11 USC § 1129(a)(9)(B), the debtor’s Plan complies in all respects with the necessary statutory *90requirements of 11 USC § 1129(a). Unless denying confirmation would be unjust or inequitable, we cannot confirm a Plan that deviates from the plain language of § 1129(a)(9)(B). This is not to say, as Price argued, that it is impermissible to place a § 507(a)(6) claim within a class of other unsecured claimants. We do not hold today that this is prohibited in all circumstances. Our holding merely requires that if a § 507(a)(6) claim exists, then the Plan must provide for either deferred cash payments of a value equal to the allowed amounts of such holder's claim as of the effective date of the Plan if such class of claims accepts; or if the class rejects, cash to the holder of such claim on the effective date of the Plan. The debtor's Plan does not provide for either choice. Accordingly,
It is ORDERED that the debtor’s Plan of Reorganization be and hereby is DENIED confirmation.
. 11 USC § 507(a)(6) provides: "The following expenses and claims have priority in the following order: ... (6) Sixth, allowed unsecured claims of individuals, to the extent of $900 for each such individual, arising from the deposit, before the commencement of the case, of money in connection with the purchase, lease, or rental of property, or the purchase of services, for the personal, family, or household use of such individuals, that were not delivered or provided.”
. 11 USC § 507(a)(3) and (7) in part provides: "The following expenses and claims have priority in the following order: (3) Third, allowed unsecured claims for wages, salaries, or commissions, including vacation, severance, and sick leave pay— ... (7) Seventh, allowed unsecured claims of governmental units ..."
. 11 USC § 1129(a)(9)(B)(i) and (ii) provides: "The court shall confirm a plan only if all the following requirements are met: ... (9) Except to the extent that the holder of a particular claim has agreed to a different treatment of such claim, the plan provides that— ... (B) with respect to a class of claims of a kind specified in § 507(a)(3), 507(a)(4), or 507(a)(5) of this title, each holder of a claim of such class will receive — (i) if such class has accepted the plan, deferred cash payments of a value, as of the effective date of the plan, equal to the allowed amount of such claim; or (ii) if such class has not accepted the plan, cash on the effective date of the plan equal to the allowed amount of such claim.” (The 1984 Bankruptcy Amendments and Federal Judgeship Act of 1984, P.L. No. 98-353, effective July 10, 1984, added subsection (a)(5) to § 507, and redesigna-ted subsections (a)(5) and (a)(6) as (a)(6) and (a)(7) but did not amend this cross-section to § 507(a)(5) to reflect its redesignation as § 507(a)(6). The Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986, P.L. No. 99-554, corrected the oversight.) | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490408/ | CLIVE W. BARE, Bankruptcy Judge.
Plaintiff, D. Broward Craig, Trustee (“Trustee”), seeks to recover from the defendants Alchemist Investment Corporation (“Alchemist”), Beachside II Associates, Ltd. (“Beachside”), and Sea’Palms Beach Club Associates, Ltd. (“Sea Palms”) repayment of five purported loans made by West Knoxville Investment Company, Inc. (“West Knox”) as follows:
Date Transferee Amount •
September 19, 1982 Alchemist $127,000.00
September 22, 1982 Alchemist $100,000.00
January 20, 1983 Alchemist $150,000.00
September 6, 1982 Beachside $125,000.00
September 6, 1982 Sea Palms $125,000.00
Defendant Alchemist asserts that the “transfer of funds” to it were not “loans,” but, even if they were, they have been repaid. Defendants Beachside and Sea Palms assert that the transfers were not loans but capital contributions. Trial was held August 21, 1986.
This court has jurisdiction pursuant to 28 U.S.C. §§ 1334 and 157(b). At the trial in this cause the parties stipulated to the entry of a final judgment by the Bankruptcy Court. 28 U.S.C. § 157(c)(2).
I
David A. Crabtree (“Crabtree”) testified that in 1982 he was Chairman and Chief Executive Officer of Alchemist. He owned 50% of the stock; E.R. Ginn, III, (“Ginn”) owned the remaining 50%. Alchemist was engaged in various real estate projects in the South. Crabtree and Ginn participated in all investments and borrowings. They jointly made all decisions. Some of Alchemist’s books and records were kept in Hilton Head (Ginn’s headquarters), but the majority were kept in Crabtree’s office in Knoxville, computer generated records— balance sheets, income statements, and statements of notes payable. Ginn was regularly furnished copies of all records.
In March 1983, Crabtree sold his stock in Alchemist to Ginn. Crabtree also resigned his position as a corporate officer.
West Knox Investment Company was owned by Crabtree. It was engaged primarily in working out problem real estate loans for the Butcher banking empire. Linda Bridges was authorized to sign checks on West Knox’s bank accounts.
According to Crabtree, West Knox regularly loaned funds to Alchemist for working capital.
“... West Knox regularly loaned Alchemist funds; it was not unusual, and every once in a while we would document the files, draft promissory notes evidencing the indebtedness between the companies and whatever.”
*227“[W]e regularly loaned monies back and forth between the companies, and when one company was flushed [sic], you know, we loaned to another and would settle up when the other company got some funds.”
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“[R]egularly, the companies would execute notes between each other for the amounts due from one company to another; it was not uncommon, and as I stated, I gave the trustee a series of notes that existed at the end of ’82 representing the debts between those companies. I don’t know where they’re at — or I think I did.”
Crabtree deposition, April 9, 1986, pp. 13, 19, and 20.
Crabtree identified copies of three checks totaling $377,000.00 dated September 19, 1982; September 22, 1982; and January 20, 1983, drawn on West Knox’s bank account and payable to Alchemist, as inter-company loans. “The only reason there would be a check between one company and another would be inter-company loan and repayment of loans.” Crabtree deposition, April 9, 1986, p. 20.
According to Crabtree, the loans in question were not repaid.
Beachside II was a corporation which was a general partner of Beachside II, Limited. Ginn controlled Beachside II, Inc., the general partner. Sea Palms Beach Club Associates, Limited was a similar entity, also controlled by Ginn. Ginn syndicated the corporate entities through the sales of limited partnerships. Crabtree bought a 45% interest in the limited partnership in Sea Palms for $1,000,000.00 cash, and a 45% interest in Beachside for $1,400,000.00 cash.
Crabtree testified that West Knox’s September 6, 1982, transfers of $125,000.00 to Sea Palms and Beachside were loans for interim operating funds. According to Crabtree, Beachside II went through some hard times initially obtaining the necessary funds to get the development underway. Crabtree agreed to assist in financing. The decision to borrow funds from West Knox was made by Crabtree and Ginn. The situation with Sea Palms was identical.
II
Defendants assert three defenses:
(1) The trustee has not carried his burden of proving that the proceeds of the checks payable to Sea Palms and Beach-side II were received by any of the defendants in this action;
(2) The trustee has not carried his burden of proving that the transactions involving Alchemist represent unpaid loans; and
(3) Even if the checks payable to Alchemist are deemed to be loans, those loans have been repaid or there are corresponding obligations from West Knox.
Mr. Ginn testified that he is a real estate developer. Each of the defendants in this case, Alchemist, Beachside II, and Sea Palms are among his real estate development projects. There were some projects that had significant financing from Butcher banks. Crabtree generally dealt with the lenders in Tennessee. Ginn did not always know where the financing that Crabtree had arranged was coming from. Ginn maintained the books and records for Sea Palms and Beachside at his headquarters at Hilton Head. Crabtree maintained the financial books and records of Alchemist at Knoxville.
In the middle of 1982, the Ginn projects financed through the Butcher-related Banks and through Ginn’s connections with Crabtree started to run into cash-flow problems. In response to plaintiff’s question that it wasn’t uncommon for West Knox to step in when cash flow got a little tight and make interim loans to companies financed in Tennessee through Butcher banks, Ginn responded:
“I have to testify to that that I do not know where all of the funds came from. I do not know of any direct loans made from West Knox to Alchemist. I mean, Crabtree had a — he had his own sandbox up there. He had both sides of it, and he moved money around. And I can’t sit *228here today and testify — I’m not aware of any notes between Alchemist and West Knox Investment Corporation, no.”
Trial Transcript at 12.
With reference to the $125,000.00 transfers to Sea Palms and Beachside, Ginn “thinks” these payments were for Crab-tree’s acquisition of the limited partnership interests. According to Ginn, he didn’t take all of the purchase price at the closing but drew the million and the million four down whenever he needed cash.
Q. Did there come a time in August or September of 1982 when you drew from Mr. Crabtree any payments for his acquisition of the limited partnership interest in those projects?
A. I think that was concluded, and I think we were about ready to start construction at that point in time. (Underscoring added.)
Trial Transcript at 23.
Ill
Crabtree’s testimony and copies of the three checks ($127,000.00, $100,000.00 and $150,000.00) conclusively establish the loans of these sums by West Knox to Alchemist. Further, attached to Alchemist’s interrogatory answers are bank statements showing deposits in the exact amounts of the three checks: $127,000.00, $100,000.00 and $150,000.00. The dates of the $127,-000.00 and $150,000.00 deposits — September 20, 1982, and January 20, 1983 — correspond precisely with the dates of the checks. The statements also show a deposit of $100,000.00 on December 27, 1982. The $127,000.00 and $150,000.00 checks plainly bear Alchemist’s endorsement. The $100,000.00 check is a poorer copy and the endorsement is not legible, but the payment of the drawee, C & C Bank, is apparent. The drawee’s payment stamp conclusively establishes that the check was negotiated.
Ginn concedes that he did not know where all of Alchemist’s funds came from. According to Ginn, Crabtree had his own “sandbox” and moved money around. The proof discloses that he moved $377,000.00 from West Knox to Alchemist.
It is true that the trustee has failed to produce notes reflecting the loans. Crab-tree believes that notes were executed and that the notes were turned over to the trustee, or he “thinks” they were. Crab-tree concedes, however, that some records were discarded or thrown away in the spring of 1983. Although the notes have not surfaced, other documents and Crab-tree’s testimony are sufficient.
Ginn asserts that even if the evidence establishes that the checks represent loans, the proof also establishes that Alchemist has repaid its loans to West Knox. Alchemist offered into evidence two unexplained checks of $200,000.00 and $250,-000.00. These checks, drawn on Alchemist’s account, signed by Crabtree and payable to West Knox are dated August 26, 1982, and November 3, 1982, respectively. Alchemist offered no evidence that the checks constituted repayment of the three loans from West Knox.
The $200,000.00 check can be readily addressed. That check predates all three of the West Knox checks. Obviously this check could not have been a repayment of any of the loans the trustee is seeking to enforce in this action.
The $250,000.00 check presents more serious problems. On November 3, 1982, when that check was issued, West Knox had made two loans to Alchemist totaling $227,000.00. The trustee argues that the check bears no relation to the two loans which preceded it. He points out that to conclude that the November 3 payment of $250,000.00 was repayment of $227,000.00 in loans, one would have to conclude that the lender charged the borrower 82% interest. The trustee also argues that payment of a debt is an affirmative defense, that the burden of proving payment is upon the party alleging payment. Although not pleaded by the defendant, the defense of payment was tried by implied consent of the plaintiff. The trustee concedes that this is a case where *229there is not an overwhelming amount of evidence on either side.
The $250,000.00 check is silent as to the purpose for which it was drawn. It was deposited, however, to West Knox’s account on November 4, 1982. Neither the testimony of Mr. Ginn or Mr. Crabtree is helpful. The court must therefore reach a decision solely on the basis of the check. The check clearly establishes a transfer of funds from Alchemist to West Knox. The court therefore concludes that Alchemist is entitled to a setoff for the amount of the transfer.
Judgment will be entered in favor of the trustee and against Alchemist in the sum of $127,000.00.
IV
The trustee has established that West Knox’s August 6, 1982, payments to Sea Palms and Beachside were loans of interim operating funds. Seaside and Beachside concede that the checks “[o]bvi-ously ... show transfers of funding_” Final Argument Transcript at 12.
Ginn’s testimony that in August or September 1982, Sea Palms and Beachside drew from Crabtree some portion of Crab-tree’s capital commitment to those limited partnerships is not persuasive. Further, the argument of Sea Palms and Beachside is unsupported by documentary evidence which Ginn could have produced. Ginn now solely controls the two entities and their financial books and records. Yet neither Beachside nor Sea Palms produced any documentary evidence that capital draws occurred in August or September 1982. When asked by the court concerning the records, Ginn’s attorney stated “Fm not going to introduce them. I think that’s up to the trustee. The trustee has to prove it.” Final Argument at 9.
Crabtree testified without qualification that the transfers from West Side to Sea Palms and Beachside were loans for interim financing. The court so finds. The loans not having been repaid, judgments will be entered in favor of the trustee for the amounts owing.
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/8490410/ | 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 to the Plaintiff, Ethel Studley Lytel (Mrs. Lytel), by the Defendants, John Joseph Uliasz and Betty Eleanor Uliasz, formerly doing business as The Hoagie Hut, the Debtors involved in this Chapter 7 case. The Complaint filed by Mrs. Lytel seeks a declaration of this Court that the Defendants obtained properties, to wit, all the business assets of The Hoagie Hut, by actual fraud and, therefore, the debt owed by the Defendants shall be declared to be nondischargeable pursuant to § 523(a)(2)(A) of the Bankruptcy Code. The record as established at the final evidentiary hearing reveals the following facts relevant and germane to a resolution of the issues raised by the Amended Complaint and the Answer filed by the Defendants:
*293At the time relevant to the matter under consideration, Mrs. Lytel was the sole proprietor of a sandwich shop operated as The Hoagie Hut located in Bradenton, Florida. John Joseph Uliasz (Uliasz) one of the Defendants, was a customer of the sandwich shop, and sometime in late November or early December approached Mrs. Lytel and indicated his interest in purchasing the restaurant. Sometime in early December Mrs. Lytel agreed to sell the restaurant for a total purchase price of $45,000.00, but required a $10,000.00 down payment and the balance of the purchase price was to be paid in equal monthly installments in the amount of $400.00 until the purchase price was paid in full. It is without dispute that Uliasz did not have the cash required for the down payment and Mrs. Lytel was aware of that fact.
What transpired in December is in conflict, and the conflict centers around the document, Exhibit Number 1, which is dated December 2, 1982, entitled “Sales Agreement, Bill of Sale”. This document admittedly prepared by Uliasz purports to convey all business assets of The Hoagie Hut owned by Mrs. Lytel, at that time known as Studley, to John J. Uliasz, Jr. The document is admittedly signed by Uliasz, but Mrs. Lytel denies that the signature on the document is hers and claims that the signature was forged. There is no testimony in this record to indicate that she did, in fact, sign this document, and Uliasz was unable to explain how this particular document got into the records of the Exchange Bank, the bank which ultimately loaned the monies to Uliasz which in turn enabled him to make the down payment on the transaction. This document is also allegedly witnessed by Betty E. Uliasz and one Barbara Coli, and while Uliasz claimed that the signature is not his wife’s signature, his wife, who was present at the trial, did not take the stand and testify and deny that the signature was hers. There is no doubt whatsoever, however, that Mrs. Ly-tel had absolutely nothing to do with the preparation of this document, and this Court is satisfied that her signature was, in fact, forged on the document and was not her signature.
This Court is equally satisfied that Uliasz asked Mrs. Lytel to sign the bill of sale in December, but she refused to do so until she received the down payment. And while Uliasz testified that he was authorized by Mrs. Lytel to represent that he, in fact, owned the restaurant and such authorization was conveyed to the bank in a telephone conversation, this Court is satisfied that this is not really what occurred and that Mrs. Lytel never had any conversation with any officer of the bank, including the officer of the bank who ultimately granted the loan. This fact is supported by the loan officer of the bank who testified and confirmed the fact that he never had any conversation with Mrs. Lytel. On December 31 Uliasz came into the restaurant requesting an opportunity to learn about the operation of the restaurant prior to closing, and Mrs. Lytel agreed on the condition that he pay $200.00 as earnest money, which Uliasz, in fact, paid by check dated January 3, 1986. (Deft’s Exh. No. 1) Although it is not clear from the record, it appears that Uliasz submitted a loan application to the Exchange Bank for a commercial loan and in conjunction with the same also submitted to the bank the sales agreement dated December 2, 1982. (Pi’s. Exh. No. 1) and a profit and loss statement of December 15, 1982. This profit and loss statement admittedly was prepared by the Defendant, Uliasz, and although it carries the signature of Mrs. Lytel, the signature is identical to the signature with the forged signature on the sales agreement dated December 2, 1982, and it is reasonable to infer that her signature on this document was equally forged. This profit and loss statement stated annual gross receipts of The Hoagie Hut to have been $91,000.00, which according to Mrs. Lytel was a grossly inflated figure inasmuch as she never grossed more than $56,000.00 over the years she owned and operated the restaurant. While Uliasz is unable to explain how these documents got to the bank, there is hardly any doubt that they were furnished to the bank by Uliasz in conjunc*294tion with his loan application. The loan application submitted by Uliasz states inter alia that he is the owner of the restaurant known as The Hoagie Hut; that he requested the loan for renovations and the purchase of additional equipment for the restaurant. The loan was granted by the bank, who requested and obtained a security agreement encumbering all the equipment, machinery, furniture, and fixtures now owned and hereafter acquired and also a financing statement (UCG-1 form) which granted a security interest to the bank in the fixtures and equipment located on the premises. In due course the bank perfected the security interest by proper rec-ordation of the financing statement.
The loan closing with the bank occurred on the 5th, the date on which Uliasz executed the security agreement and the financing statement. On the following day on the 6th, Uliasz having obtained the monies necessary to make the down payment arranged for the closing for the purchase of the restaurant, which occurred on the 6th, even though the document prepared by Uliasz was dated January 5, 1983. This sales agreement described the purchasers as John J. and Betty E. Uliasz and identified the sellers as Ethel Studley, now known as Mrs. Lytel, and conveyed to Mr. & Mrs. Uliasz all interests and rights of ownership in The Hoagie Hut restaurant for the total purchase price of $45,000.00, with a down payment of $10,200.00, leaving a remaining balance of $34,800.00. The unpaid portion of the purchase price was to carry a four percent annual interest rate representing a total interest accruing during the life of the contract of $9,288.00.
While Uliasz denies that the closing occurred on the 6th, this Court is satisfied that the closing did, in fact, occur on the 6th or the day after Uliasz obtained the loan from the bank and pledged all the equipment in the restaurant as security for the loan even though on that date he had no cognizable ownership interest in the same. The denial of Uliasz as to the correct date of the closing is flatly contradicted by the sales agreement signed by him and his wife dated on the 6th which sales agreement was properly witnessed and notarized by Lillian R. Long, notary public. (Pi’s Exh. No. 2). There is no evidence in this record that Uliasz at any time informed Mrs. Lytel that he granted the security interest to the bank and all the equipment either prior to the closing of the sale nor thereafter, and there is evidence in this record which this Court accepts as true that had Mrs. Lytel known that all the equipment is encumbered in favor of the bank, she would not have sold the restaurant on deferred payment terms. It is admitted that in addition to the original down payment of $10,200.00 Uliasz made the monthly payment of $400.00 for 15 and one half months for a total of $6,000.00, and the balance of the purchase price agreed upon still remains unpaid.
This portion of the obligation is sought to be declared to be nondischargeable by Mrs. Lytel. There is nothing in this record to indicate that Mrs. Uliasz was in any respect involved in these transactions and was only involved in transactions to the extent she did sign some documents.
The claim of dischargeability is based on § 523(a)(2)(A) of the Bankruptcy Code, 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 money, property, services or an extension, renewal, or refinancing of credit, to the extent obtained by
(A) false pretense, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.
In order to sustain a claim of non-dischargeability of a debt under this section, it is clear that the burden is on the Plaintiff to establish that the debtor obtained money or property either by false pretenses, false representations, or by actual fraud. Thus, it is the Plaintiff’s burden to show by competent evidence that the Defendant committed the fraud with the specific intention to deceive and that the *295creditor as a result sustained the alleged loss and damage. Newmark v. National Bank of North America (In re Newmark), 20 B.R. 842 (Bankr.E.D.N.Y.1982); Public Finance Corp. v. Taylor (In re Taylor), 514 F.2d 1370 (9th Cir.1975); Sweet v. Ritter Finance Co. (In re Sweet), 263 F.Supp. 540 (W.D.Va.1967).
While it is true that as a general rule courts narrowly construe exceptions to the discharge against a creditor and the discharge provisions in favor of the debtor, Lines v. Frederick, 400 U.S. 18, 91 S.Ct. 113, 27 L.Ed.2d 124 (1970), it is clear that when the evidence supports a conduct which is fraudulent, the intent to deceive is implicit in the fraud and requires no separate proof to establish the same. The difficulty with this case is that at first blush it appears that if anyone was defrauded, it was the bank, who on the reliance of a statement submitted by Uliasz that he is, in fact, the owner of the fixtures and equipment in The Hoagie Hut, lent the money to Uliasz which statement was clearly false at the time it was made to the bank, that is when Uliasz submitted his loan application. The difficulty in this case, however, is that the claim of nondischargeability is not asserted by the bank, but is asserted by Mrs. Lytel. Counsel for Uliasz places great emphasis on the fact that there is no evidence in this record that he made any false statements or misrepresentations concerning his financial conditions to Mrs. Lytel, and therefore, so contends counsel for Uliasz, she cannot prevail as a matter of law.
The proposition urged by counsel for the Defendant is an oversimplification and bears no close analysis. The gravemen of the charge is not that Uliasz made a false statement or misrepresentation to Mrs. Ly-tel concerning his financial condition, but that he committed a fraud when he falsely represented to the bank that he was, in fact, owner of the restaurant, that he forged Mrs. Lytel’s signature on the bill of sale dated December 2 (Pi’s Exh. No. 1) and on the profit and loss statement dated December 13 (Exhibit No. 2) and when he ultimately obtained a bill of sale on January 6, 1983, executed by Mrs. Lytel, he failed to disclose to Mrs. Lytel that the equipment was already pledged as security for the loan he obtained from the bank and that the proceeds of the loan were used to make the down payment on the purchase of the Hoagie Hut.
This being the case, this Court is satisfied that Uliasz did, in fact, obtain property by actual fraud and therefore, the debt owed by Uliasz to Mrs. Lytel, that is the balance still owed on the obligation, falls within the exceptive provisions of § 523 and shall be declared to be nondischargeable pursuant to § 523(a)(2)(A). Since, as noted earlier, there is no competent evidence in this record to establish any claim of nondischargeability against Mrs. Uliasz, the claim asserted against her 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/8490411/ | ORDER ON MOTION FOR RECONSIDERATION OR REHEARING ON ORDER ON MOTIONS FOR RELIEF FROM AUTOMATIC STAY
ALEXANDER L. PASKAY, Chief Judge.
THE MATTER under consideration is a Motion for Rehearing filed by Ritz The-atres, Inc., the Debtor involved in the above-mentioned case. The Motion is directed to the previous Order entered by this Court on the Motion for Relief from Automatic Stay dated December 17, 1986, 68 B.R. 256, which terminated the automatic stay in favor of Freedom Savings and Loan Association pursuant to § 362(d)(2) and also denied the Motion to Lift the Stay filed by Cesar and Adela Gonzmart, but conditioned the extension of the stay on an adequate protection payment, which directed the Debtor to pay not later than seven days from the date of entry of the Order $2,500.00 and $2,500.00 by January 15, 1987. The Motion filed by the Debtor is primarily addressed to the Order Lifting the Automatic Stay in favor of Freedom Savings and Loan, although it also concedes, as it must, that it did not comply with the adequate protection order and seeks an extension of the time to make the payment ordered by the December 17, 1986, Order.
Considering first the Motion for Rehearing directed to the Motion filed by Freedom Savings and Loan, there is nothing in the Motion for Rehearing or Reconsideration in this Court’s judgment which would warrant a reconsideration. While it is true that the Memorandum Opinion entered by this Court and the Order erroneously stated on Page 9 on the last paragraph that there is equity in the subject property, it is obvious that it should be stated that there is no equity in the subject property on which Freedom has a first and second mortgage. However, with respect to the balance of the Order, this Court is satisfied that the Findings of Fact and the Conclusions of Law were correct and should not be changed.
Moreover, the allegation of the Debtor that it should be given a new opportunity to present additional evidence on the feasibility of the proposed development of this project is equally without merit. First, this Court is satisfied there is nothing alleged in the motion which shows that such evidence was not available the first time, which evidence would have produced a materially different result. In re Devault Manufacturing Co., 4 B.R. 382 (Bankr.D.Pa.1980) affd 14 B.R. 536 (E.D.Pa.1381). Moreover, there is nothing in this record to show that this Court did not have a full opportunity to consider the testimony of the proposed promoter of this project, Mr. Stewart. This Court is satisfied now, as it was at that time, that the plan of the Debtor to develop this property is nothing more than a pipe dream and has no realistic firm basis on which one could base an expectation that this project as envisioned or projected could be economically feasible. The fact that Mr. Stewart is interested is, of course, of no significance. Simply being interested in a project is a far cry from being able to produce the wherewithal to turn the property into an economically via*301ble enterprise. In this type of proposition a lot of people are interested, but the real question is who has the real money to effectuate this project which according to their projection is supposed to generate a daily income of $14,000.00 year round and requires spending three and a half or four million dollars for development of the project, and the projected income is supposed to be sufficient to service this new debt of almost four million dollars in addition to servicing the current outstanding obligation represented by these two mortgages and meet the current operating expenses. Obviously the projected revenue is totally unrealistic and the expectation of daily gross revenues from operation of a dinner theatre in this city, apart from the fact that it is doubtful whether it would even be enough to cover the cost of operation of this project.
Based on the foregoing this Court is satisfied that the Motion for Rehearing or Reconsideration on Order on Motions for Relief From Automatic Stay is without merit except to the extent that the previous order shall be amended to read on Page 9, the last paragraph that rather than the statement there is equity, it shall state there is no equity in the subject property.
This leaves for consideration the request of the Debtor to give an extension of time to make the adequate protection payment ordered by the previous Order which directed the Debtor to pay $2,500.00 within seven days and another $2,500.00 by January 15. Ordinarily such requests would be almost routinely granted. It is astounding that a Debtor who has visions to develop a large dinner theatre complex involving millions of expenditures is unable to raise $2,500.00 for adequate protection regardless how short the time frame is.
Based on the foregoing this Court is satisfied that the Motion to Extend the Time is unwarranted and unjustified considering all circumstances of this case, and therefore, it is denied.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Rehearing or Reconsideration on Order on Motions for Relief From Automatic Stay be, and is hereby, denied. It is further
ORDERED, ADJUDGED AND DECREED that the Motion to Extend the Time to Pay Adequate Protection be, and the same is hereby, denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490412/ | ORDER ON MOTION FOR ATTORNEYS’ FEES AGAINST PMI AND JAWDET I. RUBAII, PERSONALLY
ALEXANDER L. PASKAY, Chief Judge.
THE MATTER under consideration in this Chapter 7 adversary proceeding is a Motion for Attorneys’ Fees against PMI and Jawdet I. Rubaii, Personally, filed by Johnson, Blakely, Pope, Bokor, and Ruppel, P.A., Ellen Stoutamire, Shackleford, Farri- or, Stallings, and Evans, P.A., Smith, Fuller, and Dolcimascolo, P.A., David G. Han-lon and Hugh N. Smith, Defendants in the above-captioned adversary proceeding (Defendants). Defendants seek an Order from this Court imposing sanctions against Property Management and Investments, Inc., the Debtor (Debtor), and against Jawdet I. Rubaii, Debtor’s attorney (Rubaii), pursuant to Bankruptcy Rule 9011. The relevant facts as they appear from the record are without dispute and are as follows:
On October 1, 1982, this Court entered an Order authorizing the Debtor to pursue certain causes of action against some of the Defendants. Pursuant to this Order, Rubaii instituted a civil suit in Pinellas County Circuit Court on behalf of the estate of the Debtor against Johnson, Blakely, Pope, Bokor, and Ruppel, P.A., Ellen Stoutamire, a/k/a Ellen Fowler, American Home Assurance Company, and Cincinnati Insurance Company (State Court Defendants). The suit was tried before a jury and resulted in a verdict in favor of all the State Court Defendants on January 30, *3111986. After the circuit court entered a Final Judgment on the verdict against the Debtor and in favor of the State Court Defendants, the State Court Defendants moved to tax costs in the state court proceeding against the Debtor. A hearing on the Motion to Tax Costs was scheduled for September 15, 1986. On September 20, 1986, Rubaii commenced this adversary proceeding seeking to temporarily and permanently enjoin the Defendants from seeking to tax and collect costs against the Debtor. On September 8, 1986, Rubaii filed a Motion for Temporary Restraining Order, asking for an Order prohibiting the Defendants from moving forward with the state court hearing set for September 15. In this Motion, Rubaii alleged that the Motion to Tax Costs was a violation of the automatic stay provisions of § 362 of the Bankruptcy Code. This Motion was denied by an Order entered on September 12, 1986, by United States District Judge William Terrell Hodges, sitting in this Court’s absence.
On September 14, Rubaii filed a Motion to Reconsider Order Denying Motion for Temporary Restraining Order, and on September 15 also filed a Motion for Leave to Appeal the September 12 Order and a Notice of Appeal of the September 12 Order. The Motion to Reconsider the September 12 Order was subsequently denied, and the Debtor was also denied leave to appeal. The hearing on the Motion to Tax Costs went forth as scheduled on September 15, and the Defendants obtained a cost judgment against the Debtor.
On November 3, 1986, Rubaii filed an Emergency Motion to Declare Cost Judgment Null and Void and/or to Enjoin the Enforcement Thereof. In this Motion, Ru-baii once again alleged that obtaining the cost judgment was a violation of the automatic stay, and asked this Court to either declare the cost judgment null and void or to enjoin the enforcement of the cost judgment. Before this Emergency Motion could be heard, on November 6 Rubaii filed a Renewed Motion for Temporary Restraining Order, asking that the Defendants be enjoined from enforcing the cost judgment and again alleging that the cost judgment had been obtained in violation of the automatic stay. Also on November 6, Rubaii filed a Motion for Contempt for Violation of Automatic Stay and to Declare Cost Judgment Null and Void, asking for the third time that this Court invalidate the state court cost judgment.
On December 11, 1986, 67 B.R. 889 (Bankr.M.D.Fla.) this Court denied the Renewed Motion for Temporary Restraining Order, the Emergency Motion to Declare Cost Judgment Null and Void and/or Enjoin Enforcement Thereof, and the Motion for Contempt for Violation of Stay and to Declare Cost Judgment Null and Void.
The matter currently under consideration is a Motion for Attorneys’ Fees Against PMI and Jawdet I. Rubaii, Personally filed by the Defendants. The Defendants allege that the Debtor’s pleadings filed in this adversary proceeding are based on identical facts, and seek virtually identical relief. Furthermore, the Defendants contend that these duplicative pleadings are vexatious and frivolous, and that Rubaii, Debtor’s counsel, filed them for the same purpose; that is, to delay, confuse, and complicate this adversary proceeding.
Bankruptcy Rule 9011(a), on which the Defendants rely, provides in pertinent part as follows:
The signature of an attorney or party constitutes a certificate by him that he has read the document; thát to the best of his knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law; and that it is not interposed for any improper purpose, such as to harass, to cause delay, or to increase the cost of litigation. If a document is not signed, it shall be stricken unless it is signed promptly after the omission is called to the attention of the person whose signature is required. If a document is signed in violation of this Rule, the Court on motion or on its own *312initiative, shall impose on the person who signed it, the represented party, or both, an appropriate sanction, which may include an order to pay to the other party or parties the amount of the reasonable expenses incurred because of the filing of the document, including a reasonable attorney’s fee.
Case law construing B.R. 9011 supports an award of attorney’s fees when a party has acted in bad faith or for oppressive reasons or when a party interposes a pleading for an improper purpose, such as to harass, to cause delay, or to increase the cost of litigation. See, i.e. Buy-N-Save, Cash N’ Carry v. Underwriters Insurance Co., 56 B.R. 644 (Bankr.S.D.N.Y.1986).
After careful consideration of the numerous motions filed by Rubaii in this adversary proceeding, this Court is satisfied that the multiple duplicative pleadings were filed by Rubaii in order to delay, confuse, and complicate the litigation. Several of the motions were filed in this Court while a Motion to Reconsider the September 12 District Court order was still pending in District Court, meaning that the Debtor was seeking the same relief in more than one forum at the same time. Furthermore, Rubaii has persistently asserted that the Defendants acted contemptuously in pursuing their state court Motion to Tax Costs, even though the Order entered by District Court Judge Hodges already rejected this contention and permitted the Defendants to go forward with the hearing on its Motion to Tax Costs and to obtain a cost judgment. Based on the foregoing, this Court is satisfied that Rubaii’s conduct in filing multiple duplicative motions and in attempting to seek identical relief in different forums at the same time is unreasonable, vexatious litigation and is an abuse of process. Under these circumstances, it is appropriate to grant the Motion for Attorneys’ Fees and to impose sanctions on Mr. Rubaii in the amount of $750.00.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Attorneys’ Fees Against PMI and Jawdet I. Rubaii, Personally be, and the same is hereby, granted. It is further
ORDERED, ADJUDGED AND DECREED that Jawdet I. Rubaii, be, and the same is hereby, ordered to pay $750.00 to the Defendants within 30 days of the date of this Order. It is further
ORDERED, ADJUDGED AND DECREED that should Jawdet I. Rubaii fail to pay the sum of $750.00 to the Defendants within 30 days of the date of this Order, then the Defendants be, and the same are hereby, granted leave to apply to this Court for an Order to Show Cause to Jaw-det I. Rubaii why he should not be held in contempt of this Court for failure to pay said sum as ordered by this Court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490413/ | ORDER ON MOTION FOR SUMMARY JUDGMENT AS TO COUNTS I, II, III, AND IV
ALEXANDER L. PASKAY, Chief Judge.
THIS IS an adversary proceeding in a Chapter 7 liquidation case, and the matter under consideration is the dischargeability, vel non, of an admitted debt evidenced by a *314judgment entered prior to the commencement of the bankruptcy proceeding against Doris R. Sankner, f/k/a Doris R. Perez (Debtor), the Defendant, and in favor of Gregory Perez, Jr. (Perez), the Plaintiff who instituted this adversary proceeding. The claim of non-dischargeability is based on § 523(a)(2)(A) (Count I), § 523(a)(6) (Count II), § 523(a)(6) (Count III), and § 523(a)(4) (Count IV) of the Bankruptcy Code and, according to the Third Amended Complaint, the liability of the Debtor, evidenced by a state court judgment is based on unlawful, willful, fraudulent and malicious conversion of properties of Perez and Scott’s Trailer Park, Inc., a dissolved Florida corporation, thus outside the overall protective provisions of the general bankruptcy discharge. The matter presently under consideration is a Motion for Summary Judgment filed by Perez, individually and derivatively as Director of Scott’s Trailer Park, Inc., a dissolved corporation (Scott’s Trailer Park) who contend that there are no genuine issues of material fact and that this Court should resolve the matter as a matter of law. The facts relevant and germane to a resolution of this controversy are as follows:
On November 28,1973, a Final Judgment was entered dissolving the marriage between Perez and the Debtor. During their marriage, Perez and the Debtor accumulated certain real and personal property as tenants by the entirety. Perez and the Debtor were sole and equal shareholders of Scott’s Trailer Park. The corporation was incorporated on January 10, 1973, Charter Number 416506. Scott’s Trailer Park was dissolved on September 3, 1976. On May 18, 1983, the Debtor filed a Chapter 7 Petition in this Court. On August 8, 1983, a Complaint was filed by Perez which was titled Complaint to Determine the Dis-chargeability of a Debt and Objecting to Discharge. An Amended Complaint was filed on January 5, 1984; a Second Amended Complaint was filed on February 14, 1984; and finally a Third Amended Complaint was filed May 1, 1984, and is the complaint presently under consideration herein. On September 26, 1985, this Court entered a Findings of Fact, Conclusions of Law and Memorandum Opinion along with a Final Judgment which dismissed with prejudice Counts V and VI of the Complaint. Counts I, II, III and IV of the Third Amended Complaint remain for determination. On August 28, 1986, Perez filed a Motion for Summary Judgment on all four counts.
Count I is brought under § 523(a)(2)(A) by Perez as a shareholder of Scott’s Trailer Park for alleged unauthorized transfers of property by the Debtor and is a derivative action. Count II is brought under § 523(a)(6) for conversion of a 1973 Ford, I.D. No. 3A38H134893, Title No. 5872281 by the Debtor and is also a derivative action by Perez. Count III is brought under § 523(a)(6) by Perez individually for conversion of eleven (11) mobile homes by the Debtor and for conversion of Perez’s life insurance policy from American National Insurance Company by the Debtor. Count IV is brought under § 523(a)(4) and is a derivative action by Perez for alleged defalcation by the Debtor while a fiduciary of Scott’s Trailer Park.
Previously, Perez brought suit against the Debtor in Florida Circuit Court for the Thirteenth Judicial Circuit, Hillsborough County, Florida, Case No. 77-9045. A Final Judgment was entered on April 2, 1981; an Amended Final Judgment was entered on February 18, 1982; and a Further Amended Final Judgment was entered on March 17, 1982. These judgments and an order entered February 1,1982, represent a total of $93,918.00 plus interest thereon owed to Perez by the Debtor.
Perez contends that the state court judgments represented a trial on the merits and should bar the relitigation of these issues in this Court. In opposition, the Debtor argues that the Bankruptcy Court should make an independent determination of the dischargeability vel non of the debt evidenced by the state court judgments. Although the state court judgments are recognized and accepted as a determination of the Debtor’s liability, it *315does not operate as a binding and conclusive determination of the dischargeability of the liability represented by the judgment. The determination of the discharge-ability of a debt is exclusively within the competence of the bankruptcy court and the doctrine of res judicata does not prevent this Court from determining the dis-chargeability of a debt. Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979). However, when the factual issues needed to determine the dischargeability of a debt are also necessary to the state court determination and all of the requirements of collateral estoppel are met, collateral estoppel should preclude relitigation of the factual issues. Spilman v. Harley, 656 F.2d 224 (6th Cir.1981); In the Matter of Ross, 602 F.2d 604 (3rd Cir.1979); Gregg v. Rahm (In re Rahm), 641 F.2d 755 (9th Cir.1981).
Each element of collateral estop-pel must be satisfied in order for the doctrine to bar relitigation of any factual issue. Collateral estoppel requires that:
(1) The precise issues sought to be precluded must be the same as that of the prior proceeding;
(2) the issues must have been actually litigated;
(3) it must have been determined by a valid and final judgment; and
(4) the determination must have been essential to the prior judgment.
In re Opportunities Industrialization Center of Atlanta, Inc., 31 B.R. 119 (Bankr.N.D.Ga.1983). In addition, the state court proceeding must determine the issue using standards identical to those applicable in a dischargeability proceeding. In re Spector, 22 B.R. 226 (Bankr.N.D.N.Y.1982).
This Court finds that Counts I, II and IV are derivative actions by Perez for Scott’s Trailer Park. The state court judgments, however, are in favor of Perez individually, and do not act as collateral estop-pel against the Debtor with respect to the three actions for Scott’s Trailer Park. Therefore, issues of material fact remain as to Counts I, II and IV and the Motion for Summary Judgment should be denied.
Count III differs from Counts I, II and IV since it is brought by Perez individually and the final judgments in state court were entered in favor of Perez as an individual. But for one problem collateral es-toppel might arguably apply to Count III in favor of Perez and against the Debtor. More specifically, Perez alleges in Count III that the Debtor unlawfully, fraudulently, willfully, maliciously, with intent to deprive, and without the consent of Perez executed or had executed a Change of Beneficiary Form, whereupon American National Insurance Company designated the Debtor as irrevocable beneficiary of Perez’s life insurance policy, Policy No. 02-947-591, and thereby deprived Perez of his ownership of said policy. Unfortunately for Perez, this matter was not decided by the state court judgments and as part of Count III must have the merits decided herein. Therefore, since issues of material fact exist as to Count III, the Motion for Summary Judgment should be denied.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Summary Judgment as to Counts I, II, III and IV be, and the same is hereby, denied. It is further
ORDERED, ADJUDGED AND DECREED that a final evidentiary hearing on Counts I, II, III and IV of the Complaint shall be held on April 23,1987 @ 1:30 p.m. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490414/ | ORDER ON RENEWED MOTION FOR ORDER GRANTING RELIEF FROM AUTOMATIC STAY AND ABANDONMENT OF TRUSTEE’S INTEREST
ALEXANDER L. PASKAY, Chief Judge.
THE MATTER under consideration in this Chapter 7 case is a Renewed Motion for Order Granting Relief From Automatic Stay and Abandonment of Trustee’s Interest, filed by Gibralter Moneycenter, Inc., (Gibralter). Gibralter seeks relief from the automatic stay in order to foreclose a mortgage on certain non-exempt real property located in Tallahassee, Florida. The Trustee opposes the lifting of the stay on the basis that the mortgage was not properly acknowledged before a notary public and is therefore not enforceable pursuant to § 544 of the Bankruptcy Code. Gibralter asserts that the mortgage, recorded in the public records of Leon County, Florida, substantially complies with the applicable Florida statutes and the requirements for proper acknowledgment, and is enforceable in bankruptcy. The Court has considered the record, heard argument of counsel, and finds as follows:
On July 2, 1985, August K. Barrido and Myrna B. Barrido, the Debtors (Debtors), executed a mortgage in favor of Gibralter encumbering real property located in Leon County, Florida. This mortgage is recorded in O.R. Book 1168, Page 1143, Public Records of Leon County, Florida. The pre-printed signature page contains signature lines for the two mortgagors, the Debtors, and signature lines for two witnesses. Below the signature line is a printed notarial acknowledgment. The notary public affixed his notarial seal to the document and noted the expiration date of his commission, but did not sign on the line provided for the notary public on the printed form. Instead, the notary public signed his name in one of the spaces provided for witnesses.
Florida Statute § 695.03, which governs the acknowledgment and recordation of real property documents, provides in pertinent part as follows:
*317To entitle any instrument concerning real property to be recorded, the execution must be acknowledged by the party executing it, proved by a subscribing witness to it, or legalized or authenticated by a civil-law notary or notary public who affixes his official seal, before the officers and in the form and manner following:
(1) Within the State — An acknowledgment or proof made within this State may be made before a judge, clerk, or deputy clerk of any court; a United States commissioner or magistrate; or a notary public, and the certificate of acknowledgment or proof must be under the seal of the court or officer, as the case may be. All affidavits and acknowledgments heretofore made or taken in this manner are hereby validated.
Florida Statute § 92.50, which governs oaths, affidavits, and acknowledgments, requires that an acknowledgment be “authenticated by the signature and official seal” of the person taking the acknowledgment. Florida Statute § 117.07 requires that notaries public add to their official signature a statement of the time of the expiration of their commission.
Thus, Fla.Stat. §§ 695.03, 92.50, and 117.07, when read in para materia, provide that if an instrument concerning real property has been signed before a notary public, and the notary public has affixed his official signature and official seal, and stated the time of the expiration of his commission, the document has been validly acknowledged and is entitled to be recorded in the public records.
Although Gibralter concedes that the notary public did not sign on the line reserved on the printed form for his signature, Gi-bralter urges that the document substantially complies with the requirements of Fla.Stat. §§ 695.03, 92.50, and 117.07, and the fact that the notary failed to sign on the specific line designated for his signature does not invalidate the acknowledment or the mortgage.
In House of Lyons v. Marcus, 72 So.2d 34 (Fla.1954), the Florida Supreme Court set forth a policy to uphold acknowledgments which substantially comply with statutory requirements. Citing Summer v. Mitchell, 29 Fla. 179, 10 So. 562 (Fla.1892), the court stated that:
[i]t is the established policy of the law to uphold certificates of acknowledgment ... and, wherever substance is found, obvious clerical errors and all technical ommissions will be disregarded. Inartifi-cialness in their execution will not be permitted to defeat them, if looking at them as a whole, either alone or in connection with the [instrument], we find that they reasonably and fairly indicate a compliance with the law. Clerical errors will not be permitted to defeat acknowledgments when they, considered either alone or in connection with the instrument acknowledged, and viewed in the light of the statute controlling them, fairly show a substantial compliance with the statute.
In the present case, the notary public placed his raised notarial seal on the signature page, stated the expiration date of his commission, and signed the signature page, albeit, not on the line that was reserved for his signature. Based on the foregoing, this Court is satisfied that the notary public substantially complied with the statutory requirements for acknowledgment of instruments concerning real property, and the acknowledgment is therefore valid under Florida law.
The Trustee has conceded that if the acknowledgment and mortgage is upheld, there is no equity in the property, and the Motion to Lift Stay should be granted.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Renewed Motion for Order Granting Relief From Automatic Stay and Abandonment of Trustee’s Interest, filed by Gibralter Moneycenter, be, and the same is hereby, granted, and Gibralter Moneycenter be, and the same is hereby, granted leave to enforce its rights against real property located at 2213 Timberwood *318Court North, Tallahassee, Florida. It is further
ORDERED, ADJUDGED AND DECREED that the automatic stay be, and the same is hereby, lifted for the sole purpose of allowing Gibralter Moneycenter to obtain an in rem judgment against the property, and Gibralter Moneycenter shall not seek or obtain an in personam judgment against the Debtor. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491336/ | ORDER DISMISSING MOTION OF DEBTOR TO ASSUME EXECUTORY CONTRACT WITH UNITED STATES OF AMERICA
LEIF M. CLARK, Bankruptcy Judge.
CAME ON for further consideration the foregoing cause, in which movant debtor sought to assume an executory contract with the United States of America. This court entered an interlocutory order finding that the debtor was not prohibited as a matter of law from assuming an executory contract with the United States of America. See In re Hartec Enterprises, Inc., 117 Bankr. 865 (Bankr.W.D.Tex.1990). The parties appealed the matter to the district court. Thereafter, the matter was settled. Part of the agreement was that the orders and judgments of this court from which appeal were taken be vacated and set aside. By order dated July 30, 1991, 130 B.R. 929 the district court vacated the interlocutory order from which appeal was taken, and directed the dismissal of the motion. Pursuant to the direction of the district court, the motion of the debtor to assume exec-utory contract with the United States is DISMISSED.
So ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491337/ | MEMORANDUM OF DECISION RE: MOTION FOR RELIEF FROM STAY TO FORECLOSE A MORTGAGE
ROBERT L. KRECHEVSKY, Chief Judge.
I.
ISSUES
Pavetti and Freeman, a Connecticut general partnership and the debtor’s former law firm (P & F), requests relief from the automatic stay in order to foreclose a pre-petition mortgage which the debtor granted it on property of the estate. Martin W. Hoffman, trustee of the debtor’s chapter 7 estate, opposes P & F’s motion contending that (1) the mortgage lacks consideration, (2) its execution was unauthorized, and (3) that the mortgage is unenforceable as a prohibited business transaction between lawyer and client. The trustee concedes that if the mortgage is valid, the debtor’s estate does not have equity in the mort*2gaged property. See Bankr.Code § 362(d)(2).
II.
BACKGROUND
Autoworld Enterprises, the debtor, a Connecticut limited partnership formed in 1978, filed a chapter 11 petition on May 18, 1990. The court converted the case to one under chapter 7 on July 12, 1990. Joseph M. Caldrello (Caldrello) was the debtor’s sole general partner. The debtor holds all the issued corporate stock of two automobile dealerships — Autoworld, Inc. and L & W Porsche-Audi, Inc. Caldrello and the debtor’s four limited partners were also the majority stockholders of T.N.M. Lathrop, Inc., a third automobile dealership. Cal-drello owns the corporate shares of two additional automobile dealerships — Auto City, Inc. and Caldrello Motor Group, Inc. The operating businesses of the Connecticut-based automobile dealerships were located on properties owned by the debtor. They paid rents to the debtor which, in part, were utilized to keep the debtor's mortgages current. Caldrello was in complete control of the management of all six entities.
P & F for many years had done all of the legal work for the Caldrello-related entities. On February 14, 1989, the five automobile dealerships owed P & F a total of $89,111.07 for past-due legal services as follows: Auto City, Inc. ($2,516.23); Auto-world, Inc. ($9,845.10); Caldrello Motor Group, Inc. ($13,588.96); T.N.M. Lathrop, Inc. ($60,279.03); L & W Porsche-Audi, Inc. ($2,881.75). These companies had frequently cross-guaranteed each other’s obligations to creditors. After discussing the build-up of the unpaid legal fees, Caldrello agreed with P & F that each of the five automobile dealerships would execute promissory notes payable on demand with interest at twelve percent per annum for their individual indebtedness and that the debtor would guarantee payment of these notes with the guarantee to be secured by a mortgage on the debtor’s one-half interest in properties known as 83 Huntington Street and 42 Meridian Street, New London, Connecticut. The parties decided on this procedure in order not to further encumber assets of the automobile dealerships then being considered for debt restructuring.1 All promissory notes, the guarantee and the mortgage were dated and executed on February 14, 1989 by Cal-drello at the P & F law office.
Both Attorney Francis Pavetti and Attorney Jane Freeman testified at trial that in return for receiving the debtor’s secured guarantee of the promissory notes, they intended to and agreed to forbear for a reasonable time from enforcing their right to payment of the notes. No payments were ever made on the notes.
III.
DISCUSSION
A.
Lack of Consideration
The debtor’s guarantee of payment of the notes held by P & F includes the following recitals:
WHEREAS, the Creditor has agreed to forbear on the enforcement of payment of said indebtedness from the Debtor on the condition that Autoworld Enterprises ... guarantee payment of said indebtedness, and;
WHEREAS, it is of the benefit to the Guarantor that the Creditor forbear on enforcement of the collection of said indebtedness;
NOW THEREFORE, in consideration of One Dollar ($1.00) ... and the forbearance by the Creditor as aforesaid, the Guarantor promises ... all sums shall be promptly paid when due....
The trustee argues that the debtor received no consideration for the guarantee because “there is nothing in the alleged Guaranty which suggests that there was any time *3period of forbearance, whether specific or just generally ‘reasonable’, that was agreed to by the Movant.” Trustee Memorandum at 8.
This contention of the trustee is unsustainable under long-settled Connecticut law. In Elton v. Johnson, 16 Conn. 253, 259-60 (1844), the court ruled:
[T]his testimony clearly conduces to prove, that the plaintiff agreed to forbear for some time; and that such forbearance was the consideration of the defendant’s guaranty; but that there was no agreement to wait any specified time. The legal construction of such an agreement would be, that the forbearance should be for a reasonable time; and we think, that the most rational inference from the testimony in question, is the one which appears to have been drawn by the judge below, that no fixed time was ultimately agreed on, during which the plaintiff should indulge the makers of the note; but that the understanding was, that it should be such as would be reasonable, under all the circumstances of the case.
The trustee has provided no basis for the court to deviate from this authority. See In re Slodov, 419 F.Supp. 64, 67 (N.D.Ohio 1976) (The majority view is that “a creditor’s promise to forbear for an indefinite time which can be construed as calling for some reasonable period of forbearance is a good consideration for a guaranty of a debt.”).
B.
Lack of Authority
The Limited Partnership Agreement of the debtor named Caldrello the sole general partner with full authority to hire attorneys and to execute all conveyances. The trustee, however, contends that Caldrello had no explicit authority to cause the debtor to guarantee debts of other companies. Trustee Memorandum at 5. This argument fails. The trustee’s witnesses did not dispute that it was customary for the various Caldrello entities to guarantee debts of each other. On one occasion in 1988, the debtor executed a secured guarantee in the amount of $5.1 million to Transamerica Commercial Finance Corp. covering obligations of T.N.M. Lathrop, Inc. and Caldrello Motor Group, Inc. Not only did the debtor have ownership interests in many of the automobile dealerships, they were rent-paying tenants of the debt- or’s property and the debtor’s source of monies to pay its mortgage and other obligations. The authorities are generally in accord that it is not outside the scope of a partnership business to guarantee debts of another when “the nature of the partnership business and the circumstances of the guarantee may be such that ... the partnership has a business interest in the person guaranteed or may otherwise benefit from the guarantee.” Alan R. Bromberg & Larry E. Ribstein, Bromberg & Ribstein on Partnerships § 4.03(b)(1) (1988) (citing cases). See also In re Monetary Group, 95 B.R. 803, 807-08 (Bankr.M.D.Fla.1989); Twelve Oaks, Ltd. v. Florida National Bank (In re Twelve Oaks, Ltd.), 59 B.R. 736, 739 (Bankr.M.D.Fla.1986). I conclude that the guarantee and the mortgage executed by Caldrello were authorized transactions.
C.
Avoidable Transaction Between Lawyer and Client
The trustee’s final contention is that because P & F did not advise the debtor to retain separate counsel for the mortgage transaction between P & F and the debtor, the mortgage is unenforceable. Trustee Memorandum at 27.
For this proposition, the trustee, inter alia, cites DiFrancesco v. Goldman, 127 Conn. 387, 16 A.2d 828 (1941). DiFrances-co contains the following discussion:
Contracts between attorney and client fall naturally into at least two categories: (1) those made before the relationship of attorney and client has commenced or after the relationship has terminated; and (2) those made during the relationship. The agreement between the plaintiff and the defendant, whatever it was, was made during the existence of the *4relationship. Courts of equity scrutinize transactions made between attorney and client during the existence of the relationship with great care, and if there are doubts, they will be resolved in favor of the client. Nevertheless, an attorney is not prohibited from contracting with his client respecting his fees, and a contract thus made after the commencement of the relationship of an attorney and client is not per se void but will by reason of the confidential nature of the relationship be closely scrutinized by the court.
127 Conn. at 392-93, 16 A.2d at 830-31 (citations omitted).
Having carefully reviewed the entire record made in this proceeding, the court concludes that the transaction between the debtor and P & F was fair and conscionable, without disadvantage to the debtor who was fully informed of the nature and effect of the transaction, and that P & F engaged in no unethical conduct.
IV.
CONCLUSION
The motion filed by Pavetti and Freeman requesting relief from stay in order to exercise its rights as a mortgagee on properties known as 83 Huntington Street and 42 Meridian Street, New London, Connecticut in which the debtor has an interest is granted.
. Auto City, Inc., Caldrello Motor Group, Inc. and T.N.M. Lathrop, Inc. filed bankruptcy petitions in October 1990. | 01-04-2023 | 11-22-2022 |
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