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https://www.courtlistener.com/api/rest/v3/opinions/8490574/ | ORVILLE GRAY, Bankruptcy Judge.
Trustee filed objection to debtor’s request that a 1955 White truck which is equipped as a mobile crane be exempt. Hearing was held in Billings, Montana on July 12,1983 at which time Jerrold L. Nye, Esq. and Gregory G. Murphy, Esq. appeared and argued the matter. It appears to the Court that this debtor is a mechanic, repair man and that the truck in question is a boom truck used in the nature of a crane as a mobile hoist for heavy equipment repair. Debtor has another truck, a pickup, which he claims exempt under the Montana Code, allowing one vehicle worth under $1,000.00. The pickup is not at issue here.
The question is here presented whether an automobile, truck or other motor vehicle can be included in the term “tool of the trade” in relation to exemptions asked by a tradesman or artisan debtor against the trustee. Montana “opted out” of the Federal exemptions by action of the 1981 Legislature. It passed Section 31-2-106 MCA as follows:
No individual may exempt from the property of the estate in any bankruptcy proceeding the property specified in 11 U.S.C. 522(d) except property exempt from execution of judgement as provided in title 25, chapter 13, part 6.
This action was authorized by the Bankruptcy Reform Act of 1978, 11 U.S.C. § 522(b)(1). This matter must therefore be decided under Montana Law.
The question is if the term “tools or implements necessary for an artisan to carry on his trade” includes an automobile, truck or motor vehicle for the purposes of exemption (25-13-612(b) MCA). I hold that it does not. Montana has a specific statute dealing with truck or automobile, 25-13-617 MCA, which reads, in part as follows: “(1) In addition to all other exemptions, one truck or automobile of the value of not more than $1,000.00 is exempt ...”
The 1981 amendment raised the dollar figure of this section from $300.00 to $1,000.00. As shown, it uses the singular term “one” and not two or more trucks or automobiles. I feel that if the Legislature had intended to include a vehicle in the term “tools or implements of the trade”, it could easily have done so at the same time. It is not the function of this Court to change or alter the wording of legislative intent. While exemption statutes are to be liberally construed, such construction does not permit disregard of plain legislative mandates. See White v. Corbett, 101 Mont. 1, 52 P.2d 156 (1935). Black’s Law Dictionary defines the term tool to mean “an instrument of manual operation; that is an instrument to be used and managed by the hand instead of being moved and controlled by machinery. Tools of trade, aparatus of trade and like terms under exemption statutes under Bankruptcy Act cover tools that vary according to the trade, handicraft or art in which they are used.”
I feel it is stretching the clear meaning of the words used by the Legislature, after several amendments in which they could have been altered or changed, to hold a truck or automobile to be a “tool or implement necessary to carry on his trade.” One is a complicated mechanical combination of wheels, brakes, valves, carburators, ad infinitum. The other is an instrument of manual operation.
Further, the Legislature in its wisdom specifically allowed and set an exemption for a “truck or automobile” in a dollar amount of $1,000.00. As mentioned, this was done in 1981, supposedly to take into account inflation since the last legislative action when it was set at $300.00. I cannot expand the intention of the Legislature beyond the limits it placed with the words it chose. This truck, though used by the debtor in his trade or business, is still not a “tool or implement” within the meaning of 25-13-612 MCA. I rule, therefore, that it is not exempt as against the trustee.
Statutes of some other states specifically designate motor vehicles as exempt when used in particular trades, businesses or occupations. Also, some states have held that a motor vehicle may be a tool of the trade, but in Montana, I find no decision by our Supreme Court, and I have to rule under the particular wording of the Montana statute, which varies from the other *19states. See 31 Amjur Exemptions, Section 62 and Section 64-68.
WHEREFORE, IT IS ORDERED:
1.That the objection of the trustee to the exemption claimed of a White truck equipped with a boom in this matter is hereby granted. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490575/ | MEMORANDUM OPINION
L. CHANDLER WATSON, Jr., Bankruptcy Judge.
The above-styled adversary proceeding is before the Court on the motion of the plaintiff, City Wholesale Grocery Co., Inc., for summary judgment. Before addressing the substance of the motion presently before the Court, a brief discussion of certain procedural matters is in order.
The debtor filed a voluntary petition for relief pursuant to the provisions of title 11, United States Code, chapter 7, on July 15, 1985, and the case remains pending in this court under said chapter. The present adversary proceeding was commenced on October 18, 1985, by the plaintiffs filing of a complaint styled “COMPLAINT — OBJECTION TO DISCHARGE.” In its complaint, the plaintiff alleged that the debtor “did knowingly and fraudulently issue worthless checks ... in return for merchandise sold and delivered” by the plaintiff to the debtor, that the debtor issued the checks with knowledge that the accounts upon which they were drawn contained insufficient funds to cover them, and that the debtor should thus be “denied a discharge.” In the prayer for relief, the plaintiff requested that the debtor “be denied a discharge” and that the Court find the debt owed to the plaintiff by the debtor to be nondischargeable.
On October 29, 1985, the debtor filed a motion to dismiss on grounds that the complaint failed to state a claim upon which relief could be granted under 11 U.S.C. § 727. The proceeding first came before the Court for a pre-trial conference on December 9, 1985, at which time the plaintiffs attorney informed the Court that he would be taking the deposition of the debt- or-defendant and that it might thereafter be necessary for the plaintiff to amend its complaint. Counsel for the plaintiff was to advise the Court by February 15, 1986, as to how the plaintiff would proceed.
On August 1, 1986, the Court entered a RULE TO SHOW CAUSE WHY ADVERSARY PROCEEDING SHOULD NOT BE DISMISSED, as the parties had not contacted the Court with regard to this proceeding since the pre-trial conference. The plaintiff made a timely response to the rule, requesting that it be allowed to proceed in this matter. A continued pre-trial conference was scheduled for October 15, 1986.
Both the plaintiffs attorney and the attorney for the debtor appeared before the Court at the continued pre-trial conference, although the latter stated to the Court that he had lost contact with his client. At the continued pre-trial conference, the Court considered the motion to dismiss which had previously been filed by the debtor-defendant and determined that the motion should be granted in part, by dismissing the complaint to the extent that it requested that the debtor be denied a discharge. The Court announced its ruling on the motion at the continued pre-trial conference and an order was entered thereon on December 4, 1986.
The plaintiffs attorney stated at the continued pre-trial conference that the remaining issue raised in the complaint, which issue involved the dischargeability of a debt, could be disposed of by way of summary judgment, and that a motion therefor would be filed on behalf of the plaintiff.1 Counsel for both parties agreed that oral arguments on such a motion would be waived unless specifically requested within five days after service of the motion.
*43A second rule to show cause, calling for dismissal of this proceeding for want of prosecution, was entered herein on May 5, 1987. As of that date, no answer had been filed by the debtor and the plaintiff had had no contact with the Court since the continued pre-trial conference. The plaintiff responded by filing a written objection to dismissal, accompanied by an affidavit of the plaintiffs attorney and a motion for summary judgment. It is the latter motion which is presently before the Court.
At the outset, the Court would point out that the debtor is in default, as no answer to the plaintiffs complaint has ever been filed on his behalf. Additionally, the debt- or failed to respond to the plaintiffs motion for summary judgment or to request a hearing thereon. It would thus appear that, instead of moving for summary judgment, it would have been appropriate for the plaintiff to have followed the procedure for obtaining a judgment by default, as set forth in Rule 55 of the Federal Rules of Civil Procedure.
Without regard to the procedural propriety of the plaintiffs motion for summary judgment, the Court has considered the motion, along with the pleadings and the affidavit submitted in support thereof and finds that the plaintiff has failed to establish that it is entitled to such relief.
The affidavit of Pete N. Dichiara, the plaintiffs president, was the only item offered by the plaintiff in support of its motion. The affidavit states, in pertinent part, that between the period of January 29, 1985, through February 26, 1985, in exchange for and upon delivery of goods which the plaintiff sold to the debtor, the debtor issued to the plaintiff a total of thirteen checks which were subsequently dishonored by the drawee bank, due to insufficient funds in the account from which they were drawn. The affidavit further states that as the result of the defendant’s failure to pay the checks, the plaintiff has suffered a loss in the amount of $5,019.07, which sum represents the total amount of the thirteen checks. The plaintiff has requested the Court to find, on the basis of this affidavit and the allegations in the plaintiffs complaint, that the debtor’s actions in issuing the checks to the plaintiff constitute fraud and that the underlying debt is nondischargeable as a matter of law.
The complaint is silent as to the particular statutory provision upon which the plaintiff relies. It would appear to the Court that the debt at issue herein would be excepted from discharge, if at all, pursuant to the provisions of 11 U.S.C. § 523(a)(2)(A).2 That section excepts from the discharge of an individual debtor any debt “for money, property, [or] services ... to the extent obtained by false pretenses, a false representation, or actual fraud_” 11 U.S.C. § 523(a)(2)(A).
In order to prevail on the question of dischargeability in this proceeding, the plaintiff must prove, by clear and convincing evidence, that the debtor acted fraudulently in incurring the debt at issue. See, In re Pozucek, 73 B.R. 110 (Bankr.N.D.Ill.1987). Fraud within the meaning of § 523(a)(2)(A) is established upon a proper showing that the defendant made misrepresentations of material facts, that the misrepresentations were made with knowledge of their falsity or with reckless disregard for their truth, and with the intent on the part of the defendant to deceive the plaintiff, and that the plaintiff reasonably relied on the representations and sustained loss as a result of such reliance. In re Paulk, 25 B.R. 913, 918 (Bankr.M.D.Ga.1982). A lack of proof as to any one of the stated elements will be fatal to the plaintiff’s claim.
The issuance of a worthless check to purchase goods does not, in itself, constitute fraud so as to preclude the discharge of the debt pursuant to § 523(a)(2)(A). In re Collins, 28 B.R. 244 (Bankr.W.D.Ok.1983); In re Jenes, 18 B.R. 405 (Bankr.S.D.Fla.1981). The issuance of a check is not tantamount to a representation that there *44are sufficient funds in the drawee’s bank account from which payment can be made. In re Hammett, 49 B.R. 533, 535 (Bankr.M.D.Fla.1985). It is simply a promise on the part of the drawer to pay the check in the event that it is dishonored by the bank. In re Paulk, 25 B.R. 913 (Bankr.M.D.Ga.1982), citing, Williams v. United States, 458 U.S. 279, 102 S.Ct. 3088, 73 L.Ed.2d 767 (1982). Thus, in order to establish the initial element of fraud, the plaintiff must prove that the debtor made a representation that the check was good. There is no evidence or allegation of any such representation by the debtor in the present case.
There is also a total lack of evidence that the debtor issued the checks with the intent to defraud the plaintiff. The allegations in the complaint to the effect that the checks were issued with knowledge that there were insufficient funds for payment in the debtor’s account are not conclusive on the issue of fraudulent intent. It is possible that the debtor issued the checks with knowledge of his deficient account balance but with the intention of depositing sufficient funds for their payment prior to presentment by the plaintiff. See, In re Hammett, 49 B.R. 533 (Bankr.M.D.Fla.1985).
The Court also questions the reasonableness of the plaintiff’s reliance on the last several checks which it accepted from the debtor, due to the number of the debtor’s checks to the plaintiff that had been dishonored within the preceding two to three weeks.
The Court concludes, based on the foregoing, that it would be inappropriate to enter a judgment in favor of the plaintiff on the basis of the motion for summary judgment. The matter of the debtor’s default in this proceeding, and the possibility of a judgment for the plaintiff as a result of that default, will now be considered.
Assuming, arguendo, that it would be appropriate for the Court to treat the plaintiff’s motion for summary judgment as an application for the entry of default3 and for judgment by default, it is the opinion of the Court that the entry of a default judgment on the basis of such “application” would be inappropriate at the present time.
Subsection (b)(2) of Rule 55, Federal Rules of Civil Procedure, prohibits the entry of a judgment by default against a defendant who, as the defendant herein, has appeared in the action, unless such defendant receives prior written notice of the application.4 The Court notes that the attorney for the defendant was served with a copy of the plaintiff’s motion for summary judgment, and that the defendant was on notice5 that a judgment was being sought against him. While it could be argued that such notice is sufficient to satisfy the notice requirement prescribed by Rule 55(b)(2), the Court is not convinced that this reasoning is correct. The Court’s reservations in this regard are based on the differences in the nature of a summary judgment on the one hand, and a judgment by default, on the other.
A judgment by default is based solely on a party’s failure to “plead or otherwise defend.” Assuming that the defendant is not an infant or incompetent person who is not represented in the action by a guardian or like representative, and is not a member of the armed forces who has not appeared in the action, a plaintiff may obtain a judgment by default, pursuant to Rule 55, upon application therefor if the defendant has failed to appear or defend in the action. The movant’s burden is relatively simple in that the facts which would justify the relief sought are of a procedural nature.
Summary judgment, on the other hand, constitutes an adjudication on the merits of *45a claim. 6 J. Moore, W. Taggart, E.J. Wicker, Moore’s Federal Practice § 56.03 (2d ed. 1987). A party is entitled to summary judgment pursuant to Rule 56, Fed.R. Civ.P., only upon a showing that there is “no genuine issue as to any material fact” and that as a matter of law, judgment should be entered in his favor. Fed.R. Civ.P. 56(c). A party seeking summary judgment bears a heavy burden. In order to prevail, he must offer sufficient evidence to support a finding in his favor upon every element of his claim for relief. Lockwood v. Wolf Corp., 629 F.2d 603 (9th Cir.1980). The party opposing summary judgment has no duty to present proof so as to defeat the motion if, as in the present case, the mov-ant fails at the outset to show that he is entitled to summary judgment. McWhirter Distributing Co., Inc. v. Texaco, Inc., 668 F.2d 511 (Em.App.1981).
Based on the foregoing, the Court finds that the notice given to the defendant of the plaintiffs motion for summary judgment is not synonymous with, and can be no substitute for, the notice prescribed by Rule 55(b)(2). Advance notice of an application for default judgment, and at least an opportunity for a hearing,6 must be afforded to the defendant in this proceeding before a judgment by default may be entered against him.
The Court finds that it would be appropriate to enter a show cause order and set a hearing thereon to determine why a default judgment should not be entered against the defendant.7 An appropriate order will be entered.
. Although no answer had been filed on behalf of the debtor on the date of the continued pretrial conference, the time for the filing of an answer had not expired as of that date. See, subsections (a) and (b) of Rule 12, Fed.R.Civ.P. It was apparently the expectation of the plaintiff's attorney that an answer would be filed.
. In In re Paulk, 25 B.R. 913 (Bankr.M.D.Ga.1982), the Court held that a check is not a financial "statement” within the meaning of § 523(a)(2)(B). The present court agrees with that reasoning and finds that that section is inapplicable under the present facts.
.Although Rule 55 speaks in terms of entry of default by the clerk, the Court may also enter default. Systems Industries, Inc. v. Ham, 105 F.R.D. 72 (Dist.Pa.1985); Breuer Elec. Mfg. Co. v. Toronado Sys. of Amer., Inc. 687 F.2d 182 (1982).
. Specifically, that rule provides, in pertinent part, that if a "party against whom judgment by default is sought has appeared in the action, the party ... shall be served with written notice of the application for judgment at least 3 days prior to the hearing on such application".
. See, Fed.R.Civ.P. 5(a) & (b).
. In addition to requiring notice of the application for default, the applicable portion of subsection (b)(2) of Rule 55 also anticipates that a hearing will be held on such application.
. As to the power of the Court to enter a judgment by default on its own motion, See, Flaska v. Little River Marine Constr. Co., 389 F.2d 885 (5th Cir.1968), cert. denied, 392 U.S. 928, 88 S.Ct. 2287, 20 L.Ed.2d 1387 (1968). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490576/ | ORDER ON ORDER DISCHARGING ORDER TO SHOW CAUSE AND DEBTORS’ EMERGENCY MOTION FOR CONTEMPT
ALEXANDER L. PASKAY, Chief Judge.
THE MATTER under reconsideration in this Chapter 11 case is this court’s Order entered on April 14, 1987, which directed one Blaine M. Allison (Allison) to return a 1984 Kenworth Dump Truck to the Debtor, Nelson DesChamps (Debtor). The court also considered the Debtors’ Emergency Motion for Contempt based on an alleged violation of the same Order of April 14, 1987. The Court has considered the Motions, together with the record and based on the same now finds and concludes as follows:
On March 1, 1984, Nelson DesChamps (Debtor) entered into a written agreement with Blaine H. Allison (Allison) (Exh. No. 2) pursuant to which Debtor agreed to purchase a 1984 Kenworth Dump Truck from Allison, I.D. # INKWLBOX5E5316173, subject to an existing lien in favor of Pac-car Financial Corporation (PACCAR). The Debtor agreed to assume the remaining monthly payments due to Paccar and agreed to pay $8,500.00 to Allison upon delivery of the dump truck. In accordance with the agreement, the Debtor was given possession of the dump truck. On August 20, 1985, the Debtor formed a corporation known as DesChamps, Inc. The corporation procured and maintained insurance on the dump truck and made monthly payments to Paccar pursuant to the conditional financing arrangement between Paccar and Allison on behalf of the Debtor. The title was never transferred to the Debtor and the Certificate of Title lists Paccar and Allison as the registered owners and Pac-car as the Lienholder (Exhibit # 1).
It is without dispute that at the time of the commencement of this case on January 9, 1987, the payments to Paccar were in arrears. On February 22, 1987, Paccar re-posessed the dump truck and returned same to Blaine Allison. On March 17, 1987, this Court entered an Order and directed Blaine Allison to appear and show cause why he should not be held in contempt of court for repossessing the dump truck in violation of the automatic stay. After a hearing on April 14, 1987, the Court entered an Order and Discharged the Order to Show Cause but directed Mr. Allison to return the dump truck to the Debtors.
In moving for reconsideration of this Order Allison maintained that the automatic stay provisions did not apply to the dump truck because the Debtor had no ownership interest in the dump truck at the time of repossession. Thus, the same was not property of the estate therefore not protected by the automatic stay imposed by Section 362 of the Bankruptcy Code. The basis for this argument is that DesChamps, Inc., was listed as the insured for purposes of automobile insurance and the payments to Paccar were made by DeChamps, Inc., the corporation and not by the Debtor.
The term “property of the estate” is defined by § 541(a) which provides that “all legal or equitable interests of the debtor in property as of the commencement of the case” is property of the estate. It is with*64out dispute that the dump truck was purchased by the Debtor from Allison; that the Debtor was given possession and used same, even though the legal title to the truck remained in the name of Allison. Notwithstanding the Debtor had and still has a cognizable, equitable ownership interest in the dump truck. This equitable interest is property of the estate, protected by the automatic stay provisions of § 363(a). Therefore, the Court is satisfied that its ruling of April 14, 1987, was correct and the same is reaffirmed.
In its Order Discharging Order to Show Cause this Court ordered Allison to return the dump truck to the Debtors on or before Friday, April 10, 1987. It is without dispute that the Court order was disobeyed by Allison’s failure to return the dump truck until May 14, 1987. Allison’s exercise of control over property of the estate is a clear violation of the automatic stay provisions of § 362 of the Bankruptcy Code which provides,
(a) ..., a petition filed ... operates as a stay, ..., of ...
(3) any act to obtain possession of property of the estate or of property from the estate or of property from the estate or to exercise control over property of the estate;
As a result of Allison’s failure to return the dump truck, DesChamps was injured by being deprived of the dump truck’s use for approximately one month. Section 362(h) of the Bankruptcy Code provides,
An individual injured by any willful vilation of a stay provided by this section shall recover actual damages, including costs and attorney’s fees, and, in appropriate circumstances, may recover punitive damages.
Although there is nothing in evidence to show damages for deprivation of use, the Court is satisfied that DesChamps incurred costs, including attorney’s fees, to enforce the Court order.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Order Discharging Order to Show Cause entered on April 14, 1987 be, and the same is hereby, affirmed. It is further
ORDERED, ADJUDGED AND DECREED that Blaine H. Allison pay to the Debtors damages, including costs and attorney’s fees in the amount of $500.00. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490577/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
GEORGE L. PROCTOR, Bankruptcy Judge.
This matter came before this Court on cross motions for summary judgment. Having considered the pleadings and arguments of counsel, the Court enters the following findings of fact and conclusions of law:
FINDINGS OF FACT
1. The debtor in this case, Tracy M. Baker, Jr., is a former civilian employee of the United States Air Force, employed at Homestead, Florida. On July 3, 1972, he filed a claim for disability as a result of a heart attack which occurred on June 16, 1972.
2. On October 18, 1972, the Office of Worker’s Compensation Programs, U.S. Department of Labor (OWCP), accepted a disability claim filed by plaintiff and shortly thereafter commenced payment of benefits pursuant to the Federal Employee’s Compensation Act, 5 U.S.C. § 8101, et seq. (FECA).
3. Pursuant to § 8129(b) of FECA, a hearing representative of OWCP notified Mr. Baker on December 9, 1985, that OWCP was imposing a forfeiture of the benefits paid for the periods in which he failed to report his outside employment activities. Plaintiff appealed the decision to the Chief, Branch of Hearings and Review, OWCP, and requested a pre-recoupment hearing. On August 8, 1986, the Chief, *75Branch of Hearings and Review, upheld the initial decision of forfeiture.
4. Pursuant to a formal determination issued by the Supervising Claims Examiner on October 3, 1986, plaintiff’s compensation was adjusted so that 100 percent of the awarded compensation would be withheld until the overpayment of $113,861.75 was recouped. A motion filed on October 8, 1986, for reconsideration was denied by the Chief, Branch of Hearings Claims, on November 19, 1986.
5. On January 29,1987, the debtor filed a petition for bankruptcy under Title 11, Chapter 7 of the United States Code. On February 11, 1987, he filed this adversary proceeding against the United States of America, acting through the United States Department of Labor, seeking to have the forfeiture owing to the government declared discharged.
6. The decision of OWCP was appealed by Mr. Baker to the Employees’ Compensation Appeals Board (ECAB) under the style of In the Matter of Tracy M. Baker, Jr. and Department of the Air Force, Homestead Air Force Base, Florida, ECAB Docket No. 87-823. The ECAB reviewed the file and remanded the case back to the OWCP. In accordance with that remand, OWCP withdrew the overpayment determination and on August 25, 1987, sent Mr. Baker a payment of $27,082.00 representing the amount of compensation withheld for the period of August 31, 1986, through August 24, 1987.
CONCLUSIONS OF LAW
The first issue to confront this Court is whether it has jurisdiction to hear this matter. The defendant has argued that 5 U.S.C. § 8128(b) deprives this Court of jurisdiction to review a decision of the Secretary of Labor regarding over-payments to beneficiaries under FECA. This argument is based directly upon the language of 5 U.S.C. § 8128(b), which provides:
The action of the Secretary or his desig-nee in allowing or denying a payment under this sub-chapter is final and conclusive for all purposes with respect to all questions of law and fact and not subject to review by another official of the United States or by a court by mandamus or otherwise.
However, this argument is misplaced. The true nature of this proceeding is the determination of whether a particular debt is dischargeable. As such, it is a “core proceeding” within the meaning of 28 U.S.C. § 157(b)(2)(I) and is not interposed as a review of the Secretary of Labor’s decision. The Court finds that it has jurisdiction notwithstanding 5 U.S.C. § 8128(b).
The second issue to be addressed is whether this particular debt is dischargeable. The plaintiff has argued that § 523 of the Bankruptcy Code contains the exclusive list of exceptions to discharge and since the repayment of overpaid disability compensation is not included therein, this particular debt is dischargeable. While this argument has some merit, the United States Department of Labor is entitled to seek to “recoup” the amount of benefits which it argues was overpaid.
In support of this position, the Court draws upon the rationale expressed in In re Maine, 32 B.R. 452 (Bkrtcy.W.D.N.Y.1983), wherein the court held that the state’s right to recoup unemployment insurance benefits as a result of willful misrepresentations was not abrogated by the bankruptcy proceeding. Said the court, the “recovery of overpayments from future benefits was, in fact, an exercise of the state’s common-law right of recoupment [which] would survive [bankruptcy].” Id. at 455. The Court noted:
Here, it may be observed that the extent of the debtor’s future entitlement under the unemployment insurance program is not a property right in the usual sense. In no significant way is that benefit the fruit of his labor or the result of his individual contributions. Here, there is the sense that, if the debtor can sidestep the State’s ability to recover from his future benefits, he obtains not just a fresh start, but a head start, at the expense of the financial integrity of the overall program.
Id. at 454.
Like the debtor in In re Maine, the plaintiff in this case would be obtaining a “head-*76start” with regard to the disability compensation he has received rather than the true amount to which he might be entitled. He would in effect be receiving a windfall by being able to keep the funds he would have no right to receive. Clearly, this is not a result intended by Congress.
Additional support for this Court’s ruling is drawn from Mullen v. United States, 696 F.2d 470 (6th Cir.1983). There, the Court dealt with a readjustment of an Air Force officer’s retirement benefits following his re-enlistment with the service. The officer argued that the Air Force had a “claim” against him recognizable in bankruptcy and that the debt was dischargea-ble. The Air Force contended that it had the right to secure the prepaid retirement benefits that the officer should not have received. The Court ruled in favor of the Air Force and in reaching its conclusion, determined that 11 U.S.C. § 101 requires that there be a “right to payment” in order to establish a claim. Since there was no right to payment of the retirement benefits, the Air Force would be allowed to recoup its prepayment.
The facts in this case are analogous to those in Mullen in that the debtor received payments to which he might not be entitled, and like the situation in that case, the government agency has no other source from which to recoup the overpayments. Under these circumstances, the Department of Labor is entitled to prevail.
The plaintiff has asserted that this Court should draw an analogy to the cases arising under the Social Security Act, 42 U.S.C. § 401 et seq., which holds that a Social Security overpayment is a dischargeable debt. In this regard, plaintiff cites In re Rowan, 15 B.R. 834 (Bkrtcy.N.D.Ohio 1981) which states:
The legislative history surrounding the Bankruptcy Reform Act of 1978 supports the holding that the SSA overpayment is a dischargeable debt....
Id. at 834. However, these cases are also consistent in that they classify Social Security benefits as “entitlements” subject to the rules of “set-off” rather than actions in “recoupment.” See Lee v. Schweiker, 739 F.2d 870 (3rd Cir.1984). For these reasons, this Court finds that the overpayment found by the Secretary of Labor under FECA is not a dischargeable debt.
The plaintiff has also filed a motion for contempt, claiming that the Secretary of Labor has violated the automatic stay provisions of 11 U.S.C. § 362. Because the OWCP has withdrawn the overpayment determination and has returned the money it had withheld to Mr. Baker, plaintiff has agreed to withdraw its motion for contempt. Accordingly, the Court need not address this issue.
The Court notes that it has not dealt with the merits of the recoupment claim.
Wherefore, the Court will enter a separate order denying plaintiff’s motion for summary judgment and granting the motion for summary judgment filed by the defendant. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490578/ | ORDER REGARDING DAMAGES INCURRED BASED ON VIOLATION OF THE AUTOMATIC STAY
ALEXANDER L. PASKAY, Chief Judge.
THIS CAUSE came on for hearing with notice to all parties in interest to determine *79the amount of damages incurred by Susan Steinfeld, d/b/a Denim Center, the Debtor in this Chapter 11 case, as a result of a violation of the automatic stay by Maximo Plaza Associates Limited Partnership (Landlord), the Debtor’s landlord, pursuant to § 362(h) of the Bankruptcy Code. The Court has considered the Motion together with the record, has heard arguments of counsel, and finds as follows:
The determination of damages is pursuant to this Court’s prior order holding that the Landlord had willfully violated the automatic stay when it locked the Debtor out of her place of business post-petition. It appears that subsequent to the lock-out, this Court also ordered in part that the Landlord return the Debtor’s property locked in the store and imposed sanctions in the amount of $500.00 to reimburse the Debtor for attorney’s fees incurred. It further appears that while part of the Debt- or’s property was returned, the Debtor did not receive current lists of inventory, register tapes, receipts, goods held on lay-away, a cash register, display bins, three collapsible dressing rooms and counters, various types of racks, a sewing machine, cash, and miscellaneous items of equipment, fixtures, and furnishings and personal items of the Debtor. Additionally, the Debtor’s attempts to recover these items from the Landlord have been unsuccessful.
The only evidence introduced at the final hearing regarding the value of the above listed items was the testimony of the Debtor. It is the contention of the Landlord that this unsubstantiated testimony provides an insufficient basis for this Court to award damages. However, as the Landlord has prevented the Debtor from obtaining all her books and records to substantiate this testimony, the Debtor should not be made to suffer.
Based on the foregoing, this Court is satisfied that the value of the items not recovered by the Debtor is $12,000.00 and the Debtor is entitled to receive this amount in damages, in addition to $2,156.00 as compensation for attorney’s fees incurred. Further, this Court is satisfied that the Debtor should be awarded $2,000.00 in punitive damages based on the Landlord’s reckless disregard for the law and the security of the Debtor’s property.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that Susan Steinfeld shall be awarded damages and attorney’s fees in the amount of $16,156.00, and that Maximo Plaza Associates Limited Partnership shall pay this amount within 30 days of the date of the entry of this Order. It is further
ORDERED, ADJUDGED AND DECREED that in the event Maximo Plaza Associates Limited Partnership should fail to make payment to Susan Steinfeld within 30 days of the date of this Order, this Court will enter an appropriate Order thereon. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490579/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE came before the Court for trial on the complaint of the Plaintiff, the Chapter 7 Trustee. The Court having heard the testimony and examined the evidence presented, observed the candor and *86demeanor of the witnesses, considered the arguments and memorandum of counsel makes the following findings of fact and conclusions of law.
The complaint seeks the avoidance of various fraudulent transfers by the debtor in favor of certain corporate insiders and the subordination of certain claims to the recovery obtained by this proceeding. The transfers occurred on October 18, 1984, within one year of the commencement of these proceedings. During or at the conclusion of the case, the Plaintiff and the Defendants, Robert Infeld, Ernest J. Dawes, Leonard Rosenberg and GCC Financial Corporation, with court approval, entered into settlements with the trustee. It is unnecessary to restate the terms of the settlements and as provided in them, the separate final judgment will reflect the applicable subordination of the claims of GCC Financial Corporation and of Ernest J. Dawes. At the conclusion of the trial, upon motions of the Plaintiff, a preliminary injunction was issued enjoining Weiss from retransferring any property which is the subject matter of this litigation.
The facts supporting the trustee’s recovery are as follows. On April 18, 1985, the debtor commenced voluntary proceedings pursuant to Chapter 7. The debtor was a Florida corporation engaged in the home improvements industry. Immediately prior to committing the transfers which are the subject matter of this dispute, the corporate stock was owned as follows:
GCC Financial Corporation- 50%
Stanley Weiss- 22'/2%
Ernest J. Dawes- 22'/2%
Robert Infeld- 5%
The directors consisted of Stanley Weiss, Ernest J. Dawes, Leonard Rosenberg and Charles James.
As a necessary element of the Plaintiffs case, the trustee alleged and proved that on October 18, 1984, the debtor was insolvent. The financial records of the debtor, as audited by their accountants and, as reviewed by the accountant for the trustee who testified as an expert, indicates that on October 18, 1984, the day of the transfers, the debtor was insolvent as defined by Bankruptcy Code § 101(31) in that the sum of its debts were greater than all of its property at fair value. The balance sheet, after subtracting property which is the subject matter of this lawsuit, reflects an insolvent condition of more than $650,-000.00. Although the Defendants have disputed the accuracy of the financial statement, they have offered no evidence to support a contrary conclusion and the court finds that the financial statement is sufficiently accurate to support the factual finding of insolvency. See In re Roco Corporation, 701 F.2d 978 (1st Cir.1983).
The trustee seeks the following recoveries as fraudulent transfers from Stanley Weiss, hereinafter (Weiss) and American Dream Realty & Mortgage, Inc., hereinafter (American Dream):
A. $2,000.00 representing repurchase by the debtor of it’s stock from Weiss.
B. $68,000.00 as a transfer to American Dream for no apparent consideration or on account of an alleged (by the Defendants) antecedent debt.
C. Recovery of a shareholder’s loan in the amount of $295,000.00 that was released by the debtor.
D. Imposition of director liability on Weiss for all of these transfers.
Concerning each of the alleged transfers, the respective liabilities are discussed as follows:
A. The repurchase of corporate stock. It is undisputed that the debtor repurchased 221k% shares of it’s capital stock from Weiss for the sum of $2,000.00. A corporation may not validly repurchase it’s corporate stock while insolvent and the corporation receives nothing of value in exchange for the purchase price. See In re: Roco Corp. Supra p. 981; In re: Charter Company, 68 B.R. 225 (Bkrtcy.M.D.Fla.1986). Accordingly, Weiss is liable to the trustee for this transfer in the amount of $2,000.00.
B. Transfer to American Dream. American Dream is a Florida corporation whose corporate stock is wholly owned by Weiss. As such, American Dream is an *87affiliate and an insider of the debtor. See 11 U.S.C. § 101(2); (30)(E). It is undisputed that the debtor transferred $68,000.00 to American Dream on October 18,1984. The debtor received nothing in exchange for this transfer. Weiss testified, uncorroborated by any competent evidence, that the transfer was to pay certain antecedent obligations due American Dream from the debtor. Assuming the transferee could establish an antecedent obligation, this proof would not be sufficient to defeat the trustee’s recovery in this situation. 11 U.S.C. § 548(c) provides as follows:
“Except to the extent that a transfer or obligation avoidable under this section is voidable under § 544, § 545 or § 547 of this title, (emphasis added) a transferee or obligee of such a transfer or obligation that takes for value and in good faith as a lien or retain any interest transferred or may enforce any obligation incurred, as the case may be to the extent that such transferee or obli-gee gave value to the Debtor in exchange for such transfer or obligation”.
It is American Dream’s apparent position that it gave value in the form of forgiveness of an antecedent debt. Because the transfer would otherwise be avoidable under § 547 as a preference to an insider, this defense is not available to the Defendant. Furthermore, the transfer of certain accounts being held by American Dream to GCC Financial Corporation, another affiliate and insider does not constitute consideration to the debtor. Having concluded that this transfer should be avoided, liability for this transfer is imposed on Weiss and American Dream, jointly and severally, with the provision that the trustee obtain only one recovery. It is undisputed that American Dream is fully owned by Weiss and has no assets or liabilities. As such, the court concludes that the transfer was for the benefit of Weiss and therefore, recoverable from him. See 11 U.S.C. § 550(a)(1).
C. Recovery of Shareholders’ loan. The trustee has sought recovery from Weiss for the release of a shareholder’s loan. The books and records of the debtor reflect that Weiss was indebted to the debtor in the amount of $295,000.00. This loan was released by the debtor on October 18, 1984. In disputing liability for this transfer, Weiss testified, supported by the other officers and directors of the corporation, that this loan was only bookkeeping entries and actually represented salary that was paid to him and was not properly reported to the Internal Revenue Service. The Court finds that in substance, Weiss’ contention is correct and concludes that this loan is not true property of the estate. Accordingly, the trustee is denied recovery for this transfer but is instructed to furnish to both Weiss and the Internal Revenue Service appropriate tax reporting information.
D. The imposition of director liability for avoided transfers. The trustee has requested the imposition of director liability against Weiss and a finding that all of the transfers to Weiss were committed while Weiss was serving as a director of the debtor. Weiss has resisted imposition of director liability on a factual theory that he resigned a month or so prior to commission of the transfers. Although Weiss introduced some evidence of an attempt to resign earlier, the best evidence introduced, the corporate records and the testimony of the debtor’s corporate counsel, reflect that Weiss resigned as a director on October 19, 1984. Therefore, the Court finds that Weiss was a director at the time of the transfers and is responsible and is liable as a director. Florida Statutes § 607.111 and § 607.144 impose liability on a director for failure to discharge his office in good faith and for distribution to shareholders without provision for the payment of all debts. See also Poe & Associates, Inc. v. Emberton, 438 So.2d 1082 (Fla.App. 2 Dist.1983). The transfers avoided and Weiss’ conduct are within the scope of these Florida Statutes. The Court therefore concludes that Weiss, through his receipt of above stated fraudulent transfers, for which relief is granted, committed fraud while serving in a fiduciary position with the debtor.
Pursuant to Bankruptcy Rule 9021 a separate final judgment will be entered in ac*88cordance herewith. Said judgment will be against Weiss for the separate amounts of $2,000.00 plus interest, and jointly with American Dream for the sum of $68,000.00 provided that the trustee can achieve only one recovery under this latter award. The trustee is further entitled to interest from the commencement of this adversary proceeding on April 7, 1987. The final judgment will also provide, in accordance with the prior stipulations, that the claim of GCC Financial Corporation is subordinated to this recovery without prejudice to the trustee seeking further subordination of this claim in regards to other potential recoveries and that the claim of Ernest J. Dawes is subordinated to all unsecured creditor claims filed in this proceeding. The preliminary injunction will dissolve upon the judgment becoming final. The Court will consider an award of costs upon appropriate motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490580/ | FINAL ORDER AND JUDGMENT
JAMES E. YACOS, Bankruptcy Judge.
This matter came before the Court on July 16, 1987 on R. Richard Riso’s Motion for Partial Summary Judgment, and, after reviewing the pleadings and affidavits submitted to the Court and hearing the argument of counsel, the Court
FINDS that, while Defendant Riso’s Motion for Partial Summary Judgment sought judgment in favor of Mr. Riso only with respect to those payments under the Step-an Company Retirement Plan for Salaried Employees (the “Plan”) to which Defendant Riso has become entitled since the filing of his Chapter 7 Petition on June 7, 1984 (the “Filing Date”), no genuine issue of material fact exists with respect to the Plan, Mr. Riso’s rights under the Plan and Mr. Riso’s conduct with respect to the Plan and hence, all the issues in this adversary proceeding can be decided at this time without the need for a future trial; and the Court further
FINDS that the Plan is funded solely by Stepan Company and that Mr. Riso has made no contributions to the Plan; and the Court further
FINDS that the Plan is an ERISA and tax-qualified retirement plan which contains within it provisions restricting the voluntary and involuntary alienation of interests held by beneficiaries of the Plan, so called, spendthrift provisions; and the Court further
FINDS that the Plan should be construed and administered in accordance with the laws of the State of Illinois because the Plan is most closely connected to that state, the Plan provides that it shall be administered and construed in accordance with the laws of the State of Illinois, and conflicts of laws principles indicate that Illinois law should be applied when constu-ing and administering the Plan; and the Court further
FINDS that the spendthrift provisions contained in the Plan are enforceable under Illinois law and therefore are enforceable in this Chapter 7 case pursuant to 11 U.S.C. § 541(c)(2); and the Court further
FINDS that because the spendthrift provisions contained in the Plan are enforceable under Illinois law, it is not necessary to determine whether these provisions are enforceable in these proceedings because of ERISA or whether any of the Debtor’s interest in the Plan is exempt under N.H. Rev.Stat.Ann. § 512:21(IV)(1983); and the Court further
FINDS that the spendthrift provisions in the Plan exclude from property of the Chapter 7 estate in this case only the Debt- or’s interest in the Plan to the extent that the Debtor had no right to payment under the Plan on the date of the filing of his Chapter 7 Petition; and the Court further
FINDS that as of the Filing Date and as of the date this matter was heard by the Court, the Debtor had not exercised an option under the Plan nor has he received any payment under the Plan; and the Court further
FINDS, that of the options available to the Debtor under the Plan, had the debtor exercised the one which would have produced the most money on the Filing Date, he would have been entitled to receive $13,-066.92 as a single lump sum payment from the Plan; and the Court further
*140FINDS that even if the Debtor had exercised this Option under the Plan on the Filing Date, he would have only been entitled to this single lump sum payment, and all future payments to be made to the Debtor by the Plan would be and are subject to the terms of the Plan including its spendthrift provisions; and the Court further
FINDS that because the Debtor had the possibility of receiving an amount equal to $13,066.92 under the Plan as of the Filing Date, this amount should be available to his creditors in this case; and the Court further
FINDS that to protect the integrity of the Plan and its ERISA and tax-qualified status, the Orders contained herein must run only to the Debtor, Mr. Riso, and no order compelling the Trustees under the Plan to allocate or distribute funds in a way at variance with the Plan is hereby contemplated.
Based upon these findings, it is hereby ORDERED, ADJUDGED and DECREED that:
1. R. Richard Riso’s Motion For Partial Summary Judgment is allowed;
2. Final Judgment in this adversary proceeding is hereby awarded to Plaintiff Victor W. Dahar, the Debtor’s Chapter 7 Trustee, in the amount of $13,066.92;
3. Defendant Riso shall exercise the payment option of his choice under the Plan;
4. Upon receipt of payment under the Plan, after exercising an option, Defendant Riso shall promptly pay over to his Chapter 7 Trustee, Victor W. Dahar, the sum of $13,066.92; and
5. Upon payment of said $13,066.92 by Defendant Riso to Victor W. Dahar, all obligations of both Defendant Riso and Defendant Harris Trust and Savings Bank to Victor W. Dahar and this Chapter 7 estate shall be satisfied and Victor W. Dahar and this Chapter 7 estate shall have no further interest in or claim against Defendant Riso’s rights under the Plan. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490581/ | MEMORANDUM OPINION
THOMAS M. TWARDOWSKI, Bankruptcy Judge.
We are confronted with a secured creditor’s motion requesting that we reconsider and remove the stay issued in our July 17, 1987 order in this case. The motion also requests that we reconsider and allow the trustee’s sale of real property owned by the pro se debtor, Edith M. Gracey (“debt- or”)1. Movants are C. Denson and Bar*220bara M. Day (“movants”), who hold second2 mortgages on these properties. We grant the motion under the conditions outlined in the attached order.
The issue currently before the Court must be traced back several months and through several appeals. On April 17, 1987, the trustee filed notice of his intention to sell three parcels of real estate (“real estate”). Debtor filed an objection to his notice on April 28, 1987. Hearing was scheduled for June 2, 1987. On the date of the hearing, debtor reminded the Court that she had appealed several bankruptcy orders, and that those appeals were pending in the Third Circuit Court of Appeals. Notes of Testimony (“N.T.”), June 2, 1987, at 7-9. She also indicated that she was planning to file in the United States Supreme Court a petition for writ of certio-rari or an extraordinary writ covering the May 22, 1986 order converting this case from chapter 13 to chapter 7. N.T. at 9. We took the matter under advisement. to allow the parties to file memoranda and to review the status of the appeals.
Mindful of the Circuit and Supreme Court involvement, and hoping to avoid the confusion incumbent if we allowed the trustee’s sale to proceed only to have it stayed at a later date by the Supreme Court, we entered an order dated June 17, 1987. That order sustained debtor’s objections to the trustee’s sale and stayed all proceedings “... until further order of this Court.” On July 10, 1987, movants filed the instant motion asking that we reconsider our June 17, 1987 order. That motion,3 and debtor’s answer4, were heard on September 22, 1987. We have concluded that the objection5 filed by debtor in response to the initial scheduling of this motion is not applicable because movants amended their motion and the attached orders.
On August 10, 1987, the Clerk of the Supreme Court wrote to debtor informing her that her most recent petition for a stay directed to the Supreme Court had been returned by Justice Byron R. White and marked “denied.”
In light if the motion to reconsider, and the wording of our June 17, 1987 stay order, we must determine whether circumstances exist justifying the continued imposition of the stay. Movants claim that they are now owed $75,000 with a per diem rate of $29.05, adding that they have received no payments during the three year penden-cy of this case. They request that the trustee be allowed to go to sale according to the terms of his April 17, 1987 notice of sale.6 The debtor claims that two payments were refused. She states further that the movants are oversecured. Finally, *221she cites “§ 1325(b)” and “11 U.S.C. 706” for the proposition that she has the “... legal basis to pay the creditor.” Debtor’s Answer, dated July 10, 1987.
Our power to stay proceedings is grounded in the Bankruptcy Rules. Rule 8005 states
“the bankruptcy court may suspend or order, the continuation of other proceedings in the case under the Code or make any other appropriate order during the pendency of an appeal on such terms as will protect the rights of all parties in interest.”
Bankruptcy Rule 8005 (emphasis added). This section “... confers on the bankruptcy judge discretion respecting the stay or continuation of other proceedings in the case while an appeal is pending.” Bankruptcy Rule 8005, Advisory Committee Note.
The Code and Rules enunciate no standard of review for determining whether to terminate a stay. We now exercise the broad discretion granted in Bankruptcy Rule 8005 and 11 U.S.C. § 105(a) to determine that Justice White’s denial of debtor’s petition ended the exact factual scenario that the June 17, 1987 order was designed to prevent. At this point in time, with no appeals7 and no stay ordered by any higher court, we are no longer concerned that an appellate or Supreme Court decision would negate the trustee’s sale.8
We turn next to debtor’s other contentions.9 She presented no competent evidence as to the value of the property. Debtor alludes that the Constitution, Bankruptcy Rules and 11 U.S.C. §§ 1325 and 706 allow her to repay her creditors.
Section 1325 is inapplicable since this case is pending under chapter 7. Section 706 discusses conversions, and does not create any right to repay all creditors. Repayment by the debtor, in fact, in not the goal of a chapter 7 proceeding. Although we are wary of talismanic phrases, the term “fresh start” better accommodates the competing interests, procedures and players on this stage. Repayment by the debtor is one method of achieving a fresh start; other avenues, such as liquidation by a chapter 7 trustee, may also be mandated.
An appropriate order will follow.
ORDER
AND NOW, this 9th day of October, 1987, after notice and hearing, it is hereby ORDERED that
1. the stay imposed by the June 17, 1987 order in this case is lifted;
2. the trustee may proceed to send out notice of sale and proceed to sale, after complying at each step with the Bankrupt*222cy Code and all applicable local and national bankruptcy rules; and
3. the Objections, if any, of the Debtor or other persons or entities may be heard following the noticing by the Trustee of any proposed sales of Debtor’s property.
. Debtor is a professional nursery school teacher who owns and operates a school run from *220two of the three parcels of real estate identified in the trustee’s motion to sell. Her home is on the third property.
. Movants are behind first mortgagee, American (now Meridian) Bank.
. The Day’s motion for reconsideration was filed on July 10, 1987. Pursuant to Local Bankruptcy Rule ("LBR") 9014.1, we entered an order dated July 14, 1987 requiring that the debtor file an answer. This notice was returned to movants’ counsel, along with an order scheduling hearing on this matter for August 25, 1987. He failed to serve this notice on debtor within three days of his receipt of same, as required by L.B.R. 9014.1(d)(1) & (2). By letter dated August 18, 1987, debtor objected to the original motion, alleging that the motion was (1) not served in a timely fashion; (2) deficient because it failed to designate interested parties, and (3) deficient because it was not accompanied by a certificate of service. As a result of the debtor’s objection, the motion was taken off the August 25, 1987 list.
The movants later amended the motion for reconsideration by filing a new order requiring answer and notice of hearing. The docket indicates that these were served in a timely fashion.
. In addition to the August 18, 1987 objection, debtor filed an answer to the motion on August 20, 1987.
. The debtor’s August 18, 1987 objection is not applicable to the amended notice of hearing and order requiring answer. The amendment cured any timeliness problem, as discussed, supra, at n. 3. The order requesting relief, attached to the amended motion, designated the interested parties. Finally, movants filed a certificate of service on August 31, 1987. Thus, we find that the August 18, 1987 objection has no application to the amended motion.
. The original notice requests that the trustee be allowed to consummate the sale on June 24, 1987. Accordingly, we cannot grant movants’ request that the trustee be allowed to proceed in accordance with the original notice of sale.
. On September 25, 1987, debtor filed a Notice of Appeal to the Bankruptcy Appellate Panel, covering this Court’s July 15, 1987 order. No Bankruptcy Appellate Panel exists in this circuit. However, to the extent that is deemed an appropriate appeal, we note that the bankruptcy court retains jurisdiction of the instant matter because debtor is appealing the closing of the nursery school and not the order to sell real estate. Even if the July 15th order could be construed to cover the same subject as the instant matter, we would still retain jurisdiction. A notice of appeal filed before the disposition of a motion for reconsideration is rendered ineffective. See generally, Fed.R.Civ.P. 59(e); Earle Industries, Inc. v. C-Way Enterprises, Inc. (In re Earle Industries Inc.), Case No. 86-00869, Adv. No. 86-03976G, Slip op. at 2 (E.D.Pa. February 25, 1987) cf. In re Wavelength, Inc., 61 B.R. 614, 618 (9th Cir. BAP 1986)
. We note that the conditions precedent for imposition of a stay no longer exist: 1) the likelihood of success on the merits (on appeal); 2) irreparable injury if the stay is not granted; 3) absence of substantial harm to other interested persons, and 4) absence of harm to the public interest. Hickey v. Commandant of Fourth Naval District, 464 F.Supp. 374, 376 (E.D.Pa.1979), cited in Commonwealth National Bank v. Dobslaw, 20 B.R. 922 (Bankr.E.D.Pa.1982), aff’d 712 F.2d 864 (3d Cir.1983) (consolidated with other cases), U.S. cert. den., 456 U.S. 1024, 104 S.Ct. 1279, 79 L.Ed.2d 683, reh. den., 466 U.S. 963, 104 S.C. 2183, 80 L.Ed.2d 564. In the instant case, no likelihood of success on the merits exists because no appeal of the stay order is pending.
.Debtor also refers to a “practice” of another district in which, she alleges, chapter 7 debtors are allowed to pay creditors directly to avoid "... needless liquidation." We are not familiar with this alleged practice. We note simply that this court has not presumed to modify the Bankruptcy Code and Rules to allow chapter 7 debtors carte blanche to repay creditors directly. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490582/ | ORDER OVERRULING MOTION FOR LEAVE TO FILE AMENDED COMPLAINT
BARBARA J. SELLERS, Bankruptcy Judge.
This matter is before the Court upon a motion filed by plaintiffs Burt D. Miskimen and the Domoney Corporation, seeking leave to amend their previously filed complaint. That motion was opposed by defendant Thomas H. Vennon. For reasons stated below, the Court finds that plaintiffs’ motion should be overruled.
The Court has jurisdiction over this adversary action which arose under Title 11 of the United States Code pursuant to 28 U.S.C. § 1334 and the General Order of Reference entered in this district. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I).
Rule 15 of the Federal Rules of Civil Procedure governs the amendment of pleadings. Specifically, Rule 15(c) provides for relation back of an amendment if the “claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading.” In this adversary, without such relation back, plaintiffs’ amendments would be time-barred since the time to assert an exception to dischargeability had previously elapsed and could no longer be extended by the Court. Bankruptcy Rules 4007(c) and 9006(b)(3).
Plaintiffs’ original complaint seeks to except from the operation of Vennon’s discharge obligations arising from fourteen (14) promissory notes in principal amounts totalling $48,181.97. No reference is made in that complaint, however, to obligations arising from three (3) notes of different dates totalling $4,640.00 and certain guaranty obligations in the total amount of $9,768.96.
Although paragraphs 5 and 10 of the original complaint refer to the endorsement of liens by plaintiffs against certain trailers and allege temporary embezzlement or conversion of the use of the trailers, no obligations associated with the purchase of these trailers are referenced in any manner. To permit plaintiffs now to amend a complaint by adding previously time-barred causes of action would be an impermissible circumvention of Bankruptcy Rule 4007(c). See In re Lemmerman, Bankr.L.Rptr. ¶ 62,905 (CCH) (Bankr.D.Ct.1968).
Based upon the foregoing, plaintiffs’ motion seeking leave to amend their complaint shall be, and the same is, hereby, OVERRULED.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490583/ | ORDER OVERRULING OBJECTION TO CONFIRMATION (BELL FACTION OF BOARDS OF TRUSTEES)
BARBARA J. SELLERS, Bankruptcy Judge.
This matter is before the Court upon an objection to confirmation of the Plan of Reorganization proposed by The Adrian Company, subsequently modified to become a plan of reorganization jointly proposed, not only by Adrian, but also by the Flowers faction of the boards of trustees of Mount Vernon Plaza Community Urban Redevelopment Corporations I, II and III and Bry-den Road Plaza, Inc. (the “Plan”). The objection was filed by Gladys Bell, Estelle Porter and Elminie Rickman (the “Bell faction”), asserted members of the boards of trustees of the debtor corporations, and was heard by the Court.
The Bell faction’s objection to confirmation falls into four major categories: (1) issues relating to authority and jurisdiction; (2) issues relating to the omission from the Plan of a related corporate entity, Neighborhood Development Corporation; (3) the feasibility of the Plan; and (4) alternative courses of action available to the debtors. For reasons set forth below, the Court finds the objection to be without merit.
This case has been marked from its onset by deep personal rifts among members of the governing boards of trustees of these non-profit corporations. Since the case was transferred to this Judge, significant court time has been spent hearing of the need for professional management of the highrise apartments, family units and commercial spaces which comprise the primary physical assets of the debtors. Following the appointment of a managing agent, by agreement of the parties, the Court has supervised that agent, primarily because the board factions are unable to communicate or cooperate with one another. Because of certain frictions, the adversary action seeking a declaratory judgment as to the proper composition of the boards, now in active trial, has also required greater than average court intervention in the pretrial process.
These events are mentioned only as background relevant to understand the context of the objection. The objection also requires the Court to focus upon the statutory process under the Bankruptcy Code by which a non-debtor entity is permitted and encouraged to propose and seek confirmation of a plan of reorganization, independent of actions by the debtors, outside a 120-day exclusive period within which only the debtors may propose a plan. 11 U.S.C. § 1121.
The jurisdiction of this Court cannot seriously be questioned. To commence what is now a jointly administered case, four voluntary petitions under Chapter 11 of the Bankruptcy Code were filed with this Court on September 26,1986. At that time, jurisdiction of the Court was invoked pursuant to 28 U.S.C. § 1334(a). Indeed, there is no *308other Court which would have bankruptcy jurisdiction over these matters. While the split among the members of the boards of trustees has impacted upon the abilities of the debtors to govern themselves during the pendency of these cases, nothing has occurred to divest this Court of the jurisdiction invoked by the initial filings.
Following a lengthy trial on motions filed by the Bell faction and by the Mount Vernon Highrise Residents’ Council of Mount Vernon Plaza Community Urban Redevelopment Corporation I, the parties reached a settlement which provided for the appointment of a managing agent. The agreement setting forth that settlement was approved by the Court on April 24, 1987. Section 3.1 of that settlement agreement provides, with certain nonapplicable exceptions and subject to § 3.2, that:
“[t]he Flowers faction shall continue to operate as representatives of the debtors and debtors in possession in each of the above captioned cases until further order of the Court. As representatives of the debtors and debtors in possession, the Flowers faction shall have all rights and duties resulting from such status under the Bankruptcy Code and Rules and other applicable law that they had prior to the entry of this order ...
§ 3.2. The Flowers faction as representatives of the debtors and debtors in possession, as well as the debtors and the debtors in possession themselves, hereby waive the exclusive right to propose, file and/or seek confirmation of a Plan of Reorganization in each of the above captioned cases. However, the Flowers faction may, as representatives of the debtors or debtors in possession, propose, file, and seek the confirmation of a Plan of Reorganization in any of the above captioned cases on behalf of debtors and debtors in possession.”
The Court finds that the sections of the Order set forth above, agreed to by the representative of the Bell faction, clearly and unambiguously authorize the Flowers faction to join in the proposal of a plan of reorganization. Such provision also effectively waives any issue of the authority of that faction to proceed with the confirmation process. The Bell faction was also eligible, pursuant to the preservation of its rights and duties under the Bankruptcy Code as set forth in other provisions of that settlement agreement, to propose its own plan of reorganization or to join forces with a third party for that purpose. In fact, it has done exactly that in a recent plan filed with the Court. That a viable proposal first has been brought forward by the Flowers faction is, therefore, not a matter of which the Bell faction may properly complain. Accordingly, objections to the jurisdiction of this Court or the authority of the Flowers faction to act in this regard are overruled.
The next issue raised by the Bell faction’s objection relates to the propriety of omitting Neighborhood Development Corporation (“NDC”) from the Plan. Under the Articles of Incorporation of the debtors, NDC is the sole member of each corporation within the provisions of Ohio Revised Code, § 1702.13. The objection asserts not only that NDC must be included by virtue of that membership, but also that the five corporations are but one entity insofar as creditors are concerned.
The Court finds that, although NDC is a separate non-profit corporation which is not part of the Plan submitted for these related debtors, the Plan proposes payment for many of NDC’s creditors. Specifically, any creditors of NDC which provided money, goods or services for the properties owned and operated by these debtors are to be paid in full from the cash proceeds of the sales of those properties contemplated by the Plan. The Plan anticipates that all currently existing unsecured creditors of NDC will be paid in this matter. The Plan also proposes to pay approximately $250,-000 to the Ohio Housing Finance Agency, a creditor of NDC which holds mortgages against various properties owned by NDC. Holders of other secured claims against NDC have been or are being paid through sales of the properties to which their liens relate or by abandonment of the properties to the lienholders. Claims arising from NDC’s involvement with the operation of *309the Singletary Plaza are not proposed to be paid under the Plan of these debtors.
The Court finds further that all creditors of NDC were given notice of the confirmation hearing and were served copies of the Amended Disclosure Statement and Plan of these debtors. None have complained of their exclusion. In addition, the Court believes that, as a matter of law, the creditors proposed not to be paid under the Plan would have no right to look to the assets of these debtors for payment of their obligations. There is no evidence any of them provided goods or services to these debtors or in any way relied upon the assets or credit-worthiness of these debtors. Simply because one substantial creditor, which performed construction services for these debtors under a contract with NDC, has been able to look to the resources of all the entities for repayment does not indicate that all of NDC's creditors are similarly situated. Accordingly, the Court finds that the failure of the joint proponents of the Plan to include NDC in their Plan or to provide for repayment of all NDC’s creditors, regardless of the basis for such claims, is without legal significance and is not an impediment to confirmation.
The Bell faction has also challenged the feasibility of the Plan, which, as proposed, provides that Shiloh-Grove, Ltd. (“Shiloh-Grove”), a newly formed Ohio limited partnership, will purchase the assets of the debtors for $18,000,000 or the appraised value of the debtors’ assets, whichever is higher. Shiloh-Grove will have three general partners: The Adrian Company, Shiloh — A City Set On a Hill (“Shiloh”), and Union Grove Church Organization Incorporated (“UGCO”). Reliance upon the financial resources of Shiloh or UGCO is not contemplated by the Plan. Shiloh’s limited partners will most likely be investors from an institutional financial organization utilizing funds from entities for whom investments of this nature are sought to provide certain tax benefits. Low income housing tax credit authority in the amount of $817,500 has conditionally been reserved by the Ohio Housing Finance Agency for application to the contemplated purchases if the Plan is approved by this Court and the proposed purchases receive the approval of HUD. It was also the testimony of representatives from Miller & Schroeder, investment bankers (“Miller”), that the probability of obtaining such investment is very high, given the fewer incentives for favorable tax treatment for real property investments resulting from recent amendments to the Internal Revenue Code.
As further support for feasibility of the Plan, Miller has performed an economic feasibility analysis of the Plan’s provisions. Miller’s representative testified as to the existence of blind pools with available funds which have interest in the specific type of project represented by the debtors’ properties. Miller’s estimate is that only 30-90 days will be required to conclude the purchases contemplated by the Plan, and that the probability of such closings prior to the end of 1987 is very high. Although the financial success of the proponents is not, and cannot be assured, the Court is convinced that the economic feasibility of the Plan is greater than that of most plans of reorganization presented to this Court. The interested institution is one of good reputation, other viable parties exist, and the time within which the transactions are likely to occur is relatively short.
In addition to the financial arrangements and the limited partnership agreement, Shiloh-Grove and Adrian, Inc., the managing arm of The Adrian Company, have entered into an agreement pursuant to which The Adrian Company, by its related entity Adrian, Inc., will actively manage the properties and have authority to make certain decisions. That agreement sets forth policies for those decisions which are consistent with Congressional intentions relating to the operations and goals of federally assisted “Model City” properties such as those of the debtors. At the end of the initial two-year period, the governing board of Shiloh-Grove becomes vested in a board of 7 with 4 from Shiloh, 1 from The Adrian Company and 2 from UGCO. It has also been agreed that if the governing board constituted after that initial period determines not to rehire Adrian, Inc. as the manager of the *310real properties, some other professional managing agent, approved by The Department of Housing and Urban Development (“HUD”), will be chosen. While these matters are not especially relevant to the economic feasibility of the Plan within the meaning of 11 U.S.C. § 1129(a)(ll), they serve to address feasibility in a larger social sense evidenced by the concerns of some of the parties and of this Court that the sale of the debtors’ properties will keep intact, as much as possible, the social aspirations of that model community, preserve local control over its development, and provide for significant involvement by organizations which are active in the black community of Columbus, Ohio. Insofar as it is possible to predict, the Plan appears to satisfy most of those concerns.
Finally, the objection of the Bell faction raises the issue of alternative courses of action open to the debtors as reason to disapprove the Plan. Specifically, the assertion is made that a sale may not be necessary, that such a sale frustrates the purposes of Chapter 11, and that another Plan has been filed by the Bell faction. None of those reasons, however, are appropriate or sufficient as a matter of law. 11 U.S.C. § 1123(a)(5)(D). Reorganization clearly contemplates sales of all or part of debtors’ assets. So long as a proposed plan satisfies the tests for confirmation set forth in 11 U.S.C. § 1123(a) and § 1129, the Court does not decide if the Plan is correct in proposing a sale. That process is one which is generally negotiated and accepted by creditors. This Plan has been accepted overwhelmingly by creditors of the debtors, including the Official Creditors Committee in Mount Vernon Plaza Community Urban Redevelopment Corporation I, and meets all tests for confirmation. That the Bell faction’s plan might also meet such tests, were that process to continue to unfold, is not reason to delay confirmation of this Plan nor impose control of that process by the Court. As an irrelevant but curious aside, it appears that the Bell faction’s proposal, which also contemplates a sale, largely tracts the Plan before the Court.
Consistent with the foregoing, the objection to confirmation filed by Gladys Bell, Estelle Porter, and Alminie Rickman shall be, and the same is, hereby, OVERRULED. The Court will proceed to confirm the Plan upon submission by the Joint Proponents of an appropriate order of confirmation. Such order shall set forth, restated in correct form, the final wording of Paragraph 8 of Article V of the Joint Amended Plan of Reorganization.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490584/ | ORDER DENYING MOTION TO REOPEN CASE
BARBARA J. SELLERS, Bankruptcy Judge.
This matter is before the Court upon a motion filed on behalf of debtor, William Clifton Brice, seeking to reopen this closed Chapter 7 bankruptcy case to accord relief to the debtor pursuant to 11 U.S.C. § 350. The motion was orally opposed on behalf of Geneva Brice, the debtor’s ex-wife, and was heard by the Court.
William and Geneva Brice were divorced in 1977. The terms of the divorce decree in that action obligated William Brice to pay an obligation of both parties to Ohio Central Financial Services, Inc. (“Central”) for a car awarded to him.
In 1983, William Brice filed his Chapter 7 bankruptcy case. He listed Central as a creditor, but failed to list Geneva Brice. William Brice claims that Geneva Brice was, nevertheless, actually aware of his bankruptcy case. Geneva Brice denies that knowledge.
Recently, Geneva Brice learned that Central had a judgment lien against her home for the obligation that William Brice discharged in his bankruptcy for which her liability remains. That realization apparently prompted her to bring an action for contempt in the Domestic Relations Division of The Court of Common Pleas, Franklin County, Ohio. The issue of the dis-chargeability of William Brice’s obligation to hold his ex-wife harmless was raised in that proceeding, and that court determined that the debtor’s obligation to Geneva Brice survived his bankruptcy. That order was not appealed. If this case is successfully reopened, William Brice intends to remove to this Court that action which resulted in a judgment of contempt against him.
Regardless of the correctness of the Domestic Relations Court’s determination of the dischargeability of William Brice’s obligation to Geneva Brice, this Court believes it would be inappropriate to reopen a case for the purpose of considering an issue of the dischargeability of a debt where there has been a post-petition judgment by another court in which the issue of the dischargeability of that debt has been determined. Consideration of that issue by this Court at this time would be an inappropriate use of its powers.
Dischargeability issues over which the Bankruptcy Court’s jurisdiction is concurrent with that of the state courts are often litigated in the first forum in which an action is initiated after the bankruptcy case has been concluded. Once that issue of dischargeability has been conclusively determined by a court of competent jurisdiction, neither this court nor any other court is free to reopen that judgment. While that result may, in certain circumstances, reward the party who first selects the forum to test the dischargeability issue, the non-exclusivity of jurisdiction over the dischargeability of certain obligations mandates that result.
Consistent with the foregoing, the Court finds that no relief could be afforded to William Brice by reopening this case. Accordingly, the motion to reopen is, hereby, DENIED.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490585/ | MEMORANDUM AND ORDER
KENNETH J. MEYERS, Bankruptcy Judge.
This matter is before the Court on debtors’ Objection to Proof of Claim filed on behalf of Bradford Supply Company. The relevant facts are as follows:
Debtors filed their Chapter 11 petition on September 5,1986 in the Bankruptcy Court for the Central District of Illinois. The case was subsequently transferred to the Southern District and was received by this Court on September 15, 1986. (The first document filed by this Court was an “Order for Amendment of Schedules,” which was file-stamped September 15, 1986.) Pri- or to the filing of the bankruptcy petition, Bradford Supply sued debtors in state court for $99,067.62, the sum due on an open account. On June 4, 1986 the following docket entry was made in state court:
Plaintiff appears by counsel. Parties stipulate Defendant owes Plaintiff the sum of $90,000 and if no execution in 90 days, then Plaintiff granted leave to have execution. Memorandum to be filed. Signed order to be filed.
A Judgment Order was signed and filed on June 11, 1986. In the interim between June 4th and June 11th, and specifically on June 5th and 6th, Bradford Supply filed Memoranda of Judgment against debtors in Crawford, Clark and Cumberland Counties, Illinois. Bradford Supply now claims, as a result of those memoranda, a secured interest in all of debtors’ real property located in the above counties. Debtors claim that 1) the June 11, 1986 Judgment constitutes an avoidable preference under 11 U.S.C. § 547(b); and 2) execution on the judgment was stayed for ninety days, and Bradford Supply’s lien, which was recorded during the stay of execution, is therefore invalid.
In Anastos v. M.J.D.M. Truck Rentals, Inc., 521 F.2d 1301 (7th Cir.1975), cert. den. 424 U.S. 928, 96 S.Ct. 1142, 47 L.Ed.2d 338 (1976), the court held, “In order to create a lien on real estate in Illinois, a recorded judgment ‘must possess two qualifications: First, it must be final and for a definite sum; and second, it must be such a judgment that execution may issue thereon.’ ” *391Id. at 1303 (emphasis in original). Illinois Supreme Court Rule 272 addresses the question of whether a judgment is final:
If at the time of announcing final judgment the judge requires the submission of a form of written judgment to be signed by him, the clerk shall make a notation to that effect and the judgment becomes final only when the signed judgment is filed.
Ill.Rev.Stat. ch. 110A, 11272. “Under that rule if the judge requires a written judgment to be signed by him, the judgment becomes final only when the signed judgment order is filed.” Davidson Masonry & Restoration, Inc. v. Wroan & Sons, Inc., 2 Ill.App.3d 524, 275 N.E.2d 654, 655 (1971). See also Anastos, 521 F.2d at 1304.
In the present case, the docket entry clearly states “Signed order to be filed.” Under the authority cited above, the state court judgment was therefore not final until the signed Judgment was filed on June 11, 1986. At the hearing on debtors’ objection, Bradford Supply appeared to agree that the judgment did not become final until June 11, 1986, but argued nonetheless that 1) a valid lien was created, under Ill.Rev.Stat. ch. 110, II12-101, when the Memoranda of Judgment were filed on June 5th and 6th; and 2) since debtors filed their bankruptcy petition more than ninety days after June 6, 1986, the lien is not voidable under 11 U.S.C. § 547(b). This argument directly contradicts the Anastos decision, which holds that in order to create a valid lien on real estate in Illinois, a recorded judgment must be final. Anas-tos, 521 F.2d at 1303. Furthermore, the notes following Rule 272 provide, in part, as follows:
In the interim between the announcement of a final judgment in which the judge requires the submission of a form of written judgment and the actual signing of the written judgment, the proceedings are in a state of temporary abeyance. The announcement of the final judgment cannot be attacked by motion, cannot be appealed from, and cannot be enforced.
Ill.Rev.Stat. ch. 110A, 11272, Historical and Practice Notes (emphasis added). See also Archer Daniels Midland Co. v. Barth, 103 Ill.2d 536, 83 Ill.Dec. 332, 470 N.E.2d 290, 292 (1984). As noted by counsel for debtors, since the judgment was not final and could therefore not be enforced, filing the memoranda to enforce the judgment has no legal effect and does not create a valid lien.
Bradford Supply argues, in the alternative, that debtors’ bankruptcy petition was not filed until September 15,1986, the date this Court received the case from the Central District. If so, then even if June 11, 1986 is the first date that Bradford Supply’s lien became valid, no preference exists since the bankruptcy petition was filed more than ninety days later. The case cited by Bradford Supply, In re Griggs, 679 F.2d 855 (11th Cir.1982), does not support its position that the filing date in this case is September 15th. For the reasons noted below, however, the Court need not determine whether the petition was filed September 5th or September 15th.
The Judgment entered on June 11, 1986 provided that “execution shall issue on this Judgment and said execution is hereby stayed for a period of 90 days from the date of this Judgment.” A recording during a stay of execution does not create a valid lien. Anastos, 521 F.2d at 1304. “[W]hen the deficiencies preventing attachment of a judgment lien are removed, the lien arises as of that date, and does not relate back to any earlier time.” Id. (citations omitted).
In the present case, therefore, Bradford Supply’s lien could not attach until September 9, 1986 when the stay of execution was no longer in effect. Thus, even assuming that the bankruptcy petition was filed September 15, 1986, Bradford Supply’s lien, which became effective on September 9th, clearly constitutes an avoidable preference under section 547(b).
Accordingly, for the reasons stated above, debtors’ Objection to Proof of Claim is SUSTAINED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490587/ | SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE came before the court for trial on September 22, 1987 upon the complaint of the trustee objecting to the claim of Slauko Kohut (the claimant), and to determine the validity, priority and amount of a lien held by the claimant and for declaratory relief. The Court having heard the testimony and examined the evidence presented, observed the candor and demeanor of the witnesses, considered the arguments and memorandum of counsel, *506makes the following Findings of Fact and Conclusions of Law.
The claimant claims a secured interest in real property amounting to $850,000.00, plus interest and costs. The trustee seeks a determination that there is no valid claim due the claimant and further requests that the mortgage which secures the purported obligation be declared unenforceable and not a lien on the property of the estate.
The relevant facts are set forth as follows. Ocean Beach Club, Inc. (the debtor) is engaged in business as a time share resort. The debtor was organized on October 27, 1981. On April 28, 1986 involuntary proceedings for relief were commenced against the debtor and subsequently, on June 12, 1986, were converted to a Chapter 11 proceeding with a trustee being appointed. The trustee's plan of reorganization deals with the property which is the subject matter of this lawsuit. In summary, the plan provides for the debtor to retain the following described real property:
“Lots 8, 8a, 9 and 9a, Block 6, KEY COLONY BEACH SUBDIVISION, as recorded in Plat Book 3, Page 120 of the Public Records of Monroe County, Florida; AND
A fractional interest in all of that parcel of real property described as Lots 10, 10A, 11, 11 A, Block 6, KEY COLONY BEACH SUBDIVISION, recorded in Plat Book 3, Page 120 of Public Records of Monroe County, Florida, and for all adjacent submerged land southerly thereof and adjacent thereto, together with all improvements thereon and together with the exclusive right to occupy Unit Numbers and Week Numbers (per the attached schedule) as said Unit and Week Numbers are numbered and described in the Declaration of Covenants, Conditions and Restrictions for the OCEAN BEACH CLUB, recorded in Official Record Book 857, at Page 1628 in the Public Records of Monroe County, Florida.
A portion of the foregoing property, Lots 8, 8a, 9 and 9a, Block 6, of Key Colony Beach Subdivision is to be transferred to the debtor as part of the confirmation process. The trustee argues that the property should be declared a part of the estate free and clear of the mortgage interest of the claimant.
On May 4, 1983, the debtor, acting through its then president and stockholder, Herbert Pausch, executed and delivered to the defendant a promissory note in the amount of $850,000.00. The promissory note provides for interest as follows: “Interest is set out in special agreement between the parties.” The note was executed in Florida and provides that it is to be construed and enforced according to the laws of the State of Florida. The note is signed by Pausch, individually, and is secured by the above described mortgage. The mortgage was recorded more than two years after execution, on May 28, 1985.
The essential dispute between the parties concerns the amount due and owing from the debtor to the claimant. The trustee contends that there is no amount due and owing to the claimant and furthermore, contends that an objective analysis of the transactions, demonstrates that the transaction is criminally usurious as defined by Florida Statute § 687.071 and therefore unenforceable. The financial statement for the year ending September 30, 1983 does not show the existence of any obligation due to the claimant. Furthermore, the Debtor’s books and records, which were reviewed by the accounting firm which prepared the statement, as received in testimony through the certified public accounting firm which formerly rendered accounting services for the debtor, does not disclose the existence of any advance by the claimant to the debtor. The claimant asserts that the consideration for the mortgage is represented by certain loans made to Pausch in 1977 as evidenced by an urkunde (a type of German agreement) signed in January 1981 and through certain cash advances to Pausch in 1983. The claimant further asserts that additional consideration was paid in Germany, in German marks, in cash. The claimant has made no effort to produce or secure the testimony of Pausch. Furthermore, the claimant does not maintain any books and *507records that could be used to corroborate the advance nor does he have any cancelled checks or bank statements demonstrating receipt by the debtor of any portion of the alleged consideration for the loan. Pausch is a German national who is in prison in Germany for violation of the fiscal laws of that nation. The defendant is similarly a resident of Germany who has known Pausch since 1969. In a German domestic relations proceeding, the claimant made a materially inconsistent statement concerning a debt due the claimant from the Ocean Beach Club, Inc. Furthermore, the claimant has been convicted in Germany of a crime involving dishonesty. The Court finds that in light of the overall factual circumstances, the financial statement of the debtor constitutes the best evidence of the amount due and owing the claimant; i.e., nothing. The Court further finds that no actual loan proceeds were received by the debtor.
The trustee has further offered expert analysis of the transactions involving the claimant and Pausch as testified to by the claimant. This testimony demonstrates that the loan transaction and the interest amount in the loan transaction was in excess of thirty percent (30%) and therefore, supports the trustee’s position that the transaction is unenforceable under Florida law. See Fla.Stat. § 687.071. However, since the Court found that the debtor does not owe the claimant any money, it is not necessary to reach a factual finding or legal conclusion concerning this issue.
Based upon the foregoing, the Court finds that the trustee’s objection to the claim should be sustained and that the mortgage should be determined to be invalid.
Concerning the real property, the trustee has, as of the commencement of the case, and without regard to any knowledge of the trustee or any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation that is incurred by the debtor that is voidable by a bona fide purchaser. See 11 U.S.C. § 544(a)(3). Furthermore, the estate may assert all defenses available to the debtor against any other entity, including usury and other personal defenses. See 11 U.S.C. § 558. In Florida, an owner of property may defend a mortgage foreclosure by showing that no debt is due. Chaykin v. Kant, 327 So.2d 793 (3rd DCA 1976); Pelle v. Glantz, 349 So.2d 732 (3rd DCA 1977). Accordingly, this defense is available to the trustee to invalidate the mortgage. The determination that the mortgage is invalid also extends to the trustee’s request for declaratory relief that the property that will become part of the estate, pursuant to the Plan of Reorganization, is unencumbered by the subject mortgage. Property of the estate includes property which the estate acquires after the commencement of the case. See 11 U.S.C. § 541(a)(7). Therefore, the Court further finds that it has subject matter jurisdiction over the entire dispute.
Pursuant to Bankruptcy Rule 9021 a separate final judgment will be entered in accordance herewith. The final judgment will sustain the objection of the trustee and declare the claim stricken. The final judgment will further declare that the mortgage previously described does not constitute a lien on any of the property dealt with by the plan of reorganization and is otherwise unenforceable. The entry of these findings is without prejudice to the claimant to pursue any remedy he may have against Pausch, individually. The Court will consider taxation of costs on appropriate motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490588/ | OPINION
BRUCE I. FOX, Bankruptcy Judge:
As a component of preference litigation initiated by the debtor, the parties here seek a determination of the relative priority of ITT’s security interest in certain property of the debtor. Although the issue presented for decision is narrow, I am required to interpret an ambiguous section of the Uniform Commercial Code involving priorities among conflicting security interests in the same collateral. Ultimately, based on the facts submitted and giving due consideration to the purposes underlying the disputed provision, I conclude that ITT’s purchase money security interest has priority over the competing earlier non-purchase money security interest held by another creditor.
I.
At bottom, Diaconx seeks to set aside a preference pursuant to 11 U.S.C. § 547. Diaconx Corporation (“Diaconx”) alleges that it paid the defendant, ITT Corporation (“ITT”), $43,199.06 during the ninety days prior to its bankruptcy filing and that the full amount of those payments is recoverable as a preference.1 The heart of ITT’s response is that it held a purchase money security interest in certain property of Dia-conx and that the payments it received prior to bankruptcy do not exceed the amount ITT was entitled to receive in a liquidation. See 11 U.S.C. § 547(b)(5). Central to ITT’s argument is the extent and priority of its security interest in Dia-conx’ property.
The only issue which has been presented to me at this juncture in the proceeding involves the status of ITT’s security interest vis-a-vis Hamilton Bank, (“Hamilton”), another secured creditor of Diaconx.2 All of the relevant facts are undisputed. The parties agree that in April 1984, Hamilton Bank obtained a perfected security interest in property of the debtor, including after-acquired inventory, and that ITT later obtained a perfected purchase money security interest in certain inventory thereafter obtained by the debtor. They further agree that ITT gave notice to Hamilton of its *604security interest before Diaconx received the property at issue here, but only after ITT had perfected the security interest by filing.
Given these undisputed facts, the parties’ differences about the priority of the respective security interests are based solely on their irreconcilable interpretations of UCC § 9-312. Diaconx’ position is that ITT’s failure to give notice of the lien claim to Hamilton, prior to perfection, subordinates ITT’s security interest to that of Hamilton. ITT responds that it is sufficient to provide notice prior to Diaconx obtaining the relevant inventory, in order to establish its priority vis-a-vis Hamilton.3
II.
In general, the Uniform Commercial Code preserves the rule that security interests in the same property have priority established in the order in which they are perfected. UCC § 9-312(5).4 . However, section 9-312 contains several exceptions to this general rule. Among them is a provision which allows the holder of a perfected purchase money security interest (PMSI) in inventory to obtain priority over a prior perfected holder of a security interest in the after-acquired property. UCC § 9-312(3). Pursuant to UCC § 9-312(3)(b), in order to obtain a first lien priority in that inventory for which it provided purchase money, the PMSI lien claimant must notify the creditor holding a conflicting security interest in after acquired property. Failure to do so results in subordination of the PMSI creditor’s claim. See Lavonia v. Emery Corp., 52 B.R. 944 (E.D.Pa.1985); In re Perrotto Refrigeration, Inc., 38 B.R. 284 (Bankr.E.D.Pa.1984); Bigelow-Sanford, Inc. v. Security-Peoples Trust Co., 31 UCC Rep. 1477 (C.C.P. Erie Co., Pa.1981) aff'd 304 Pa.Super. 167, 450 A.2d 154 (1982). It is the timeliness of ITT’s notice to Hamilton which is at issue here.
The dispute in this case emerges from an unresolved ambiguity in revised UCC § 9-312(3). The ambiguity at issue has been recognized and discussed by several commentators. See Baker, The Ambiguous Notification Requirement of Revised UCC section 9-312: Inventory Financier Beware! 98 Banking L.J. 4 (1981) (“Baker”); Clark, Law of Secured Transactions Under the Uniform Commercial Code, ¶ 3.9[3][a] at S3-58 (Cumulative Supplement No. 3, 1986) (“Clark”).
The statutory provision which created this dispute reads as follows:
Purchase money security interest in inventory. — A perfected purchase money security interest in inventory has priority over a conflicting security interest in the same inventory and also has priority in identifiable cash proceeds received on or before the delivery of the inventory to a buyer if:
(a) the purchase money security interest is perfected at the time the debt- or receives possession of the inventory;
(b) the purchase money secured party gives notification in writing to the holder of the conflicting security interest if the holder had filed a financing statement covering the same types of inventory;
(i) before the date of the filing made by the purchase money secured party; or
(ii) before the beginning of the 21-day period where the purchase money security interest is temporarily perfected without filing or possession (section 9304(5));
*605(c) the holder of the conflicting security interest receives the notification within five years before the debtor receives possession of the inventory; and
(d) the notification states that the person giving the notice has or expects to acquire a purchase money security interest in inventory of the debtor, describing such inventory by item or type.
(emphasis added). UCC § 9-312(3).
The nature of the ambiguity has been most succinctly stated by Professor Clark:
Do subparagraphs (i) and (ii) in Rev. § 9-312(3)(b) refer to the phrase “if the holder had filed,” or to the phrase “the purchase money secured party gives notification”? If subparagraph (i) refers back to the phrase “if the holder had filed,” then the written notification could occur after the purchase money party had filed himself and the key would be the time of delivery of the inventory. If subparagraph (i) refers back to the phrase “the purchase money secured party gives notification,” then the notice must predate the purchase money party’s own filing.
Clark, ¶ 3.9[3][a] at S3-59.
In the instant case, needless to say, ITT did not notify Hamilton of its purchase money security interest in inventory until after it had filed its financing statement. The parties have stipulated that the events occurred in the following sequence:
1. April 10, 1984 — Hamilton perfected its security interest in debtor’s current and after acquired property including inventory by filing a financing statement.
2. October 24, 1984 and October 26, 1984 — ITT perfects its purchase money security interest in debtor’s inventory by filing a financing statement.
3. December 5, 1984 — ITT notifies Hamilton of its security interest by certified mail.
4. August and September, 1985 — the debtor obtains certain inventory with ITT purchase money; Diaconx subsequently repaid ITT $43,199.06 for that inventory which it now seeks to recover as a preference.
Diaconx contends that ITT’s failure to provide notice of its security interest to Hamilton before filing its financing statement constitutes failure to comply with UCC § 9-312(3)(b)(i), thus rendering its security interest subordinate to that of Hamilton. In response, ITT contends that its notice to Hamilton on December 5, 1984 established its priority as to items obtained by Diaconx with ITT funds after that date. In making its argument, ITT relies on apparently the only case which has decided this issue: King’s Appliance & Electronic Inc. v. Citizens & Southern Bank of Dublin, 157 Ga.App. 857, 278 S.E.2d 733 (Ga.Ct.App.1981).
III.
Under the prior version of the Uniform Commercial Code, former § 9-312(3), it was clear that a perfected PMSI creditor could obtain priority as to personal property for which it supplied purchase money by giving notice, to other creditors whose security interests would attach to the inventory as after-acquired property, at any time before the debtor obtained possession of the collateral. See 12A P.S. § 9—312(3)(b) (repealed 1979); King’s Appliance. When the Code was revised, however, section 9-312(3) was altered in both form and substance. In particular, this provision was amended to allow a PMSI creditor to retain priority in identifiable cash proceeds of the sale of the secured inventory. Additionally, the language of 9-312(3)(b) was altered so as to determine which holders of competing security interests were entitled to notice. See King’s Appliance, 278 S.E.2d at 736.
Unfortunately, in making this revision, the drafters also created the ambiguity which is at issue here. Because the statute is indeed ambiguous as to the time limitation for the required notice, it is necessary to examine the intent of the drafters in promulgating and revising the provision at issue. If possible, the statute must be interpreted consistently with its purpose. *606See In re Daily Corp., 72 B.R. 489 (Bankr.E.D.Pa.1987).
The original purpose of the notice provision is stated in the Draftmen’s Comment to 1962 Official Text appended to former UCC § 9-312:
The reason for the additional requirement of notification is that typically the arrangement between an inventory secured party and his debtor will require the secured party to make periodic advances against incoming inventory or periodic releases of old inventory as new inventory is received. A fraudulent debtor may apply to the secured party for advances even though he has already given a security interest in the inventory to another secured party. The notification requirement protects the inventory financer in such a situation; if he has received notification, he will presumably not make an advance; if he has not received notification (or if the other interest does not qualify as a purchase money interest), any advance he may make will have priority.
This concern is generally addressed by permitting a PMSI creditor to establish priority over earlier perfected creditors holding competing security interests as long as those competing creditors were notified of the priority claim before the new inventory is received by the borrower. In fact, as discussed above, this was the unambiguous requirement of the 1962 version of § 9-312(3).
Upon revision of this subsection in 1972, the purpose for the changes was expressed in the Draftsmen’s Statement of Reasons for the 1972 amendments. That statement does not. mention any intent by the drafters to alter the time deadline for notification by a PMSI to competing secured creditors. The statement does, however, mention at U(2)(b):
(b) [Addition of subsection ii to 9-312(3)(b) ] answers the question of the priority status of the security interest in inventory temporarily perfected for 21 days without filing or perfection in a situation which begins with release of a pledged document under Section 9-304(5). The answer provided is the usual rule that the purchase-money claimant to preserve his priority resulting from the document must give the required notice before the debtor receives possession of the inventory. If the secured party fails to give timely notice, he loses his priority under this subsection.
See UCC 9-312(3)(b)(ii).
The language of the Draftsmen’s Comment demonstrates that no change was intended in the “usual rule that the purchase money claimant to preserve his priority resulting from the document must give the required notice before the debtor receives possession of the inventory.” Id. Since subsection (ii) thus cannot be read to work a change of the date on which notice was required in the prior version of the Code, subsection (i), which bears the same relationship to the provision as a whole, similarly should not be read to work such a change. The drafters clearly contemplated that the “usual rule” would remain in effect. See Baker, 98 Banking L.J. at 11-13.
Nothing in the revised UCC or in the various Draftmen’s statements indicate that a requirement of notice prior to perfection was proposed or intended. Had the drafters intended a major change in the 1962 code, they would have said so more clearly. See Young v. Kaye, 443 Pa. 335, 279 A.2d 759 (1971). Absent a clear statement of intention to create an important substantive change in prior law, basic principles of statutory construction require that the revised law be interpreted consistently with the prior provision. 1A Sands, Sutherland Statutory Construction, § 22.30 p. 266 (4th Ed. 1985): “an amend-atory act is not to be construed to change the original act or section further than expressly declared or necessarily implied”. Cf. Midlantic National Bank v. New Jersey Department of Environmental Protection, 474 U.S. 494, 106 S.Ct. 755, 88 L.Ed.2d 859 (1986); In re Paolino, 75 B.R. 641 (Bankr.E.D.Pa.1987).
The conclusion reached here is consistent with the opinion of the only prior case which has considered the issue, King’s Ap*607pliance,5 as well as with the views of the various commentators. Clark at 53-59. Baker at 10.
IV.
Thus for the purposes of this preference action, I hold that ITT has a valid purchase money security interest in inventory of Dia-conx and that this lien has priority over the security interest held by Hamilton Bank.
Since this determination may significantly affect the outcome of Diaconx’ preference action, it is appropriate to set a status conference in order to identify those issues remaining to be tried.
An appropriate order shall be entered.
. Diaconx' claim against another defendant in this proceeding was resolved by order entered June 16, 1986.
. The secured interest of Hamilton in Diaconx’ estate received extensive consideration in a pri- or decision of this court. In re Diaconx Corp., 69 B.R. 333 (Bankr.E.D.Pa.1987). Other aspects of Diaconx’ dispute with Hamilton are reported at In re Diaconx, 69 B.R. 343 (Bankr.E.D.Pa., 1987) and In re Diaconx, 65 B.R. 139 (E.D.Pa.1986). The Hamilton-Diaconx dispute is not relevant to the issue presented in the proceeding at bench.
. Since Hamilton is not a party to this action, the resolution of this matter will not have pre-clusive effect as to Hamilton. See Hansberry v. Lee, 311 U.S. 32, 40-41, 61 S.Ct. 115, 117-18, 85 L.Ed. 22 (1940). See also In re Mortenson, 41 B.R. 827 (Bankr.D.S.D.1984) modified 45 B.R. 764 (Bankr.D.S.D.1985) (adjudicating priority of liens in a turnover action where lienholders are not parties is not conclusive as to those lien-holders). This determination will be conclusive only as to ITT’s rights as a secured creditor vis-a-vis Diaconx, but not of its rights vis-a-vis Hamilton.
. The codification of the Uniform Commercial Code in Pennsylvania is at 13 Pa.C.S.A. References herein will be directly to the UCC, which to the extent relevant here has been adopted by Pennsylvania in its entirety.
. I cannot, however, completely endorse the reasoning of that case insofar as it placed reliance in the language of UCC 9-312(3)(d) which contemplates that a notification may state "that the person giving the notice has ... a purchase money security interest in inventory” (emphasis added). The court in King’s Appliance reasons that the use of past tense indicates that the drafters contemplated notice after filing. However, I note that a PMSI holder "has” an unper-fected security interest prior to filing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490595/ | ORDER PARTIALLY GRANTING MOTION FOR ADDITIONAL FINDINGS OF FACT, FOR AMENDMENT OR ALTERATION OF JUDGMENT OR IN THE ALTERNATIVE, FOR NEW TRIAL
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE having come before the Court on November 4, 1987 on a Motion For Additional Findings of Fact, For Amendment or Alteration of Judgment or in the Alternative, For New Trial and with the Court being fully advised in the premises, makes the following clarifications:
Janice Dent moves this Court for a determination that the actual transfer of money occurred on May 6, 1986 when the assignment was perfected and the transfer was completed rather than on January 11, 1986 when she executed the assignment. Dent argues that if the later date is the date of the actual transfer, then she was no longer an insider of the debtor under 11 U.S.C. § 101(30)(B)(vi) and the transfer cannot be avoided under 11 U.S.C. § 547.
It may be true that if the entire assignment transaction occurred on May 6, 1986 then Dent’s argument would have merit. However, even if Dent is correct and she could not have initially been classified an insider when the assignment was perfected and the transfer completed, she was an insider when the assignment was initiated and the documents were executed. DeRosa v. Buildex Incorp. and Instrument Systems Corp. (In re F & S Central Manufacturing Corp.), 53 B.R. 842, 13 B.C.D. 823 (Bankr.E.D.N.Y.1985). See also Kleinfeld v. University State Bank (In re Davenport) 64 B.R. 411, 414 (Bankr.M.D.Fla.1986) and Pirrone v. Toboroff (In re Vaniman Intern., Inc.), 22 B.R. 166, 189 (Bankr.E.D.N.Y.1982). Dent would have this Court allow insiders to escape the avoidance provisions of 11 U.S.C. § 547 merely by delaying the date the debtor actually transfers its property. Such a result is not required by the statute. Instead, this Court adopts the reasoning found in the DeRosa case and finds that “a creditor who is an insider at the time the transfer of the debtor’s property is arranged is an insider at the time of the transfer.” DeRosa, 53 B.R. 842, 13 B.C.D. at 826.
Dent executed the assignment documents on January 11, 1986 when she was an insider thereby concluding the arrangements to transfer the money from the debt- *948or to herself. The determination of her insider status became fixed, with regard to this particular transaction, at the point of execution, not at the subsequent perfection date.
Based on the foregoing it is:
ORDERED AND ADJUDGED the Motion for Additional Findings of Fact is granted to the extent of the above stated findings. The Motion for Amendments or Alteration of Judgment or in the Alternative For New Trial is denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490596/ | MEMORANDUM AND ORDER
WILLIAM A. HILL, Bankruptcy Judge.
By Amended Complaint filed November 26, 1986, the plaintiff, Citizens State Bank of Ray (Bank), invoking section 506 of the Bankruptcy Code, asserts that its claim against the estate is fully secured by virtue of a perfected security interest in various items of personal property and is also perfected against certain real property by virtue of a judgment lien. The Bank also requested that the value of the collateral be established but this portion of the complaint is no longer in issue. Of the thirteen named defendants only the trustee, the estate of Melvin Peterson, and the FmHA interposed answers. The remaining defendants are in default.
By stipulation the Bank and the trustee agree the Bank has a perfected security interest in the Debtor’s equipment, tools and two trucks valued at $69,241.50 and that the Bank is entitled to the sum of $57,905.15 and the trustee is entitled to the sum of $7,866.50. The only remaining issue is whether the balance of the Bank’s claim evidenced by a judgment lien is valid as against the trustee or whether as the trustee claims, it is voidable pursuant to section 506(d) and section 544(a) of the United States Bankruptcy Code. Trial was held before the undersigned on October 7, 1987. The relevant facts as advanced at trial and as gleaned from the stipulation of uncontested facts may be stated as follows:
Findings of Fact
The Debtor, Melvin E. Peterson, (now deceased) owned 636.76 acres of farmland in Burke County, North Dakota, and this property constituted as homestead on January 16, 1984 and continuously through December 9, 1985.
Oil and gas deposits valued at $34,800.00 exist on the property and the property has an aggregate fair market value of $234,-800.00. FmHA has a valid first mortgage against the land in the sum of $130,789.00.
On January 16, 1984, the Bank obtained a judgment against the Debtor in the sum *169of $117,518.15 and this judgment was transcribed and recorded in Burke County, North Dakota on November 1, 1984. The parties agree that the balance of the judgment remaining unsatisfied after deduction of the equipment sale proceeds is $73,-039.29.
The Debtor filed for relief under Chapter 7 of the Bankruptcy Code on December 9, 1985.
Conclusions of Law
The Bank, acknowledging FmHA’s priority position in the amount of $130,789.00 and the Debtor’s $80,000.00 claim of homestead pursuant to North Dakota Century Code § 47-18-01, asserts that there is $24,-011.00 of equity remaining with which to partially satisfy its judgment lien which would then leave only $49,028.29 of its judgment unsecured.
The trustee argues that the docketed judgment was ineffective as against his section 544(a) avoidance powers because under North Dakota law the judgment was unperfected against real estate because there was no levy or execution. Moreover, the trustee asserts that the judgment could never become a lien against the real property because the property constituted the Debtor’s homestead at the time it was docketed.
1.
The trustee’s argument that a docketed judgment is not a lien against real property until levied upon is contrary to North Dakota law. Section 28-20-13 of the North Dakota Century Code provides as follows:
“On filing a judgment roll upon a judgment that directs the payment of money, the clerk of the district court in which the judgment was rendered shall docket the judgment in a separate record to be known as the judgment docket. The judgment may be docketed in any other county upon filing with the clerk of the district court of that county a transcript of the original judgment docket. The judgment is a lien on all of the real property, except the homestead, which the person may have in any county in which the judgment is docketed at the time of docketing or which the person thereafter acquires in the county, for ten years from the time of docketing the judgment in the county in which it was rendered.” (emphasis added).
The general rule of law is that a judgment lien is predicated solely upon entry of judgment and does not depend upon execution for its perfection against real property. See 46 Am.Jur.2d Judgments § 237, 243, 249. The North Dakota Supreme Court follows this general rule uniformly holding that once docketed, a judgment is a lien against all property and the effectiveness of such lien does not depend upon any further act on the part of the judgment creditor in order to subject real property to the lien. Jamestown Terminal Elevator, Inc. v. Knopp, 246 N.W.2d 612, 615 (N.D.1976); Agrest v. Agrest, 75 N.D. 318, 27 N.W.2d 697 (1947); Finch, Van Slyck & McConville v. Jackson, 57 N.D. 17, 220 N.W. 130 (1928). The object of a levy is to bring property within the custody of the law. Real property, by virtue of the judgment, is already in custody of the law with nothing more required beyond the docketing. Winslow v. Klundt, 51 N.D. 808, 201 N.W. 169 (1924) see also Travelers Insurance Company v. Lawrence, 509 F.2d 83 (9th Cir.1974). In the case of Zink v. James River Nat. Bank, 58 N.D. 1, 224 N.W. 901 (1929) the North Dakota Supreme Court likened the effect of a properly docketed judgment lien on real property to that of a mortgage. Consistent with section 28-20-13 and by virtue of the foregoing case law this court holds that a judgment lien is perfected as against non-homestead real property by the mere act of docketing.
2.
The real property in this case is not merely real property, but also happened to constitute the Debtor’s homestead both at the time the judgment was docketed as well as at the time of petition filing. When the property against which a judgment lien is claimed constitutes the homestead the law as regards the status of the judgment lien is dramatically altered. The judgment does not become a lien against real property occupied as a homestead at the time of judgment docketing. Falconer v. Farm*170er’s U. Oil Co., 260 N.W.2d 1 (N.D.1977); Small v. Cunningham, 120 N.W.2d 13 (N.D.1963); First State Bank of Gackle v. Fischer, 67 N.D. 400, 272 N.W. 752 (1937). Under North Dakota law a judgment can be effective against the excess value of property constituting a homestead only by means of a special method of sale after appraisement as provided for in section 47-18-04 of the North Dakota Century Code. The judgment creditor must, by verified petition, request a state district court to appoint appraisers (N.D.Cent.Code § 47-18-07, 08) and the district court upon notice and hearing may then appoint three appraisers (47-18-09) who, after examination, report back to the court with their determination as to value and whether the real property comprising the homestead can be divided without injury (N.D.Cent. Code § 47-18-10, 11, 12). If the value exceeds the homestead exemption and if no division is realistic then the district court must direct its sale under execution (N.D. Cent.Code § 47-18-13) with the proceeds being first distributed to the homestead claimant and the balance thereafter applied to satisfy the execution (N.D.Cent.Code § 47-18-14). A judgment entered at a time when property was occupied as a homestead does not become a lien against the property until and unless the excepting provision of section 47-18-04 as above outlined is complied with. United States v. Olgeirson, 284 F.Supp. 655, 656 (D.C.N.D.1968). The Supreme Court of Washington, interpreting statutory language very similar to N.D.Cent.Code ch. 47-18 held that no lien attaches to the excess value of homestead property except by means of appraisement and sale. Mahalko v. Artic Trading Co., 99 Wash.2d 30, 659 P.2d 502 (1983). To hold otherwise, said the court, would chill the ability to sell the homestead because no buyer hoping to increase his equity would purchase the property because any increase in value would go not towards the purchaser’s equity but towards satisfaction of the lien with the ultimate effect being to undermine the rights of bona fide purchasers of homestead property-
Under North Dakota law, the exempt nature of homestead property runs with the land and if property comprising the homestead is conveyed, such conveyance is deemed free and clear of any judgment rendered unenforceable by virtue of the property’s homestead character. Nelson v. Griggs County, 56 N.D. 729, 219 N.W. 225 (1928); Birks v. Globe International Protective Bureau, 56 N.D. 613, 218 N.W. 864 (1928). These cases suggest that unless a judgment creditor, seeking to impress homestead property with the judgment, proceeds prior to conveyance, to seek ap-praisement and sale consistent with N.D. CentCode § 47-18-04 et seq., a conveyance to a bona fide purchaser of the homestead property operates to forever foreclose the judgment from becoming a lien on the excess value.
By virtue of section 544(a)(3) of the Bankruptcy Code, the trustee becomes, as of the date of filing, cloaked with the rights and powers of a bona fide purchaser of real property and may avoid a transfer of property consistent with applicable state law. In re Flaten, 50 B.R. 186, 192 (Bankr.D.N.D.1985). Consistent with section 544(a)(3) the trustee assumed the fictional status of a bona fide purchaser of the homestead property as of December 9, 1985. As we have seen from the cited case law, a bona fide purchaser of real property comprising the seller’s homestead takes free and clear of a judgment rendered unenforceable by virtue of the homestead exception to N.D.Cent.Code § 28-20-13 and the judgment creditor’s failure to execute against the excess value by means of ap-praisement and sale.
The court concludes that because the real property which the Bank seeks to impress with its judgment constituted the Debtor’s homestead as of the date of petition filing, its claim of a secured claim in the excess value is voidable by the trustee in his capacity as bona fide purchaser.
The purpose of a section 506 hearing is to determine whether a creditor’s claimed security interest should be allowed, reduced or eliminated and to bifurcate an allowed claim into secured and unsecured compenents. A Chapter 7 trustee may invoke section 506(d) to avoid a claimed lien against real property to the extent the lien *171is unsecured. In re Whitener, 63 B.R. 701 (Bankr.E.D.Pa.1986); In re Jones, 64 B.R. 380 (Bankr.E.D.Pa.1986). If a creditor’s alleged secured claim against real property is found to be infirm, the property itself as well as any proceeds are free of the claim and pass to the estate. The creditor’s claim then becomes unsecured to the extent voided.
In the instant case the Bank’s judgment lien is rendered infirm by virtue of the trustee’s status of a bona fide purchaser of homestead property and as a consequence, the Bank’s claim of a security interest in the $24,011.00 of excess value is voided. Its claim, to the extent not satisfied by the personal property, is wholly unsecured.
Accordingly, and for the reasons stated, IT IS ORDERED that judgment be entered in favor of the defendant, Phillip D. Armstrong, trustee of the estate of Melvin E. Peterson, and against the Citizens State Bank of Ray, the estate of Melvin E. Peterson, and the non-answering defendants as follows:
The claim of Citizens State Bank of Ray in the sum of $73,039.29 is wholly unsecured as against Section 8, Township 159 North, Range 94 West, Burke County, North Dakota and any excess value therein existing over and above FmHA’s mortage and the Debtor’s homestead exemption. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490598/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
GEORGE L. PROCTOR, Bankruptcy Judge.
The plaintiff has filed motion for summary final judgment. The United States has opposed that motion and has filed a cross-motion for summary judgment against the plaintiff. Defendants Reuben E. Brigety, Reuben E. Brigety, M.D., P.A., and Thomas W. Brooks, III, have joined the plaintiff in opposition to the United States and have filed their own cross-motion for summary judgment against the United States. All of the parties agree that for purposes of these motions, there are no genuine issues of material facts.
FINDINGS OF FACT
1.On or about May 27,1981, Izell Blunt and Reuben Brigety executed an “Agreement of Dissolution of Partnership Between Izell Blunt, M.D., and Reuben E. Brigety, M.D., Regarding Investment Properties Now Held Jointly and Individually Which are Currently Under the Management of B & R Management, Inc.” Paragraph 1 of the Agreement provides that “Reuben E. Brigety, M.D. acknowledges all properties [therein described] ... will be owned by Izell Blunt, M.D. at the execution of this agreement.” This Agreement was not recorded in the public records.
2. As consideration for the Agreement, Izell Blunt executed two Mortgage Notes dated June 3, 1981, payable to Reuben E. Brigety, M.D., P.A., in the amount of $5,000 and $10,000 respectively. Izell Blunt executed and delivered to Reuben Brigety a mortgage deed dated June 4, 1981, securing the two mortgage notes as well as a third mortgage note dated July 25, 1980, payable to Reuben E. Brigety, M.D., P.A., in the amount of $100,000. The mortgage deed and notes were recorded on June 5, 1981.
3. On June 4, 1984, the United States made an assessment against Reuben E. Brigety, M.D., P.A., for unpaid Federal Unemployment Tax Act (FUTA) taxes for the year 1982. On June 18, 1984, the United States made an assessment against Reuben E. Brigety, M.D., P.A., for unpaid Federal Insurance Contribution Act (FICA) taxes for the calendar quarterly periods ending September 30, 1982, December 31, 1982, and for all four quarters of 1983. The balance of these assessments is $11,174.69 as of April 13, 1987, plus interest and costs as provided by law. A notice of federal tax lien was filed on September 13, 1984, with the Clerk of the Circuit Court, Duval County, Jacksonville, Florida.
5. On July 9, 1984, the United States made an assessment against Reuben E. Brigety, M.D., P.A., for unpaid FICA taxes for the calendar quarterly period ending July 9,1984, the unpaid balance of which.is $622.21 as of April 13, 1987, plus interest and costs as provided by law. A notice of federal tax lien was filed with the Clerk of the Circuit Court, Duval County, Jacksonville, Florida, on November 9, 1987.
6. On September 10, 1984, the United States again made an assessment against Reuben E. Brigety, M.D., P.A. This time the assessment was for unpaid FUTA taxes for 1983, the unpaid balance of which is $1,818.88 as of April 13,1987, plus interest. A notice of federal tax lien was filed in Duval County on January 22, 1985.
*2367. On March 28,1985, the United States made another assessment against Reuben E. Brigety, M.D., P.A., for unpaid FICA taxes for the last three quarters of 1984, the unpaid balance of which is $978.19 as of April 13,1987, plus interest. A notice of federal tax lien was filed on May 6, 1987.
8. On or about November 17,1986, Reuben E. Brigety, Barbara Brigety, Thomas W. Brooks, III, and Rhoda S. Brooks executed and delivered to Izell Blunt a quitclaim deed to the real property which is the subject of this adversary proceeding. The quitclaim deed was recorded on November 19, 1986.
ISSUES
The United States has argued that it made a proper title search and that no deed evidencing a transfer of Brigety’s interest in the property was ever recorded. Accordingly, the government argues that it is entitled to prevail under Section 695.01, Florida Statutes, as a matter of law.
On the other hand, Blunt and the other parties have argued that the United States had actual, if not implied, notice of the transfer due to the fact that Blunt remained in actual, obvious and open possession of the property, and secondly, that three mortgages suggesting a transfer of the property are reflected in the chain of title.
CONCLUSIONS OF LAW
1. In Aquilino v. United States, 363 U.S. 509, 80 S.Ct. 1277, 4 L.Ed.2d 1365 (1960), the Supreme Court announced that the priority of federal tax liens should be determined by state law. Since the property in question is located in Florida, that state law will be applied. In this regard, Section 695.01, Florida Statutes, provides:
(1) No conveyance, transfer or mortgage of real property, or any interest therein, nor any lease for a term of one year or longer, shall be good and effectual in law or in equity against creditors or subsequent purchasers for a valuable consideration and without notice, unless the same be recorded according to law.... [Emphasis added].
2. In this case, there is no question that the United States properly filed its notice of tax liens prior to the recording of the quitclaim deed. Under ordinary circumstances, this would be sufficient to entitle the United States to prevail. However, the plaintiff has argued that there were sufficient facts to raise a duty of inquiry on the part of the government so as to charge them, with constructive notice of the transfer.
3. In order to charge a person with notice of information which might have been learned upon inquiry, the circumstances must be such as should reasonably suggest inquiry. Chatlos v. McPherson, 95 So.2d 506 (Fla.1957). This determination is generally for the trier of fact. Sapp v. Warner, 105 Fla. 245, 143 So. 648 (1932) (on rehearing).
Plaintiffs first argument is that the duty to inquire further was triggered by the open and exclusive possession of the property by Blunt. In support of his argument, plaintiff cites Florida Power and Light Co. v. Rader, 306 So.2d 565 (Fla. 4th DCA 1975) (the presence of power lines over the property reasonably suggested that an easement for that right existed); Waldorff Insurance and Bonding, Inc. v. Eglin National Bank, 453 So.2d 1383 (Fla. 1st DCA 1984) (subsequent purchaser of condominium unit took title subject to the equitable interests of the occupant of the condominium); and Humble Oil and Refining Co. v. Laws, 272 So.2d 841 (Fla. 1st DCA 1973) (renter-in-possession with option to purchase entitled to priority over subsequent purchaser of mineral rights). Plaintiffs argument must fail, however, because the use and possession of the property was not inconsistent with the record title, the record title having indicated that Blunt held a half interest in the property along with Reuben E. Brigety, M.D., P.A. Hence, this Court holds that the use and possession of the property by Blunt did not constitute sufficient indication of an adverse claim against Brigety so as to impose constructive notice on the government. *237See In re McCall, 58 B.R. 54, 56 (Bkrtcy.M.D.Fla.1986).
Plaintiff’s second argument, asserted by the several defendants on his behalf, is much more compelling. Their argument is that the three mortgages executed in favor of Brigety and recorded along with the mortgage deed prior to the perfecting of the tax liens were sufficient to raise the duty of inquiry on the part of the government. Specifically, they argue that the language contained in the notes wherein Blunt covenanted that he was “indefeasibly seized of said land in fee simple” should have compelled the United States to inquire further. With this the Court agrees, for not only do the mortgage notes contain the fee simple covenant, they also indicate that the entire parcels were encumbered by the mortgages, not just Blunt’s half interest.
These two facts should have at least led the United States to inquire further into whether there were any outstanding interests in the property. Having failed to do so, the government cannot now claim to have a superior interest in the property.
4.Having determined that the federal tax liens are not entitled to priority over Blunt’s equitable interests, the Court must now determine whether the United States has any interest in Blunt’s property at all. For this determination, the Court looks to Hull v. Maryland Casualty Co., 79 So.2d 517 (Fla.1955), a case directly on point.
In Hull, the Court was faced with a situation where a deed remained unrecorded for twenty-three years and during that period judgments were entered and recorded against the grantor of the deed. In dealing with that problem, the Court interpreted Section 695.01, Florida Statutes, and stated:
“The lien of a judgment attaches only to the land of the judgment debtor, ... (citations omitted), and if the record title is in the judgment debtor but the true or equitable title is in a third person, such rights of the third person as against the judgment creditor are superior when the true owner is not estopped to assert true title ... (citations omitted). The true owner is estopped to assert his title against bona fide purchasers who rely upon the record title and are without notice of the interest of the true owner.”
79 So.2d at 518. [Emphasis added.]
The Court went on to note:
“... [T]he liens of the judgments, or any of them, under which appellee claims, could not have attached to the interest of the vendor, because he had no interest to which such liens are capable of attaching.”
79 So.2d at 518.
The facts in Hull are very similar to those in this case: there is a division between the legal and equitable title due to the failure to record a deed, there are judgment liens being asserted against the grantor, and the creditor is seeking to assert the priority of its lien against the equitable title holder. Applying the rationale of Hull, this Court finds that the liens which the United States has asserted against Brigety could not have attached to the property in question because Brigety had no interest in the property to which the liens could have attached. Accordingly, this Court holds that the United States has no interest in this property.
5. The United States’ final argument that the parties intended to execute an agreement for deed is without merit, this Court finding that no such arrangement was ever contemplated by the parties.
6. The Court will enter a separate order consistent with these findings granting plaintiff Izell Blunt’s motion for summary judgment against the United States, granting defendants Brigety, Brigety, P.A., and Brooks’ cross-motion for summary judgment against the United States and denying motion of the United States for summary judgment against Blunt. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490599/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE came on before the Court on October 27,1987 for trial on the issue of damages, upon the Complaint of William D. Seidle, trustee for the Estate of AIRLIFT INTERNATIONAL, INC. (“Airlift”), as an adversary proceeding against John Knevett Spicer (the “defendant”) pursuant to Bankruptcy Rule 7001(1) for recovery of compensatory damages for proceeds payable under a policy of insurance and turnover of money to plaintiff pursuant to 11 U.S.C. § 542, and the Court having heard the testimony, of the witnesses presented at the damages trial and having observed the candor and demeanor of the witnesses, and being otherwise fully advised in the premises, does hereby make the following Findings of Fact and Conclusions of Law:
On September 23, 1987, the Court entered an order granting the trustee’s motion for summary judgment as to the issue of liability, finding that there are no genuine issues of material fact as to coverage and that the applicable insurance policy covers the loss which is the subject of the complaint.
It is uncontested that the defendant issued to the trustee and Airlift, for consideration received by defendant, an Aviation *239Spares All Risks Insurance Policy, effective August 1, 1986 to August 1, 1987 (the “Policy”). The Policy insured Airlift’s aircraft engines, spare parts and equipment anywhere in the world against all risks of physical loss. In the event of loss, the defendant was responsible for the replacement value of the property insured. All premiums due and payable under the Policy were paid.
The spare parts, which are the subject of the claim under the Policy, were necessary to maintain and service a DC-8-61 aircraft owned by Airlift and chartered to Airline Transport Leasing and Sales, Inc. (“Atlas”) for service out of Dhaka airport in Bangladesh. Under the Airlift/Atlas contract, Atlas was required to provide to Airlift a “secure air-conditioned maintenance storage room ... on the ground level, at Dhaka Airport,” during the charter period. Atlas in turn entered into a lease agreement with Biman Bangladesh Airlines (“Biman”) for charter of the same aircraft. To assure that Atlas could comply with its obligations to Airlift regarding the local storage of the spare parts, the Atlas/Biman lease required that Biman “provide ... reasonable storage at [Biman’s] home base for ... storage of [Atlas’s] spare parts....”
Airlift sent its aircraft to Dhaka in the summer of 1986 along with certain spare parts, sending additional parts to Dhaka during the course of the charter. In September of 1986, the aircraft was taken for repairs to Shannon, Ireland. The aircraft was never returned to Dhaka to complete the charter. Airlift contended that it had no further responsibility to Atlas because of Atlas’s non-payment of monies past due to Airlift. Although the aircraft returned to Miami with some of the spare parts, most of the parts remained in Bangladesh as indicated in Airlift’s shipping records.
Airlift representatives attempted to return the remaining spare parts from the storage facility in Dhaka to Miami, but were prevented from doing so by Biman. Biman refused to release the remaining spare parts unless Atlas agreed and unless Biman was paid what it believed was owed by Atlas to Biman under their lease agreement. On September 17, 1986, when it became obvious that Airlift’s efforts to obtain Biman’s permission to remove the remaining spare parts were futile, Airlift’s representatives were recalled to Miami.
The deprivation by Biman of the remaining spare parts belonging to Airlift constituted a loss under the Policy during the period of coverage, entitling Airlift and the trustee, as insureds, to recover the reasonable replacement value of the remaining spare parts at the time of the loss, i.e. on or about September 17, 1986.
Biman’s interference with Airlift’s right to remove its parts was brought to defendant’s attention by mid-October of 1986. Thereafter, defendant engaged Lloyd’s Aviation Department to investigate and make every effort to obtain return of Airlift’s parts. Those efforts continued for approximately one year, without success.
The Court previously determined, in its ruling on plaintiff’s motion for summary judgment, that the loss was covered under the Policy, and that there was no applicable exclusion. Accordingly, the only issue to be determined at trial was the replacement value of the remaining spare parts at the time of the loss.
The remaining spare parts were examined by Airlift’s maintenance representative shortly before his departure from Dhaka on September 17, 1986, and were in excellent condition at that time, with the exception of used rotables.
The Court has carefully considered the expert testimony and the exhibits presented and finds that the replacement value of the remaining spare parts at the time of. the loss was $510,000.00.
Based upon the foregoing, the Court finds:
1. That the trustee is entitled under the insurance policy to recover the replacement value of the insured spare parts at the time of the loss on or about September 17,1986.
2. That the replacement value of the insured spare parts at the time of the loss was $510,000.00.
*2403. That the trustee is entitled to recover prejudgment interest in accordance with Florida law at the rate of 12% per annum from the date of the loss, in the amount of $71,400 as of November 17,1987 and accruing thereafter at $167.67123 per diem. Argonaut Insurance Company v. May Plumbing Company, 474 So.2d 212, 215 (Fla.1985); Tavormina v. Merchants Bank (In re Gillett), 55 B.R. 675, 680 (Bankr.S.D.Fla.1985); Sec. 687.01 Fla.Stats.
A separate Final Judgment of even date has been entered in conformity herewith. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490600/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CASE came on to be heard on October 13th, 20th, and 22nd, 1987 upon the Complaint of the debtor, Riverside Shoppes, Ltd., (“Riverside”) for a determination by the Court as to the validity, priority and amount of lien or claim as asserted by defendant, Chicago Title Insurance Company, (“Chicago Title”), pursuant to 11 U.S.C. Section 506, and the Court having heard the testimony, examined the evidence presented, observed the candor and demeanor of the witnesses, considered the arguments of counsel, and being otherwise fully advised in the premises, does hereby make the following Findings of Fact and Conclusions of Law:
Riverside is a limited partnership consisting of Gilbert and David Mart as general partners, Jeffrey Mart having previously resigned as a general partner. Additionally, the Marts have limited partnership interests. The remaining members of the limited partnership consist of 36 passive limited partnership investors, from various parts of the country and unrelated to the general partners, who have contributed $815,000.00 to Riverside. Riverside owns property consisting of a combination of a four story commercial office building and commercial strip shopping center located in Stuart, Florida, (“the Riverside shopping center”).
An institutional loan in the approximate amount of $3,800,000.00 was advanced by North Carolina National Bank (“NCNB”) to Riverside to finance the construction of buildings upon the land owned by Riverside. A previous institutional loan in the approximate amount of $450,000.00 from American Pioneer Savings & Loan Association was assumed by Riverside to purchase the aforementioned real property.
Subsequently, Riverside defaulted in payment on the note and mortgage owed to NCNB. NCNB agreed to reinstate the loan and advance an additional $300,00.00 to Riverside for use in completing the project and making interior improvements. However, a condition precedent within NCNB’s written commitment to Riverside for the advance was that a lis pendens filed and recorded by Chicago Title on the property be removed or subordinated to the NCNB loan and additional advance. Chicago Title declined to do either and NCNB withdrew its offer to advance funds.
Chicago Title had instituted suit in the United States District Court against Riverside and various other parties. In conjunction with the lawsuit, Chicago Title filed and recorded a lis pendens against the Riverside shopping center.
The lis pendens seeks, among other things, to enjoin alienation or encumbrance, and to impose a constructive trust or eq*245uitable lien upon various properties owned by the various defendants in the District Court case, including the Riverside shopping center. The only substantive allegations relative to Riverside in the District Court complaint are the following:
“18. Defendants, Jeffrey Mart, David Mart, and Gilbert Mart, created or operated ... Riverside Shoppes, Ltd ... as vehicles to conduct their illegal activities and for the purposes of misleading and defrauding their creditors.”
“41. Upon information and belief, proceeds of the diverted funds enumerated above were used by the Mart Group to acquire, enhance, improve or maintain their interests in the Beacon 21 Condominium project as well as one or more of the following parcels of real property ... Riverside Shoppes ... Said property is owned by Jeffrey Mart, Gilbert Mart and David Mart, as general partners of Riverside Shoppes.”
Chicago Title now additionally asserts in the instant adversary proceeding that the proceeds from a $300,000.00 loan made by Commonwealth Savings and Loan Association to another Mart family entity, the Beacon 21 Condominium project (“Beacon”), were diverted by the Marts or their agents to Riverside. Furthermore, Chicago Title now argues that other funds not belonging to Riverside were utilized on behalf of Riverside. However, Chicago Title has offered no proof in that regard and, therefore, such claims are waived and the Court will limit its consideration to the allegations regarding the Commonwealth loan proceeds. The parties have agreed Chicago Title is the proper party in interest since it succeeded to the interests of Commonwealth Savings and Loan Association insofar as that loan is concerned.
The refusal of Chicago Title to release or subordinate its lis pendens, in addition to causing NCNB to withdraw the loan advance commitment, caused it to go forward with a foreclosure action against Riverside in the Martin County Circuit Court. Subsequently, Riverside filed the instant Chapter 11 Bankruptcy proceedings and this adversary proceeding seeking to obtain a release of the lis pendens, a determination that Chicago Title improperly filed and recorded the lis pendens and that Chicago Title has no valid liens or claims against Riverside or the Riverside shopping center.
Jeffrey Mart acted as the attorney and agent of various entities, including Riverside and Beacon. In this capacity, attorney Mart received large sums of money on behalf of the entities and he, solely, chose the place of deposit of all such funds. The funds were deposited in several different banks and accounts, all of which were treated as one attorney trust account by attorney Mart and his accountant. The entity on whose behalf the funds were being sent to attorney Mart had no direct control over the place or particular account of deposit or the place or particular account from which a disbursement or withdrawal would be made. In fact, the only information any particular entity had was that the money would be deposited to attorney Mart’s trust account for his administration.
Accordingly, under attorney Mart’s trust account system, the commingling of several entities’ funds in the various accounts made it impossible for any individual entity to obtain a disbursement or withdrawal without considering all credits and debits of that entity to or from all the accounts comprising the trust account. Although tracing the funds is not possible, attorney Mart’s trust account had sufficient funds deposited to it by Riverside to cover all disbursements made on its behalf. In fact, the trust account owes in excess of $125,-000.00 to Riverside.
Riverside deposited $679,909.08 with attorney Mart from 1985 through April, 1986 and attorney Mart disbursed $554,569.46 on its behalf, leaving a balance due and owing to Riverside from attorney Mart’s trust account of approximately $125,339.62. The disbursements include the payment of the American Pioneer loan which Chicago Title alleges was made with funds earmarked for Beacon and consisting of the proceeds from the Commonwealth loan to Beacon.
Chicago Title attempts to isolate loan payments of $300,000.00 and $154,867.80 to American Pioneer Savings & Loan Associa*246tion. Chicago Title argues that these disbursements were made at or about the same time that attorney Mart received into his trust account the proceeds from the Commonwealth loan for Beacon. Therefore, Chicago Title concludes that Riverside benefitted from the funds which it improperly diverted from the use and benefit of Beacon.
However, the receipt into attorney Mart’s trust account of the proceeds of the Commonwealth loan to Beacon and the disbursements to American Pioneer on behalf of Riverside occurred on different days. The fact that the transactions occurred within the same month does not alone indicate that the funds were used as alleged by Chicago Title. The Court finds that at all relevant times, Riverside had sufficient funds on deposit in attorney Mart’s trust account to make all disbursements which were made on its behalf.
The Court further finds that only Riverside’s money was used for Riverside’s purposes and no funds were diverted on behalf of Riverside from the proceeds of the Commonwealth loan to Beacon. Chicago Title has failed to prove that any monies belonging to it or its assignors were diverted to the use and benefit of Riverside. Therefore, the Court finds that Riverside does not owe any money to Chicago Title and, accordingly, Chicago Title has no claim, secured or unsecured, against the estate of Riverside.
Even if Chicago Title could prove that the funds given to attorney Mart on behalf of Beacon were diverted to Riverside, their claim would still be against attorney Mart and not against Riverside as there has never been any allegation or proof that Riverside participated in such an improper diversion of funds and it is Riverside that owns the real property in question, not attorney Mart. Any liability of attorney Mart to Chicago Title would be limited to attorney Mart’s interest, if any, in the limited partnership. Florida Statute Section 608.431 provides that the interest of a member of a limited partnership is personal property and, therefore, no liability could attach against Riverside’s property. See Weisinger v. Rae, 19 Misc.2d 341, 188 N.Y.S.2d 10 (N.Y.Sup.Ct.1959).
The co-mingling or misuse of funds entrusted to an attorney and deposited to an attorney's trust account may constitute grounds for disciplinary action against that attorney by the Florida Bar. The Florida Bar v. Bond, 460 So.2d 375 (Fla.1984); The Florida Bar v. Powers, 458 So.2d 264 (Fla.1984); The Florida Bar v. Collier, 458 So.2d 266 (Fla.1984); The Florida Bar v. Turner, 457 So.2d 474 (Fla.1984). Attorney Mart, not Riverside, would be liable to Chicago Title for the misuse or misapplication of Beacon’s funds by attorney Mart.
Lis pendens is governed by Florida Statute Section 48.23 which provides that where an action is not founded on a duly recorded instrument or a mechanic’s lien, the Court may control and discharge the Notice of Lis Pendens as the Court may grant and dissolve injunctions. Under Florida law, it is clear that the filing and recording of a lis pendens does not create a lien in property but, rather, merely serves as notice of the pendency of a lawsuit. Manuel Sierra, M.D. d/b/a Golden Glades Medical Center v. Arlene Santana (In re Sierra), 79 B.R. 89 (Bankr.S.D.Fla.1987), Levine v. Arvida Corporation, 405 So.2d 1370 (Fla.App. 4th D.C.A.1981); Procacci v. Zacco, 402 So.2d 425 (Fla.App. 4th D.C. A.1981); National Bank of Sarasota v. J.T. Dugger, 335 So.2d 859 (Fla.App. 2d D.C.A.1976). Based on the foregoing, the Court finds that no lien was created in favor of Chicago Title by the recording of the lis pendens and amended lis pendens. Furthermore, the Court finds that the lis pendens was improperly recorded against the Riverside shopping center since no claim exists against Riverside and in favor of Chicago Title and, therefore, the lis pen-dens is dissolved.
Lastly, Chicago Title argues that a constructive trust should be imposed against the Riverside shopping center with respect to the funds alleged to have been improperly diverted to Riverside. As stated above, the money to purchase and develop the Riverside shopping center was supplied in its entirety by NCNB, the limited *247partners and the general partners. These funds were deposited by Riverside to the attorney trust account of attorney Mart and Riverside was entitled to receive the benefits of all monies so deposited and, in fact, Riverside is still due an amount in excess of $125,000.00 from that account. In light of the foregoing findings, there is no basis for Chicago Title’s request for the imposition of a constructive trust or equitable lien on the Riverside shopping center.
In summary, the Court finds the lis pen-dens to have been improperly recorded by Chicago Title against the Riverside shopping center, that Chicago Title has no claim, unsecured or secured, against Riverside and, for these reasons, the lis pendens is dissolved and the claim of Chicago Title against Riverside is stricken and disallowed.
A separate Final Judgment of even date has been entered in conformity herewith. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490601/ | SUPPLEMENTAL MEMORANDUM OPINION
BRUCE I. FOX, Bankruptcy Judge:
I.
The debtor has filed an objection to the unsecured proof of claim filed by the Department of Public Welfare (DPW). In this matter, DPW filed an unsecured proof of claim in the amount of $19,148.391 After the initial hearing held on this dispute, I determined, by opinion dated September 22, 1987, that DPW could hold a valid unsecured claim in accordance with its right to seek reimbursement from the property of a recipient; moreover, I also concluded that this unsecured claim was in rem — that is, its existence and value were conditioned upon the recipient debtors’ ownership of property subject to DPW’s reimbursement claim at the time the assistance was provided. In re Camp, 78 B.R. 58 (Bankr.E.D. Pa.1987). As neither party presented any evidence concerning the debtors’ ownership of property while they received public assistance, I reopened the record and scheduled another hearing in order to obtain the necessary information.
At a hearing held on October 21, 1987, the parties stipulated to the following relevant facts:
1. Debtors received payments from the Pennsylvania Department of Public Welfare (DPW) during the period February 4, 1974, through October 27, 1978, totalling $21,127.50.
2. The debtors’ current residence at 7860 Saturn Place, Philadelphia, Pa. 19153, was purchased by them in fee and held by the entireties by deed recorded September 27, 1973.
3. The property at 7860 Saturn Place is subject to the following encumbrances as of the date of debtors’ petition on November 7, 1986:
Payoff Lien Holder Date Recorded Balance 11/7/86
Atlantic Financial Federal 9/27/73 $15,152.40
Department of Public Welfare 1/27/76 2,000.00
Chrysler First Consumer 8/30/85 21,492.70
$38,645.10
4. Debtors have listed the fair market value of 7860 Saturn Place in their schedules as $49,000.00. The Commonwealth concurs in the $49,000.00 valuation.
In addition, DPW agreed that the debtors possessed no reimbursable property, other than their home, while they were receiving public assistance.2 Thus, the narrow issue focuses upon DPW’s in rem unsecured claim as it relates to the debtors’ residence.
Both parties agree that the fair market value of this real property, at the time this chapter 13 case was commenced, was $49,-000.00. DPW argues that its unsecured claim should be limited only by those liens which predate its payment of public assistance to the debtors. Here, only the lien of Atlantic Financial Federal falls within that *349category. Thus, DPW contends that its unsecured claim is limited to the lesser of: the amount of assistance provided for which it has not obtained any judgment lien; and, the value of the reimbursable property minus any pre-assistance liens (and minus the amount of the DPW liens, in order to avoid double counting). In the ease at bench, the fair market value minus pre-assistance and DPW liens is $31,847.60. The amount of assistance provided for which no lien was recorded was $19,148.39. Thus DPW argues that the latter figure represents its unsecured claim.
Debtors contend that DPW’s unsecured claim must be further limited by the lien held by Chrysler First Consumer. Taking this additional lien into account, debtors maintain that DPW’s unsecured claim is only $10,354.90. After consideration of the evidence and arguments presented, I agree with debtors’ position.
II.
In my prior opinion in this contested matter, I stated:
The filing of a bankruptcy petition represents a traditional point when the rights of creditors are evaluated. Since DPW’s unsecured claim is in rem rather than in personam, it makes sense to treat the filing of the bankruptcy case as the functional equivalent of the sheriff’s sale in the above hypothetical. If the debtor were to liquidate the property which is subject to reimbursement, DPW’s claim would be commensurate with the value of the property. If the property will not be liquidated in the bankruptcy, the value of DPW’s claim can be based upon a hypothetical liquidation. Cf. 11 U.S.C. § 1325(a)(4).
Essentially, it is the nature and extent of DPW’s right to reimbursement as of the date of the bankruptcy filing which define the value of its unsecured claim.
I premised my prior holding that DPW possesses an in rem unsecured claim upon its statutory right to seek reimbursement from certain property of the debtors, such as real estate. This right to recover constitutes a claim pursuant to 11 U.S.C. § 101(4)3 Camp at 62-63. At any time after providing assistance DPW can reduce its right to recover to judgment and thereby obtain a lien. DPW’s lien would have priority from the date it is recorded by the court. 42 Pa. C.S.A. 8141(3). Its lien would not relate back to the date assistance was granted.4 See Commonwealth v. Udzienicz, 353 Pa. 543, 46 A.2d 231 (1946); Floyd v. Commonwealth Department of Public Welfare, 47 Pa.Cmwlth. 338, 407 A.2d 1388 (1979).
While the right to seek reimbursement is limited by state statute, 62 P.S. § 1974, the time when DPW may seek to obtain a judgment is not. Thus, DPW is free to obtain a judgment lien at the time assistance is provided or at any later date (within the applicable statute of limitations, if any). In this case, it is undisputed that DPW did not seek a judgment with regard to $19,-148.39 provided in assistance to the Camps prior to their bankruptcy filing. Neither did they do so prior to Chrysler First recording its mortgage. Thus, they could not obtain a lien as against the Camp’s property for $19,148.39 which would have priority over the Chrysler First mortgage. DPW offers no cogent reason to distinguish the treatment given to a judgment lien obtained just prior to the commencement of the case and an in rem unsecured claim which is valued as of the date of the bankruptcy filing. The value of the former, under § 506, is limited to the debtor’s equity as of the moment the lien is recorded; the value of the latter should also be so limited.
Recognizing that DPW’s claim is in rem, that it is limited by the value of the proper*350ty, and treating the bankruptcy as a hypothetical liquidation, I must conclude that DPW’s unsecured claim is limited to the lesser of the debtors’ equity in the property (this is, fair market value minus all validly perfected liens) or the amount of unliened assistance provided.
Implicitly, DPW virtually concedes this result when it argues that “it is the fair market value of the real estate as of the date of filing, (rather than as of the date assistance was provided), which is germane. By choosing the petition date— which is the traditional date for valuing claims — DPW seeks to benefit from any property appreciation after assistance is provided. Fairness dictates that the reverse also be true; any depreciation in value will reduce its claim. Depreciation can be caused by many factors, including calamities and market forces. Additional liens, be they voluntary or involuntary, will reduce the recipients share of proceeds from the sale of property. As it is from the owner’s share of these proceeds that DPW would recover its unliened claim, DPW runs a risk in not reducing its claim to lien status. To reduce this risk, it need only obtain a judgment lien. See generally Gardner v. Commonwealth of Pennsylvania, Department of Public Welfare, 685 F.2d 106 (3d Cir.) cert. den. 459 U.S. 1092, 103 S.Ct. 580, 74 L.Ed.2d 939 (1982). Entry of a judgment lien will establish DPW’s priority in the proceeds.5
Thus, I reaffirm my earlier conclusion that the filing of bankruptcy is the functional equivalent to a liquidation for purposes of valuing DPW’s claim. As that claim is in rem, it is circumscribed by the debtor’s equity as of the date of filing. Therefore, DPW has an allowed unsecured claim of $10,354.90.
An appropriate order shall be entered.
. DPW also filed a secured proof of claim which is not at issue here.
. The parties also stipulated to the debtors’ exemption claims under 11 U.S.C. § 522(d). These exemption claims may be relevant in determining the distribution creditors are entitled to receive under the debtors’ chapter 13 plan. See 11 U.S.C. §§ 1322, 1325. They are not relevant in determining the amount of DPW’s unsecured claim. See Camp, 78 B.R. at 64.
. Of course, if such a suit were barred for any reason under state law, DPW would not hold an unsecured claim. Here, the debtors make no such argument.
. Indeed, the statute itself says, “[a]ny public body or public agency may sue the owner of such property for [expenses incurred for support and assistance], and any judgment obtained shall be a lien upon the said real estate of such person and be collected as other judgments ..." 62 P.S. § 1974(a) (emphasis added). See also, 55 Pa. Code § 257-24.
. In the case at bench, part of the Chrysler First loan was used by the debtors for home repairs. As these repairs probably increased the fair market value of debtors’ residence, such an increase would offset any reduction in DPW’s unsecured claim. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490602/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE coming on to be heard on November 3,1987 upon an Adversary Complaint seeking to determine the nondis-chargeability of a debt pursuant to 11 U.S. C. Section 523(a)(2)(B), and the Court having heard the testimony and examined the evidence presented, having observed the candor and demeanor of the witnesses, considered the arguments of counsel, and being otherwise fully advised in the premises, does hereby make the following findings of fact and conclusions of law:
The debtor failed to disclose to Eagle National Bank of Miami (the Plaintiff) that he was indebted to Capital Bank in a sum in excess of $2,000,000.00 at the time the debtor submitted personal financial statements to the plaintiff in connection with the debtor’s application for a loan with the plaintiff. The debtor’s relationship with Capital Bank had deteriorated and the debt- or was having problems with Capital Bank for a period of several months regarding repayment of this debt to Capital Bank. The debtor was in a “workout” arrangement with Capital Bank regarding this indebtedness.
The debtor is a sophisticated businessman controlling several corporations with a net worth, in the years 1985 and 1986, of between 4.5 million and 6 million dollars. The debtor had borrowed large sums of money from institutions and was familiar with the nature of guaranties, contingent liabilities, and personal indebtedness on corporate obligations. The debtor’s excuse for neglecting to reflect the $2,000,000.00 indebtedness due and owing to Capital Bank on his financial statement was that the debtor did not consider the indebtedness to be significant or relevant to his application for credit with the plaintiff.
The debtor submitted a detailed financial statement to the plaintiff, including a lengthy statement prepared by certified public accountants. The debtor had established a banking relationship with the plaintiff by maintaining bank accounts in the middle five figure range, having certificates of deposits in excess of $200,000.00 with the plaintiff, and having satisfactorily repaid a fully collateralized loan with the plaintiff.
The plaintiff paid $50,000.00 to the beneficiary under a Letter of Credit drawn at the debtor’s request. The plaintiff erroneously credited the debtor’s account with $49,900.00 which sums the debtor proceeded to use for his benefit. The plaintiff was able to recover some $28,000.00 of these funds with the result that the debtor was indebted to the plaintiff for an additional $21,900.00.
When seeking an exception to discharge pursuant to 11 U.S.C. § 523(a)(2)(B), the plaintiff must establish that:
(1) The Debtor made materially false representations in writing respecting the Debtor’s financial condition;
*551(2) The Debtor knew the representations were false at the time that they were made;
(3) The Debtor made the representations with the intention and purpose of deceiving the creditor;
(4) The Creditor reasonably relied upon the Debtor’s materially false representations; and
(5) The Creditor sustained loss and damages as the proximate result of the misrepresentations. See In re Gilman, 31 B.R. 927, (S.D.Fla.1983)
The Court finds that the plaintiff has met its burden of proof by clear and convincing evidence as to each prerequisite stated above.
Given the debtor’s sophistication, the significance of the amounts due and owing to Capital Bank, the problems the debtor was having with Capital Bank, the debtor’s knowledge that the plaintiff would consult with Capital Bank concerning his credit worthiness if the indebtedness was disclosed, and the debtor’s response that he did not consider this $2,000,000.00 debt to be significant, the Court finds that the debtor made the misrepresentation concerning the debt to Capital Bank with the intention and purpose of deceiving the Plaintiff. See In re Kimberly, 13 B.R. 145, (S.D.Fla.1981) The plaintiff’s reliance on the financial statements presented in evidence was reasonable in light of the established relationship between the plaintiff and the debtor and the nature of the financial statement supplied by the debtor. See National Bank of North America v. Newmark, 20 B.R. 842 (E.D.N.Y.1982).
The Court finds that the plaintiff is entitled to a judgment determining the debt due the plaintiff to be nondischargeable in the amount of $50,00d00 which was the amount paid by the plaintiff under the Letter of Credit. This sum was advanced by virtue of the representations made by the debtor in the financial statements published to the plaintiff. The additional $21,-900.00 was not advanced to the plaintiff based upon the reliance of the financial statements and accordingly, the plaintiff is not entitled to an order determining the $21,900.00 to be nondischargeable.
A separate Final Judgment in conformity herewith has been entered this date. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490604/ | OPINION
DAVID W. HOUSTON, III, Bankruptcy Judge.
On consideration of the complaint filed by the Plaintiff, Jacob C. Pongetti, Trustee for the Estate of The Wellington Construction Corporation, hereinafter referred to as Plaintiff or Trustee; answer and affirmative defenses having been filed by the Defendant, National Bank of Commerce of Mississippi, hereinafter referred to as Defendant or NBC; all parties being represented before the Court by their respective attorneys of record; and the Court having received testimony, heard oral argument, and having received memoranda of law submitted by both the Plaintiff and the Defendant, hereby finds as follows, to-wit:
I.
The Court has jurisdiction of the parties to and the subject matter of this proceeding pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. This is a core proceeding as defined in 28 U.S.C. § 157(b)(2)(E) and (F).
II.
STATEMENT OF FACTS
The Wellington Construction Corporation, hereinafter referred to as Wellington or Debtor, established a line of credit with the Defendant NBC initially in August, 1979, in the sum of $200,000.00. This line of credit was secured by the personal guaranties of Wellington’s principals, as well as, a certificate of deposit in the principal amount of $50,000.00, issued to The Wellington Construction Corporation. This certificate of deposit was renewed on several occasions, but at all times, the certificate was retained in the possession of the Defendant. To evidence this possession, the Defendant issued a custody receipt, dated September 4, 1979, which was delivered to Wellington and which contained the following language: “For securities held in safekeeping as collateral for the acct. of.The Wellington Construction Corporation.” (emphasis added) (See Exhibits D-4 and D-15.)
On June 17, 1981, Wellington executed a promissory note in favor of the Defendant which was payable on demand or within 90 days from the date of execution. The note recited that it was a renewal of a prior promissory note, and that the collateral *815securing the indebtedness was “personal guaranties”. In addition, on the face of the note was the following provision:
“Bank shall have a security interest in any monies or property at any time in possession of the Bank belonging to maker or any other party liable hereon and any deposits due by bank to maker or any other such party, all of which shall be treated as security for payment of this note. Bank may, at its option in event of default, setoff such monies, property, or deposits against this note or any other obligation of Maker.” (emphasis added)
The certificate of deposit was renewed on August 28,1980, as evidenced by certificate no. 9162, issued in the principal amount of $52,404.64, bearing interest at the rate of 10.5% per annum, and maturing on February 26, 1981. (See Exhibit D-5.) The principal amount of this certificate apparently included interest that had accrued on an earlier certificate of deposit.
Wellington also maintained two checking accounts with NBC under numbers 02-9956-0 and 03-0263-8. The deposit agreements, applicable to these accounts, contained the following language:
“Bank is given the right, without notice, to charge against such account any indebtedness of us or any of us to the Bank, regardless of form or source of such debt.”
The note, dated June 17, 1981, matured on September 14, 1981, 90 days from the date of its execution. Wellington defaulted in making the payment due under the note, so NBC mailed to Wellington a renewal promissory note, dated September 22,1981, for execution in the identical principal sum of $200,000.00. This note was held by Wellington and not returned to NBC until October 30, 1981.
On October 15,1981, because of Wellington’s continued default in the payment of the June 17, 1981 note, as well as, the apparent refusal to return the September 22, 1981 note, NBC setoff the principal amount of the certificate of deposit plus all accrued interest, as well as, the balances in the two bank accounts. NBC calculated the setoff as follows:
Certificate of deposit:
Principal amount ¡>52,404.64
Accrued interest from 8/28/80
through 10/15/81 6,555.28
Value attributed to certificate of deposit $58,959.92
Of the aforesaid amount, $46,138.00 was applied against the principal of the promissory note and the balance of $12,821.92 was applied against accrued interest. Following the application of the value of the certificate of deposit to the indebtedness, the principal balance remaining was the sum of $153,862.00.
Thereafter, the balances of the two cheeking accounts, in the total sum of $2,200.36, were setoff against the remaining principal amount, leaving a final balance owing of $151,661.64.
A recap of the setoff calculations is set forth as follows:
[[Image here]]
Approximately two weeks later, Wellington returned the September 22, 1981 promissory note to NBC, executed in the principal sum of $200,000.00, as noted herein-above. Since NBC had previously setoff the certificate of deposit and the two bank accounts, this promissory note was carried on the NBC bank records in the amount of $151,661.64. The maturity date of this promissory note was considered as December 21, 1981, 90 days from its date of execution.
At an unspecified time, NBC advise^ Wellington of the setoff, as well as, the remaining balance of the indebtedness/ According to the testimony of Bobby Harper, the President of NBC’s office in Co*816lumbus, Mississippi, the setoff transactions were accepted and ratified by the Wellington officials. There was no proof to the contrary.
A third promissory note was executed by Wellington in favor of NBC on December 21, 1981 in the principal sum of $151,-661J1, also payable on demand or within 90 days of the date of execution. (The nominal difference in this amount and the amount of the principal balance of the indebtedness was unexplained.) Evidencing Wellington’s acquiescence of the setoff, this note was executed by the president of the corporation and returned to NBC on December 30, 1981, with the recitation that it renewed the earlier promissory note of September 22, 1981.
On February 4, 1982, 112 days after NBC had applied the proceeds of the certificate of deposit and the balances of the two checking accounts to the Wellington indebtedness, an involuntary petition in bankruptcy was filed against Wellington.
Thereafter, the Plaintiff Trustee filed his complaint against the Defendant seeking to recover the value of the certificate of deposit, as well as, the two checking accounts as voidable preferences pursuant to 11 U.S. C. § 547(b), or, in the alternative, demanding the turnover of the value of these properties pursuant to 11 U.S.C. § 542. At the conclusion of the trial, the Court advised the parties that that part of the Trustee’s complaint alleging preferential transfers was not well taken in that the setoffs occurred more than 90 days prior to the filing of the involuntary bankruptcy petition, coupled with the total absence of proof that the Defendant was an insider to the Debtor as that term is defined in 11 U.S.C. § 101(25)(B). (This Code section, which was in effect at the time this case was filed, was the predecessor to 11 U.S.C. § 101(30)(B).)
The only issue that remains in dispute is whether NBC should be compelled to turnover the value of the certificate of deposit and the two bank accounts, setoff against the Wellington indebtedness, to the Trustee as properties of the bankruptcy estate. Several underlying questions must be answered in the resolution of this turnover issue, and each will be addressed hereinbe-low.
III.
LEGAL ISSUES
The focal point of this case centers on whether NBC had the right to set off the value of the certificate of deposit and the two bank accounts against the Wellington indebtedness. In the Bankruptcy Code, setoff is addressed in 11 U.S.C. § 553(a) which provides as follows:
(a) Except as otherwise provided in this section and in sections 362 and 363 of this title, this title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such creditor against the debtor that arose before the commencement of the case, except to the extent that-
(1) the claim of such creditor against the debtor is disallowed other than under section 502(b)(3) of this title;
(2) such claim was transferred, by an entity other than the debtor, to such creditor—
(A) after the commencement of the case; or
(B)(i) after 90 days before the date of the filing of the petition; and
(ii) while the debtor was insolvent; or
(3) the debt owed to the debtor by such creditor was incurred by such creditor—
(A) after 90 days before the date of the filing of the petition;
(B) while the debtor was insolvent; and
(C) for the purpose of obtaining a right of setoff against the debtor.
Since the setoff occurred more than 90 days prior to the filing of the involuntary bankruptcy petition, the first question that must be answered is whether there were mutual debts existing between NBC and Wellington. There are two underlying *817factors which must be addressed in this context, to-wit:
a. Had the certificate of deposit matured at the time of the setoff?
b. Had NBC acquired legal rights in the certificate of deposit and bank accounts, such as a' security interest or lien, that would permit setoff?
IV.
In addressing question (a), the Court observes that the Trustee contends that certificate of deposit no. 9162 had not matured on the date of setoff, and that as such, any attempt at setoff was premature. If, in fact, the certificate of deposit had not matured, then the Trustee’s position in this regard is absolutely correct. See Matter of Hecht, 41 B.R. 701, 702 (Bankr.S.D.N.Y.1984). However, all the pertinent facts in this case must be analyzed to ascertain what actually did occur.
The certificate of deposit was dated August 28, 1980, with a term of 182 days, bearing interest at 10.5% per annum. Therefore, the stated maturity date for the instrument was February 26, 1981. In effecting the setoff, NBC applied interest to the Wellington indebtedness that accrued between the date of the certificate, August 28,1980, and the date of setoff, October 15, 1981. This amounted to a credit against the debt in the sum of $6,555.28.
The Trustee takes the position that the certificate of deposit could not bear interest after its stated maturity date unless it was renewed for successive six month terms. In support of this position, the Trustee cites § 217.3(f) of Regulation “Q”, 12 C.F.R. § 217.3(f) (1981), which prohibits the payment of interest on matured time deposits after the date of maturity. In response to this allegation, NBC admits that it may have violated § 217.3(f) of Regulation “Q”, but that the benefactor was Wellington who received a larger credit against its debt. NBC strenuously denies that the certificate of deposit was automatically renewed after its maturity date, relying on an additional portion of § 217.3(f) which provides as follows:
On each certificate, passbook or other document representing a time deposit, the bank shall have printed or stamped a conspicuous statement indicating that no interest will be paid on the deposit after the maturity date or, in the case of a time deposit that is automatically renewable, a conspicuous statement indicating that the contract will be renewed automatically upon maturity, and indicating the terms of such renewal.
12 C.F.R. § 217.3(f) (1981).
In this case, the certificate of deposit provided that interest would not be paid after maturity. It contained no statement that it was automatically renewable. If the certificate were automatically renewable, as the Trustee contends, there should have been a clear indication on the face of the certificate that it was renewable, as well as, the specific conditions of renewa-bility, i.e., the term, rate of interest, etc.
If the Trustee is to prevail on this point, he must convince this Court that certificate no. 9162 was automatically renewed for successive six month terms on at least two occasions, i.e., on February 26, 1981 and again on August 28, 1981. The custody receipt reflects that the last renewal was certificate of deposit no. 9162, issued on August 28, 1980. After this date, there was no other certificate issued and no modification of the certificate’s terms. NBC was simply in error in applying interest, accruing after February 26, 1981, to the Wellington indebtedness when calculating the amount of setoff. Other than the fact that interest was erroneously added, there is no evidence of any description to support the Trustee’s position that the certificate had not matured. As such, the Court, after carefully considering both sides of this question, concludes that the certificate of deposit matured on February 26, 1981, and was not renewed thereafter, regardless of the interest application.
V.
In addressing question (b) hereinabove, the Court would first examine the nature of the obligation owed by Wellington to NBC as compared to the obligations, i.e., *818the certificate of deposit and the bank accounts, owed by NBC to Wellington. Clearly, all of these obligations arose prior to the filing of the Wellington involuntary bankruptcy petition. It is uncontradicted that Wellington had defaulted in the payment of the June 17, 1981 promissory note at the time that NBC effected the setoff of the certificate of deposit and the two bank accounts. Therefore, if NBC had a legal right to setoff, whether by virtue of a contractually created right or a perfected security interest, the obligations existing between NBC and Wellington would obviously be considered mutual. See Moreland v. Peoples Bank of Waynesboro, 114 Miss. 203, 74 So. 828 (1917); Deposit Guaranty National Bank v. Simrall, No. 56,469, slip op. at 9 (Miss. April 8, 1987).
The language appearing on the face of the promissory note executed by Wellington, contractually provides NBC with the right to “setoff such monies, property, or deposits against this note or any other obligation of maker.” This Court is of the opinion that this provision is applicable not only to bank accounts, but to certificates of deposit. See In re Applied Logic Corp., 576 F.2d 952 (2nd Cir.1978); Bank of Crystal Springs v. First National Bank of Jackson, 427 So.2d 968 (Miss.1983). Bolstering this contractual right of setoff is the fact that NBC retained possession of the certificate of deposit with Wellington’s consent from the date of its issuance. The Court is convinced, therefore, that NBC enjoyed a right of setoff under state law, as well as, pursuant to 11 U.S.C. § 553(a). This conclusion is inescapable regardless of whether NBC held a perfected security interest in the certificate of deposit or the bank accounts.
VI.
Although this proceeding could be decided as a result of the conclusion stated in the paragraph immediately preceding, the Court would hasten to add, in the alternative, a brief comment about the status of the security interest claimed by NBC. Having read the decisions of In re Amex Protein Development Corp., 504 F.2d 1056 (9th Cir.1974), and Barton v. Chemical Bank, 577 F.2d 1329 (5th Cir.1978), the Court is convinced that the language set forth on the face of the promissory note, coupled with NBC’s retention of the certificate of deposit, afforded NBC a perfected security interest in the certificate of deposit, pursuant to Miss.Code Ann. §§ 75-9-304(1); 75-9-305 (1972).
The custody receipt corroborates the fact that both NBC and Wellington intended the certificate of deposit to be held as collateral. Although the Court recognizes that this instrument was never signed by Wellington, the original receipt was delivered to Wellington in September, 1979, more than two years before the date of setoff. There was not even a scintilla of evidence that Wellington objected to or resisted this arrangement. The Court is therefore constrained to find that a security interest was created by the language appearing on the promissory note and was perfected by the possession of the certificate by NBC. This conclusion opens yet another avenue for NBC to legally exercise its rights of setoff.
VII.
The Trustee has complained that NBC did not provide Wellington with proper notice prior to setting off the certificate of deposit and the bank accounts against the indebtedness. Under the circumstances of this case, the Court is of the opinion that no notice is required. This conclusion is not inconsistent with the provisions of Miss.Code Ann. § 75-9-504 (1972). The certificate of deposit and the two bank accounts have a definite, ascertainable value, unlike stock certificates or tangible items of personal property which ordinarily are subject to market fluctuations and depreciation. Regardless of the extent of notice, the debtor could not have bettered its position “dollar wise”. See Barton v. Chemical Bank, supra. In actuality, NBC gave Wellington more credit in calculating the setoff than it was legally permitted to do. Added to all of this is the undisputed fact that Wellington consented to the set-off, after the fact, more than once. The
*819Court is of the opinion that this part of the Trustee’s complaint is without merit.
VIII.
CONCLUSION
For the reasons set forth in this opinion, the Court finds that the Trustee’s complaint should be dismissed with prejudice. A separate Order will be entered contemporaneously herewith. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490606/ | ORDER RE DEFENDANT’S MOTION TO DISMISS AND FOR SUMMARY JUDGMENT
DAVID S. KENNEDY, Bankruptcy Judge.
This “Motion To Dismiss And For Summary Judgment” came on to be heard on November 30, 1987. Defendant, movant-debtor, James Philip Harwell, (“Mr. Har-well”), seeks a dismissal of the original “Complaint To Determine Dischargeability Of Debt And For Entry Of Judgment” heretofore filed by the plaintiff, Union Planters National Bank (“Bank”), which seeks a nondischargeable judgment against Mr. Harwell in the amount of $8,418,670.72 plus interest pursuant to 11 U.S.C. § 523(a)(4).
The issues presented are two-fold:
1) Is a motion to dismiss or for summary judgment a “responsive pleading” so as to negate plaintiff's right to amend its original complaint under Bankr. Rule 7015(a)?
2) If not, is there a general issue of material which would preclude summary judgment?
The instant adversary proceeding was originally commenced by the Bank on September 4, 1987, with the summons being *902issued on September 9, 1987. On October 8, 1987, the instant motion pursuant to Bankr. Rules 7012(b) and 7056 was filed by Mr. Harwell. Thereafter, on November 12, 1987, “Plaintiff’s Response To Motion To Dismiss And For Summary Judgment” was filed. Filed contemporaneously with the Bank’s response was an amended complaint.
Mr. Harwell seeks to have the Bank’s original complaint dismissed for failure to state a claim for which relief can be granted contending that the Bank is not a “creditor” as defined in 11 U.S.C. § 101(9) because it has no right to payment — that right being forfeited by a lapse of a ten year statute of limitations for enforcement of judgments under State law, T.C.A. § 28-3-110(2).1 Mr. Harwell asserts that no genuine issue of material fact exists. Bank obtained a judgment against Mr. Har-well on May 12, 1977. Tennessee law bars commencement of action on judgments after ten years of their rendition. Mr. Har-well commenced this voluntary Chapter 7 case on May 22, 1987, over ten years from the date of the prior Tennessee judgment. On these matters of law, Mr. Harwell contends that he is entitled to summary judgment.
Bank, on the other hand, contends that the amended complaint remedies any deficiency in the original complaint and that as a matter of right it is permitted to amend its original pleading because Mr. Harwell’s motion to dismiss or for summary judgment is not a “responsive pleading”. Bank asserts that its amended complaint pleads that the prior Tennessee judgment was timely recorded in Illinois where Mr. Har-well resided which negates the issues raised by Mr. Harwell’s instant motion.
Contrarily, Mr. Harwell contends a motion to dismiss or for summary judgment is a responsive pleading; and no leave of court or consent being granted, the amended complaint is not properly before the court.
Rule 15 of the Federal Rules of Civil Procedure applies in adversary proceedings. Bank.Rule 7015. Rule 15(a) provides:
“(a) Amendments. A party may amend the party’s pleading once as a matter of course at any time before a responsive pleading is served or, if the pleading is one to which no responsive pleading is permitted and the action has not been placed upon the trial calendar, the party may so attend it at any time within 20 days after it is served. Otherwise a party may amend the party’s pleading only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires. A party shall plead in response to an amended pleading within the time remaining for response to the original pleading or within 10 days after service of the amended pleading, whichever period may be the longer, unless the court otherwise orders.”
As a matter of course, the Bank would be allowed to amend its complaint, thus negating the instant motion, if a motion to dismiss or for summary judgment is not a responsive pleading. The weight of authority is that neither a motion for summary judgment nor a motion to dismiss extinguishes a plaintiff’s right to amend pursuant to Rule 15(a). See Rogers v. Girard Trust Co., 159 F.2d 239 (6th Cir.1947); Magic Foam Sales Corp. v. Mystic Foam Corp., 167 F.2d 88 (6th Cir.1948); Ohio Casualty Ins. Co. v. Farmers Bank of Clay, Kentucky, 178 F.2d 570 (6th Cir.1949); Zaidi v. Ehrlich, 732 F.2d 1218 (5th Cir.1984); St. Michael’s Convalescent Hospital v. State of California, 643 F.2d 1369 (9th Cir.1981); La Batt v. Twomey, 513 F.2d 641 (7th Cir.1975); Miller v. American Export Lines, Inc., 313 F.2d 218 (2nd Cir.1963). See also 3 Moore’s Federal *903Practice, ¶ 15.07[2], pp. 15-34 through 35 (2nd 1987).
In Zaidi v. Ehrlich, 732 F.2d 1218 (5th Cir.1984), the defendants filed a motion to dismiss or, in the alternative, for summary-judgment, along with affidavits and exhibits, but no answer to the complaint was filed. Plaintiff, Zaidi, did not controvert the motion and attachments, but filed a motion for leave to amend her complaint. The district court did not review the plaintiffs motion and, instead, granted the defendants a summary judgment based on the affidavits attached to their motion. In reversing, the court of appeals ruled that the term “responsive pleading” as contained in Rule 15 should be defined by reference to Rule 7(a). Id, at 1219, 1220. Neither a motion to dismiss nor a motion for summary judgment is found in the definition of pleading and; accordingly, neither motion would suffice to extinguish Zaidi’s right to amend the complaint. Id.
This court finds that the reasoning and ruling of Zaidi persuasive in the instant proceeding. Rule 7 of the Federal Rules of Civil Procedure is made applicable to bankruptcy cases pursuant to Bankr.Rule 7007. Mr. Harwell responded to the Bank’s original complaint, not with a “responsive pleading”,2 but rather, with a motion to dismiss and for summary judgment. As a matter of course, therefore, the Bank has the right to file an amended complaint which is now before the court. Moreover, the court is guided by the clear rule of the Sixth Circuit. Specifically, motions to dismiss and for summary judgment are not “responsive pleadings” within the meaning of Rule 15(a). Rogers v. Girard Trust Co., 159 F.2d 239 (6th Cir.1947); Magic Foam Sales Corp. v. Mystic Foam Corp., 167 F.2d 88 (6th Cir.1948); Ohio Casualty Insurance Co. v. Farmers Bank of Clay, Kentucky, 178 F.2d 570, 573 (6th Cir.1949). Having answered the first issue in the affirmative, it is unnecessary to address the second issue. A motion to dismiss or for summary judgment is improper under the particular facts and circumstances.
Based on the foregoing and the entire case record as a whole,
IT IS SO ORDERED: That Mr. Har-well’s motion to dismiss or for summary judgment is denied.
. By virtue of 11 U.S.C. § 101(4) “claim” means:
"(A) right to payment, whether or not such right is reduced to judgment, liquidated, un-liquidated, fixed, contingent, matured, unma-tured, disputed, undisputed, legal, equitable, secured, or unsecured; or
"(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.”
. See also Bankr.Rule 7012(b) requiring a "responsive pleading” to contain an admission or denial of an allegation that the proceeding is core or non-core. The instant motion contained no such admission or denial. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490607/ | MEMORANDUM OPINION
TIMOTHY J. MAHONEY, Bankruptcy Judge.
Evidentiary hearing was held in Omaha, Nebraska, on December 16, 1987, on an amended motion filed by the debtors moving the Court for an Order determining that the ASCS/CCC has violated the confirmed Chapter 12 plan and/or discriminated against the debtors in violation of 11 U.S.C. Section 525(a). Donald Swanson of Schmid, Mooney & Frederick, Omaha, Nebraska, appeared on behalf of the debtors. Steven Russell, Assistant United States At*1003torney, appeared on behalf of the governmental entities.
Facts
Debtors are family farmers as defined in 11 U.S.C. Section 101(17). Debtors filed a voluntary petition under Chapter 12 of the Bankruptcy Code on December 23, 1986. They filed several plans pursuant to the requirements of Chapter 12 and this Court confirmed the second amended Chapter 12 plan on or about July 13, 1987.
Debtors filed their first plan on March 20, 1987. That plan at Paragraph 2.3 identified the treatment that the debtors would provide for payment of a debt owed to the Commodity Credit Corporation (CCC) which was secured by a steel building used as a grain bin. The CCC with regard to that particular debt obligation was identified as a Class 6 claimant. Paragraph 2.3 of the original plan stated:
Class 6 claims secured by a steel building will be paid in full by a setoff of sums owing from the Class 6 claimant to Debtors. Class 6 claims secured by grain will be satisfied by surrendering grain, redeeming grain, or as otherwise provided by CCC regulations.
In addition to owing the CCC for the grain bin, the debtors owed the CCC approximately $61,000 on the petition date resulting from a commodity loan. That loan was secured by an interest in corn stored on the debtors’ premises. Each year prior to 1987 the debtors had entered into an agreement with the CCC for such storage arrangements and received a payment from the CCC for storing the grain.
On the date the petition was filed, December 23, 1986, there existed a contract between the debtors and the CCC regarding such storage, and storage payments had been paid in advance from the CCC to the debtors early in 1986.
By its terms, the contract concerning payments to the debtor for the storage of the grain expired on December 31, 1986. See Government Exhibit # 19.
In January of 1986, the debtors received approximately $4,700 from the CCC as an advance storage payment pursuant to the terms of the agreement. Prior to filing the bankruptcy petition, the debtors did not execute a new agreement for the calendar year 1987. The CCC did not notify the debtors prior to bankruptcy, nor until approximately two weeks ago, that the debtors were not eligible to receive storage payments during 1987. Debtors assumed, both prior to filing bankruptcy and thereafter, that they were eligible and actually “in” the 1987 program and would be receiving approximately $4,700 in storage payments in 1987 and in later years.
However, the CCC now claims that the debtors are not eligible to receive the 1987 storage payments, that they were not in the 1987 program and that they actually were not eligible to receive the 1986 payments and should not have been permitted to enter into the program for 1986 nor permitted to receive any storage payments in 1986. Testimony from Roger Cook, the County Executive Director of the Valley County ASC Committee, indicates that the debtors should not have been permitted to participate in the storage program in 1986 because debtors had previously disposed of grain which was collateral for a 1984 loan without the appropriate permission. Mr. Cook alleges that the debtors knew or should have known of their ineligibility because of a letter dated October 28, 1985, from the County Executive Director to Mr. Lech which was submitted into evidence as Government Exhibit # 16 and because of the minutes of the Valley County ASC Committee on Wednesday, June 26, 1985, submitted into evidence as Government Exhibit # 1 and because of a letter directed to Mr. Roman Lech on June 27, 1985, Government Exhibit #2. This Court has read each one of the exhibits suggested by Mr. Cook as authority for debtors’ noneligibility and finds that none of the exhibits say anything about debtors’ eligibility for the special producer storage loan program referred to in the agreement identified as Government Exhibit # 19.
Mr. Cook also testified that in addition to the documents previously referred to, the debtors were ineligible because of regulations that he is required to follow. Those *1004regulations apparently are in some type of office manual which was not admitted into evidence and the terms of which were not described. Finally, Mr. Cook testified that the debtors were not eligible for the 1986 or 1987 or future storage payments pursuant to a special producer storage loan program because of an audit conducted by the Office of Inspector General of the Department of Agriculture. The audit was not provided to the debtors or to debtors’ counsel, nor was it submitted into evidence at this hearing. Mr. Cook further testified that he was not permitted to discuss the audit results with debtors or with debtors’ counsel and, therefore, did not notify them of their ineligibility. When he discovered the ineligibility, after the debtors had executed the 1986 agreement, Exhibit # 19, and after the debtors had received the 1986 payment, Mr. Cook apparently made an administrative decision not to require debtors to repay the storage payments and did not mention to any person, including the debtors, that the debtors were- receiving payments that they were not allowed to receive.
Since the debtors assumed that they were in the 1987 program and would be receiving funds for storage in 1987, and since they thought that the CCC had a perfected security interest in the grain bin, the first plan that was filed by the debtor on March 20, 1987, contained the language of Paragraph 2.3. Approximately $3,200 was owed on the grain bin and the debtors proposed at Paragraph 2.3 to permit a set-off of the storage payments to the extent of the debt owed on the bin. Their plan proposed that they would receive the remaining balance of the storage payment and would continue with their CCC loans, subject only to the regulations concerning redemption or surrender of the grain at the time the notes matured.
Although the debtors believed that the CCC had a perfected security interest in the grain bin, the officials of the ASCS/CCC knew better. They had known for several months prior to the filing of the first plan that the perfection of the CCC security interest had lapsed by failure to file a continuation statement. CCC agreements are administered by employees of the ASCS, a U.S. Government agency. Officials of the ASCS did not notify the debtors of the lapse. However, officials of the ASCS did review the first plan and did direct their legal counsel to object to the plan. Government Exhibit # 12 is a memorandum from the Nebraska State Office of the ASCS to general counsel dated April 16, 1987. By that memorandum, the officials notified their counsel that debtors were not participating in any government program that would entitle debtors to payments from the government. Therefore, the memorandum alleges that there are no funds as of that date which could be set off against the bin payment. The memorandum goes on to suggest that instead of setoff, the debtor should pay the bin payment in full over five years.
General counsel did not file an objection to the March 20, 1987, plan and no person from the ASCS suggested to the debtors or debtors’ counsel that setoff was inappropriate or that debtors would not be receiving any funds in 1987 or that the Government’s perfection of the security interest in the bin had lapsed so the CCC was not a secured claimant with regard to the amount owed for the bin.
For reasons other than problems with the CCC, the plan was amended on May 20, 1987. But this amendment contained the same language at Paragraph 2.3 concerning the setoff and payments concerning the bin as well as the continuation of the loan program that the debtors had been involved in. This amendment had been filed after counsel for the debtor had specifically requested of at least two officials of the ASCS to verify that the setoff could be done. Mr. Cook was one of the officials and Doy Unzicker, the Nebraska State ASCS Program Specialist based in Lincoln, Nebraska, was the other official. Mr. Sto-well, counsel for the debtors at the time the plans were proposed, testified that he made specific inquiry of both Mr. Cook and Mr. Unzicker and eventually inquired of Mr. Hall, another state official, concerning the setoff procedure. According to Mr. Sto-well, none of the ASCS employees informed *1005him that the debtors were not eligible for payment or that the debtors were not involved in the 1987 program. Instead, according to Mr. Stowell, Mr. Unzicker told him that there would need to be an inspection of the grain by the local committee before the setoff procedure could be approved. The inspection was completed and Mr. Stowell testified that he was informed that everything with the grain was satisfactory. Mr. Stowell did not at any time receive an affirmative statement from any of the ASCS officials that the setoff procedure was appropriate.
Mr. Stowell then filed the amended plan on May 20, 1987, containing the setoff language contained in Paragraph 2.3. No objection was filed by the Commodity Credit Corporation. Mr. Stowell testified that he was asked by at least one of the ASCS employees to put particular language in the plan to reflect the fact that the debtors would continue to deal with the ASCS agreements pursuant to the regulations. To comply with this request, Paragraph 2.3 was amended in the final plan that was eventually approved. That plan, admitted into evidence as Plaintiffs Exhibit #3, changes the language of Paragraph 2.3.
Prior to the final plan being filed, Mr. Stowell contacted the state officials by letter requesting a verification that the setoff proposed in Paragraph 2.3 or an exchange of checks which would accomplish the same result, was a satisfactory procedure. Those letters were sent by Mr. Stowell on July 6, 1987, to Mr. Norman Hall and Mr. Doy Unzicker, both at the state office of the ASCS. Copies of those letters were admitted as Plaintiff’s Exhibit #4. No response was ever received.
On or about July 9, 1987, there was a confirmation hearing on the second plan. At that hearing, debtors’ counsel was made aware by counsel for another creditor that the perfection of the CCC security interest in the grain bin had lapsed and that the CCC was not a secured claimant with regard to the amount owed on the bin. With that knowledge and as a result of other agreements being reached with other creditors, debtors filed their final or second amended Chapter 12 plan and, pursuant to Court order, provided notice to all creditors, including the ASCS that objections to the plan needed to be filed within a certain time period or it would be confirmed. No objections were filed and the plan was confirmed.
The appropriate ASCS officials had notice of the terms of the plan which included the amended Paragraph 2.3 providing that the CCC claim concerning the bin was an unsecured claim and providing that the debtors assumed all executory contracts regarding grain in the possession of the debtors. All of the appropriate ASCS officials received notice that the assumptions upon which the plan were based included the receipt by the debtors of storage payments of approximately $4,700 per year.
The ASCS employees, Mr. Cook, Mr. Un-zicker and Mr. Hall, each testified that they were never asked whether or not the debtors had a right to receive the government payments. Therefore, they did not tell Mr. Stowell that the debtors were not only ineligible for the 1987 payments but they shouldn’t have received 1986 payments and that if the plan were confirmed, they would simply call the underlying note and demand delivery of the collateral. They each testified that if they had realized Mr. Stowell was assuming that the debtors were “in” the program and that payments were due the debtors, they would have or at least should have informed Mr. Stowell of his error. They each thought that Mr. Stowell simply was inquiring whether or not the debtors could get into the 1987 program and couched their responses appropriately to that inquiry.
This Court, although not making any finding as to the intent of the individual ASCS employees, simply finds their testimony incredible. The evidence leads this Court to conclude as a fact that the ASCS employees knew the bin claim was unsecured; knew that the debtors were not eligible for 1987 payments or any other payments; knew that the plan included such payments; knew that the debtors intended to continue the status quo with regard to their loans with the CCC; knew *1006that the debtors and their counsel believed that either by the bankruptcy filing on December 23,1986, or by some other procedure, that the debtors were “in” the programs for 1987 and future years or would be permitted to execute the appropriate government documents to enable them to continue to participate pursuant to the terms of the plan. Knowing all of this, the ASCS employees still failed to tell either the debtors, counsel for the debtors or this Court that the government would rely on sbme 1985 notification to the debtors to deny them any further participation or payment under any government programs.
The second amended plan was confirmed by this Court without objection in July of 1987. On September 23, 1987, the Nebraska State ASCS Office by Mr. Hall directed the Valley County ASCS Committee to issue a Delivery Notice to the debtor instructing him to deliver the commodity, that is, the corn in possession of the debtor subject to the security interest of the CCC, to the CCC. This directive is contained in Government Exhibit # 14. In addition to calling the loan, which is what Government Exhibit # 14 actually does, the State Office directed that the County Committee should prepare a claim form concerning the amount remaining due on the bin loan and send the paperwork to the State so that the State Office personnel could make a determination of uncollectibility.
The state directive to the county office came just a few days after counsel for the debtor had requested information from the state office concerning the date when the debtors could expect to receive payment of the 1987 storage amounts. In response to the telephone request for such information on or about September 18, 1987, the employees of the state office requested a copy of the order confirming the plan. Counsel for the debtors sent a copy of the order confirming the plan on September 18,1987, and the response, rather than information concerning payments, was the directive to the County Committee to call the note.
Even at that time, the State Office did not inform counsel for the debtors that the debtors were ineligible for any payment or that the debtors would not be receiving any payment for the 1987 storage.
Debtors had retained the corn in their storage facilities from the first day of 1987 until final delivery was made pursuant to the September 23 directive on or about October 30, 1987. The ASCS had never objected to the plan. The ASCS had not moved for relief from the automatic stay for permission to enforce its alleged rights in the collateral. The ASCS permitted debtors to retain the collateral in storage for ten months in 1987 even though the ASCS employees knew that the debtors were not eligible for and would not receive any payment for such storage. In addition, the order directing the loan to be called and the collateral to be delivered came at a time when other producers had already arranged for storage facilities for the 1987 crop. As a result, debtors were precluded from receiving payments from the government for 10 months of storage and were precluded from contracting with others for the use of the bins for storage of 1987 crops.
Shortly after receiving notice that the loan had been called and delivery was demanded, debtors filed the motion requesting this Court to enjoin the ASCS/CCC from discriminating against the debtors pursuant to Section 525 of the Bankruptcy Code. Such motion alleges that the debtors are participants in farm programs, that they are not in violation of the farm programs or default under the terms of their agreements with the Government, that the Chapter 12 plan was confirmed in which the contract had been assumed, that the unsecured debt owed to the ASCS/CCC had been discharged pursuant to the plan and that as a result of such discharge, the ASCS/CCC had retaliated by refusing to allow the debtors to continue participation in the program. At the time the motion was filed, no employee of the ASCS had yet informed counsel that the ASCS was taking the position that the debtors were not entitled to be, nor were they, program participants in any programs as of December 31, 1986.
*1007On the date of trial, after the ASCS employees had finally disclosed to debtors’ counsel that it was the position of the ASCS that debtors had no contract which could be assumed nor did they have any rights to storage payments because they were not entitled to participate, the motion was amended to include an allegation that the ASCS/CCC was violating the terms of a confirmed plan.
Discussion and Conclusions of Law
The Bankruptcy Code prohibits governmental units from discriminating against individuals solely on the basis that they have filed a bankruptcy case or discharged certain debt owed to the Government.1 The effect of an order of confirmation in a Chapter 12 case is to bind the creditor to the terms of the plan whether the creditor has objected or not.2 The CCC through its agents or representatives, has known from a date prior to the filing of the first plan of reorganization in this case that the claim concerning the bin was an unsecured claim. The CCC by failing to object to the first two plans, acquiesced in the debtors’ proposal to treat the CCC as a secured claimant with regard to the bin debt. Such agents or representatives of the CCC did not bother to inform counsel for the debtor, at any time, that the claim was actually unsecured and that if the first or second plan were confirmed, the CCC would receive more and would be treated differently than it should have been treated if counsel for the debtor had realized that the perfection of the CCC’s security interest had lapsed.
Eventually, with no help from the CCC, the debtors realized that the claim of the CCC with regard to the bin was unsecured and amended the plan to treat such claim as unsecured and dischargeable. The plan was confirmed without objection by the CCC. Within five days of receiving a copy of the order of confirmation treating the bin claim as unsecured, the CCC instituted action to call all notes and require delivery of collateral, thereby effectively cutting off debtors’ apparently valid right to obtain storage on an ongoing basis and to continue to participate in the CCC programs.
This Court concludes that the actions of the CCC are discriminatory under Section 525 of the Bankruptcy Code. On the date of the bankruptcy the debtors did have an agreement or a “grant” with the CCC, which included the outstanding loan, the rights to extend the loan on a year-to-year basis as had been done in the past, and the special producer storage agreement and the right to extend it as had been done in the past. The notices that the Government alleges were sufficient to inform the debtor of his ineligibility for such programs simply do not inform anyone, including this Court, that the agreements in place would not be extended beyond December 31,1986.
The notices do not specifically state what the ASCS employees claim they mean and the ASCS itself, through its agents, did not even realize the 1985 County Committee minutes and notices meant that the debtors were not eligible to continue to participate. This is evidenced by the fact that the very County Committee which issued all of the notices permitted the debtors to enroll in *1008the program for 1986. If the County Executive Director and the County Committee do not understand what their own notices say, the debtors should not be expected to understand it either.
There is no credible evidence before the Court on behalf of the ASCS/CCC that the September 23, 1987, loan call was a result of anything except a retaliation by the CCC for action by the debtors in treating the bin loan as unsecured rather than secured.
The ASCS/CCC is in violation of Section 525(a) of the Bankruptcy Code.
Concerning the effect of the plan on the rights of the debtors and the obligations of the CCC, it appears that this is a case of first impression, particularly under Chapter 12 of the Bankruptcy Code. The plan says the debtors will continue with the government programs in place at the time the bankruptcy was filed. The plan says that the debtors will receive, pursuant to those programs, certain storage payments in 1987 and in the future. The CCC does not object to the terms of the plan even though they had three opportunities to do so. The CCC does not even inform either the Court or debtors that there is any problem with eligibility for continuing in such programs or receiving storage payments in 1987 or in the future until this action is brought before the Bankruptcy Court. The confirmed plan at Paragraph 2.3 provides, among other things, “The executory contracts with the Class 6 claimant regarding grain now in the possession of Debtors are hereby assumed.” Those executory contracts include the rights to extend the special producer storage loan program and include the terms of the agreement concerning the farm storage notes and security agreements.
Neither the debtors nor their counsel nor this Court was informed prior to confirmation that the CCC regulations or officials would not permit debtors to participate in the programs by extension of* the agreements as had occurred in 1986 and prior years. Such failure to notify the Court by objection to the plan is acquiescence in the plan and this Court believes the CCC is now estopped from claiming debtors’ ineligibility or from claiming that because debtors didn’t sign the appropriate documents and the Secretary of Agriculture or his designated officials did not execute the appropriate documents, that the debtors’ notes and agreements matured on December 31, 1986.
Section 1227 of the Bankruptcy Code binds the CCC as a creditor. The contracts were executory at the time the case was filed and they were assumed by the confirmed plan.
Debtors’ original motion and the amended motion request this Court to enjoin the ASCS/CCC from future discrimination with regard to the farm programs and to enjoin the ASCS/CCC from violating the terms of the confirmed plan. This Court is not comfortable with the theory that it can or should enjoin the ASCS/CCC from taking actions which may violate 11 U.S.C. Section 525 or violate 11 U.S.C. Section 1227. The discomfort arises from the fact that the law prohibits such activity without a specific court order. On the other hand, because the ASCS/CCC ordered the corn delivered and the debtors no longer have corn available for storage which would earn storage payments, the debtors have been directly harmed by the actions of the ASCS/CCC and the plan as confirmed has been violated. An order directing the ASCS/CCC to return the corn to the bins and let the debtor continue to participate as if the debtors had not been deemed ineligible, is not a practical solution.
This Court will not permit the CCC or any other creditor to stand idly by and permit debtors and other creditors and this Court to engage in a Chapter 12 confirmation process which is doomed to failure because the “knowing” creditor does not see fit to inform the other parties and the Court of a basic legal or factual flaw in the proposed plan. Any creditor, including a government creditor, should be deemed to have waived any objections it may have to being an unwilling participant in the process if that “knowing” creditor has the opportunity to inform the Court of the problem and fails, intentionally or unintentionally, to do so.
*1009Since this Court has found that the plan as confirmed treats the debtors as if they were eligible to continue participating in the government programs, an order based upon such finding is appropriate.
Remedy for CCC violations
IT IS THEREFORE, ORDERED that the 1987 special producer storage payment that the debtors would have been entitled had they been eligible and had they executed the appropriate documents should be paid to the debtors within 30 days.
IT IS FURTHER ORDERED that the debtors should be deemed eligible for such program payments and that the debtors should be permitted to execute the appropriate documents or agreements within 30 days as if they had been eligible to do so prior to December 31, 1986, and the effectiveness of the executed agreement shall be retroactive to December 31, 1986.
IT IS FURTHER ORDERED that in the future, at least during the years in which the Chapter 12 plan is effective, the CCC is to treat the debtors as if the actions which supposedly causes them to be ineligible had not occurred. That is, the debtors, if otherwise eligible for participation in the programs, shall not be prohibited from participating in such programs solely as a result of shortages in the 1984 or 1985 sealed grain programs.
IT IS FURTHER ORDERED that the debtors shall not be deemed ineligible for any participation in the programs because the bin loan was discharged in bankruptcy.
Separate Journal Entry will be entered.
. 11 U.S.C. § 525(a): “A governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise or other similar grant to, condition such grant to, discriminate with respect to such grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this Title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this Title or a bankruptcy or a debtor under the Bankruptcy Act ... or has not paid a debt that is dischargea-ble in the case under this Title." (Emphasis added).
. 11 U.S.C. § 1227(a): "Except as provided in Section 1228(a) of this Title, the provisions of a confirmed plan bind the .debtor, each creditor, each equity security holder, and each general partner in the debtor, whether or not the claim of such creditor, such equity security holder, or such general partner in the debtor is provided for by the plan, and whether or not such creditor, such equity security holder, or such general partner in the debtor has objected to, has accepted, or has rejected the plan.” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490609/ | MEMORANDUM DECISION
JOHN J. HARGROVE, Bankruptcy Judge.
I.
At issue is whether second mortgage payments ordered in a dissolution proceeding are in the nature of support and therefore non-dischargeable. This matter came on for hearing before this court pursuant to plaintiff’s motion for summary judgment.
This court has jurisdiction to hear this matter pursuant to 28 U.S.C. § 1334 and § 157(b)(1) and General Order No. 312-D of the United States District Court, Southern District of California. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I).
This court grants summary judgment for plaintiff.
II.
FACTS
After approximately thirteen years of marriage, plaintiff Consuelo Lopez (“Mrs. Lopez”) filed a petition for dissolution in the Superior Court of California, for the County of San Diego (“Superior Court”).
On September 13, 1985, the action for dissolution came to trial and a judgment of dissolution of marriage issued which, inter alia, affirmed the written Marital Termination Agreement (“Agreement”) executed *32by the parties on March 12, 1984. Paragraph 7 of the Agreement provided in pertinent part that, “[hjusband is to assume the following community debts: 1. Second mortgage on family residence to Person-to-Person in the amount of $18,000.00.”
Subsequently, Mr. Lopez failed to make support payments and on February 11, 1986, was adjudicated guilty of four (4) counts of contempt for failure to pay child and spousal support during a four and one-half month period immediately subsequent to entry of the judgment of dissolution.
Thereafter, on May 23, 1986, Mr. Lopez filed a motion seeking a reduction of his support obligations to Mrs. Lopez and their minor son. On May 23, 1986, the parties entered into a stipulation which stated in pertinent part that:
1. Arrearages. ... [ajrrearages on the second mortgage are currently $1,800.00....
******
4. Second Mortgage Payments. Respondent shall continue to make the second mortgage payments on the former family residence. Respondent shall make all payments on time, and shall stay current.
Mr. Lopez again failed to make payments as required by the court order of May 23, 1986, and on February 2, 1987, Mrs. Lopez filed another contempt proceeding against Mr. Lopez.
On February 6, 1987, Mr. Lopez (hereinafter “debtor”) filed his Chapter 7 petition in bankruptcy and listed Mrs. Lopez as an unsecured creditor.
Thereafter, on March 10, 1987, upon advice of counsel, the debtor voluntarily admitted contempt allegations to each of twenty-seven (27) counts of contempt. Eight of the counts of contempt related to the debtor’s failure to pay the second mortgage payments on the former family residence.
In July 1987, the debtor reported for sentencing and the Superior Court fixed direct support arrearages accruing on all prior support orders through June 15,1987, except for attorneys’ fees, at $13,500.00. Based on the record of the state court contempt proceedings, it is clear that the findings of contempt included the debtor’s failure to pay the $301.00 per month second mortgage payment on the former family residence from June 1986 to January 1987.
III.
DISCUSSION
The debtor contends that the second mortgage payments were never intended by him or the court to be additional support. Instead, the debtor contends that the requirement that he make the second mortgage payments on the former family residence originated in the Agreement which was, according to the debtor, a property settlement. The debtor also asserts that a factual dispute exists as to the nature of the payments and the intent of the parties and that therefore these factual questions militate against granting a summary judgment in favor of Mrs. Lopez.
Section 523(a)(5) of the Bankruptcy Code provides in pertinent part that:
(a) A discharge under §§ 727, 1141, or 1328(b) of this title does not discharge an individual debtor from a 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, ... (emphasis added).
Contrary to the debtor’s contention, the second mortgage payments are not a property settlement. The Agreement and the order thereon required the debtor to assume making the payments to the second mortgage holder on the family residence. While neither the Agreement nor the order thereon expressly labelled the payment requirement as “support,” the debtor’s subsequent failure to make the second mortgage payments, the contempt actions which followed and, most importantly, the debt- or’s voluntarily admission to the eight con*33tempt counts for failure to make the second mortgage payments on the family residence are conclusive evidence that both the Superior Court and the parties considered the debtor’s requirement to make those payments as a form of spousal support. If an agreement fails to provide explicitly for spousal support, a court may presume that a so-called “property settlement” is intended for support when the circumstances of the case indicate that the recipient spouse needs support. Shaver v. Shaver, 736 F.2d 1314 (9th Cir.1984).
In the present case, the record is clear and the Superior Court found that spousal support, child support, and payment on the second trust deed of $301.00 a month on the former family residence, were necessary in order for Mrs. Lopez to maintain herself and the parties’ minor son. The portions of the state court record submitted to the court show that there was a substantial disparity in earnings of the parties and that the minor child of the parties was in the custody of Mrs. Lopez.
Further, whether the obligation is enforceable by contempt is an important factor which this court must consider. In re Coffman, 52 B.R. 667 (Bankr.D.Md.1985). Contempt proceedings are utilized to enforce support orders of the domestic court. In this case the citation for contempt clearly cited the eight violations regarding the debtor’s failure to pay the second trust deed payments. Further, the debtor, upon advice of counsel, voluntarily entered a guilty plea to all contempt counts. All of these actions clearly indicate that the debtor and the Superior Court considered the obligation to make the second trust deed payments as support payments.
The debtor cannot now come into this court and allege that he intended something different. 28 U.S.C. § 1738 requires that state court judgments be given full faith and credit in federal courts when competent evidence of such judgment is provided to the court. The record herein contains ample evidence to support this court’s findings. Further, in adversary proceedings under 11 U.S.C. § 523(a)(5), a preponderance of the evidence is sufficient for Mrs. Lopez to sustain her burden of proof. Therefore, in accordance with the prior findings of the state court which has considered this matter, the second mortgage payments on the Lopez’ house paid by the debtor are found to be support payments to Mrs. Lopez.
IV.
CONCLUSION
Pursuant to 28 U.S.C. § 1738, this court finds that the prior state court adjudications on the issue of whether second mortgage payments ordered in a dissolution proceeding were in the nature of support are dispositive of any factual dispute now asserted by the debtor. Therefore, such payments are non-dischargeable in the debtor’s Chapter 7 proceeding. There are no remaining issues of fact for this court to consider. Plaintiff’s motion for summary judgment is granted.
This Memorandum Decision constitutes findings of fact and conclusions of law pursuant to Bankr.R. 7052. Counsel for the plaintiff is directed.to file with this court an Order in conformance with this Memorandum Decision within ten (10) days from the date of entry hereof. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490610/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW RE: MOTION FOR RELIEF FROM STAY
JON J. CHINEN, Bankruptcy Judge.
The “Petition to Lift Stay of the Circuit Court of the First Circuit, Civil No. 85-4067,” filed by William Simone (“Simone”) on August 26, 1987, was the subject of a preliminary hearing held on September 23, 1987 and a final hearing on October 13, 1987. At the hearings, Thomas Young, Esq. represented William D. Simone (“Simone”) and Robert J. Faris, Esq. represented the debtors, Barbara J. Krewson (“Krewson”), Geraldine Maile Winward (“Winward”), and Al’s Den, Inc., a Hawaii corporation (“Al’s Den”). Krewson, Win-ward and Al’s Den are hereafter jointly referred to as “debtors”. Following the hearing, the Court took the matter under advisement.
Based upon the evidence presented, the memoranda filed, the records in the case and the arguments of counsel, the Court makes the following findings of fact and conclusions of law.
FINDINGS OF FACT
1. Al’s Den is a Hawaii corporation, duly incorporated and authorized to do business in the State of Hawaii. Krewson, Winward and Simone are all residents of the City and County of Honolulu, State of Hawaii.
2. Al’s Den is the sublessee of certain premises (the “Premises”) located at 441 Walina Street, Honolulu, Hawaii, pursuant to a sublease, dated October 8, 1970, by and between Pathway, Inc. (“Pathway”), as sublessor, and Crown Cocktail Lounge, Inc., as sublessee. Crown Cocktail Lounge, Inc., assigned the sublease to Al’s Den by instrument dated March 16, 1977.
3. The land upon which the Premises are situated has been registered in the Land Court of the State of Hawaii pursuant to the provisions of Chapter 501 of the Hawaii Revised Statutes. The sublease was never filed in the Land Court or noted on the Transfer Certificate of Title pertaining to that property.
4. Pathway commenced a voluntary Chapter 11 case on May 3, 1982, which is still pending before this Court, In re Pathway, Inc., Case No. 82-00253.
5. In early 1983, Krewson and Winward were both employed as bartendresses and assistant managers by Al’s Den which operated The Waikiki Pub. They both worked under the supervision of Simone, who was the sole stockholder of Al’s Den. In the spring of 1983, Simone approached Krewson and Winward and offered to sell “the bar” to them. Simone told Krewson and Winward that he wanted to sell the bar to them because they had helped him build up the bar’s business and that they were “like family”. He told them that purchasing the bar would be a “good deal” because the bar had a lease at a low, fixed rent of approximately $630.00 a month for twelve more years, and that the lease “was untouchable.” The bar is located in Waikiki and has a seating capacity for 35 patrons. Simone also told Krewson and Winward that twelve parking stalls came with the bar under the lease, although the lease contains no such provision.
6. Krewson and Winward were reluctant to purchase the bar, especially since they were concerned about their financial ability to pay for the bar. When they told Simone that they did not have the money to buy the bar, Simone told them that, if they each put down $5000.00, he would sell them the bar. Simone also told Krewson and Winward that, if they could not pay for the bar, he would “just take it back”.
7. Because of the statements and promises made by Simone over a period of a month when he kept pressing them to purchase the bar, Krewson and Winward eventually agreed to purchase the “bar and sublease”. Krewson and Winward met with Simone and his lawyer for lunch on April 8, 1983. Simone then showed Krew-son and Winward for the first time, the *49Stock Purchase Agreement, a Promissory-Note in the original principal amount of $100,000.00, a second note in the amount of $15,122.00, and a document entitled “Joint Closing Instructions”, among other documents. Krewson and Winward did not have an attorney or anyone else review any of the documents on their behalf.
8. After the sale transaction had been completed, Simone told Cindy Hayworth, a bartendress working at the bar, that he was a “nice guy” because, though he had sold the bar to Krewson and Winward, he promised to take it back if they were unable to make payments.
9. Subsequent to signing the agreement, until 1985, Krewson and Winward paid a total of $68,698.47 to or for the account of Mr. and Mrs. Simone under the Stock Purchase Agreement. This sum includes the $10,000.00 down payment, $8,160.00 of “consulting fees,” $40,997.61 of installments under the $100,000.00 note, $9,418.64 of installments under the $15,-122.00 note, and an amount of $122.22 due to the Internal Revenue Service which accrued prior to the Stock Purchase Agreement and which was Simone’s obligation to pay.
10. Meanwhile, in late 1983, Pathway, the sublessor of the Premises, which had filed for relief in 1982, applied to sell its interest in the sublease to AFI. Though Pathway was aware of the claim of Al’s Den in the sublease, Pathway did not give notice of the proposed sale to Al’s Den. After a hearing, this Court on December 5, 1983 entered its Order Approving the Sale “Free and Clear of All Liens and Encumbrances, except those of Record”.
11. Krewson and Winward first learned of the sale of the sublease to Waikiki Partners AFI (“AFI”) in December of 1984. AFI attempted to negotiate a settlement, but Krewson and Winward refused.
12. In May of 1985, the debtors received a demand from AFI that the debtors vacate the premises immediately. The debtors then retained counsel and ceased making payments to Mr. and Mrs. Simone for they believed that, if the lease were invalid, Simone had breached his representation that the sublease was valid, and that therefore the debtors did not owe the Simone any more money.
13. Thereafter, Simone brought an action in the state circuit court, Simone v. Krewson, et al, CA 85-4067 to cancel the Stock Purchase Agreement and to collect damages.
14. Then, on January 24, 1986, AFI brought in the Land Court of the State of Hawaii its Petition for Issuance of (1) Order Confirming Title; (2) Writ of Possession; (3) Order to Show Cause.
15. On January 28, 1986, counsel for the debtors sent to counsel for Simone the documents served upon the debtors by AFI and demanded that Simone defend the action.
16. On January 29, 1983, counsel for Simone replied to debtors’ counsel and stated “We intend to defend this matter vigorously” and requested certain affidavits from Krewson and Winward. And, Simone did defend against AFI’s petition in the state court action, including the hearing in the State Supreme Court.
17. The debtors filed their petitions on June 23, 1987. Simone then filed his Petition to Lift Stay on August 26, 1987.
18. One of the issues in the Petition to Lift Stay was whether the unrecorded sublease was valid and binding upon AFI, when it was aware of such unrecorded sublease. After a hearing at which Simone, the debtors and AFI were represented by counsel, this Court held that, under the ruling of the State Supreme Court, notice of an unrecorded sublease on the part of the purchaser who otherwise did not participate in any fraud was not sufficient to hold the purchaser as not a purchaser in good faith. This Court thus held the hnrecorded lease invalid so far as AFI was concerned.
19. Simone contends that Krewson and Winward who purchased all of the stock in Al’s Den owe him a total of $150,000.00. And, that said sum is secured by the stock of Al’s Den. Simone further contends that, because Krewson and Winward had not *50paid anything since August of 1985, he is not adequately protected.
20. Simone requests that the automatic stay be lifted so that he may proceed with the state court action in C.A. 85-4067, to cancel the Stock Purchase Agreement and to collect damages. Simone further contends that the Stock Purchase Agreement contains the entire agreement and that it does not contain any warranty.
21. The debtors contend that, because Simone has breached the provisions of the Stock Purchase Agreement and have made certain representations to them upon which they had relied, they do not owe Simone any money and, instead, Simone is liable to them. The debtors request this Court to find the Stock Purchase Agreement to be invalid, their counterclaim against Simone to be valid and to deny the motion to lift stay.
22. To the extent that any of the foregoing findings of fact constitute conclusions of law, they shall so be considered.
CONCLUSIONS OF LAW
1. 11 U.S.C. Section 362(d) provides for relief from stay under certain conditions:
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.
3.The Ninth Circuit Court has ^clearly enunciated that the issues to be determined at a hearing on a motion to modify or lift stay are limited. In In re Johnson, 756 F.2d 738, 13 B.C.D. 431, 12 C.B.C.2d 573 (9th Cir.1985), cert. den., 474 U.S. 828, 106 S.Ct. 88, 88 L.Ed.2d 72, the Court stated:
Stay litigation is limited to issues of the lack of adequate protection, the debt- or’s equity in the property, and the necessity of the property to an effective reorganization. Hearings on relief from the automatic stay are thus handled in a summary fashion. The validity of the claim or contract underlying the claim is not litigated during the hearing. The action seeking relief from the stay is not the assertion of a claim which would give rise to the right or obligation to assert a counterclaim. In re Essex Properties, Ltd., 430 F.Supp. 1112 (N.D.Cal.1977). Thus, the state law governing contractual relationships is not considered in stay litigation, (citations omitted.)
4. In the instant case, the debtors contend that, because Simone has breached warranties and has made misrepresentations to them, the security interest claimed by Simone is unenforceable and that, thus, they are not liable to Simone. The debtors contend that, instead, Simone is liable to them. In effect, the debtors are requesting this Court to determine the validity of Simone’s claim against them and the validity of their claim against Simone under Hawaii’s contract law before deciding whether to modify the automatic stay.
5. Under In re Johnson, in a hearing on a motion for relief from stay, this Court has no authority to determine whether Simone has a valid claim against debtors or vice versa. Such issues have been raised in the state court action, C.A. 85-4067 and are ready for trial. Thus, it is only proper that those issues under Hawaii’s contract laws be determined by the state court. The only issue before this court may be summarized as follows: is there cause to modify or lift the automatic stay.
6. Simone has proven that, under the Stock Purchase Agreement, debtors owe him over $150,000.00. Debtors have not paid Simone since August of 1985, while continuing to occupy and use the bar until directed to vacate the bar by this Court a few months ago.
7. Debtors have not provided any means of adequate protection to Simone. The Court is thus compelled to modify the *51automatic stay to permit Simone to continue with C.A. 85-4067 in the state court. However, there shall be no execution of any monetary judgment against the debtors or debtors’ estates without the prior approval of this Court.
An Order will be signed upon presentment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490612/ | *146FINDINGS OF FACTS AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE having come before the Court upon a complaint to Determine Dis-chargeability of a Debt owed by the debtor, pursuant to 11 U.S.C. § 523(a)(2)(A) and the Court, having heard the testimony, examined the evidence presented, observed the candor and demeanor of the witnesses, considered the arguments of counsel and being otherwise fully advised in the premises does hereby make the following Findings of Fact and Conclusions of Law:
In February, 1981 Marian Jo Weinberg (the “debtor”) and Scott Gordon (“Gordon”), a third party, were approached by Robert Campbell (“Campbell”), who requested that the debtor and Gordon, take title to a vessel Campbell purportedly owned. Campbell wanted to temporarily place his boat in the debtor and Gordon’s names for tax purposes until April 20, 1981, at which time the title to the boat would be transferred back to Campbell and the debtor and Gordon would be compensated for their efforts. The debtor agreed to the transfer of title and together with Gordon and Campbell went to the Coast Guard Office in Miami where the transfer was finalized. The debtor did not review the vessel’s bill of sale to verify that Campbell held title but simply signed the papers at the request and direction of Campbell.
Subsequently, Campbell requested, and the debtor and Gordon agreed, to obtain a loan on the vessel. The debtor and Gordon consulted an attorney who advised them that the transfer of the boat’s title appeared proper and that they could transact the loan. For their protection, however, the attorney had the debtor and Gordon enter into an Indemnification Agreement with Campbell to hold them harmless against any claims arising from the transaction.
The negotiations for the loan occurred between Campbell, Russell P. McCain (the “creditor”), substituted as party plaintiff for Aleo Marine Agents by order of this Court, and the creditor’s attorney, with the debtor and Gordon being informally consulted about the collateral and other miscellaneous matters. The creditor had experienced prior dealings with Campbell where Campbell attempted to sell him stolen items. According to the creditor’s testimony, he was also aware that the loan money would go directly to Campbell, and that Campbell was a guarantor on a $20,000.00 promissory note executed in connection with the loan.
Upon the advise of Campbell, the debtor and Gordon listed the boat’s location as the debtor’s address on the loan documents at the time they executed the note. Subsequently, as agreed among the parties, the debtor received from the creditor a check for $8,500.00 and $11,000.00 in cash. Campbell was immediately given part of the money and the rest was placed in a restricted bank account in the names of the debtor and Gordon. The money was to be held in this account by the debtor and Gordon until their names were removed from both the note and the vessel’s title.
In March, 1981 the debtor’s attorney received papers purporting to transfer title of the boat back to Campbell and a new promissory note substituting Campbell as the sole obligor. Thereafter, the debtor’s attorney advised the debtor and Gordon that their names had been removed from the promissory note and that they could release the balance of the money to Campbell. On this advice, the debtor and Gordon released the remaining $10,000.00 to Campbell. The debtor, believing that she had been discharged of the debt, did not keep track of the boat’s whereabouts or the loan proceeds. The creditor did not notify the debtor of the loan’s maturity on August 13, 1981, nor did the creditor attempt to seize the vessel while it was docked in Miami. However, in January, 1983 the creditor instituted a suit in a Florida state court against the debtor to obtain payment of the loan. Realizing that something had gone wrong with respect to the collateral, the debtor returned to the Coast Guard office to discover that she was still listed as the vessel’s owner. Upon learning this, the debtor began searching for the vessel and *147found it in Virginia where she instituted a lawsuit to regain possession. However, apparently Campbell had given the debtor a fraudulent bill of sale and therefore a Virginia federal court determined that the debtor’s title was a forgery and would not release the vessel.
Subsequently, a judgment was entered in the Florida state court in favor of the creditor. The state court judgment found that the debtor and Gordon were liable on the $20,000.00 promissory note that secured the personal loan extended by the creditor, however, no determination was made by the jury as to the issue of fraud. The creditor brings this action pursuant to 11 U.S.C. § 523(a)(2)(A) seeking to exempt from discharge the state court judgment due to the debtor’s misrepresentations or actual fraud.
Under 11 U.S.C. § 523(a)(2)(A) a debt will be excepted from discharge when a debtor makes a false representation when incurring a debt. In determining whether a particular debt is excepted from discharge, 11 U.S.C. § 523 should be strictly construed against the objecting creditor, and the burden is on the creditor to prove the exception. Hunter v. Schweig (In Re Hunter) 780 F.2d 1577 (11th Cir.1986). The bankruptcy court is not bound by a state court’s findings when determining the dischargeability of a debt under 11 U.S.C. § 523. Brown v. Felson, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979). This Court, therefore, must determine whether the state court judgment is nondis-chargeable under 11 U.S.C. § 523.
11 U.S.C. § 523(a)(2)(A) states:
(a) A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt-(2) for money, ..., to the extent obtained by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.
To bar a discharge of a debt for a false representation or fraud the creditor must show the following: that the debtor made a false representation with the purpose and intention of deceiving the creditor; the creditor relied on such representation; his reliance was reasonably founded; and the creditor sustained a loss as a result of the representation. Hunter, 780 F.2d at 1579; In re Mangel, 72 B.R. 516, 522 (Bankr.S.D.Fla.1987); In the Matter of Carpenter, 53 B.R. 724, 729 (Bankr.N.D.Ga.1985).
11 U.S.C. § 523(a)(2)(A) requires “the type of fraud which, in fact, involves moral turpitude or intentional wrong and fraud implied in law which may exist without imputation of bad faith or immorality is insufficient.” Hunter, 780 F.2d at 1579; Everman v. Kiester (In the Matter of Everman), 72 B.R. 687, 690 (Bankr.M.D.Fla.1987). Based on the facts presented, the Court finds that there is insufficient evidence that the debtor made a “knowingly false” representation to the creditor when obtaining the loan for Campbell.
The creditor argues that the debtor misrepresented that she owned the vessel. However, the facts indicate that the debtor believed she had legal title to the vessel and was thereby the true legal owner of the vessel during the negotiation of the loan. Several steps taken by the debtor, such as, requiring Campbell sign an indemnification agreement and her attempt to obtain the release of the boat from a Virginia court support the debtor’s contention that she believed she owned the vessel. There is no evidence showing that the debt- or knew that the title transferred to her was fraudulent. In fact, Campbell prepared most of the paperwork on the transfer and the loan and there is no indication that the debtor at any time knew that the bill of sale was a forgery. Additionally, the debtor believed that the title she received from Campbell was legally valid since the Coast Guard in Miami made the transfer from Campbell to the debtor and Gordon with no difficulty. Finally, the fact that the debtor opened a restricted bank account with some of the loan money and conditioned the release of the money to Campbell upon the debtor being absolved of her liability under the note and the fact that debtor only released the money when she was informed that title to the vessel *148had actually been transferred back to Campbell are also indicia that there was no fraudulent intent on the debtor’s part to deceive the creditor.
The creditor further contends that the debtor made a misrepresentation, in that she had no intention to repay the loan nor did she advise the creditor that the boat would revert back to Campbell before the loan matured. However, it is apparent that the debtor believed that the debt was amply secured by the vessel. Also, the creditor was aware that the money was going directly to Campbell who was also a guarantor on the note. Furthermore, when a creditor does not specifically inquire of a debtor or the collateral, bankruptcy law does not mandate or require that a debtor voluntarily disclose information concerning the collateral. Hunter, 780 F.2d at 1580.
Based upon the foregoing facts, this Court finds that there was no “actual fraud” present because the debtor did not make any “knowingly false” representation to the creditor nor did the debtor make any representations with the intent to deceive the creditor, Hunter, 780 F.2d 1577; Mangel, 72 B.R. at 522; In re Firestone, 26 B.R. 706, 716 (Bankr.S.D.Fla.1982).
As previously discussed, the creditor must show that he reasonably relied on the representations made to him to prevail under 11 U.S.C. § 523(a)(2)(A). Mangel, 72 B.R. at 522. The creditor has not met this burden. The facts indicate that the creditor suspected or knew that Campbell was an untrustworthy businessman but, nevertheless, the creditor authorized a loan to two individuals who admitted that they were giving the money directly to Campbell. Although the creditor contends he made the loan to the debtor and Gordon based upon their purported title ownership of the boat, such reliance is suspicious given the fact that the entire transaction was orchestrated by Campbell. Furthermore, the creditor and his attorney always dealt with Campbell in negotiating the loan except for the day of the closing when the debtor and Gordon signed the papers. Therefore, this Court finds that the creditor did not reasonably rely on the debtor’s representations.
In summary, the Court finds, pursuant to 11 U.S.C. § 523(a)(2)(A), that the debtor did not act with the purpose and intention of deceiving the creditor and that the creditor did not reasonably rely on the representations made to him by the debtor. Therefore, the Florida state court judgment is dischargeable under 11 U.S.C. § 523(a)(2)(A).
A separate Final Judgment of even date has been entered in conformity herewith. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490613/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE having come on to be heard upon the trustee’s claim for fraudulent transfer and turnover of certain assets pursuant to 11 U.S.C., § 544(b) and further upon the complaints filed by the creditors, Yacht Investors, Inc., Burns Craft S.E. Corp., and Burns Craft N.E. Corp. (“the creditors”) and the debtor’s spouse seeking to prevent the debtor’s discharge in bankruptcy pursuant to 11 U.S.C. § 727(a), and the Court having heard the testimony, examined the evidence presented, observed the candor and demeanor of the witnesses, *150considered the arguments of counsel and being otherwise fully advised in the premises, does hereby make the following Findings of Fact and Conclusions of Law:
In February of 1980, the creditors initiated an action in New York against the debtor and others seeking to recover damages incurred by the creditors when the defendants allegedly conspired to and did interfere with the business relationship between the creditors and Burns Manufacturing Co., a manufacturer of boats. Prior to the defendants’ alleged tortious interference, the creditors had enjoyed a lucrative business as the exclusive regional distributors of the vessels produced by Bums Craft.
On September 29, 1980, shortly after the New York litigation was initiated, the debt- or appeared in New York and submitted to a deposition scheduled by counsel for the creditors. On October 20, 1980, just three weeks later and one week before the debt- or’s deposition was taken for a second time, the debtor made the first of several transfers of assets to his daughters, Arlene La-zar Nathanson and Betty Lazar (“Arlene” and “Betty” respectively). On said date, the debtor executed an Assignment of Note and Mortgage to his daughters, thereby transferring to them his entire interest in a certain Note and Mortgage on a warehouse located in Dade County, Florida.
On November 7, 1983, the subject Note and Mortgage were satisfied and the sum of $179,992.76 was paid to the debtor’s daughters, Arlene and Betty. The funds were deposited in the Barnett Bank of South Florida in certificates of deposit titled in the names of the daughters. The funds remained at the Barnett Bank until February 14, 1984, when they were used to purchase a 60 foot Hatteras yacht named the Arbet (“Arbet I”).
The total purchase price of the Arbet I, $317,500.00, was derived from three sources: the funds which represented the payoff of the Note and Mortgage; the personal funds of the debtor, and $104,000.00 which was transferred from the debtor’s solely owned pension trust fund to his daughter, Arlene, several days prior to the purchase of the Arbet I. Title to the Arbet I was held by Arbet Enterprises, Inc., a closely held corporation in which Arlene and Betty were the sole shareholders.
The Arbet I was sold on June 4, 1984 for the sum of $400,000.00. Approximately one-half of these funds was used to purchase a 60 foot Chris Craft yacht on October 26, 1984, which yacht was also named the Arbet (“Arbet II”). Title to this yacht was held, and presently is held, in the name of Arbet Enterprises, Inc.
The remainder of the $400,000.00 garnered upon the sale of the Arbet I was deposited in certificates of deposit at the Barnett Bank in the names of Betty and Arlene. These funds were used by the debtor and his daughters for their support until the remaining $40,000.00 was wrongfully removed by defendant, Betty Lazar, during the pendency of this action in contravention of court order. Betty Lazar did not personally appear at the trial of this case after she absconded with the aforesaid funds, but she was represented by counsel and the trial proceeded against her despite her absence.
The New York litigation continued until November of 1985 when the creditors obtained a judgment against the debtor in the amount of two million dollars. Shortly thereafter, the creditors sought to execute upon their judgment, and the debtor filed the instant bankruptcy petition.
Both the Arbet I and Arbet II were used by the debtor as his place of residence and for his personal benefit and enjoyment. Both yachts were docked primarily at the Turnberry Isle Yacht Club. Moreover, Ar-bet Enterprises, Inc., the titleholder of the yachts, was formed solely for the purpose of taking title to the yachts and was, and remains, wholly controlled by the debtor.
The trustee’s complaint alleges that the Arbet II and all funds previously on deposit at the Barnett Bank in the names of the debtor’s daughters were fraudulently transferred by the debtor to hinder, delay and defraud the creditors. The trustee’s complaint also alleges that Arbet Enterprises, Inc., the titleholder of the Arbet II, is the alter ego of the debtor. This Coúrt *151finds that the evidence sufficiently supports these claims.
The trustee brings his fraudulent transfer action pursuant to the authority of 11 U.S.C. § 544(b) and Florida’s Fraudulent Conveyance Act, § 726.01, Florida Statutes. The transfers of the Note and Mortgage and the Pension Trust funds described above are marked by several of the “badges of fraud” which the Florida courts have identified as factors tending to indicate the presence of a fraudulent transfer. See In re Total Acquisition Corp., 29 B.R. 836 (Bkrtcy.S.D.Fla.1983). Specifically, the subject transfers were made to family members for no consideration, and after the transfers the debtor retained full control over, and derived the primary benefit from, the use of the funds and the assets subsequently purchased therewith.
The Court finds that the debtor’s intent in making the aforesaid transfers, and the legal effect of said transfers, was to hinder, delay and defraud the creditors. Under these circumstances, the trustee has sufficiently proven his claim. See In re Flanzbaum, 10 B.R. 420 (Bkrtcy.S.D.Fla.1981).
The debtor and the defendants argue that the subject transfers were bona fide in that they represented repayment of loans. The Court finds that the evidence fails to establish that the transfers were made for such a purpose.
The debtor also argues that, under Florida law, the statute of limitations for acts of fraud is four years, which period has expired. See § 95.11(3)(j), Florida Statutes (1986). However, the four year limitation period begins to run only from the time when the facts underlying the cause of action were discovered or should have been discovered. See § 95.031(2), Florida Statutes. The debtor’s conduct, from the time of the subject transfers through and including the trial of this case, has been aimed at concealing the true nature of the subject transfers. The Court finds that the debtor and the defendants failed to establish that, in the exercise of due diligence, the creditors knew or should have known of the subject transfers more than four years prior to the filing of this action.
In light of the totality of the evidence presented, this Court finds that the trustee has proven his claim. The defendant, Ar-bet Enterprises, Inc., shall turn over the yacht Arbet II to the trustee. Further, the trustee shall recover from the defendant, Betty Lazar, the sum of $40,000.00.
As a separate and independent basis for awarding the turnover of the yacht Arbet II to the trustee, this Court finds that the corporation known as Arbet Enterprises, Inc. is the alter ego of the debtor. Arbet Enterprises, Inc. was at all times the mere instrumentality of the debtor, created to aid the debtor in defrauding the creditors and concealing his ownership of both the Arbet I and Arbet II.
In addition to the trustee’s claim, both the creditors and the debtor’s spouse filed independent actions seeking to block the discharge of the debtor. These claims were consolidated for trial with the trustee’s claim. The objections to the discharge are mainly premised upon the provisions of 11 U.S.C. § 727(a). In connection with the claimed objections to the debtor’s discharge, the Court finds that the debtor, with the intent to hinder, delay and defraud the creditors, did engage in the continuous concealment of his assets during the one year period prior to the filing of the bankruptcy petition, which satisfies the requirements of § 727(a)(2) of the Bankruptcy Code. See In re Hazen, 37 B.R. 329 (Bkrtcy.M.D.Fla.1983).
Moreover, the debtor made false oaths and accounts in connection with this case, in violation of § 727(a)(4)(A). Specifically, the debtor failed to list on his schedules his interests in several corporations, bank accounts and powers of attorney. The debtor also made false oaths during his trial testimony in regard to the true nature of the aforesaid transfers and his interest in the yacht Arbet II. The purpose of these false oaths was to prevent the trustee and this Court from learning the debtor’s true interests in the yacht Arbet II and the funds maintained at Barnett Bank. The totality of the evidence presented by the trustee, *152the creditors and the debtor’s spouse in connection with their respective claims serve to support this Court’s conclusion that the debtor be denied his discharge in bankruptcy.
The trustee also sought the turnover of an automobile previously owned by the debtor and several bank accounts presently titled in the name of the debtor’s sister. The Court finds that the trustee relinquished any claim to the automobile prior to trial. Further, the Court finds that the subject bank accounts were not part of the scheme of fraudulent transfers more fully described in this opinion.
A separate final judgment of even date has been entered in conformity herewith.
FINAL JUDGMENT
In conformity with the Findings of Fact and Conclusions of Law of even date, it is
ORDERED AND ADJUDGED as follows:
1. That pursuant to 11 U.S.C. § 544(b), the debtor and the defendants, Arbet Enterprises, Inc., Arlene Lazar Nathanson, and Betty Lazar, shall turn over title to, and possession of, the yacht known as Ar-bet to the trustee free and clear of all liens and encumbrances, together with all equipment which is a part thereof. Further, the debtor and the aforesaid defendants shall execute all necessary documents and do all things necessary to transfer title to the yacht Arbet to the trustee.
2. That the trustee shall recover from the defendant, Betty Lazar, the sum of $40,000.00, which represents the amount previously removed by said defendant from the Barnett Bank, which sum shall bear interest at the rate of twelve percent (12%) per annum from the date hereof.
3. That pursuant to 11 U.S.C. § 727(a), the debtor is denied his discharge in bankruptcy.
4. That the Court reserves jurisdiction to tax costs and attorney’s fees. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490615/ | MEMORANDUM OPINION AND ORDER
STEPHEN A. STRIPP, Bankruptcy Judge.
This action was commenced in the United States District Court for the District of New Jersey under Civil Action No. 87-362(JWB) by plaintiff Dynatron/Bondo Corp. (“Dynatron/Bondo”), a Georgia corporation, against defendant The Clausen Company (“Clausen”), a New Jersey corporation. Count I of the complaint alleges a cause of action for patent infringement. Count II of the complaint alleges a cause of action for breach of a Settlement Agreement relating to one of Dynatron/Bondo’s patents. Clausen filed an answer denying liability, and counterclaims alleging that Dynatron/Bondo’s patents are invalid and that Dynatron/Bondo has engaged in unfair competition. By order of July 21,1987 the District Court transferred Count II to this Court, retained Count I, and ruled that trial on Count I in the District Court would follow adjudication of Count II in this Court.
Clausen is the subject of a bankruptcy case presently pending before this Court. This adversary proceeding to determine Dynatron/Bondo’s claims against *287Clausen is a core proceeding. 28 U.S.C. Section 157(b)(2)(B); In re Meyertech Cory., 831 F.2d 410 (3rd Cir.1987).
Among the affirmative defenses alleged by Clausen in its answer is that the subject patents and the related Settlement Agreement are unenforceable because the patents have been misused by Dynatron/Bon-do. Clausen has moved in this Court for summary judgment dismissing Count II of Dynatron/Bondo’s complaint on the basis of the alleged patent misuse. This memorandum shall constitute the Court’s ruling on that motion.
I. FACTS
The following material facts are undisputed. Clausen is in the business of manufacturing and distributing automobile repair and refinishing products. Dyna-tron/Bondo is a manufacturer and distributor of similar products. In 1976, Dyna-tron/Bondo accused Clausen of infringement of United States Patent No. 3,957,-176, which is owned by Dynatron/Bondo and which covers a putty dispenser. On January 15, 1977, Dynatron/Bondo and Clausen entered into a Settlement Agreement containing the following language:
2. CLAUSEN and DYNATRON/BON-DO agree:
a. After the effective date of this Agreement, CLAUSEN shall not make or have made, use, sell or receive or fill with putty any five gallon air operated dispenser containers which, when filled with putty, are similar to the current CLAUSEN five gallon air operated dispenser or which infringe the DYNA-TRON/BONDO Patent No. 3,957,176. [emphasis added]
In paragraph 2c. of the Settlement Agreement, Clausen agreed to pay Dyna-tron/Bondo a royalty of $5.00 for each dispenser
which is similar to the current CLAU-SEN five gallon air operated dispenser or which infringes the DYNA-TRON/BONDO Patent No. 3,957,176 which is made, used or sold by or on behalf of CLAUSEN, [emphasis added]
In 1978, Patent No. 3,957,176 was superseded by Dynatron/Bondo’s reissue Patent No. 31,934. Although Clausen alleges that Patent No. 31,934 covers fewer claims than Patent No. 3,957,176, no evidence was introduced on this motion indicating that there is any material difference between the original patent and the reissue patent as they may relate to any products manufactured or sold by Clausen. The Court therefore assumes for purposes of this decision that any cause of action which Dyna-tron/Bondo would have against Clausen for infringement of the original patent or for violation of the Settlement Agreement was not affected by issuance of the reissue patent.
In 1985, Clausen filed a petition for relief under Chapter 11 of Title 11, United States Code (the Bankruptcy Code). Dyna-tron/Bondo then filed a proof of claim in the Bankruptcy Court in June 1985 for patent infringement and violation of the Settlement Agreement. Clausen’s plan of reorganization was confirmed by the Bankruptcy Court in November 1986 pursuant to an order providing that the Bankruptcy Court would retain jurisdiction to determine claims against Clausen.
On December 8, 1986, Dynatron/Bondo's attorney sent Clausen a letter stating in pertinent part the following:
It has come to my client’s attention that the Clausen Company has resumed the production and sale of five gallon air operated dispensers of the type covered by the Dynatron/Bondo Corporation patent.* * *
Dynatron/Bondo further demands:
(1) That all production, use and sale by or on behalf of the Clausen Company of five gallon air operated dispensers similar to that disclosed in the enclosed patent be terminated immediately.... [emphasis added]
On January 30, 1987, Dynatron/Bondo filed this action in the District Court. The allegations of Count II paraphrase the above-quoted language of the Settlement Agreement. On March 24, 1987, Clausen filed a separate adversary proceeding in *288the Bankruptcy Court for a determination that Dynatron/Bondo’s claims are invalid.
II. THE LAW REGARDING PATENT MISUSE
Clausen alleges in this motion that the terms of the Settlement Agreement prohibiting Clausen from manufacturing or selling products “similar to” those covered by Dynatron/Bondo’s patents, and Dyna-tron/Bondo’s efforts to enforce those terms by instituting this action, constitute patent misuse rendering both the patent and the Settlement Agreement unenforceable.
In the case of Morton Salt Co. v. G.S. Suppiger Co., 314 U.S. 488, 62 S.Ct. 402, 86 L.Ed. 363 (1941), reh. denied, 316 U.S. 826, 62 S.Ct. 620, 86 L.Ed. 1222 (1942), the Supreme Court held that where a patent is used to restrain the sale of competing products not covered by the patent, courts should decline to entertain any suit for infringement of such patent until such patent misuse ceases and its effects have been dissipated:
A patent operates to create and grant to the patentee an exclusive right to make, use and vend the particular device described and claimed in the patent. But a patent affords no immunity for a monopoly not within the grant [citations omitted], and the use of it to suppress competition in the sale of an unpatented article may deprive the patentee of the aid of a court of equity to restrain an alleged infringement by one who is a competitor. Id. at 491 [62 S.Ct. at 404],
In the case of Lear v. Adkins, 395 U.S. 653, 89 S.Ct. 1902, 23 L.Ed.2d 610 (1969), the Supreme Court overruled a line of cases recognizing the doctrine of “licensee estoppel,” and held that a licensee is not estopped from contesting the validity of a patent. A licensee can also raise the defense of patent misuse in response to a claim of patent infringement. Stewart v. Motrim, Inc., 192 U.S.P.Q. 410 (S.D.Ohio 1975). In the case of Massillon-Cleveland-Akron Sign Co. v. Golden State Advertising Co., 444 F.2d 425 (9th Cir.), cert. denied, 404 U.S. 873, 92 S.Ct. 100, 30 L.Ed. 2d 117 reh. denied, 404 U.S. 961, 92 S.Ct. 308, 30 L.Ed.2d 280 (1971), the holding in Lear, supra, was extended to provide that a party to a settlement agreement may also contest the validity of a patent:
If the recognized policy favoring settlement of disputes might be hindered by our holding on this question, that policy, in our opinion, must give way to the policy favoring free competition in ideas not meriting patent protection. Id. at 427.
It follows that a party to a settlement agreement regarding a claim of patent infringement is not estopped from raising the defense of patent misuse against a subsequent claim of infringement.
The presence in a licensing agreement of a clause prohibiting competition with the patented article constitutes patent misuse. In the leading case of National Lockwasher Co. v. George K. Garrett Co., 137 F.2d 255 (3rd Cir.1943), the following provision was held to constitute such misuse:
Licensee agrees that, while this agreement is in force, it will make and sell no form of nonentangling Spring Washers except such as are covered by said patent, and that it will not, either directly or indirectly make or sell Spring Washers of the kind specifically excluded from this license under the provisions of Paragraph First (a) hereof.
Similarly, in the case of Stewart v. Mo-trim., Inc., supra, the following provision in a license agreement was held to constitute patent misuse:
The Licensee agrees to manufacture and sell the products set forth in this agreement at a price that is competitive and agrees further, that it or its assigns will not engage in any competitive business during the term of this agreement. Id. at 411.
In order to prevail on a defense of patent misuse, the defendant does not have to prove that he has sustained damages because of the misuse:
It is sufficient to show the existence of restrictive agreements which tend to suppress competition from articles not *289covered by the patent. Id. at 412. [emphasis added]
III. ANALYSIS OF THE SETTLEMENT AGREEMENT
Clausen argues that the prohibition in the Settlement Agreement against manufacture or sale of putty dispensers which “are similar to the current CLAUSEN five gallon air operated dispenser or which infringe the DYNATRON/BONDO Patent,” coupled with Dynatron/Bondo’s efforts to enforce that provision, constitutes patent misuse under the law previously cited. Dy-natron/Bondo does not dispute Clausen’s citations of the law of patent misuse, or cite other applicable law. Rather, Dyna-tron/Bondo argues essentially that while the Settlement Agreement bars Clausen from producing dispensers which “are similar to the current ... dispenser or which infringe” the patent, Dynatron/Bondo’s intention was only to prohibit dispensers which are similar to the current Clausen dispenser and which infringe the Dyna-tron/Bondo patent.
The only evidence offered by Dyna-tron/Bondo in support of its proposed construction of the Settlement Agreement is the affidavit of its president to the effect that it was his understanding that only patent infringement was barred by that Agreement. No evidence is offered to suggest that such construction was conveyed to or shared by Clausen. To the contrary, by instituting this suit on the Settlement Agreement, Dynatron/Bondo expressed a clear intention to enforce the Agreement according to its precise terms.
It is fundamental that the judicial function in construing a contract is to give effect to the mutual intention of the parties. “Where the language of a contract is clear and unambiguous on its face, a court will assume that the meaning ordinarily ascribed to those words reflects the intentions of the parties.” NRM Corp. v. Hercules, Inc., 758 F.2d 676, 681 (D.C.Cir.1985). The relevant search “is not for the subjective intention of the parties, ‘but what [their] words would mean in the mouth of a normal speaker of English, using them in the circumstances in which they were used.’ ” Fox v. United States Department of Housing and Urban Development, 680 F.2d 315, 320 (3rd Cir.1982) (quoting Holmes, The Theory of Legal Interpretation, 12 Harv.L.Rev. 417, 419 (1899)).
Applying those principles to the language of the Settlement Agreement, it is clear that by using the disjunctive “or” between the prohibitions against manufacture of infringing products and against manufacture of similar products, it was intended that the Agreement would bar Clausen from producing both infringing products and similar products. Although the language of the Settlement Agreement on this point is perhaps slightly more subtle than the language quoted above from the agreements at issue in the National Lockwasher and Stewart cases, the meaning is equally unmistakable. Giving the words of the provisions in question their common meaning, one must conclude that the Settlement Agreement was intended to bar both patented and unpatented but similar products.
It follows that the provisions in question “tend to suppress competition from articles not covered by the patent,” Stewart v. Mo-trim, Inc., supra, at 412, thereby constituting patent misuse.
IV. SUMMARY JUDGMENT
Summary judgment is appropriate in cases such as this. Stewart v. Motrim, Inc., supra; Park-In Theatres v. Paramount-Richards Theatres, Inc., 90 F.Supp. 730 (D.Del.), aff'd., 185 F.2d 407 (3d Cir.1950), cert. denied, 341 U.S. 950, 71 S.Ct. 1017, 95 L.Ed. 1373 (1951); Dubuit v. Harwell Enterprises, Inc., 336 F.Supp. 1184 (W.D.N.C.1971); Krampe v. Ideal Industries, Inc., 347 F.Supp. 1384 (N.D.Ill.1972). Even if infringement exists, suit for infringement is barred if the plaintiff is guilty of patent misuse. See, e.g., Hensley Equipment Company v. Esco Corp., 383 F.2d 252, amended, 386 F.2d 442 (5th Cir.1967); and cases cited, infra. It follows that Clausen is entitled to summary judg*290ment dismissing Count II of Dyna-tron/Bondo’s complaint.
It would also appear on the basis of the foregoing that Clausen is entitled to summary judgment dismissing Count I of Dy-natron/Bondo’s complaint. However, since the District Court has retained jurisdiction over Count I of the complaint, the disposition of that Count is for the District Court to determine.
V. ATTORNEYS FEES
Clausen argues that it is entitled to attorneys fees under 35 U.S.C. Section 285, which authorizes the court to award attorneys fees to the prevailing party “in exceptional cases” on patent infringement. Generally, there must be a showing of unconscionable conduct or bad faith to make such an award proper. Carolina Lee Knitting Co. v. Johnson & Johnson, 275 F.2d 91 (4th Cir.1960); Uniflow Mfg. Co. v. King-Seeley Thermos Co., 428 F.2d 335 (6th Cir.), cert. denied, 400 U.S. 943, 91 S.Ct. 245, 27 L.Ed.2d 248 (1970). There is nothing on the record before the Court suggesting unconscionable conduct or bad faith on the part of Dynatron/Bondo. Clausen’s motion for attorneys fees is therefore denied.
VI. CONCLUSION
To summarize, the Court finds that the provision of the Settlement Agreement prohibiting Clausen from producing dispensers similar to that which is covered by Dyna-tron/Bondo’s patent, coupled with Dyna-tron/Bondo’s efforts to enforce that provision, constitutes patent misuse. Clausen’s motion for summary judgment dismissing Count II of the complaint, which alleged a cause of action for breach of the Settlement Agreement, is hereby granted. However, since there is no showing of unconscionable conduct or bad faith on the part of Dynatron/Bondo, Clausen’s motion for attorneys fees is denied.
Counsel for Clausen shall promptly take appropriate action to dispose of the related adversary proceeding which it filed against Dynatron/Bondo in this Court for declaratory judgment that Dynatron/Bondo s claims are invalid.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490616/ | ORDER ON MOTION FOR CONTEMPT AND DAMAGES
ALEXANDER L. PASKAY, Chief Judge.
This is a Chapter 11 case and the matter under consideration is a Motion for Contempt and Damages filed by Uiterwyk Corporation, the Debtor in the above captioned case. The Debtor seeks the entry of an Order finding Itel Corporation (Itel) and Charles S. Donovan, Esquire (Donovan) to be in contempt, and the Debtor also seeks a monetary award in its favor based upon the alleged damages it has suffered. Finally, the Debtor seeks punitive damages against both Itel and Donovan, and “such other and further relief as may be just,” for their alleged violation of § 362 of the Bankruptcy Code. 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 motion under consideration.
The Debtor filed its voluntary Petition under Chapter 11 of the Bankruptcy Code on January 27, 1983. Prior to its filing, Debtor had been engaged in the business of operating as the U.S. General Agent for various shipping lines. Its services as general agent included the solicitation of cargo, the filing of U.S. tariffs, arranging for the discharge and loading of vessels, negotiation of contracts, and various other services necessary for the operation of a shipping line. Events in Iran commencing in approximately 1978 caused Iran Express Lines, a line represented by the Debtor, to be unable or unwilling to reimburse the Debtor for a large number of expenses in excess of freights collected by it on behalf of the principal. Further, Iran Express Lines, the principal, was unable or unwilling to return a number of containers, and the owner/lessors of these containers (such as Itel) sought to charge the Debtor for the continuing per diem costs related to the containers or for the value of the unre-turned containers. These factors led ultimately to the cessation of operations and the filing of the Chapter 11 case by the Debtor.
The Debtor filed a claim with the Iran-U.S. Claims Tribunal in the Hague arising out of the general agency agreement with Iran Express Lines, the provision of containers to that company, and contingent liabilities incurred by the Debtor in order to facilitate the operations of its principal both here and abroad. The amount claimed by the Debtor in the Tribunal is in excess of $20,000,000.00 United States dollars, plus interest for a period of approximately five (5) years, and attorneys fees that may be awarded in the discretion of the Tribunal. This claim constitutes the Debtor’s primary asset, and represents the source from which the Debtor proposes to fund its Plan of Reorganization.
The Debtor’s claim was filed in the Hague in 1982. Itel and several other container owners also asserted claims at the Tribunal directly against the Government of Iran and Iran Express Lines for losses *660suffered with respect to the containers leased to the Debtor which, in turn, had been leased to Iran Express Lines. It is important to note that successful claimants in the Tribunal are awarded payments from an account which the Government of Iran is obligated to replenish each time that the account is reduced or depleted. There is great concern among the claimants, however, that Iran may breach its obligation to restore the fund at any time. From the inception of this matter in the Hague, the Iranian respondents sought consolidation of the container owners’ claims with the Uiterwyk claim. Even though this request was again asserted at the Prehearing Conference in May of 1984, the Tribunal has refused to consolidate the cases.
The Debtor’s claim was arbitrated in November of 1986, approximately four (4) years after it was filed. Since that time, the Debtor has been awaiting the Tribunal’s decision and award, with no further proceedings expected to be conducted.
Nevertheless, on April 7,1987, almost six (6) months after the proceedings on Debt- or’s claim had been concluded, Donovan wrote a letter addressed to the Honorable Karl-Heinz Boekstiegel, the Chairman of Chamber One of the Tribunal. The letter states in relevant part:
I am writing especially to you on this subject because I understand that Uiter-wyk’s claim is being considered by Chamber One at present.... I am concerned that Chamber One not make a determination on Uiterwyk’s status without having first heard Itel’s side of the story.
For this reason, we support the Government of Iran’s suggestion that Itel’s case be consolidated with Uiter-wyk’s case and that the two cases be considered together.
Debtor promptly responded to this letter by writing to Donovan and demanding immediate retraction of the correspondence. Debtor’s letter informs Itel that: (1) Debt- or considered Itel’s conduct to be a violation of the automatic stay; (2) that the letter is far beyond any relief from the stay obtained by Itel; and (3) that Debtor would pursue all of its available remedies in the event that no retraction was forthcoming.
Itel and Donovan refused to retract, instead sending Debtor’s counsel a letter and again corresponding with Judge Bockstie-gel on May 21, 1987. In his May 21st letter, Donovan again sought consolidation of the cases, well after the Debtor’s claim had been fully arbitrated.
According to the best information available, none of the container cases (including Itel’s claim) are yet near to being heard on the merits in the Hague. Consequently, if Itel’s request for consolidation were to be granted at this point, almost a year after Debtor’s entire ease has been heard, delay in the issuance of a decision and award would be inevitable.
It is the Debtor’s contention that they are entitled to the entry of an order determining Itel and Donovan to be in contempt and to an award of damages for their willful violation of the automatic stay. In support of its claims, the Debtor relies on § 362 of the Bankruptcy Code and contends that the acts of Itel and Donovan were acts impacting on the Debtor’s choses in action, which the Debtor contends are clearly property of the estate. The Debtor argues that Itel and Donovan’s attempts to consolidate their case with the Debtor’s would delay or undermine the Debtor’s reorganization. The Debtor contends that the automatic stay is not only designed to give the Debtor “a breathing spell” but is also designed to protect other creditors of the debtor and preventing “a chaotic and uncontrolled scramble for the debtor’s assets in a variety of uncoordinated proceedings in different courts.” Hunt v. Banker’s Trust Co., 799 F.2d 1060, 1069 (5th Cir.1986).
It is the Debtor’s proposition that its claim in the Tribunal is property of the estate pursuant to § 541(a)(1) of the Bankruptcy Code and that Itel’s attempt to consolidate its claim with that of the Debtor’s is a clear violation of the automatic stay which prohibits “any act to exercise control over property of the estate." (emphasis added) § 362(a)(3) of the Bankruptcy Code.
*661In opposition, Itel and Donovan contend the following: (1) that the property which Debtor is claiming in the hands of a third party is “not property of the estate” until the Debtor has won that litigation. For this proposition, Itel and Donovan cite Price & Pierce International, Inc. v. Spicers International Paper Sales, Inc., 50 B.R. 25 (Bankr.S.D.N.Y.1985), (2) that because the property is not property of the estate the provision of the automatic stay prohibiting “any act to exercise control over property of the estate” does not apply to the conduct of Itel and Donovan; and (3) that the conduct of Itel and Donovan is solely for the purpose of advancing Itel’s own claim in the Tribunal and nothing in § 362 specifically bars such conduct.
A resolution of the matter under consideration is governed by § 362 and § 541 of the Bankruptcy Code. § 541 of the Bankruptcy Code provides in pertinent part:
§ 541. Property of the estate
(a) The commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held:
(1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debt- or in property as of the commencement of the case.
The Notes of the Committee on the Judiciary, Senate Report No. 95-989, U.S.Code Cong. & Admin.News 1978, pp. 5787, 5868, explain subparagraph (a)(1) as follows:
The scope of this paragraph is broad. It includes all kinds of property, including tangible or intangible property, causes or action (see Bankruptcy Act Section 70a(6) [former section 110(a)(6) of this title]) and all other forms of property currently specified in section 70a of the Bankruptcy Act ...
[T]his paragraph will include choses in action and claims by the debtor against other ...
Clearly, the Debtor’s claim in the Tribunal is property of the estate. Itel’s reliance on Spicers, supra, is inappropriate in that in Spicers, a distinct fund had been established and deposited with the Clerk of the Court and several parties claimed entitlement to the fund through an interpleader action. The Court there noted that an action against money held by a third party is “indisputably outside § 362.” Spicers, 50 B.R. at 26. The important difference between the Spicers case and the case herein, is that there has been no showing to the Court that a specific fund has been established as contemplated by an interpleader action, or that Itel is competing against the Debtor to recover the same property. Absent such a showing, this Court is satisfied that the Debtor’s claim in the Tribunal is property of the estate within the meaning of § 541(a)(1) of the Bankruptcy Code.
The next issue which must be resolved is whether or not Itel’s attempt to consolidate its claim with the Debtor’s constituted a willful violation of the automatic stay. There is no question as to either Itel’s or Donovan’s knowledge of the pend-ency of Debtor’s Bankruptcy case. Itel, through Donovan, has appeared in this Court and requested that the automatic stay be modified to permit Itel to proceed with an action commenced by Itel in the United States District Court for the Eastern District of Louisiana, Case No. 80-2328. On April 6, 1984, this Court entered an Order modifying the automatic stay to allow the Louisiana action to proceed and also allowing Itel to levy against a bond posted in that action. The Order further states:
Except as provided in the preceding paragraph, Itel and Itel Containers shall refrain from executing any judgment obtained in the Louisiana action against property of Uiterwyk Corporation.
§ 362(a)(3) of the automatic stay provides that the automatic stay operates to prohibit any act to “exercise control over property of the estate”. Itel maintains its conduct was only in furtherance of its own claim in the Tribunal. Concededly, as the Debtor maintains, a consolidation of Itel’s claim with that of the Debtor’s would delay a final decision being made on Debtor’s claim in the Tribunal. However, this Court is satisfied that such conduct is not proscribed by the automatic stay provisions of *662the Bankruptcy Code. The automatic stay is not so broad as to prohibit one from zealously advocating its own claim or chose in action even if it might unintentionally interfere with a claim of a Debtor. Although Itel's conduct may result in an interference with the Debtor’s claim in the Tribunal, this Court is satisfied that the interference was merely a technical violation of the automatic stay and was not done with the willful intent to control the Debtor’s claim in the Tribunal.
Based on the foregoing, this Court is satisfied that although Itel and Donovan’s attempt to consolidate Itel’s claim with the Debtors could concededly result in a delay of a final decision being made in the Debt- or’s claim, their conduct was merely a technical violation of the automatic stay. Hence no sanctions may be imposed against Itel and Donovan.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Contempt and damages be, and the same is hereby, denied without prejudice. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490617/ | ORDER ON MOTION FOR SUMMARY JUDGMENT
ALEXANDER L. PASKAY, Chief Judge.
THIS CAUSE came on for hearing with notice to all parties in interest upon Motions for Summary Judgment filed by Liberty Federal Savings & Loan Association (Liberty), the Plaintiff in this adversary proceeding and by Fortune Savings Bank, f/k/a Fortune Federal Savings & Loan Association (Fortune), one of the Defendants in this adversary proceeding.
The Motions under consideration seek a determination by this Court as to the priority of liens held by Liberty and Fortune in certain property of the Debtor. Lester B. Greenberg (Debtor), the Debtor in this Chapter 11 case and the other Defendant in this proceeding, has taken no position as to the dispute between Liberty and Fortune. The Court has considered the Motions, together with the record, has heard arguments of counsel, and finds the undisputed facts relevant to a resolution of the matters under consideration to be as follows:
On September 7, 1983, the Debtor and Liberty entered into a loan agreement whereby Liberty agreed to lend the Debtor the sum of $212,000.00. As collateral, the Debtor executed a security agreement in favor of Liberty which granted a security interest in the following property:
All personal property including, but not limited to, all equipment, machinery, tools, furniture, fixures, leasehold improvements, accounts receivable, inventory, and contract rights, and including any and all insurance proceeds due Borrower, whether collateral or otherwise, located at Store Room 1-A, Bayonet Square, Bayonet Point, Florida. Also including the telephone system acquired from Bay Area Telephones and Comminications, Inc. and an IBM Electronic Model 85 Typewriter both located at Pasco Dental Center, 530 U.S. Hwy. 19 North, New Port Richey, Florida, 33552. Further including a sign purchased from A-OK Sign Co. to be placed at Bayonet Square Shopping Center, Bayonet Point, Florida
Further, as set forth in the loan agreement (Def s Exh. 1) the Debtor assigned to Liberty two promissory notes in the amount of $148,201.60 each from one E.J. Hutchinson, D.D.S., P.A., and Paul Schmidt, D.D.S., A.A., granted Liberty a first security interest in a telephone system and an IBM Electronic Model 85 typewriter, and conditionally assigned the name of “Pasco Dental Center at Bayonet Point” in the event the Debtor defaulted on any terms of the loan agreement. (Def s Exh. 1)
On September 7, 1983, the Debtor executed a security agreement in favor of Liberty, and Liberty properly filed its UCC-1 Financing Statement on October 7, 1983.
On September 9, 1983, in need of more money, the Debtor executed a business loan agreement, a variable interest note in the amount of $90,000.00 (Def s Exh. 4), and a security agreement in favor of Fortune. The security agreement granted Fortune an interest in “all equipment purchased for Pasco Dental Center from Healthco Dental Supply to furnish the Bayonet Point Office” (Def’s Exh. 5). It should be noted that this is the same equipment encumbered by the security interest of Liberty. Fortune properly filed its UCC-1 Financing Statement on October 24, 1983.
The transaction around which the dispute between Liberty and Federal revolves occurred on June 20, 1984, when the Debtor executed in favor of Liberty a second promissory note in the amount of $45,000.00, which was accompanied by a Modification and Consolidation Agreement which provided in pertinent part as follows:
1. The promissory note executed by the borrower, simultaneously herewith, is hereby modified and consolidated with the promissory note dated September 7, 1983, and above referenced, and borrower hereby acknowledges that the total *664principal balance of the two notes is $233,000.00 ...
3. It is agreed that the collateral secured under both notes are hereby consolidated so that said security shall constitute collateral for both obligations ...
(Def s Exh. 8)
Simultaneously, the Debtor executed a security agreement in accordance with the foregoing which granted a security interest in the following:
All of the personal property, including, but no limited to equipment, tools, furniture, fixtures, leasehold improvements, accounts, inventory, contract rights, and all other personal property which may be acquired by “Borrower” in the future and contained on said premises, or which may be purchased and be on said premises, located at:
Storeroom 1A, Bayonet Square Shopping Center Bayonet Point Florida 33567
together with all increases, accessories, equipment, and special tools now or hereafter affixed to any or any part thereof, or used in connection with any thereof, and all replacements of all or any part thereof
(Def’s Exh. 9)
The Debtor and Liberty executed UCC-1 Financing Statements, which were properly filed on August 6,1984 (Def’s Exh. 11), and August 16, 1984 (Def s Exh. 10).
It is the contention of the parties that there are no issues of material fact in dispute and therefore the issues may be decided as a matter of law. Based on the facts that are without dispute, this Court is satisfied that this matter should be resolved by summary judgment, and, therefore, the only issue to be addressed by this Court is the relative priorities of Liberty and Federal regarding the equipment of the Debtor. Facially, the resolution of this issue appears quite simple. As Liberty filed its UCC-1 Statement before Fortune filed UCC-1 Statement, it would appear that Liberty’s lien is superior to Fortune’s.
However, it is the contention of Fortune that the 1983 transaction between the Debtor and Liberty merged with the 1984 transaction, making the 1984 modification tantamount to a novation. This being the case, so argues Fortune, the new 1984 transaction was secured only by the security agreement executed in June, 1984, and therefore is inferior to the lien of Fortune. Further, Fortune argues that in the event the Court determines the lien of Liberty to be superior to that of Fortune, Liberty should be directed to satisfy its interest first from the collateral not also secured by Fortune (i.e., the phone system, the IBM typewriter and the sign) pursuant to the doctrine of marshalling.
Liberty contends in opposition that neither the Debtor nor Liberty intended the 1984 transaction to be a novation. Further, Liberty argues that the original security interest is superior to the interest of Fortune simply because that interest was perfected by Liberty prior in time to Fortune’s perfection of its interest in the same collateral.
Whether a novation occurred at the time of the June, 1984, transaction between the Debtor and Liberty depends on whether the parties intended the new agreement to be the “discharge of a valid existing obligation by the substitution of a new valid obligation,” Taines v. Capital City First National Bank, 344 So.2d 273, 276 (Fla. 1st DCA 1977) and its existence is controlled by the intent of the parties. Don L. Tullís and Associates, Inc., v. Benge, 473 So.2d 1384 (Fla.App. 1st DCA 1985). It is now well established that a novation consists of an agreement extinguishing an old debt and another substituting a new debt in place of the old debt. Id. As with all contracts, the new agreement must be based on adequate consideration. Miami National Bank v. Forecast Construction Corp., 366 So.2d 1202 (Fla. 3rd DCA 1979).
Based on the foregoing, this Court is satisfied that the June 1984 transaction did not constitute a novation, as it is clear that the Debtor and Liberty did not intend the new agreement to be a novation. There is no evidence that Liberty intended to extinguish the debt of $212,000.00, and in support of this conclusion, it is important to *665note that Liberty never filed a UCC-3 statement extinguishing the original UCC-1 Statement. Yet another, and probably the most important indicia of the fact that the June 1984 transaction was not a novation, is the express language of the June 20, 1984, security agreement which states in part that the Bayonet Point equipment was
“to secure the payment of a promissory note in the amount of $45,000.00 executed by the Borrower in favor of the Secured Party, said note of even date herewith and including any and all extensions thereof, and further secured by that certain collateral securing a promissory note dated September 7, 1983, between the parties hereto in the principal amount of $212,000.00.” (emphasis added)
Clearly, the prior debt of $212,000.00 was not extinguished. It would certainly be difficult to believe that a lender would give up a superior interest in property simply to extend new funds to the Debtor.
Based on the foregoing, this Court is satisfied that as to the collateral described in the 1983 UCC-1 statement and security agreement, Liberty is in a position of first priority. As to the Bayonet Point equipment also secured by Fortune, Fortune is in a secondary position to Liberty. Further, to the extent the doctrine of mar-shalling is not academic in this situation, Liberty should attempt to satisfy its interest through the telephone system, the IBM typewriter, and the sign at the Bayonet Square Facility before it attempts to satisfy its interest through the equipment.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Summary Judgment filed by Liberty by, and the same is hereby, granted. It is further
ORDERED, ADJUDGED AND DECREED that the Motion for Summary Judgment filed by Fortune be, and the same is hereby, denied.
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/8490619/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
A. JAY CRISTOL, Bankruptcy Judge.
THIS CAUSE came on for Trial before this Court on August 25, 1987, upon a Complaint to Determine Dischargeability of a Debt, and upon written Final Arguments and Post-Trial Memoranda of Law submitted by the parties as requested by this Court; and the Court, having observed the candor and demeanor of the witnesses, examined the evidence presented, considered the arguments of counsel and being otherwise duly advised in the premises, does hereby make the following findings of fact and conclusions of law:
The Debtor and his former wife were married in 1951. During the course of their marriage, the Debtor obtained a college degree and became a certified public accountant. Thereafter, the Debtor was employed in various management positions and was actively involved in the real estate development business. By virtue of the Debtor’s occupation, he participated in various real estate development projects whereby he would receive distributions on his investments and/or transfers of units of real property as compensation for his financial and professional contributions. His former wife was employed sporadically during the marriage, but was working full-time at the time of their separation.
After thirty (30) years of marriage, the parties separated on November 29, 1981. At the time the parties separated, the Debt- or held several parcels of real property and interests in various business entities that he had obtained as a result of his occupation and business ventures.
On the eve of the Debtor’s departure from the marital home, the parties met to discuss their imminent separation. The essence of these discussions, and the terms mutually negotiated at that time, were set forth in a letter agreement prepared by the former wife. On December 1, 1981, three (3) days thereafter, the parties again met, reviewed, signed and initialed the letter agreement.
The provisions of this letter agreement, that would be of benefit to the Debtor’s former wife, set forth that the marital home would remain titled in the name of the former wife and her mother, that the Debtor would purchase a new car for his former wife, that the former wife would remain a beneficiary on all current insurance policies (including a group health plan), and that the Debtor would transfer *705monthly retirement payments due from F.G./I.B. to his former wife.
The letter agreement also stated:
That monthly income from some of your commercial real estate, you stated, is around $1,800.00 to $2,000.00. This real estate will be deeded to me for my income benefit without encumberment (sic). This is to be done before our final divorce.
This particular paragraph contained the Debtor’s designation of an arrow and the notation, “to JLG” (the former wife’s initials). The Debtor placed his own initials near these handwritten notations, in the margin directly opposite the above-described paragraph.
From the outset, the Debtor failed to perform in accordance with the terms of the letter agreement, and the former wife was forced to seek relief through the Virginia State Court in an action for specific performance. On or about July 23, 1987, the former wife was granted a Judgment in the specific performance action, wherein the Virginia State Court held that the letter agreement constituted a valid contract between the parties. The former wife proceeded with efforts to enforce the terms of the agreement, and the Debtor subsequently performed in accordance with some of the required terms.
On December 2, 1983, the Debtor conveyed title to a parcel of commercial property to his former wife. However, the property was not free and clear of liens and encumbrances at the time of the transfer, and the Debtor has subsequently failed and refused to pay said obligations.
The Debtor filed a Voluntary Petition under Chapter 7 on November 18, 1986. The former wife filed the instant adversary proceeding for a determination that the debt owed to her by virtue of the above-described letter agreement, and more particularly the obligation imposed by the above-stated paragraph, is actually in the nature of alimony, maintenance and/or support and, therefore, constitutes a non-discharge-able debt, pursuant to 11 U.S.C. § 523(a)(5).
The Bankruptcy Code specifically excepts from discharge 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, determination made in accordance with state or territorial law by a governmental unit or property settlement agreement, but not to the extent that
(A) * * *
(B) such debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance or support;
11 U.S.C. § 523(a)(5).
The case law of this District clearly establishes that the determination of what constitutes alimony, maintenance and support is to “be determined under the bankruptcy laws, not state law.” In re Harrell, 754 F.2d 902 (11th Cir.1985).
The Harrell Court held that the Bankruptcy Court must determine whether the obligation at issue is “actually in the nature of alimony, maintenance or support,” stating:
The statutory language suggests a simple inquiry as to whether the obligation can legitimately be characterized as support, that is, whether it is in the nature of support. The language does not suggest a precise inquiry into financial circumstances to determine precise levels of need or support; nor does the statutory language contemplate an ongoing assessment of need as circumstances change.
# * * % # *
We conclude that Congress intended that Bankruptcy Courts make only a simple inquiry into whether or not the obligation at issue is in the nature of support. This inquiry will usually take the form of deciding whether the obligation was in the nature of support as opposed to being in the nature of a property settlement.
Harrell, Supra, at 906 and 907.
The Harrell Court also specifically rejected the “needs” test set forth in Warner *706v. Warner (In re Warner), 5 B.R. 434 (Bankr.D.Utah, 1980), and Long v. Calhoun (In re Calhoun), 715 F.2d 1103 (6th Cir.1983), and limited the Bankruptcy Court’s inquiry to the nature of the award and intent of the parties. See, also, Draper v. Draper, 790 F.2d 52 (8th Cir.1986); and Schaclc v. Kappitt (In re Schack), 46 B.R. 520 (Bankr.S.D.Fla.1985).
As stated in Matter of Bailey, 20 B.R. 906 (Bankr.W.D.Wis.1982):
If a debt is imposed to discharge the state law duty of support, no matter what the form of the obligation, it is not dischargeable (See, also, Bell v. Bell (In re Bell), 61 B.R. 171 (Bankr.S.D.Tex.1986)).
The Courts have long recognized that payments to third persons (including Mortgage payments on real estate) awarded to the wife in furtherance of an obligation “in the nature of support,” are nondischargeable. Long v. Calhoun (In re Calhoun), 715 F.2d 1103 (6th Cir.1983); Pauley v. Spong (In re Spong), 661 F.2d 6 (2d Cir.1981). See, also, Maitlen v. Maitlen (In re Maitlen), 658 F.2d 466 (7th Cir.1981).
In making the determination of what constitutes alimony, maintenance and support, the Bankruptcy Courts look at the totality of the facts and circumstances existing between the parties. See Williams v. Williams (In re Williams), 703 F.2d 1055 (8th Cir.1983); Froman v. Froman (In re Froman), 43 B.R. 609 (Bankr.S.D.Fla.1984); MacKenzie v. MacKenzie (In Matter of MacKenzie), 57 B.R. 107 (Bankr.M. D.Fla.1985).
The Court finds, based upon the evidence and testimony presented, that the Debtor and his former wife experienced a comfortable lifestyle during their marriage and that approximately $2,000.00 per month is necessary for the former wife to maintain such a lifestyle.
The undisputed testimony reflects that the Mortgage payment on the subject property is approximately $1,709.00 per month, with rental income on that property being only $1,700.00, leaving a monthly deficit of $9.00. Therefore, the transfer of title without satisfaction of the liens and encumbrances can hardly be construed as an “income benefit” for the former wife.
Based upon the evidence and testimony presented, the Court finds that the purpose of the paragraph, as originally contemplated by the parties, was for the Debtor to convey one parcel of commercial real property to the former wife, free and clear of liens and encumbrances, to provide her with a cash flow (from the rental income derived therefrom) sufficient to support her in a manner similar to her previous lifestyle.
As set forth herein, the Court finds that the obligation owed the former wife, pursuant to the paragraph of the letter agreement requiring the Debtor to transfer commercial real estate to his former wife, free of encumbrances, for her income benefit, is in the nature of maintenance and support and, therefore, constitutes a nondischargeable debt, pursuant to 11 U.S.C. § 523(a)(5).
The letter agreement also provided that the Debtor would purchase a new automobile for his former wife, which, based on the testimony, has been so provided. The only item remaining at issue is the paragraph of the letter agreement requiring the Debtor to transfer his retirement payments from F.G./I.B. to his former wife. The testimony established that the Debtor fully intends to comply with this provision and, in the event said transfer has not yet been fully consummated, the Debtor is hereby directed to proceed forthwith with the transfer of these funds to the former wife.
In summary, for the reasons set forth herein, the Court finds that the obligation owed to the former wife, by virtue of the subject letter agreement, constitutes a non-dischargeable debt, pursuant to 11 U.S.C. § 523(a)(5).
A separate Final Judgment has been entered in conformity herewith. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490620/ | ORDER DENYING MOTION TO FIX DEADLINE FOR FILING COMPLAINT FOR DENIAL OF DISCHARGE AND/OR NON-DIS-CHARGEABILITY OF A DEBT
A. JAY CRISTOL, Bankruptcy Judge.
This cause came before the court on motion to fix deadline for filing complaint for denial of discharge and/or non-discharge-ability of a debt filed by Stuart Bernstein, William Olliges and Thomas Boehm, creditors on December 11, 1987 and the response to the above-cited motion. Argument was heard by the court on January 7, 1988.
It appears that on April 1, 1987, the court entered an order setting a post-conversion meeting of this case. In paragraph 5 of the order where it is appropriate for the clerk to enter the bar date for filing objections to discharge and objecting to dischargeability of a debt, the clerk inadvertently entered “N/A” which was understood by all parties to mean not applicable.
Pursuant to the statute, the time for filing an objection to discharge or a complaint objecting to dischargeability of a debt expired 60 days after the meeting of creditors which was set by this order on April 24, 1987. This order did not give notice to any creditor of the exact day on which 60 days from April 24,1987 would be for the time for filing objections to discharge and complaints for non-discharge-ability.
The debtors argue that the creditors had actual notice of the discharge date and of the fact that the discharge date had been extended at the request of the trustee. The creditors argue that the rule provides that the court shall give all creditors not *720less than 30 days notice of the time so fixed provided in Rule 2002.
This issue was squarely addressed by the U.S. Court of Appeals for the Fifth Circuit in Neeley v. Murchison, 815 F.2d 345, 15 B.C.D. 1378 (5th Cir.1987).
In that case the Fifth Circuit held:
“The creditor in this Chapter 11 bankruptcy proceeding failed to file his objection to dischargeability within the time limitation set by Rule 4007(c) of the Bankruptcy Rules of Procedures; likewise, the clerk’s office failed to provide notice of the dischargeability bar date as required by the same Rule. We hold that the clerk’s failure to provide notice does not suspend the running of the fixed limitation period. Because the creditor had notice of the bankruptcy proceedings and more than ample opportunity to file his complaint in time, we affirm the district court's dismissal of the complaint as time-barred.”
Accordingly and upon consideration, it is ORDERED that the motion to fix deadline for filing complaint for denial of discharge and/or non-dischargeability of a debt is denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490638/ | MEMORANDUM OPINION
HENRY L. HESS, Jr., Chief Judge.
This matter came to be heard upon the objections of the debtor to the claim of John Mirandas. The claim was based upon a promissory note which the debtor contended was invalid. Mr. Mirandas, an attorney licensed to practice before this court, successfully represented himself in establishing the enforceability of the note. The hearing was continued to determine whether the creditor was entitled to an award of attorney fees pursuant to the following note provision:
If this note is placed in the hands of an attorney for collection, I/we promise and agree to pay the holder’s reasonable attorney’s fees and collection costs, even though no suit or action is filed hereon; however, if a suit or an action is filed, the amount of such reasonable attorney’s fees shall be fixed by the court, or courts in which the suit or action ... is tried, heard or decided.
Had Mr. Mirandas retained an attorney to represent him in the claim proceeding he would have been entitled to his reasonable attorney fees. In re Layton, No. 386-00255-H-13 (Bankr.D.Or. Oct. 5, 1987). Here, however, the prevailing party was an attorney appearing pro se. Courts are divided on the issue of whether a pro se attorney is entitled to an award of fees under a contractual provision granting fees to a prevailing party.
The rationale of those cases allowing an award of fees is that the services rendered by the attorney/litigants may amount to the same pecuniary loss as if another attorney were paid for doing the work. See, e.g, Winer v. Jonal Corp., 169 Mont. 247, 545 P.2d 1094, 1096 (1976). This court believes that an Oregon court, if faced with the issue, would adopt a contrary view.
The argument that an attorney should be compensated because the time could otherwise have been used on fee-generating services would apply with equal force to all wage earners. In Oregon non-lawyers are not entitled to compensation under an attorney fee provision for time expended in collecting a debt. Parquit Corporation v. Ross, 273 Or. 900, 543 P.2d 1070 (1975). Rather, actual out-of-pocket expenses are necessary to recover under a contractual attorney fee provision. The rule should be no different where it is an attorney who is the party appearing pro se. Connor v. Cal-Az Properties, Inc., 137 Ariz. 53, 56, 668 P.2d 896, 899 (1983).
The purpose of the attorney fee provision in the above note is to assure that the creditor will be able to collect the debt without having his recovery diminished by costs of collection. The creditor could have retained another attorney to represent him in the litigation, allowing the creditor to devote his time to remunerative matters. However, he chose to proceed pro se and not incur an obligation to pay attorney fees. Where the latter course is followed, litigants, whatever their profession may be, cannot reasonably expect compensation for expenses which were not incurred.
It appears that the creditor has incurred some out-of-pocket expenses (exclusive of *767general office overhead) for which he is entitled to compensation. He shall, within fifteen days of the date of this opinion, serve upon the debtor’s attorney an accounting of those costs, together with an accounting of the amount of unpaid principal and unpaid interest as of the date of the petition. The debtor shall, within thirty days of the date of this opinion, file specific objections thereto or a statement that no there are no objections.
Mr. Mirandas also asserts entitlement to an administrative claim for services not directly related to collecting upon the promissory note which resulted in the recovery of assets for the estate. Some of those services may have been at the request of the trustee. Before the court may properly consider that claim it is necessary for the creditor to file an application for allowance of administrative claim which complies with Bankr.R. 2016 and General Order 85-10. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490639/ | MEMORANDUM OPINION
GEORGE L. PROCTOR, Bankruptcy Judge.
This adversary proceeding is before the Court on plaintiffs motion for partial summary judgment as to the first cause of action against Dayton Securities Associates on the limited issue of liability for the return of all consideration received by the defendant in connection with the sale of its partnership interests. A hearing on the motion was held February 11, 1988, at the conclusion of which the Court allowed all interested parties to submit written memo-randa of law. Upon consideration, the Court will hold in favor of plaintiff and grant partial summary judgment as to the first cause of action.
Background
This case arises out of defendant’s investment in The Securities Group 1980 (“TSG80” or the “partnership”). TSG80 was one of three New York limited partnerships formed by Charles Agee Atkins (“Atkins”). The Securities Groups (“Groups”) was a general partnership comprised of TSG80 and two other limited partnerships, The Securities Group (“TSG”) and The Monetary Group (“TMG”). Among other things, Groups was a broker-dealer that invested in United States government securities. The four partnerships are now in bankruptcy and the plaintiff, Louis Lowin, is the Post-Confirmation Administrator and former Chapter 11 Trustee of all four bankruptcy estates.
The parties do not dispute that defendant, Dayton Securities Associates, is a general partnership formed by Allan Rinzler, a financial advisor with offices in Dayton, Ohio, for the purpose of investing in the partnership. Defendant purchased an interest in TSG80 and, in 1980, made an initial capital contribution in the sum of $1,156,500. On October 30, 1981, defendant made a second capital contribution in the amount of $4,443,000 for a total capital contribution of $5,599,500.00.
Groups began its operations as a “joint operating account” which coordinated the activities of TSG and TMG prior to the formation of TSG80. After its formation, TSG80’s activities were also coordinated through Groups. Atkins and others who acted as the management of Groups were also responsible as general partners for the management of the limited partnerships and ran their operations out of New York City. Defendant has conceded that, as the general partners of Groups, the limited partnerships are jointly liable for the debts incurred by Groups. See New York Partnership Law, Section 26(2) [McKinney’s Partnership Law, Book 38, Article 3, 1948], *828which provides that all partners are jointly liable for the debts and obligations of a partnership.
Sometime prior to autumn of 1982, it became apparent that changes in the tax laws would no longer permit broker-dealers such as Groups to continue to defer income from year to year as had previously been the practice. These changes in turn translated into adverse tax consequences for the limited partners, as they would now be required to recognize theretofore unrecognized income of the partnership and pay taxes on that income without receiving equivalent cash distributions in an amount adequate to pay the taxes.
To offset these potential tax liabilities, Atkins began to arrange a sale of the limited partners’ interests. One of the options explored was the merger of the limited partnership with an entity having large tax loss carryovers. However, by mid-1982, the managers settled upon the idea of selling the limited partners’ interests to a new partnership to be comprised of Group’s managing partners. Consequently, a new partnership was formed and named TSG Partners.
On November 15, 1982, TSG Partners made a tender offer for all the interests of the limited partners in the three limited partnerships. TSG Partners offered as consideration for these interests an amount equal to 105% of the net asset value of the limited partnerships as of September 30, 1982.
On or about December 7,1982, defendant accepted the tender offer. Thereafter, a sale of defendant’s interest to TSG Partners was consummated and on April 1, 1983, defendant received cash and a promissory note in the amount of $5,019,575.00.
TSG Partners subsequently became insolvent and filed a petition under Chapter 11, Title 11, of the United States Code. Its chief general partner, Charles Agee Atkins, also filed a Chapter 11 petition.
Subsequent to defendant’s purchase of its limited partnership interest and contribution of capital, the partnership and Groups were indebted to various creditors. Many of those creditors were unpaid at the. time defendant received a return of its capital contributions through the sale of its limited partner interest to .TSG Partners and remain unpaid today.
Plaintiff, as Post-Confirmation Administrator, has filed this and other related adversary proceedings seeking to recover for the bankruptcy estates a return of the limited partners’ capital contributions which they received under the terms of the tender offer and, secondly, to compel the limited partners to honor their commitment to make additional capital contributions to the limited partnerships. Although the Post-Confirmation Administrator has settled a number of these related proceedings, the action against Dayton Securities Associates remains pending. This proceeding is now before the Court upon the plaintiff’s motion for partial summary judgment as to first cause of action.
Scope of Plaintiff s Motion
In his amended complaint, plaintiff has asserted two causes of action. The first is based primarily upon § 106(4) of the New York Limited Partnership Law [McKinney’s Partnership Law, Book 38, Article 8] (the “Act”). Plaintiff contends that this statute creates an obligation on the part of defendant to return to the partnership the consideration it received in exchange for its partnership interest under the terms of the tender offer made by TSG Partners. Section 106(4) provides:
When a creditor has rightfully received the return in whole or in part of the capital of his contribution, he is nevertheless liable to the partnership for any sum, not in excess of such return with interest, necessary to discharge its liabilities to all creditors who extended credit or whose claims arose before such return.
In addition to arguing that defendant is liable for the consideration received in the form of cash and notes from TSG Partners, plaintiff also claims that § 106(4) dictates that defendant honor its commitment to the partnership to contribute additional capital *829to the extent necessary to pay existing creditors of the partnership.
The second cause of action which is not part of the motion is based upon the Certificate of Limited Partnership to which defendant subscribed when it purchased its partnership interest. Plaintiff argues that under its terms, the defendant is obligated to make additional capital contributions up to three times its initial capital commitment if necessary to pay the recourse obligations of the partnership.
In his motion for summary judgment, plaintiff seeks a determination that defendant is liable under the first cause of action in an amount, not to exceed the shortfall in partnership obligations, equal to the cash and principal amount of the note received in the tender offer, plus interest. Since the amount of creditors’ claims against the partnership has not been finally determined, plaintiffs motion is limited solely to the issue of liability. The issues of additional capital contributions, recourse obligations and the actual amount of defendant’s liability are not presently before the Court.
Discussion
Plaintiff’s argument is premised upon the conclusion that the sale by defendant of its partnership interest amounted to a “return of capital” within the meaning of New York Partnership Law § 106(4) and that defendant must now return for the benefit of unpaid creditors the consideration it received in the tender offer.
Thus, the first issue to be addressed is whether the sale of a limited partnership interest amounts to a “return of capital.” Whitley v. Klauber, 51 N.Y.2d 555, 435 N.Y.S.2d 568, 416 N.E.2d 569 (1980), appears to be a case on point. There, the New York Court of Appeals held that, for purposes of § 106(4), the sale of a partnership interest pursuant to a tender offer does indeed amount to a return of capital. Said the Court:
... As to the Partnership Law, six of us agree that the strong policy enunciated by section 106 permitting a creditor who was such when a limited partner’s capital was returned to him to recover from the limited partner to the extent of the capital returned, with interest, even though return of the capital was entirely proper, mandates the conclusion that a transaction or series of transactions in which all general and limited partners dispose of their interest in the limited partnership leaving a creditor unpaid constitutes a return of capital notwithstanding that in form it is the sale of the limited partners’ interest.
51 N.Y.2d at 560, 435 N.Y.S.2d 568, 416 N.E.2d 569.
In reaching its conclusion, the Court determined that the effect upon creditors is the decisive factor in whether a specific transaction amounts to a return of capital. Explained the Court:
[PJrimary in the determination whether a particular transaction constitutes a return of capital is not the limited partner’s purpose or intent or how the transaction is structured but its effect upon partnership creditors.
51 N.Y.2d at 563, 435 N.Y.S.2d 568, 416 N.E.2d 569.
Here, the creditors received cash and promissory notes in exchange for their partnership interests. However, the net effect of these transactions upon partnership creditors appears to be a reduction in the amount of capital left to satisfy their claims.
Whitley v. Klauber makes it clear that the fact that the limited partners sold their interests to a third party rather than receiving a direct return of capital from the partnership would not alter this finding. This Court finds that the promissory note(s) defendant received constitutes a return of capital contribution as much as did the cash. Both of these issues were raised in Whitley and were summarily dismissed. Said the Court:
On the basis of that overriding purpose, we and other courts have held limited partners liable under subdivision (4) of section 106 notwithstanding the absence of fraud, the fact that property other than cash is received by the limited part*830ner or the fact that the transaction takes the form of a sale of limited partners’ interests to a third-party, rather than a distribution by the partnership itself.
51 N.Y.2d at 563, 435 N.Y.S.2d 568, 416 N.E.2d 569. The Court went on to add:
Receipt by the limited partner of property (here Bermec stock) rather than cash does not change the result. While subdivision (3) of section 105 of the Partnership Law restricts a limited partner to receipt of cash for his contribution unless the partnership certificate states otherwise or all members consent, that provision has no bearing upon the interpretation of subdivision (4) of section 106, intended as it is to protect creditors.
51 N.Y.2d at 565, 435 N.Y.S.2d 568, 416 N.E.2d 569.
Several older cases stand for the proposition that notes given by the general partner or by an outside third party to a limited partner constitute a return of capital. For example, in Beers v. Reynolds, 11 N.Y. 97 (1853), the Court held that a limited partner who had sold his interest to a general partner by taking back a note secured by a chattel mortgage on both partnership property and property of the general partner had received a return of capital. Similarly, in Neil v. United States, 195 F.2d 336 (5th Cir.1952), a transaction in which a general partner used cash, his own personal assets and his own promissory note to buy out the limited partners was found to be a return of capital.
As these cases were cited with approval by the Court of Appeals in Whitley, the Court must view them as the clearest and most recent statement of New York law. Hence, the full amount received by the defendant in the tender offer, both cash and notes, is subject to being refunded under § 106(4) of the Act.
The fact that the note eventually became worthless due to TSG Partner’s inability to pay does not change the result. The note was considered valuable when accepted by the limited partners and its present worth has little relevance to the question now. This same conclusion was reached in Whitley. There, the limited partners received stock in a third party corporation in exchange for their limited partnership interests. Like the situation here, the corporation in that case eventually went bankrupt and the stock became worthless. However, the court considered this fact to be immaterial as the stock was considered valuable consideration at the time it was accepted by the limited partners and the subsequent misfortunes of the corporation had no bearing on their characterization as a return of capital.
In actions to recover a return of capital contributions under § 106(4), there is no need to prove an evil intent. Specifically, § 106(4) has no requirement that the return of capital be fraudulent, wrongful or designed to deceive creditors in order to be avoided. Instead, it simply speaks in terms of returned capital which is “rightfully received.” Other sections such as § 106(2)(a) and (b) of the Act were designed to deal with situations in which the contribution of capital was wrongfully returned. Therefore, the Court concludes that the plaintiff need not prove fraud or other wrongdoing in connection with the tender offer in order to recover from defendant.
Additionally, for purposes of § 106(4), it does not matter that there may have been sufficient capital remaining in the partnership after the withdrawal to pay all then existing creditors. If the remaining capital becomes depleted at any time after the withdrawal, the withdrawing limited partners must reimburse the partnership so that it may pay creditors who existed at the time of the withdrawal. See Kittredge v. Langley, 252 N.Y. 405, 169 N.E. 626, 631 (1930); Whitley v. Klauber, 51 N.Y.2d at 263-264, 435 N.Y.S.2d 568, 416 N.E.2d 569.
Likewise, the fact that the creditors assigned their interests to various successors in interest does not relieve them of liability under New York Partnership Law. Section 108(7) of the Act states:
The substitution of the assignee as a limited partner does not release the assignor from liability to the partnership under sections ninety-five and one hundred and six.
*831This statute has been held to apply to assignments of interest pursuant to a tender offer. See Whitley v. Klauber, supra.
The defendant has argued that Whitley is inapplicable to the present action as some of the limited partners have chosen to retain their interests rather then to tender their interests pursuant to the tender offer. The Court finds, however, that to accept such an argument would be putting form ahead of substance. Therefore, the Court concludes that the sale of the vast majority of the partnership interests is tantamount to a complete bail out of the limited partners.
Obviously, the New York courts are far more concerned with the protection of creditors than with the protection of limited partners who had received a return of their capital. For instance, in Whitley the Court said:
That the purpose of the subdivision is the protection of creditors is crystal clear not only from the explicit reference to “creditors who extended credit or whose claims arose before such return” but also from the imposition of liability under its provision even though the contributor has “rightfully received the return.”
Whitley echoes the sentiments expressed in Kittredge v. Langley, 252 N.Y. 405, 169 N.E. 626 (1930), wherein Justice Benjamin Cardozo stated:
[A] special [limited] partner is liable, to the extent of his withdrawn capital for the payment of a partnership liability, where the assets left with the general partners irrespective of their valuation at the time of their valuation at the time of dissolution, are thereafter found to be inadequate.
# * >i< * # #
We think his obligation to creditors to the extent of his limited liability can be discharged by nothing less than payment.
... The special partner does not relieve himself of liability by withdrawing his contribution. He remains liable as before, though as before his liability is limited.
... The conclusion is hardly thinkable that the special partner may keep the cash, and leave the creditors with nothing.
His contribution, like the capital of a corporation, and to a similar extent, is to be treated as a trust fund for the discharge of liabilities.
... The special partner insists that the risk of change was on the creditors. We think it was on him.
Id. 169 N.E. at 631.
This Court will defer to the wisdom of the New York Court and will follow its precedence by imposing liability upon the defendant. Defendant next argues that the three year statute of limitations applicable to liabilities created by statute, § 214(2) New York Civil Practice Law and Rules (McKinney’s Book 17B) [C.P.L.R. 214(2) ], bars plaintiffs present action. Plaintiff disputes these contentions, pointing out that the only case that has addressed the applicable limitations period for a claim under § 106(4) is again Whitley v. Klauber.
There, the Court of Appeals upheld the lower court decision which squarely held that the statute of limitations under § 106(4) of the Act does not begin to run until the creditor has obtained a judgment. Said the Court:
Respondents contend that the present claim is barred by the statute of limitations, asserting that plaintiff’s cause of action accrued either in August 1986 when BWF distributed the Bermec stock to the limited partners, or no later than March 1971, when Bermec filed for reorganization under bankruptcy laws. However, in order for plaintiff to proceed against the limited partners, it would be necessary for him to establish the unavailability of partnership assets to satisfy his claim. This did not occur until conclusion of the prior litigation against the partnership and its corporate general partner when judgment in that action was entered March 7, 1977.
Whitley v. Klauber, 417 N.Y.S.2d 959, 965, 69 A.D.2d 99 (1st Dept.1979).
*832Here, a determination has been made as to the validity of only six claims, the earliest of which was allowed on September 11, 1986. Thus, if C.P.L.R. 214(2) is the applicable statute of limitation, it will not expire until September 11, 1989.
Alternatively, plaintiff asserts that the action is timely under the doctrine of relation back. See Rule 15(c), F.R.Civ.P. Under this doctrine, an amendment to a cause of action relates back to the date of the original pleading if it arises out of the same “conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading ...” Having reviewed the various pleadings, the Court is satisfied that the plaintiff’s amended complaint asserts actions arising out of the same facts and transactions giving rise to his original cause of action. The Court concludes, therefore, that plaintiffs action is neither time barred under C.P.L.R. 214(2) or under Rule 15(c), F.R.Civ.P.
The Court finds that New York law is abundantly clear on the issues thus presented. The policies embodied in § 106(4) and § 108(7) of the Act mandate that creditors be protected from limited partners who would bail out of the partnership when prospects of financial demise appear on the horizon. Defendant’s criticism that we have placed too much emphasis on the Whitley decision is not well founded as defendant has failed to provide the Court with any authority which would compel the Court to reach a different conclusion.
Plaintiff contends that the Whitley decision mandates that he be granted partial summary judgment as to the first cause of action on the issue of liability under § 106(4) upon showing that the following facts are not in dispute: (1) defendant was a limited partner of the partnership and made a capital contribution to the partnership; (2) defendant subsequently received a return of its capital contribution by means of the tender offer; (3) at the time defendant received a return of its capital contribution, there existed creditors of the partnership; and (4) creditors of the partnership who existed at the time the defendant received a return of its capital contribution remain unpaid today.
Plaintiff’s contention is borne out by the language of the Whitley decision, wherein the court states:
What a limited partner will be permitted to contest in an action by a partnership against which a judgment establishing its liability to a creditor has been obtained is only whether he is in fact a limited partner, whether he received a return of capital, whether the judgment creditor was one whose claim arose before that return, and whether the judgment creditor was one whose claim arose before that return, and whether the amount sought by the partnership as return of capital was necessary to discharge the partnership liability (that is, whether the partnership had other means for discharging the liability).
51 N.Y.2d at 571, 435 N.Y.S.2d 568, 416 N.E.2d 569.
As plaintiff has moved for summary judgment as to the first cause of action on the issue of liability only, it is not now necessary to show the final element mentioned above, that is, that the return of capital is necessary because the partnership will have no other means to pay creditors. That issue is better left until a final determination can be made regarding claims against the partnerships’ bankruptcy estate. Thus, plaintiff’s motion is limited in scope to a determination that defendant will be liable as a limited partner for the shortfall between assets of the partnership and claims of creditors that are eventually allowed in bankruptcy, subject only to the amount of returned capital contributions plus interest.
The documentary evidence before the Court in affidavits and exhibits leaves no doubt that the elements the plaintiff must prove are no longer at issue in this case. Indeed, defendant has stipulated away most of the facts which would establish its defenses, to wit:
(1) Dayton Securities Associates was a limited partner of TSG80 and made a capital contribution to TSG80;
*833(2) Dayton Securities Associates subsequently sold its interest in TSG80 to TSG Partners pursuant to a tender offer, receiving cash and notes from TSG Partners for its interest;
(3) At the time DSA sold its interest, there existed at least one creditor of TSG80; and
(4) The creditor who existed at the time DSA sold its interest in TSG80 remains unpaid today.
Defendant has failed to muster adequate evidence to rebut the conclusion that there remains no material issue of fact regarding the present motion. Accordingly, the Court finds that the motion for summary judgment as to the first cause of action should be granted as to the defendant’s liability only.
The Court will enter a separate order in accordance with this opinion.
ORDER GRANTING PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT AS TO FIRST CAUSE OF ACTION (LIABILITY ONLY)
Upon the Memorandum Opinion separately entered, the Court grants partial summary judgment as to the first cause of action in favor of plaintiff on the limited issue of liability for the return of capital contributions received by the defendant in connection with the sale of its partnership interests. It is, therefore,
ORDERED as follows:
1. Plaintiff’s motion for partial summary judgment as to the first cause of action (liability only) is GRANTED.
2. Should it be finally determined that there is a shortfall in partnership assets so that creditors existing at the time defendant assigned its interest remain unpaid, the defendant will be directed to turnover a sum not to exceed the amount of capital contributions returned plus interest. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490641/ | OPINION AND ORDER ON SUMMARY JUDGMENT
SUSAN PIERSON DEWITT, Bankruptcy Judge.
This matter comes before the Court on plaintiff’s motion for summary judgment. It presents two issues for this Court to decide. First, is it proper to decide on summary judgment the plaintiff’s claim that it possesses a security interest in certain collateral pledged by the defendant? Second, if so, does the plaintiff, as a matter of law, possess such a security interest?
BACKGROUND FACTS
Beginning in 1984, plaintiff Harris Trust and Savings Bank (“Harris”) made certain unsecured loans to defendant Wayne J. Klein and his wholly-owned company, Klein Construction Co. (“Klein Construction”). On June 22, 1984, Harris loaned $350,-000.00 to Klein individually and on August 14, 1984, Harris provided Klein Construction with a $2,000,000.00 line of credit.
On February 19, 1986, Klein personally guaranteed the $2,000,000.00 that Klein Construction had borrowed from Harris. To secure that guarantee, Klein provided Harris with a mortgage on certain Colorado real estate on March 12, 1986. Unbeknownst to Harris, however, Klein had already transferred 99.97% of his interest in the Colorado land to several third parties.
That same day, Klein also executed a “security agreement” with Harris, and received a “side letter” therefrom. The “security agreement” stated, in pertinent part:
As security for the payment of all loans and advances now or in the future made by Bank to Debtor hereunder and for payment or other satisfaction of all other obligations, Debtor hereby assigns to Bank and grants to Bank a continuing *970security interest in the following collateral ....
The collateral consisted of all of Klein’s outstanding shares of Titan Trading; 172.2 shares of Eagle Ridge Utilities, Inc., 172.2 shares of Eagle Ridge Investment Corp.; and Klein’s limited partnership interest in Eagle Ridge Golf & Tennis Club, Ltd.
The one-sentence “side letter”, addressed from H. Donald Peterson, Vice-President of Harris, to Klein, briefly stated:
This is to confirm our understanding that when all loans made by Harris Bank to you personally next week are paid in full by their terms and without default, we will return to you the original of your Security Agreement together with stock certificates you have pledged today.
One week later, on March 19,1986, Klein executed a $700,000.00 note with Harris, which stated in pertinent part:
To secure the payment of this and any and all other liabilities of the undersigned or any of them to said Bank, whether now existing or hereafter arising and howsoever evidenced or acquired ... the undersigned hereby grants a security interest to said Bank in all property of the undersigned of any kind and description now or at my time hereafter transferred or delivered to or left in or coming into the possession, control or custody of the Bank....
Klein paid the March 19th note in full on May 5, 1986. Before he did, however, he allegedly attempted to transfer the Eagle Ridge collateral to a Mr. Frederick Quinn, on April 20, 1986. On June 19, 1986, Klein executed another $700,000.00 note with Harris, which contained a security interest provision identical to the above-quoted terms from the March 19th note. Klein repaid this second $700,000.00 note in full on August 8, 1986.
On August 20, 1986, Klein Construction filed a petition in U.S. Bankruptcy Court for protection under Chapter 11 of the bankruptcy laws of the United States. Although at the time of filing Klein had repaid both $700,000.00 notes, Klein Construction had not fully repaid to Harris the $2,000,000.00 loan of August 14, 1984, that Klein had guaranteed, nor had Klein, himself, fully repaid to Harris the $350,000.00 personal loan of June 22, 1984. On October 2, 1986, Harris filed suit in the Circuit Court of Cook County against Klein and another of his wholly-owned companies, Klein Corporation, seeking, inter alia, a declaratory judgment that it possessed a valid security interest in the collateral Klein had pledged to it. In the meantime, Klein had individually become a debtor in this court. On June 12, 1987, Harris removed its action against Klein to this Court. On September 10, 1987, Harris filed a motion for summary judgment on the grounds that, as a matter of law, it possessed a security interest in the collateral Klein pledged to it.
Both the Trustee of Wayne J. Klein’s bankruptcy estate, and Klein Construction’s bonding company, United States Fidelity and Guarantee (“USF & G”), which have not been joined as formal parties to this action, have filed briefs with this Court opposing Harris’ motion for summary judgment, on two grounds. First, they argue that this case presents genuine issues of material fact for this Court to decide and, therefore, it would be improper for this Court to grant summary judgment. Second, they argue that even if summary judgment is proper, Harris does not, as a matter of law, possess a security interest in the Klein collateral that it continues to hold.
PROCEDURAL ISSUE
Under Federal Rule of Civil Procedure 56(c) it is proper for this Court to grant summary judgment “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c). In its brief to this Court, which USF & G has adopted, the Trustee argues that the Supreme Court has interpreted Fed.R.Civ.P. 56 as imposing upon the moving party the burden of presenting “evidence (which is) not merely colorable, but which is significantly probative and which precludes the *971rendering of a contrary verdict” (emphasis added). The Trustee cites two recent Supreme Court cases, Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986), and Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986), for this proposition. The Trustee goes on to argue that since Harris has failed to meet this burden, this Court should deny Harris’ motion for summary judgment.
The Trustee has misread Celotex and Anderson. In Celotex, the Court clarified the following language from its decision in Adickes v. S.H. Kress & Co., 398 U.S. 144, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970): “both the commentary on and the background of the 1963 Amendment (to rule 56) conclusively show that it was not intended to modify the burden of the moving party ... to show initially the absence of a genuine issue concerning any material fact.” 398 U.S. at 159, 90 S.Ct. at 1609. Interpreting this language, the Celotex Court stated:
We do not think the Adickes language quoted above should be construed to mean that the burden is on the party moving for summary judgment to produce evidence showing the absence of a genuine issue of material fact, even with respect to an issue on which the non-moving party bears the burden of proof. Instead, as we have explained, the burden on the moving party may be discharged by “showing” — that is, pointing out to the District Court — that there is an absence of evidence to support the non-moving party’s case.
Celotex, 106 S.Ct. at 2554 (emphasis added). The Court went on to note that “[i]t would surely defy common sense to hold that the District Court could have entered summary judgment sua sponte in favor of petitioner ... but that petitioner’s filing of a motion requesting such a disposition precluded the District Court from ordering it.” Id.
Thus, under Celotex, all Rule 56 requires Harris to do is “show” — i.e., “point out”— to this Court that there is no genuine issue of material fact. This Court is persuaded that Harris has met this burden. Therefore, the burden of proof shifts to the adverse party — i.e. the Trustee — to set forth “specific facts showing that there is a genuine issue for trial.” Anderson, 106 S.Ct. at 2511. It is true, as the Trustee argues, that, under Anderson, this evidence must not be “merely colorable” but instead must be “significantly probative.” Id. But it is the Trustee, not Harris, who must make this showing. Id.
In its surreply and its “Statement of Genuine Issues Disputed Facts” (sic) the Trustee sets forth numerous matters allegedly in dispute in this case. As the Anderson Court noted, however, “only disputes about facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” Anderson, 106 S.Ct. at 2510. The outcome of this suit turns on whether Harris possesses a security interest in the Klein collateral it holds. Under the governing law, a security interest is a “lien created by agreement.” 11 U.S.C. § 101(43). Whether an agreement creates a lien depends on state law. See Butner v. United States, 440 U.S. 48, 54-57, 99 S.Ct. 914, 917-19, 59 L.Ed.2d 136 (1979). Under the Uniform Commercial Code (“U.C.C.”), a security interest is not enforceable against the debtor or a third party and does not attach to collateral unless:
(a) the collateral is in the possession of the secured party pursuant to agreement or the debtor has signed a security agreement which contains a description of the collateral ...; and
(b) value has been given; and
(c) the debtor has rights in the collateral
Ill.Rev.Stat. ch. 26, para. 9-203(1) (1987).
The issue that the parties ask this Court to decide is, then, whether Harris possesses the Klein collateral “pursuant to agreement,” and, if so, what the conditions of that agreement are. Harris claims that the various contractual documents it executed with Klein evidence such an agreement. While the Trustee disagrees, it does not question the validity of the documents upon which Harris relies. Since the Trustee disputes only the legal effect that this Court should give to the documents Harris *972proffers, we conclude that this is the very sort of issue that the Supreme Court, in Anderson, contemplated as being proper for adjudication on motion for summary judgment.
SUBSTANTIVE ISSUE
The parties admit entering into a security agreement that, at one time at least, entitled Harris to retain the Klein collateral. What they dispute are the conditions of that security agreement, and what, if any, effect it has today. The Trustee argues that Harris was entitled to retain the collateral only until Klein repaid the loan of March 19th. Since Klein repaid that loan on a timely basis, the Trustee argues that Harris’ security interest has long since lapsed and, therefore, Harris is no longer entitled to possess the collateral. Harris replies that it is entitled to possess the collateral on two grounds. First, the security agreement required Klein to repay all loans “without default,” a condition Harris claims Klein never fulfilled. Second, Harris argues that even if Klein did not default, he executed subsequent cross-collateralization agreements with Harris that, separate and apart from the original security agreement, entitle Harris to retain the collateral.
Default Issue
The Trustee properly urges this Court to read the March 12th “security agreement” and the March 12th “side letter” together as a single contract. Where an agreement is evidenced by separate documents that were executed at the same time between the same parties for the same purpose and as parts of a single transaction they are to be read together and construed as a single contract. Lippo v. Mobil Oil Corp., 776 F.2d 706, 713 n. 13 (7th Cir.1985). In this case, Harris and Klein executed both the “security agreement” and the “side letter” on the same day for the same purpose—to secure Klein’s debt to Harris. This Court concludes, therefore, that the parties intended the two documents to be read as comprising a single contract.
The Trustee is further correct in urging this Court to read the specific language of the “side letter” as controlling the more general language of the “security agreement’’. As the Lippo court noted, where there are conflicting general and specific provisions relating to the same subject in a contract, the specific provisions should control. Id. at 713. Thus, where the “side letter” states that Harris will return the Klein collateral “when all loans made by Harris Bank to you personally next week are paid in full by their terms and without default ...,” this language controls over the “security agreement’s” broader statement that the collateral is given “[a]s security for the payment of all loans and advances now or in the future made by Bank to debtor hereunder and for payment or other satisfaction by all other obligations ...” (emphasis added). The only reasonable interpretation of these clauses is that, as of March 12th, the agreement of the parties was that the Klein collateral would secure only those loan obligations Klein undertook that week.
Next, this Court must consider what those loan obligations were. The plain language of the controlling March 12th “side letter” obliged Klein to repay the March 19th loan “without default.” The Trustee argues that this condition only required Klein to repay the loan on time. Harris points out, however, that the parties specifically defined in section five of the “security agreement” what other acts on the part of Klein would constitute a default, including:
5.1.1. The making of any any (sic) representation or warranty by or on behalf of the Debtor to the Bank under or in connection with this Security Agreement which is materially false as of the date it was made;
and
5.1.4. The transfer or other disposition of any material portion of the Collateral, either voluntarily or involuntarily, in any manner not permitted by Section 4.1.6.
The same Lippo rationale requires this Court to adopt the specific language of these portions of section five of the “secur*973ity agreement” as controlling over the more limited interpretation that the Trustee asks us to infer from the “side letter” wording regarding what constitutes default. See Lippo, 776 F.2d at 713.
Next, this Court must consider whether Klein violated these default provisions. Harris argues that when Klein represented on March 12th that he had good, indefeasible title to the Colorado real estate — when he had actually already transferred 99.97% ownership to several third parties — Klein made a materially false representation in violation of section 5.1.1. Further, Harris argues that when Klein, on April 20th, attempted to transfer the Eagle Ridge collateral to Mr. Frederick Quinn, Klein voluntarily transferred a material portion of the collateral in violation of Section 5.1.4.
The Trustee responds by arguing that since Klein publicly recorded the 99.97% transfer of his Colorado property before mortgaging it to Harris as collateral in the March 12th “security agreement”, Klein made no materially false representation. The Trustee’s reasoning seems to be that since Harris could have checked the public record, it cannot now assert that it was misled. Furthermore, the Trustee argues that Harris’ claim that Klein wrongfully attempted to transfer the Eagle Ridge collateral is based merely on heretofore unproven allegations set forth in another lawsuit, Frederick J. Quinn v. Wayne J. Klein et al., No. 87 A. 868.1 Such allegations, the Trustee argues, are insufficient to establish a default. Finally, the Trustee argues that even if Klein did mislead Harris or wrongfully attempt to transfer the Eagle Ridge collateral, the law does not entitle Harris to now retain the collateral.
It is clear to this Court that, for the purpose of the question presented on summary judgment, it makes no difference whether Klein defaulted on his “security agreement.” If we find, as the Trustee urges, that Klein did not default, we must then decide Harris’ second contention— namely, that Klein subsequently pledged the collateral to secure other obligations that remain unfulfilled, thereby entitling Harris to retain possession of the collateral in question. Conversely, if we find, as Harris urges, that Klein did default, Harris’ right to possess the collateral is tempered by Klein’s right to redeem under the Uniform Commercial Code:
At any time before the secured party has disposed of collateral or entered into a contract for its disposition under Section 9-504 or before the obligation has been discharged under Section 9-502(2) the debtor or any other secured party may, unless otherwise agreed in writing after default, redeem the collateral by tendering fulfillment of all obligations secured by the collateral as well as the expenses reasonably incurred by the secured party....
Ill.Rev.Stat. ch. 26, para. 9-506 (1987) (emphasis added). Consequently, even if we find that Klein’s alleged violations of 5.1.1. and 5.1.4. of the “security agreement” constituted a default, we would still have to determine whether Klein’s timely repayment of the $700,000.00 March 19th and June 19th loans constituted “tendering fulfillment of all obligations secured by the collateral” under Section 9-506, thereby entitling Klein to redemption. To make this determination, we have to consider whether the phrase “all obligations secured by the collateral” includes Klein’s $350,000.00 personal loan of June 22, 1984, and Klein’s guarantee of Klein Construction’s $2,000,-000.00 line of credit. Thus, in sum, regardless of how this Court resolves the default issue, this case ultimately turns on whether, after March 12th, Klein pledged the collateral in question to Harris to secure other obligations still outstanding. It is, therefore, to a discussion of this pivotal *974“cross-collateralization” issue that this opinion now proceeds.
Cross-Collateralization
Harris argues that, whatever the extent of the security interest it obtained in the March 12th “security agreement,” the promissory notes that Klein executed on March 19th and June 19th granted Harris a second and third security interest in the Klein collateral, securing all of Klein’s outstanding obligations to the bank. Harris points out that in both notes Klein agreed that “[t]o secure the payment of this and any ... other liabilities of the undersigned ... (Klein) hereby grants a security interest to (Harris) in all property of (Klein) ... now ... in ... the possession, control or custody of (Harris)....” Harris asserts that by this language the parties intended to modify the March 12th “side letter” and expand the obligations secured by the collateral pledged therein.
The Trustee urges that the parties intended the March 12th “side letter” to limit the obligations secured by the collateral. Moreover, the Trustee argues that the language in both the March 19th and June 19th notes that purportedly grants Harris a second and third security interest in the Klein collateral comprises boilerplate “dragnet clauses” which Illinois law generally disfavors and which, because they are fatally vague and overbroad, should not be enforced by this Court.
The Trustee, in effect, asks this Court to rule that the cited language from the March 19th and June 19th promissory notes is controlled by the language in the March 12th “side letter.” The Seventh Circuit Court of Appeals has noted that, in Illinois, the parol evidence rule excludes evidence which would change the meaning of a written document, if the evidence concerns dealings -prior to the writing. International Administrators v. Life Ins. Co. of North America, 753 F.2d 1373, 1384 (7th Cir.1985) (emphasis added). The International Administrators court stated:
Where a written agreement shows a complete legal obligation, without uncertainty as to the object and extent of the obligation, evidence of an earlier agreement cannot be introduced to add another term to the agreement, even though the earlier agreement may contain writing on the particular term to which evidence is directed.
Id. However, where the court finds the prior writing not to be an “earlier agreement,” but rather a “step in an ongoing series of negotiations ...” that the parties intend to constitute an integrated agreement, such evidence is admissible. Id. While the language of the March 12th “side letter” concerning “[a]ll loans made ... to you personally next week ...” (emphasis added) might, arguendo, evidence the parties’ intent that the March 12th “side letter” and the March 19th promissory note comprise a single integrated agreement, no such language links the March 12th “side letter” to the June 19th note. Clearly, then, the parol evidence rule precludes this Court from looking to the March 12th “side letter” to interpret the language of at least the June 19th promissory note. Moreover, as this Court held in Stannish v. Community Bank of Homewood-Flossmoor, 24 B.R. 761 (Bankr.N.D.Ill.1982), “the law presumes the parties intended the agreement to mean what the language clearly imports.” Id. at 763. Thus, the law requires this Court to presume that when, in the June 19th promissory note, Klein granted Harris a security interest in all property “now ... in the possession control or custody of (Harris) ...” to secure the payment of “any ... other liabilities of (Klein) ...,” the parties intended that Klein granted Harris a security interest in the stocks and other collateral in Harris’ possession to secure not only the $700,000.00 note, but also Klein's outstanding $350,000.00 personal loan and $2,000,000.00 guarantee.
The Trustee attempts to rebut this presumption by introducing copies of internal memoranda executed by Harris officers that demonstrate that certain bank officers considered Klein’s $350,000.00 loan and $2,000,000.00 guarantee to be unsecured obligations as late as January 20, 1987. It is not readily apparent whether the execution of these memoranda is “performance” *975as contemplated by the parties (to the “security agreement”) and therefore available under a “course of performance” theory to help interpret what the parties’ intentions were. See, e.g., Ill.Rev.Stat. ch. 26, para. 2-208 (1987). Moreover, even if the execution of these memoranda does constitute such performance, Klein’s failure to repossess the collateral after repaying the March 19th promissory note — an action he arguably would have undertaken had the parties intended the Klein collateral to secure only that loan — demonstrates that the parties’ course of performance is, at best, equivocal evidence of their intent on this point. Thus, the presumption that Klein intended to secure all outstanding obligations with the collateral Harris possessed must stand.
Finally, this Court must consider whether to enforce the cross-collateralization agreement. It is true, as the Trustee notes, that cross-collateralization agreements are generally not favored in Illinois. Stannish, 24 B.R. at 762. This Court has held that cross-collateralization clauses will be upheld, however, where no ambiguity exists, and will be interpreted according to the language used. Id. at 763.
The requirement that the clause not be ambiguous may arise in one of two contexts. First, the clause may be unclear as to exactly what collateral the debtor is pledging to secure the loan. See, e.g., Matter of Schmaling, 783 F.2d 680 (7th Cir.1986). In Schmaling, the court held that “[a] security interest granted by a debtor to a creditor is limited strictly to the property or collateral described in the security agreement.” Id. at 682. The standard for judging the adequacy of that description is set out in § 9-110 of the U.C.C., which states: “For the purposes of [Article 9] any description of personal property ... is sufficient whether or not it is specific if it reasonably identifies what is described.” Ill.Rev.Stat. ch. 26, para. 9-110 (1987). The Illinois Appellate Court has stated that the “reasonable identification test appears to us to allow very broad description of collateral in security agreements.” Midkiff Implement Co. v. Worrall, 116 Ill.App.3d 546, 549, 71 Ill.Dec. 655, 657, 451 N.E.2d 623, 625 (4th Dist.1983). That court went on to note:
The overwhelming majority of courts uphold very broad descriptions. Probably what is at work when courts condemn such descriptions is an unstated (and even unconscious) desire to protect debtors against dragnet clauses subjecting all or virtually' all of their property to the claim of a single secured creditor. Such sweeping clauses reduce debtor opportunities to obtain credit from other sources. And they may bespeak creditor greed. Yet Courts that condemn such clauses are not on sound ground. The ability to monopolize collateral — and to have collateral monopolized — comports with freedom of contract.
Id. at 550, 71 Ill.Dec. at 658, 451 N.E.2d at 626 (quoting White & Summers, Handbook of the Law Under the Uniform Commercial Code, 910-11 (2d ed. West 1980)). Where, as here, the collateral is already in the possession of the secured party at the time the debtor grants the security interest, and the language of the security agreement states that the debtor “[gjrants a security interest ... in all property of (Klein) now ... in ... the possession, control or custody of (Harris) ...,” and the collateral remains in the possession of the secured party for the duration of the loan, this Court believes the instrument “reasonably identifies” the collateral described as required by U.C.C. § 9-110. Moreover, this clause did not subject all or virtually all of Klein’s property to the claim of a single creditor, nor has the Trustee argued or presented any evidence that the clause reduced Klein’s opportunity to obtain credit from other sources. Thus, the clause in question also did not lead to the sort of abuses which those courts that more narrowly construe the “reasonable identification” requirement seek to avoid.
The second context in which ambiguity of language might cause this Court to invalidate a cross-collateralization agreement is the amount of indebtedness secured by the agreement. This Court has held that “it is well established that clear and unambiguous security agreement *976clauses extending the collateral to secure past and future advances are valid under common law and the Uniform Commercial Code.” Stannish, 24 B.R. at 763 (emphasis added). This conclusion derives from the very language of the Uniform Commercial Code, which in section 9-204(3), provides that a security agreement may secure “future advances or other value whether or not the advances or value are given pursuant to commitment.” Ill.Rev.Stat. ch. 26, para. 9-204(3) (1987) (emphasis added). Where a clause extending collateral to secure prior obligations is ambiguous, however, such a clause fails to create a security interest in the collateral to secure the prior loan. See, e.g. In re Hunter, 68 B.R. 366 (Bankr.C.D.Ill.1986).
This Court, in Stannish, held language similar to that employed in the June 19th promissory note to be clear and unambiguous. Stannish, 24 B.R. at 763. The Stannish language stated: “[T]he holder shall have the right of set-off against any deposits and other sums which may now or in the future be owing by the holder to the Debtor(s)”; and in the explanatory portion of the agreement stated: “[T]his security Agreement will serve future or other indebtedness.” Id. The Stannish agreement also stated:
In addition to the foregoing security the Holder has a security interest for the payment of all obligations due it in all property and assets of Debtor(s) which are in the possession or control of Holder and a right of set-off or lien on any deposits or sums now or hereafter owed by Holder to Debtors).
Id. at 762.
The Appellate Court of Illinois has also held language similar to that which the parties employed in the June 19th promissory note to be unambiguous. National Acceptance Co. of America v. The Exchange Nat. Bank of Chicago, 101 Ill.App.2d 396, 243 N.E.2d 264 (1st Dist.1968). In National Acceptance, the court held that a trust deed issued by a debtor to secure certain promissory notes also secured other obligations that the debtor owed to the lender under the following language:
Whereas, Mortgagor has executed, acknowledged and delivered this trust deed to secure, in addition to the note described above, any and all sums, indebtedness, and liabilities of any kind now or hereafter owing or to become due from Mortgagor to holders of the Note, however created, incurred, evidenced, acquired, or arising, whether under the note or this trust deed or any other instruments, obligations, contracts or agreements of every kind now or hereafter existing or entered into by and between Mortgagor and holders of the Note or otherwise, and whether direct, indirect, primary, secondary, fixed or contingent, together with interest thereon as provided in said instruments, and any of the foregoing, all of which said sums, indebtedness and liabilities are hereinafter referred to as ‘future advances’, as aforesaid together with any such instruments, are hereby expressly secured by this trust deed....
Id. at 403-04, 243 N.E.2d at 268.
The National Acceptance court, in holding that the language secured, in addition to the promissory notes, all future indebtedness, stated:
The intention of the contracting parties could not be evidenced by more certain terms. Although the deeds employ the broadest possible terminology in describing what debts fall under the umbrella of security, it must be remembered that [Debtor] was under no obligation to enter into agreements containing such sweeping language. The sympathy one might entertain for the [Debtor] should be tempered by remembering that contracting parties enjoy the freedom to employ in the marketplace whatever they possess of wisdom or folly.
Id. at 405, 243 N.E.2d at 268.
This Court finds that the language in the June 19th note in which Klein granted Harris a security interest in the collateral in question to secure the payment of “this and any and all other liabilities of the undersigned ...” to be no less clear and unambiguous than the language in Stannish and National Acceptance.
*977The Trustee’s reliance on In re Hunter is misplaced. In Hunter, the issue was whether a note that stated it was secured by a mortgage, but made no reference to collateral held by the secured party pursuant to a prior agreement, was cross-collat-eralized. The court held that no cross-col-lateralization took place, noting that: “Had the defendant wanted to cross-collateralize the ... loan, it would have been a simple matter to add to the note a reference to the security agreement covering the Collateral, just as it added a reference to the mortgage.” Hunter, 68 B.R. at 369. Here, the facts are just the opposite of Hunter. The June 19th note that Klein executed specifically granted Harris a security interest in the collateral it held to secure all of Klein’s outstanding obligations. Accordingly, Harris is entitled to retain that collateral until those obligations are satisfied.
THEREFORE, IT IS HEREBY ORDERED that plaintiff’s motion for summary judgment is granted.
. In that proceeding, Frederick Quinn claims that Klein sold his “Eagle Ridge Interests” to Quinn pursuant to an agreement entitled "Agreement to Assign Limited Partnership Interest” ("Assignment Agreement.”). Quinn claims that, in consideration for these interests, he paid Klein a down payment of $5,000.00 on April 20, 1986, — after Klein had provided these same interests to Harris as collateral pursuant to the March 12th "security agreement.” Quinn claims that he paid Klein the balance of $100,-000.00 on September 12, 1986. Complaint at 3-4. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490643/ | MEMORANDUM OF OPINION AND ORDER
RANDOLPH BAXTER, Bankruptcy Judge.
This matter concerns the objection of Roy H. Jones (Debtor) to an allowance of a claim filed by C.I.T. Financial Services (CIT) against his estate. A hearing was held with notice having been made on all parties entitled thereto. Pursuant to Rule 7052, Bankr.R., the following constitutes the Court’s findings and conclusions:
II.
This is a core proceeding under provisions of 28 U.S.C. § 157(b)(2)(B), with jurisdiction further conferred under 28 U.S.C. § 1334 and General Order No. 84 of this District. The operational facts of this matter are undisputed. Two mortgage lenders, Broadview Savings and Loan (Broad-view) and CIT held mortgages on certain real estate owned by the Debtor which were secured in the amounts of $33,766.16 and $26,784.00, respectively. The Broad-view indebtedness was secured by a first mortgage, with the CIT indebtedness secured by a second mortgage on the Debt- or’s real estate. As a result of prepetition delinquencies in payments owed to the mortgage holders, foreclosure proceedings were commenced in the State court. Those proceedings were stayed by the Debtor seeking relief under Chapter 13. Subsequently, relief from the automatic stay was successfully sought by both mortgagees. At the renewed foreclosure proceeding, CIT purchased the subject real estate at Sheriff’s sale for $46,000.00. In furtherance of that sale, the State court allocated and distributed $37,881.98 to Broadview, $2,193.75 to taxing authorities, $576.62 for court costs, $492.00 for costs retainer, and $5,236.45 to CIT.
CIT’s initial claim against the Debtor’s estate, filed in an amount of $26,546.55 was later withdrawn. A second claim, in the amount of $26,662.32, was filed by CIT as a deficiency claim. The Debtor’s objection ensued therefrom.
II.
The dispositive issues for the Court’s determination are (1) whether a debtor mortgagor, following a duly conducted foreclosure sale, can compel an accounting; (2) whether a purchasing creditor at a foreclosure sale can validly claim a deficiency against a debtor’s estate without a subsequent resale.
In support of his objection, the Debtor argues that CIT’s deficiency claim *104should be fully disallowed as no deficiency can be ascertained until CIT resells the property. CIT contends that its deficiency claim is valid and that no accounting is due the Debtor upon resale of the real estate. The propriety of the foreclosure sale is unchallenged. In fact, the Debtor conceded that it had a prepetition secured debt with CIT which was in default, and further conceded that the subject foreclosure proceeding occurred with CIT being the successful buyer. Thusly, the value of the real estate was duly established by the Sheriff’s sale upon foreclosure. In re Verna, 58 B.R. 246, 14 B.C.D. 7 (Bankr.C.D.Cal.1986). That value was $46,000.00. Moreover, the sale was beneficial to the Debtor’s estate by affording a pay-off of Debtor’s first mortgage obligation, certain taxes, and attendant costs. Where no fraud or other irregularity is shown in connection with a foreclosure or the conduct of the foreclosure sale, a mortgagor has no right to compel a mortgagee to account for any profit made upon a subsequent resale. Annot., 117 A.L.R. 868, and the cases cited therein.
The effect of the foreclosure sale further established a liquidated value of CIT's claim in an amount of $26,546.55. Following distribution, CIT was left with a valid deficiency claim of $26,662.32 (including judgment interest at 16.5% from November 1, 1984). The fact that CIT was the purchaser at foreclosure sale does not diminish its right to claim a deficiency thereon, as the foreclosure sale price established the value of the property. A resale of that property is not required to further ascertain a deficiency.
Accordingly, the Debtor’s objection is hereby overruled, and CIT’s claim is allowed as an unsecured claim in the amount filed.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490644/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW AS TO CLAIM NO. 40 OF AUTOLEASE
GEORGE L. PROCTOR, Bankruptcy Judge.
This case is before the Court upon debt- or’s objection to the proof of claim number 40 filed by Autolease Corporation of Florida (“Autolease”). In this claim, Autolease seeks to recover a deficiency resulting from the sale of four leased vehicles after repossession from the debtor. The debtor contends that Autolease failed to sell the vehicles in a commercially reasonable manner and is barred from recovering a deficiency. A hearing on the objection was held January 12, 1988, and upon the evidence presented, the Court enters the following findings of fact and conclusions of law:
*233FINDINGS OF FACT
1. On August 1,1986, the debtor filed a motion to reject, pursuant to 11 U.S.C. § 365, four leases dated December 20,1983 (for a 1984 Buick Park Avenue); September 11, 1984 (for a 1983 Chevrolet Van); December 26, 1984 (for a 1985 Chevrolet Cavalier Wagon); and February 18, 1985 (for a 1985 Chevrolet Caprice Wagon). The leases were open-end leases calling for monthly payments by the lessee.
2. On September 16, 1986, this Court entered an Order Granting Debtor’s Motion to Reject the Leases and provided that Autolease could file a Proof of Claim for any damages occasioned by the breach.
3. Thereafter, the debtor voluntarily returned the four vehicles to Autolease. Au-tolease treated the leases as being terminated and sold the vehicles to an automobile dealership at a private sale, without further notice of resale or termination being given to the debtor.
4. Proof of Claim Number 40 was filed by Autolease on October 10, 1986. In that proof of claim, Autolease sought to recover $20,575.79 as a deficiency resulting from the sale of the leased vehicles. The debtor filed an objection to this claim.
5. At the hearing, Autolease voluntarily amended the claim to reflect damages of $10,046.80. It arrived at this sum by subtracting the sales price of each vehicle from the depreciated value as scheduled.
6. The Debtor contends that Autolease was required as a matter of law to give notice to the debtor of the impending sale and that the failure bars a deficiency judgment. Alternatively, debtor argues that Autolease failed to present sufficient evidence as to the fair market value of the vehicles and is barred from recovering a deficiency judgment.
CONCLUSIONS OF LAW
1.11 U.S.C. § 365(a) provides that: “... the trustee, subject to the court’s approval, may assume or reject any executory contract or unexpired lease of the debtor.” Pursuant to this section, the debtor filed a motion to reject the four unexpired leases, and the Court granted the motion.
2. Under federal law, the rejection of a lease under § 365(a) constitutes a breach of contract entitling the lessor to claim damages. Specifically, § 365(g) provides that:
... the rejection of an executory contract or unexpired lease of the debtor constitutes a breach of such contract or lease
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Furthermore, § 502(g) states:
A claim arising from the rejection, under section 365 of this title or under a plan under chapter 9,11,12, or 13 of this title, of an executory contract or unexpired lease of the debtor that has not been assumed shall be determined, and shall be allowed under subsection (a), (b), or (c) of this section or disallowed under subsection (d) or (e) of this section, the same as if such claim had arisen before the date of the filing of the petition.
The validity and amount of any claim are then determined in accordance with state law. In the Matter of Sparkman, 703 F.2d 1097, 1099 (9th Cir.1983).
3. Section 679.501(1), Florida Statutes, provides that when a debtor is in default, a secured party has, in addition to the rights provided in the security agreement, all the rights and remedies as provided in Florida’s version of Article 9 of the Uniform Commercial Code. Section 679.101 et seq., Florida Statutes.
4. Included within those rights is the secured party’s right to dispose of collateral upon default and to recover a deficiency judgment if certain conditions are met. Those conditions are set forth in § 679.504(3), which provides:
Disposition of the collateral may be by public or private proceedings and may be made by way of one or more contracts. Sale or other disposition may be as a unit or in parcels and at any time and place and on any terms, but every aspect of the disposition including method, manner, time, place, and terms must be commercially reasonable. Unless collateral is perishable or threatens to decline speedily in value ..., reasonable notification of the time and place of any private *234sale or other intended disposition is to be made shall be sent by the secured party to the debtor....
The requirements that there be a “commercially reasonable” sale and that “notification of the sale be sent to the debtor from the secured party,” are applicable to the disposition of the four vehicles and both must be proven before Autolease is entitled to a deficiency judgment.
5. The right to a deficiency judgment is in derogation of the common law and will be authorized only after strict compliance with the statute. Dependable Ins. Co. v. Landers, 421 So.2d 175 (Fla. 5th DCA 1982).
6. The statute specifically provides that every aspect of the disposition must be commercially reasonable. F.S. 679.503(3). The Florida Supreme Court has interpreted this provision to include notice, as an integral part of the “commercially reasonable” disposition requirement. Landmark First National Bank of Fort Lauderdale v. Gepetto’s Tale O’the Whale of Fort Lauderdale, Inc., 498 So.2d 920, 922 (Fla.1986). Consequently, where a sale is conducted without prior notice it will not be considered commercially reasonable. Id. at 922.
7. Earlier court decisions held that where a party fails to give proper notice, the secured party is prohibited from recovering a deficiency judgment. See e.g., Peoples Bank of Polk County v. Roberts, 779 F.2d 1544 (11th Cir.1986); Matter of Forest Enterprises, Inc., 64 B.R. 310 (Bkrptcy.M.D.Fla.1986); Hayes v. Ring Power Corp., 431 So.2d 226 (Fla. 1st DCA 1983); Thomas v. Sutherland, 370 So.2d 12 (Fla. 1st DCA 1978). However, in Weiner v. American Petrofina Marketing, Inc., 482 So.2d 1362 (Fla.1986) the Florida Supreme Court rejected this notion and held that the failure to provide adequate notice does not in and of itself bar a deficiency judgment. Rather, it merely shifts the burden to the secured party to show that the fair market value of the collateral is less than the secured debt. Says the Court:
[W]hen it has been determined that a secured party has disposed of collateral in a commercially unreasonable manner, there will arise a presumption that the fair market value of the collateral at the time of repossession was equal to the amount of the total debt that it secured. The burden to prove that the fair market value of the collateral was less than the debt will be upon the secured party. If the secured party meets this burden, he will be allowed to recover a deficiency judgment in an amount equal to the total debt minus the fair market value of the collateral as ultimately determined.
Id. at 1365. Presumably then, the results reached in those earlier decisions will have changed.
8. In the present case, Autolease repossessed the four leased vehicles and sold them without any prior notification to the debtor. Under Florida law, the sale cannot then be considered commercially reasonable. It was incumbent therefore for Auto-lease to overcome the presumption and show that the fair market value of the collateral was less than the amount owed.
In an effort to meet this burden, Auto-lease presented evidence as to the depreciated value and sales price of the four vehicles. However, it failed to provide sufficient evidence as to the fair market value of the vehicles. In light thereof, the Court concludes that Autolease has failed to satisfy its burden of proof and is not entitled to recover a deficiency judgment.
Debtor’s Objection to Claim Number 40 will be sustained and the Court will enter a separate order in accordance with these findings. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490648/ | OPINION AND ORDER ON MOTION OF LEASE LINE LTD., INC. TO CERTIFY TO THE SIXTH CIRCUIT COURT OF APPEALS
DONALD E. CALHOUN, Jr., Bankruptcy Judge.
This matter is before the Court pursuant to Lease Line Ltd., Inc.’s motion to certify the judgment issued in this case on November 12,1987 to the Court of Appeals for the Sixth Circuit. The debtor filed his memorandum in opposition to Lease Line’s motion on November 30, 1987.
Lease Line’s motion is brought pursuant to 28 U.S.C. § 1292(b), which states:
When a district judge, in making in a civil action an order not otherwise ap-pealable under this section, shall be of the opinion that such order involves a controlling question of law as to which there is a substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation, he shall so state in writing in such order. The Court of Appeals which would have jurisdiction of an appeal of such action may thereupon, in its discretion, permit an appeal to be taken from such order, if application is made to it within ten days after the entry of the order: Provided, however, that application for an appeal hereunder shall not stay proceedings in the district court unless the district judge or the Court of Appeals or a judge thereof shall so order.
Lease Line is requesting that this Bankruptcy Court certify the judgment it entered November 30, 1987 to the Sixth Circuit Court of Appeals on the basis that there is an apparent conflict as to the law that is applicable to the issue decided by this Court. That issue is whether a Bankruptcy Court has jurisdiction over the lease agreement between Lease Line and the debtor.
In its decision of November 12, 1987, the Bankruptcy Court found that it had jurisdiction under 11 U.S.C. § 363, and then found that the lease was not a “true lease” but a disguised sale with a retained security interest to secure Lease Line by virtue of its holding title to the vehicle. Ohio Rev.Code § 1301.01(KK). This Court, in finding that it had jurisdiction, also denied Lease Line’s motion for relief from stay on the basis that it had not established a pri-ma facie case.
The Court notes that the record indicates that the uncontroverted testimony of the debtor Linda Tetirick was that a payment of $779.00 was sent to Lease Line on March 17, 1987, and a second payment of $500.00 was sent to it on April 9, 1987. The Court also notes that Mrs. Tetirick testified that a third payment of $800.00 was sent to Lease Line on May 9, 1987, after the lease supposedly terminated. Lease Line did not dispute the fact that these payments were made by the debtors.
*507An established principle of law is that where a party to a contract has defaulted and is in breach, and the nonde-faulting party, with knowledge of the breach, accepts payments in the performance of the contract, his acceptance of those payments will constitute a waiver of that breach. Pabst v. Fischer, 13 Ohio App. 302 (Butler Cty.1920); Einot, Inc. v. Einot Sales Co., 154 Neb. 760, 49 N.W.2d 625 (1951), aff'd. on reh. 155 Neb. 323, 51 N.W.2d 791 (1952); Kinney v. Pocock, 8 Ohio N.P. (n.s.) 121 (1908); Hubbard v. Norton, 28 Ohio St. 116 (1875). It was obvious to this Court, from the evidence submitted by testimony at the June 11, 1987 hearing, although not specifically stated in its decision of November 12, 1987, that Lease Line, by accepting payments during and after the 15-day notice period, waived the breach and revived the lease.
Moreover, the Court notes that the debtors retained possession of the vehicle at the time their petition was filed. Under 11 U.S.C. § 541(a)(1), the commencement of a bankruptcy case creates an estate comprised of all legal or equitable interests of the debtor in property. The term “legal or equitable interests” is broadly construed. In re Joliet-Will Community Action Agency, 78 B.R. 184 (D.C.N.D.Ill.1987), citing United States v. Whiting Pools, Inc., 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983). As held by the court in the case of In re 48th Street Steakhouse, Inc., 61 B.R. 182, 187 (Bankr.S.D.N.Y.1986):
The estate is not confined to property owned by the debtor, for a leasehold or a mere possessory interest falls within section 541.
See, also, Carls v. Bonanza International Development Company (In re Allan Steaks Corp.), 22 B.R. 881, 882 (Bankr.D.Mass.1982), citing H.Rep. No. 95-595, 95th Cong. 1st Sess. 367 (1977); S.Rep. No. 95-989, 95th Cong., 2nd Sess. 82 (1978), U.S. Code Cong. & Admin.News 1978, p. 5787. In the instant case, this Court’s order of November 12, 1987 held that the lease was not terminated prior to the filing of bankruptcy by the debtors, and as the debtors possessed the property at that time, their leasehold is property of the estate.
An appeal pursuant to 28 U.S.C. § 1292(b) is to be permitted only where three requirements are satisfied. First, a controlling question of law must be involved. Second, the question must be one in which there is a substantial ground for difference of opinion. Third, it must be shown that an immediate appeal would materially advance the ultimate termination of the litigation. In re Manville Forest Products Corp., 47 B.R. 955 (D.C.S.D.N.Y.1985). Furthermore, it must be established that “exceptional circumstances justify a departure from the basic policy of postponing appellate review until after the entry of a final judgment.” Coopers & Lybrand v. Livesay, 437 U.S. 463, 475, 98 S.Ct. 2454, 2461, 57 L.Ed.2d 351 (1978).
The enactment of the Bankruptcy Amendments and Federal Judgeship Act in 1984 (“BAFJA”), P.L. 98-353 conferred jurisdiction of this Court on all matters “arising in or related to cases under title 11.” 28 U.S.C. § 1334(b). One area in which this Court has jurisdiction by virtue of BAFJA is over cases involving motions for relief from the automatic stay. 28 U.S.C. § 157(b)(2)(G). Accordingly, a controlling question of law is not involved, and neither does there exist “a substantial ground for difference of opinion” in this matter. Carhill v. IU North America, Inc. (In re Codesco), 30 B.R. 472, 473 (D.C.N.Y.1983).
Also, the Court is not convinced that immediate appeal would materially advance the ultimate termination of litigation. Id. There is no reason to suppose that this matter would be disposed of more expeditiously on appeal than by another procedure available to Lease Line under the Bankruptcy Code. Id. at 474. Indeed, given the alternatives available to Lease Line for relief under the Code, an appeal would not materially advance the termination of this issue, but would in fact delay it. Champion Intern. Corp. v. All American of Ashburn, 45 B.R. 840 (D.C.N.D.Ga.1984). The alternative avenues for relief available to Lease Line under the Code also compel this Court to conclude that excep*508tional circumstances do not exist to justify certification of this matter to the Court of Appeals.
Based on the foregoing, the motion of Lease Line to certify the order entered November 12,1987 to the Court of Appeals for the Sixth Circuit is DENIED.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490649/ | ORDER ON MOTION FOR PAYMENT OF ADMINISTRATIVE EXPENSES
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 case and the immediate matter under consideration is a Motion for Payment of Administrative Expenses (sic) filed by Joseph Murrman, the claimant in the above Code 11 case. Seas-pire, Inc. the Debtor in the above captioned case, filed its first Petition for Relief in this Court on April 29, 1985. In September, 1985, that case was dismissed by this Court. The present case which involves the Motion referred to above was filed on October 30,1985, and even though the Plan of Reorganization has been confirmed, the case is still open.
The procedural background of the matter in controversy is somewhat confusing but to put this matter in a proper focus, a brief recitation of the facts relating to this subject would be helpful.
On March 17, 1986, Joseph Murr-man filed a proof of claim in the present case in the total amount of $12,000.00. The claim on its face fails to indicate whether or not it is claimed to be a general unsecured claim or whether it should be treated as an administrative claim based on *784§ 503 of the Bankruptcy Code. In due course the Debtor objected to the claim which objection was considered and on December 22, 1986, this Court entered an Order sustaining the objection and disallowing the claim of Murrman with leave granted to file another claim within 30 days of the entry of the order. Rather than file a new proof of claim counsel for Murrman filed the Motion for Allowance of Administrative Expense. In the body of the motion, counsel for Murrman recited that Murrman’s claim is based on an oral contract between Murrman and the Debtor for services allegedly rendered by Mr. Murr-man and that Murrman’s claim should be entitled to first priority pursuant to § 507(a)(1) of the Bankruptcy Code because it qualifies as a cost of administration pursuant to § 503 of the Bankruptcy Code. The body of the motion also recites that the total claim filed in the amount of $10,384.80 was a combination of services performed prior to the commencement of the case and that only $2,931.23 is claimed to be for services rendered post-petition. Notwithstanding the fact that in the prayer clause Murrman prays for the allowance of the $10,384.80 pre-petition claim as an administrative expense, this Court is satisfied that there is no question that, if at all, only $2,931.33 can be considered as an allowance as cost of administration because conceivably this represents the amount allegedly earned by Murrman after the commencement of the case.
The evidence presented at the final evi-dentiary hearing together with parts of several depositions of which this Court takes judicial notice reveal the following facts germane and relevant to the matter under consideration.
At the time the Debtor filed its original petition, the Debtor was the owner of a certain facility located in Clearwater, Florida, which at times was operated as a restaurant. Debtor, Seaspire, Inc., was formed in 1977 by Mr. Harris who was originally the sole stockholder and president of the Debtor corporation. The operation of the facility ceased sometime prior to 1985 and the property appeared to be abandoned. During the time relevant to the controversy, Mr. Harris spent the bulk of his time traveling in Europe, living in Israel and in Switzerland, and the affairs of the Debtor corporation were placed in the hands of a St. Petersburg attorney, Mr. Samuels, who represented the corporation.
It appears that Mr. Harris decided to sell the property which was the sole asset of the Debtor and engaged the services of a local broker who placed a sign on the property indicating that any inquiries concerning the acquisition of property should be directed to the broker named on the sign. It further appears that in late 1984 the City of Clearwater cited the Debtor for Building Code violations. Subsequent to that Mr. Murrman had written a letter to Mr. Sam-uels and outlined a proposal which indicated that he would repair, clean up and maintain the building so that it would meet the Code requirements. After this communication Mr. Samuels contacted Mr. Harris, the principal of the Debtor and sought his instructions concerning the proposal made by Mr. Murrman. In December, 1984, Mr. Samuels, in the company of Mr. Murrman attended a hearing at which time the City of Clearwater considered the alleged violations of the Code and having found violations fined the Debtor $200.00 per day but granted a moratorium under the condition that the Debtor would hire a caretaker who would make the necessary repairs and secure and clean up the premises and rehabilitate the facility to the extent that it would meet the requirements of the Building Code. At the conclusion of the hearing Mr. Samuels told Murrman to go ahead and secure the building and clean it up and told him that Mr. Harris will make the arrangements with Mr. Murrman.
Upon his return, Mr. Harris was presented with a letter written by Murr-man to Samuels in which Murrman asked that if he is given space for living in the facility, that he in return would act as a live in caretaker. It was not until two months later that Mr. Murrman actually met Mr. Harris, at which time they discussed the arrangement. It appears that on January 25th Mr. Harris spoke to Mr. Murrman who restated his desire to enter *785into the transaction. Harris responded to him that the idea appears to be interesting but informed him that he was no longer a stockholder in the Debtor corporation but agreed to meet him in person anyway. After having looked the place over, they agreed that Mr. Murrman would take up residency and be an on-site caretaker for the property and in return for his residency Murrman would clean up the inside of the building, trim the trees, and clean and maintain the outside of the building. At the end of the conversation it was agreed that since the property was listed for sale with a broker, Mr. Harris agreed that Mr. Murrman would be permitted to reside at the building for at least one year but in the event the property was sold earlier, he would receive compensation for his labor at a rate of $400.00 a month for every month which he was not able to reside at the property because of its sale. That appeared to be the total substance of an agreement. It is clear to this Court that at no time was any written contract entered into between Murrman and Mr. Harris the principal of the Debtor spelling out the details of a contract. Moreover there was no enforceable oral contract ever entered into between the Debtor and Murrman because there is no competent evidence in this record to establish any specific terms either as to the rate of compensation or as to the duration of Murrman’s employment.
This leaves for consideration whether or not what allowance, if any, can be granted to Murrman on a quantum merit basis determining the value of the services rendered by him.
While there is evidence in this record presented by Murrman that the value of his services was $5.00 per hour, the actual number of hours actually worked post petition by Mr. Murrman is in great doubt. It is without dispute, for instance, that he was hospitalized for a while for some medical condition. There is also evidence in this record via testimony of the real estate broker that he visited the building several times and never saw Mr. Murrman on the premises. The number of hours which is claimed to have worked, which is 40 hours per week, is rejected. Moreover, it is without dispute that by April the premises were restored to an acceptable standard required by the Building Code. Thus, there is nothing in this record to show what additional actual work was required to maintain the property. Aught that it appears, Murr-man’s role thereafter was nothing more than the role of an onsight caretaker of a vacant building, who received free lodging in addition to some equipment which he was permitted to, and in fact did, sell. In absence of anything else, this Court is satisfied that the reasonable compensation would have been $400.00 per month for the month remaining on the unexpired one year lease. Although Murrman began negotiations with Samuels earlier and actually begun to work on the property in December, 1984, the evidence establishes that the alleged oral lease agreement was entered into in February, 1985, with the year commencing from that date. In light of this, this Court is satisfied that Murrman had one month remaining on the lease and he is entitled to $400.00 for the one month remaining on the unexpired lease. Further, this Court finds that Murrman is also entitled to $375.00 for expenses incurred in order to retain laborers to assist in the rehabilitation of the property.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Payment of Administrative Expenses filed by Joseph Murrman be, and the same is hereby, granted. It is further
ORDERED, ADJUDGED AND DECREED that the Debtor be, and is hereby, ordered to pay within 30 days of the date of the entry of this Order the sum of $775.00 as full payment of Joseph Murr-man’s administrative claim charged against the estate in the above captioned Chapter 11 case. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490651/ | ORDER ON MOTIONS FOR SUMMARY JUDGMENT
ALEXANDER L. PASKAY, Chief Judge.
This is a Chapter 11 case and the matter under consideration is the extent and priority of several mortgages which admittedly encumbered the one and only asset of Sunny Beach Motel, Inc. (Debtor), a property which had already been sold by the Trustee. The matter is presented for this Court’s consideration by Raymond B. Ray, the Trustee for the estate of the Debtor who filed the above-captioned adversary proceeding. The Trustee seeks a resolution of the issues raised by the pleadings filed by three of the defendants named in the adversary proceeding, Malkit Singh Sappal (Sappal), a group collectively referred to as the “Oromocto Assignees” and a group collectively referred to as the “Second Equal Dignity Mortgage Holders” (EDM’s). Oddly enough, the Trustee who is nominally the plaintiff in this adversary proceeding took no position concerning the respective priorities of the parties noted above, but merely seeks a determination from this Court how the proceeds derived from the sale of the property should be distributed. This is a total liquidation Chapter 11 case which involved a single asset of the Debtor fully encumbered with the mortgage liens of the Defendants, the validity of which is not disputed by anyone. For this reason, the general estate comprised of unsecured creditors have no interest in the matter and the controversy is really between competing claims of the Defendants to the funds currently held by the Trustee. Both the Trustee and the Defendants concede that there are no general issues of material facts and issues raised by their respective pleadings can be resolved as a matter of law by ruling on the Motions for Summary Judgment filed not only by the Trustee, but also by the Oromocto Assignees, Sappal and by the Creditors’ Committee for the EDM’s.
The undisputed facts as appear from the record are as follows: The Debtor is a Florida corporation formed in June 1982 by Sappal and several unidentified investors. The corporation was formed for the purpose of acquiring a motel facility known as Rodeway Inn, located in Fort Lauderdale, Florida from Eastern Alliance, Inc. (Eastern Alliance), an entity which held a 99-year lease on the land on which the motel facility was erected.
At the time the Debtor acquired the facility, the same was already encumbered by a first mortgage held by Depow Enterprises, Ltd. (Depow), securing an indebtedness evidenced by two promissory notes. These notes and the mortgage securing them were subsequently assigned by Depow to Oromocto Motor Inns, Ltd (Oromocto). On April 7, 1983, Sappal sold his stock interest in the Debtor corporation to an entity known as “Multi-National Management, Inc. (Multi-National). As part of this transaction, Sappal took back a mortgage on the motel facility. This mortgage expressly provided that it would be subject to certain Equal Dignity Mortgages which would be given to investors later on referred to as “EDM’s.” It is without question that at the time Multi-National acquired the controlling stock interest in the Debtor the EDM’s had yet to invest any funds. However, beginning April 7, 1983, and continuing several months thereafter, the EDM’s actually invested funds and received their respective mortgages encumbering the motel facility.
Prior to the change of stock ownership in the Debtor, the mortgage, and the promis*808sory notes which the mortgage secured, fell into default. In order to avoid litigation and foreclosure Sunny Beach and Oro-mocto entered into an agreement on April 21, 1983 and recorded same on June 24, 1983 (Exhibit 9-Depo K). The agreement provided that the interest on the notes shall be increased from the original contract rate of 9*/2% to 11%; it reduced the payment terms and in fact turned it into a balloon mortgage. In this connection it should be noted that the original Oromocto mortgage expressly provided for a default rate of interest of 15%. In the fall of 1983 the Oromocto mortgage again fell into default after the EDM’s mortgages were already placed on the public records. It further appears that at that time there was already a foreclosure action pending, instituted by the holder of the first mortgage, which was ultimately satisfied. Oromocto, in order to protect its interest, filed a crossclaim against the Debtor and also sought to foreclose its mortgage. In December 1983 a crossclaim was settled by the execution of a document entitled “Stipulation for Settlement”, dated December 19, 1983. Pursuant to this Stipulation which was to take effect January 10, 1984, an additional amount of $80,394.88 representing attorney fees due to Oromocto under its mortgage was added to the principal balance due under the Oromocto mortgage; the principal obligation was charged with an interest rate of 15%, a rate which was the original default rate provided by the mortgage held by Oromocto. It further appears that on January 10, the interest rate from the Oro-mocto mortgage was again modified and raised up to the rate of 18% per annum.
Beginning in 1984, Oromocto executed partial assignments of its mortgage to a group collectively referred to as “Oromocto Assignees.” As a result of several transactions not relevant, Oromocto Assignees became the holders of the first mortgage encumbering the motel facility. It appears that Oromocto received only $724,000 for the assignment which is the principal amount secured by the mortgage lien of the Oromocto Assignees.
On February 25, 1985, the Debtor filed its voluntary petition for reorganization under Chapter 11 and Raymond B. Ray was appointed to serve as Trustee for the Debt- or’s estate. In due course the Trustee sold the 99-year lease with the proviso that all liens encumbering the property shall be transferred to the proceeds pursuant to an Order entered by this Court and be distributed after this Court determined the respective priorities and the extent of interest of the remaining competing interests of Oromocto Assignees, the EDM’s and Sap-pal.
Based on the foregoing undisputed facts, Oromocto Assignees, the Trustee, Sappal and the Creditors' Committee representing EDM’s all filed respective Motions for Summary Judgment. They all agree that the Oromocto Assignees are in first position to the net proceeds derived from the sale, but all groups violently disagree as to the amounts which should be paid to the Oromocto Assignees. This disagreement is based on a contention first that the amounts owed under the Oromocto mortgage should be limited to the principal and accrued unpaid interest only at the original contract rate of 9V2% per annum; second, the Oromocto Assignees are not entitled to get paid at the modified interest rates of either 11%, 15%, or 18%. In addition, the EDM’s and Sappal also contend that to tack $80,394.88 attorney fees to the Oromocto Mortgage also was an attempted modification of the mortgage which occurred after the EDM’s interest became a matter of public record, therefore, the Oromocto Assignees are not entitled to the increased principal in any event, certainly not in an amount claimed, especially in light of the fact that the services rendered by the attorney in connection with the foreclosure action documents only 28.1 total hours.
Each moving party contends as does the Trustee that the controlling law supports their respective positions. The EDM’s primarily rely on the case of Bank of South Palm Beaches v. Stockton Whatley, Davin & Co., 473 So.2d 1358 (Fla. 4th DCA 1985) where it was held that monies due and owing based on a modification of a superior mortgage effected an already existing junior mortgage, therefore, was inferior to the *809extent of the increase to the sums due and owing under the existing junior liens. The Court concluded that a priority of lien interest is governed by the time honored principle of “first in time is the first in right."
The difficulty with the proposition urged by the EDM’s should be apparent when one considers the true nature of the modification involved in this case. There is no question that in the present instance there were no additional sums advanced by the first mortgagee, but the modification related solely to the enforcement of a vested contract right which provided in case of default that the original mortgage interest rate would change from the original contract of 9½% up to 15%. The fact that the first modification changed the interest rate only to 11%, and not to the default rate of 15%, is of no consequence. This is so because at the time the EDM’s acquired their mortgage, the original mortgage was already a matter of public record which put on notice all subsequent lienholders that in the event there was a default in the first mortgage, the interest rate would be moved up to 15%. The same principle equally governs the change from 11% to 15%. However, the same principles do not apply to the additional modification from 15% to 18% since there was nothing in the original mortgage which permitted such change of the interest rate.
This leaves for consideration whether or not the attorney fees tacked on to the principal debt, which change admittedly occurred after the EDM’s mortgages were already on record, should be permitted to stand as part of the principal obligation due and owing superior to the interest of the EDM’s, and if so, to what extent.
There is hardly any question that the original mortgage which the Oromocto Assignees acquired provided for reasonable attorney fees and costs in the event the mortgagee was required to engage the services of an attorney to enforce the mortgage lien in the event of a default. This record is crystal clear that this is precisely what occurred and Oromocto was compelled to engage the services of an attorney who in fact filed a crossclaim against the Debtor in the pending foreclosure action. The fact that adjustment in principal by adding the attorney fees occurred after the EDM’s mortgages were recorded is without significance and has only relevance as to what extent the attorney fees should be due and owing and recognized to be part of the indebtedness secured by the first mortgage. The services rendered by the attorney representing the Oromocto Assignees’ interests is very poorly documented and only documented to the extent to establish a total of 28.1 hours spent by counsel. While it is conceivable and is argued that he in fact spent more time on this matter than what is shown by the documents, this does not support the proposition that the entire $80,394.88 shall stand. This Court is satisfied that the hourly rate charge was not unreasonable and for this reason the only increase in the principal obligation which permitted to stand shall be attorney fees in the amount of 28.1 x $125.00, or a total amount of $3,512.50.
Based on the foregoing, this Court is further satisfied that the Oromocto Assignees are the first mortgage holders and are entitled to an interest rate of 11% per an-num on the total principal balance; that the mortgages held by the EDM’s are in a second position; that the mortgage held by Sappal is in a third position; and that distribution of the sale proceeds should be in accordance.
Accordingly it is
ORDERED, ADJUDGED AND DECREED that the Motion for Summary Judgment filed by the Oromocto Assignees be, and the same is hereby granted in part and denied in part, and the Oromocto Assignees are determined to be in the first mortgage-holder position securing an indebtedness in the principal amount of $724,000 together with interest at the rate of eleven (11%) percent per annum on the principal balance which shall include $3,512.50 in attorneys fees commencing February 28, 1985, up to and including the entry of final judgment. It is further
ORDERED, ADJUDGED AND DECREED that the Motion for Summary *810Judgment file by the EDM’s be, and the same is hereby, granted to the extent that they are determined to hold a valid second mortgage on the subject property but denied to the extent that they may claim any interest superior to the Oromocto assignees. It is further
ORDERED, ADJUDGED AND DECREED that the Motion for Summary Judgment by Sappal be, and the same is, hereby denied and Sappal is determined to hold a third mortgage on the subject property. It is further
ORDERED, ADJUDGED AND DECREED that the Trustee’s Motion for Summary Judgment be, and the same is hereby, granted and the priorities and interests of the Oromocto Assignees, the EDM’s and Sappal are determined in accordance with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490652/ | ORDER ON MOTIONS TO DISBURSE SUPERSEDEAS BOND
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a dismissed Chapter 11 case and the matter under consideration are two competing Motions, one filed by Natural Land Corporation (Natural Land), the Debt- or in the above-captioned case, and one by Baker Farms, Inc. (Baker Farms). Both Motions seek an order from this Court to determine whether or not Natural Land is entitled to recover a cash supersedeas bond posted by it during the pendency of the Chapter 11 in connection with two appeals, one in the District Court, and the other in the Eleventh Circuit Court of Appeals. Counsel for Baker Farms also contends that his client is entitled to an award for attorney fees out of the supersedeas bond for his services rendered to his client in conjunction with this Chapter 11 case, including the two appeals. In order to put the issue presented by the two Motions in proper focus, a recap of the procedural background which is without dispute would be helpful and as appear from the record is as follows:
*816On August 22, 1983, Baker Farms, filed a foreclosure action of its second mortgage of certain real property and obtained a Summary Final Judgment in Foreclosure. The Summary Final Judgment determined that the obligation owed to Baker Farms secured by its mortgage was $847,141.50, which included attorney fees of $9,221.41, based on stipulation of the parties, less the sum of $1,810. The purpose of this deduction is not clear but it is not relevant. The final judgment directed that the property shall be sold at foreclosure sale on September 30, 1983. Natural Land, an entity who was not a party to the foreclosure action simply because it had no cognizable interest in the subject land, acquired title from its predecessor-in-interest whose interests had been foreclosed in the state court proceeding after the entry of the Final Summary Judgment, and filed a Voluntary Petition for Relief on September 20, 1983, or ten (10) days prior to the scheduled foreclosure sale. As a result of the voluntary Chapter 11 Petition filed by Natural Land, the scheduled sale was cancelled. Baker Farms promptly filed a Motion to Dismiss the Chapter 11 urging that the Petition was filed in bad faith thus it should be dismissed “for cause” pursuant to § 1112(b). Baker Farms’ Motion was heard in due course and on February 3, 1984 this Court entered an Order granting Baker Farms’ Motion and dismissed the Chapter 11 case. Natural Land timely filed a Notice of Appeal and filed, pursuant to an agreement of the parties, a supersedeas bond which initially provided a monthly payment of $8,000 into the registry of the Court. On April 29, 1985, the District Court entered an Order and affirmed this Court’s Order of Dismissal. Natural Land, having been aggrieved by the District Court’s decision, filed a Notice of Appeal with the Eleventh Circuit Court of Appeals and posted additional sums as supersedeas which amount, with accrued interest, now stands in excess of $235,000.
On August 21,1987, the Eleventh Circuit Court of Appeals affirmed this Court’s initial Order of Dismissal and, of course, the Order of the District Court approving this Court’s decision. In the interim, counsel for Baker Farms, on February 7, 1987, filed a Motion in the Circuit Court where the foreclosure action was pending and apparently sought a modification of the original final judgment entered on August 22, 1983. Nothing further happened in the Circuit Court or in this Court until January 8,1988 when counsel for Baker Farms filed a Motion in the Circuit Court and sought an amended final judgment. In due course the Circuit Court entered an amended final judgment in the principal amount of $1,243,973.03 which included an award of attorney fees to counsel for Baker Farms in the amount of $35,000 thus raising the original award of $9,221.41 by $25,778.59. It is without dispute that in January, 1988 Natural Land paid Baker Farms in full on its judgment which, of course, included the award of $35,000 attorney fees and received a release of its mortgage on the subject property.
It is the contention of counsel for Baker Farms that he is entitled to receive a payment out of the supersedeas bond as additional attorney fees in the amount of $16,-167.50 which includes a cost reimbursement of $167.50. In addition, Baker Farms also seeks an unspecified amount to compensate it for alleged damages caused by the delays encountered in the enforcement of its valid mortgage lien on the subject property due to the unwarranted intervention of a bankruptcy case instituted by Natural Land, an entity which had no interest in the subject property prior to the entry of the original final judgment, which bad faith filing caused a serious adverse impact on Baker Farms’ cash flow. In opposing Baker Farms entitlement to any monies out of the supersedeas bond, counsel for Natural Land points out that counsel for Baker Farms received a full and complete satisfaction of his claim for his services by the Circuit Court which increased the original award from $9,221.41 to $35,000 even though there were no meaningful services rendered by counsel for Baker Farms in the Circuit Court after the entry of the final judgment and all additional sums awarded by the amended final judgment were in recognition by the *817Circuit Court of his services rendered in the Bankruptcy Court. Therefore, so contends counsel for Natural Land, counsel for Baker Farms having already received full compensation for his services, he is not entitled to any additional award out of the funds put up by Natural Land as superse-deas in connection with the two appeals.
Considering the claim of Baker Farms for any additional monies to be paid from the supersedeas bond and to compensate it for the alleged economic loss as a result of the bankruptcy proceeding, this Court is satisfied that this claim for damages is without merit and should be denied. Baker Farms contends that as a result of the intervention of the unjustified bankruptcy case, found to have been filed in bad faith, its cash flow was substantially impaired for which it should be entitled to be compensated. The fallacy of this contention should be evident when one considers the undisputed facts in this case. It is quite evident that the impairment of its cash flow occurred long before Natural Land ever filed its Voluntary Petition for Relief under Chapter 11. Obviously at the time Baker Farms filed its foreclosure action the previous owners of the property were already in default and were not making any payments on the mortgage. The fact that Baker Farms received no mortgage payments after the Chapter 11 was filed by Natural Land is a non-sequitur and without any significance simply because the dimunition of its cash flow was not caused by the Voluntary Petition for Relief filed by Natural Land. While it is true that, theoretically, Baker Farms would be entitled to be compensated from the super-sedeas bond for damages it suffered as a result of the delay caused by the Chapter 11 case instituted by Natural Land, there is nothing before this Court which would properly form the basis or even to speculate what damages, if any, were suffered by Baker Farms as a result of the delay. In sum, this Court is satisfied that Baker Farms is not entitled to any reimbursement of these alleged damages from the superse-deas bond.
This leaves for consideration the last item urged by Baker Farms which is additional attorney fees incurred by Baker Farms as the result of the Chapter 11 Petition filed by Natural Land and the attendant delays occasioned by the two appeals. The resolution of this question is not without difficulty primarily because counsel for Baker Farms did receive an additional attorney fee award by the Circuit Court in excess of $25,000 for his services rendered to Baker Farms, which award has been paid in full by Natural Land. In countering this proposition, counsel for Baker Farms insists that the additional award granted by the state court was not at all compensation for his services rendered in the Bankruptcy Court but merely a readjustment of the original fee awarded which was based on a stipulation of the parties which was way below the reasonable fee ordinarily awarded in mortgage foreclosure actions and was kept only low because of the agreement of the parties at that time. Thus, it is clear that this issue ordinarily could only be resolved by a determination as to the basis for the additional award granted to counsel for Baker Farms by the Circuit Court. Not having the benefit of a transcript of the hearing on Baker Farms’ Motion to amend the final summary judgment nor the decision of the Circuit Judge specifying the reason for the additional award, this Court is satisfied that counsel for Baker Farms is entitled to receive compensation for his services in the Bankruptcy Court out of the supersedeas bond based on the history of this case. This conclusion is further supported by the undeniable fact that the Circuit Court’s power to award attorney fees is obviously limited to services rendered by attorney for mortgagee in connection with the foreclosure action and the Circuit Court certainly has no power to award attorney fees to counsel for services rendered to his client in the Bankruptcy Court. Although the documentation supporting the Motion failed to state the time spent by counsel for Baker Farms, this Court takes judicial notice of the proceedings which actually occurred before this Court and having considered two appeals, one in the District *818Court and one in the Eleventh Circuit Court of Appeals, this Court is satisfied that the sum of $16,167.50 for his services is not unreasonable.
Based on the foregoing, it is
ORDERED, ADJUDGED AND DECREED that the Motion by Debtor to Disburse Supersedeas Bond currently in the registry of the Court be, and the same is hereby, granted and the Clerk of the Bankruptcy Court shall refund to counsel for Natural Land the amount of money currently held as supersedeas bond in the registry, less the sum of $16,167.50. It is further
ORDERED, ADJUDGED AND DECREED that the Motion to Baker Farms to Disburse Supersedeas Bond be, and the same is hereby, granted and the Clerk of the Bankruptcy Court shall remit to counsel for Baker Farms out of the supersedeas bond the sum of $16,167.50. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490653/ | ORDER DENYING LATE FILED CLAIM
THOMAS C. BRITTON, Chief Judge.
The State of Florida, Department of Revenue, a priority creditor with an allowed claim in the amount of $184,396.96 has moved (CP 168) to “allow claim and enlarge time for filing proof of claim.” The motion was heard on January 19.
This creditor’s original claim in the amount of $169,292.42, filed May 15, 1987, was timely. The timely-filed prepetition claim was amended on September 10 and November 20 to assert the creditor’s post-petition administrative claim in the amount of $15,104.54. The disputed additional claim in the amount of $296,177.72 was filed five months after the claims bar date, August 16, 1987, which had been established in this chapter 11 case.
The motion, filed January 8, seeks to permit the filing of a claim for sales taxes for the period February 1, 1980 to January 31, 1983. This claim is completely unrelated to the other claims of this creditor. The motion was filed eight weeks after the claimant prepared its ballot accepting the debtor’s reorganization plan in which it did not assert a claim for this additional, disputed amount. The ballot contained a statement by this creditor that its claim was for $184,396.96.
A confirmation hearing on the debtor’s chapter 11 plan was held on November 19, 1987. By an order dated January 22, 1988, the plan has been confirmed.
Movant concedes, as it must, that it had actual notice of this bankruptcy long before the bar date, but seeks to excuse its late filing by arguing that it had no notice of the claims bar date. The creditor’s self-serving statement in the motion that it did not receive notice and for that reason did not file this additional claim, omits the fact that it did timely file a claim for later sales taxes owed to the State. The creditor relies entirely on the failure of the clerk to give notice at its designated address, which even if true, is not the reason that the creditor failed to include the amount of the disputed claim in its timely-filed claim. It is, therefore, irrelevant whether this creditor received actual notice of the claims bar date because these circumstances convince me that it would not have filed this claim in a timely manner whether or not it received notice of the bar date. This is the creditor’s only serious argument, and I reject it.
The ballot prepared by its own employee which clearly sets forth the amount due is convincing proof to conclude that the creditor through its own negligence simply overlooked the claim for the earlier taxing periods.
Although I do not doubt its other assertions regarding lack of notice and communications with the clerk and debtor’s counsel, I find that the creditor failed to file this separate claim through its own inadvertence and neglect.
I find particularly convincing the similarity of circumstances here to the facts in In re International Horizons, Inc., 751 F.2d 1213 (11th Cir.1985), where the court denied a creditor’s late claim based, in part, on the principle of estoppel. In setting out the facts, the court concluded that:
“[t]he government had multiple opportunities to assert its claim timely; it did not. It had opportunity to object to the disclosure statement which did not schedule corporate income taxes; it did not. It was aware that the reorganization plan described payment only of actual tax liabilities and that the plan would be unviable should the government reach and prevail on the merits of its tax claim. Yet it did not object to the plan either in writing or at the confirmation hearing. The bankruptcy court held that given the above behavior, the Service was estopped from asserting that a windfall would befall creditors absent the tax claims. We can find no abuse of discretion in the court’s equitable consideration of the Service’s reorganization posture.” Id. at 1218-19.
A confirmation hearing and voting procedure would be a meaningless mockery of justice if after participating in the proceed*852ings and accepting the plan based on certain agreed upon liabilities, a creditor could come forward with a late claim which almost doubles its timely claims and then argue that the unsecured creditors are receiving a windfall if the late claim is denied.1 Cf. In re Ruti-Sweetwater, Inc., 836 F.2d 1263 (10th Cir.1988) (creditor may not sit idly by and raise a challenge subsequent to adoption of reorganization plan).
In no sense have I overlooked or rejected the principle in a case cited by the creditor that:
“[t]he statutory command for notice embodies a basic principle of justice — that a reasonable opportunity to be heard must precede judicial denial of a party’s claimed rights.” City of New York v. New York N.H. & H.R. Co., 344 U.S. 293, 297, 73 S.Ct. 299, 301, 97 L.Ed. 333 (1953).
However, based on International Horizons, supra, and the factual circumstances presented here, this creditor is estopped to assert this additional tax claim now.
For the foregoing reasons, the motion to allow claim is denied.
. This is particularly true in light of the letter sent to the creditor on November 3, 1987 by debtor’s counsel setting forth the parameters of the debtor’s ability to reorganize under the plan. [Debtor’s Memorandum (CP 174a Ex. 6)]. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490654/ | ORDER DIRECTING REFUND OF FEE PAID TO DEBTOR’S ATTORNEY AND DISMISSING CASE WITH PREJUDICE
THOMAS C. BRITTON, Chief Judge.
This chapter 13 petition was filed January 28 by a debtor who acknowledges that he has no income from any source. Neither the debtor nor his attorney appeared at the creditors meeting held March 2, nor at the confirmation hearing held later the same day. The chapter 13 trustee was informed that the debtor consented to dismissal of the petition. Only an individual “with regular income” is permitted to file under Chapter 13. 11 U.S.C. § 109(e).
The debtor’s attorney, Bruce N. Crown of Miami has reported that he charged and received $750 for his representation of the debtor in this matter. The circumstances before me make it obvious that this attorney’s representation of this debtor was so grossly negligent that he should not be permitted to retain any compensation, or that this attorney received payment for a deliberate abuse of the privilege provided by chapter 13, which enabled this debtor, who is 16 months in arrears on his home mortgage, to take advantage of the automatic stay, § 362(a), to delay that creditor (the only creditor scheduled in this bankruptcy) 54 days.
If this attorney’s conduct was prompted by the latter reason, he should be subjected to a sufficient sanction under B.R. 9011 *856(which incorporates the provisions Rule 11, Fed.R.Civ.P.) to assure that he never again engages in such conduct.
Pursuant to the provisions of 11 U.S.C. § 329(b) and § 105(a), Bruce N. Crown is ordered to return $750 to the debtor forthwith and judgment in that sum is entered against the attorney in that amount, for which let execution issue.
Mr. Crown is further ordered to file with this court within 10 days his certificate that the foregoing refund has been effected.
This bankruptcy case is dismissed, reserving jurisdiction solely to enforce the terms of the foregoing order. Dismissal is with prejudice to the filing of any bankruptcy petition by this debtor earlier than one year after this order becomes final. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490655/ | ORDER DENYING REHEARING
THOMAS C. BRITTON, Chief Judge.
The debtors’ motion (CP 29) for reconsideration of the Order Denying Motion to *859Avoid Lien dated January 25 (CP 28) was heard February 23. The motion is denied.
Movants’ concern with a 1986 judgment against them is that the judgment:
“could have a detrimental effect on the Debtors’ ability to sell the homestead property.”
This court’s authority and responsibility with respect to a judgment lien is restricted:
“to the extent that such lien impairs an exemption”. 11 U.S.C. § 522(f).
The judgment lien has not prevented or in any other way impaired this court’s allowance of and recognition of the debtors’ claimed Florida homestead exemption on the condominium they occupied as their home on February 17,1987, the date of this bankruptcy petition, for all purposes pertinent to and incident to this bankruptcy proceeding.
It would be an inappropriate and impermissible extension of this court’s authority and responsibility for me to declare today that at some future unspecified day when this property is offered for sale, the subject judgment would or would not constitute a valid lien against the sale proceeds. It is quite obvious, of course, that under certain circumstances this judgment could constitute a valid lien against the sale proceeds and under other circumstances it might not be a valid lien. The essential point is that this court should not now attempt that future determination and any effort to do so would exceed the reasonable scope of the jurisdiction granted under § 522(f).
If judicial intervention becomes necessary to determine the effect of the judicial lien in the event of a future sale, which appears to me to be highly unlikely in any event, the appropriate and readily available forum would be the State court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490656/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Chief Judge.
The plaintiff/creditor seeks exception from discharge under 11 U.S.C. § 523(a)(2)(A) or (a)(4) for its claim ($24,-980) against the debtor. The debtor has answered and the matter was tried on February 23. I agree that the claim should be excepted from this debtor’s discharge and that plaintiff is entitled to judgment against the debtor in the amount claimed.
The Relevant Facts
The debtor owned all the stock of and was the acting chief executive of a corporation, The Planning Group, Inc., an interior design firm. The firm was in business about eight years before it ceased operations and filed for bankruptcy in April 1987. This debtor’s bankruptcy was filed October 8, 1987.
In December 1986 plaintiff contracted with the corporation to provide all architectural and interior design services for her office, supervise construction, and act as purchasing agent in securing all specified furnishings. Plaintiff agreed to pay stipulated charges for each of the services, including 25% of the invoiced cost of the furnishings for the services as purchasing agent.
The contract stipulated that:
“Prior to placement of any order with a manufacturer, we require a 50% deposit to accompany the order. We shall invoice you this amount, upon your ac-knowledgement to initiate the purchasing of a particular interior item.” (Emphasis added).
Plaintiff’s claim against this debtor is for the $24,980 in deposits she paid the corporation for some 30 items pursuant to the foregoing stipulation. No part of the deposits was remitted by the corporation to the manufacturers. The rest of the corporation’s charges have been paid and any claim plaintiff may have with respect to those services is conceded to be dischargea-ble.
All of the corporation’s dealings with the plaintiff were through its owner/principal, the debtor. At the execution of the contract, he explained that the 50% deposit was required by the manufacturers because the items were special orders and the deposit had to accompany the orders he placed. He subsequently told plaintiff that the deposits had been paid to the manufacturers.
In fact, however, it was not then nor had it ever been the practice of the corporation to pay the deposits to manufacturers. All of plaintiff’s deposits were used to pay *861other corporate creditors, a number of whom had outstanding judgments against the corporation.
At the time the contract was made and during its execution, the corporation was in financial difficulty. There were over a dozen pending lawsuits by unpaid suppliers which the corporation was fending off with settlements which required monthly installment payments. The corporation was also in arrears on a number of other accounts.
I find, therefore, that this debtor’s representations contemporaneous with and after the contract were falsely and fraudulently made for the purpose of obtaining the $24,-980 paid by the plaintiff, and that the plaintiff reasonably relied upon the representations.
S 523(a)(2)(A)
In order to except her claim from discharge, it is plaintiff’s burden under this subsection to prove by clear and convincing evidence, In re Hunter, 780 F.2d 1577, 1579 (11th Cir.1986), that plaintiff’s claim is a:
“debt [of the defendant individual debt- or] ... for money ... to the extent obtained by ... a false representation, or actual fraud.” § 523(a)(2)(A).
Plaintiff has done so.
Because plaintiff’s contract was with the corporation, not the individual debtor, the only serious question here is whether the debt is that of this debtor as well as a corporate debt. I find that it is.
In White-Wilson Medical Center v. Dayta Consultants, Inc., 486 So.2d 659, 661 (Fla.Dist.Ct.App.1986), the court held that a corporate officer could be held individually liable for a tortious act, (negligence and misrepresentation in furnishing data processing services). The court said:
“Individual officers and agents of a corporation are personally liable where they have committed a tort even if such acts are performed within the scope of their employment or as corporate officers or agents. Littman v. Commercial Bank & Trust Co., 425 So.2d 636, 640 (Fla. 3d DCA 1983).... This is so even if no argument is advanced that the corporate form should be disregarded. Adams v. Brickell Townhouse, 388 So.2d 1279, 1280 (Fla. 3d DCA 1980).”
Ferguson, though he was acting as the chief executive and agent of the corporation rather than individually, committed a tort in obtaining plaintiff’s money by a false and fraudulent misrepresentation. He is, therefore, jointly and severally liable with the corporation for the damages resulting from that tort.
We need not, therefore, consider whether the corporate veil may appropriately be pierced in this case, a contention neither made by the plaintiff nor briefed by either party. However, in Eagle v. Benefield-Chappell, Inc., 476 So.2d 716 (Fla.Dist.Ct. App.1985), the court did permit individual judgments against two shareholders of a design corporation which had converted plaintiff’s furniture deposits.
S 523(a)(4)
Plaintiff has relied alternatively upon this subsection, which excepts from discharge a:
“debt for fraud or defalcation while acting in a fiduciary capacity....”
I disagree. Under this subsection, an essential element where the debtor acted as a corporate officer or agent is that the debt- or:
“misused his position to gain a personal benefit at the expense of the corporation or corporate creditors.” John P. Maguire & Co. v. Herzog, 421 F.2d 419, 422 (5th Cir.1970). See also Ford Motor Credit Co. v. Hickey (In re Hickey), 41 B.R. 601 (Bankr.S.D.Fla.1984).
The debtor did not divert these funds to his personal benefit.
Since plaintiff has established her right to relief under § 523(a)(2)(A), it is of no consequence that she has failed to do so under this alternative theory.
As is required by B.R. 9021(a), a separate judgment will be entered for the plaintiff against the debtor in the amount of $24,980 and that claim is excepted from discharge *862under § 523(a)(2)(A). Costs may be taxed on motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490658/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE came on before the Court for trial upon the Objection To Proof Of Claim filed by the debtor Zodiac Enterprises, Inc. (the “debtor”) objecting to the proof of claim filed in this chapter 11 proceeding by Farouk Kamareddine (“Kamar-eddine”). The adversary proceeding instituted by the debtor included a counterclaim against Kamareddine. By Order dated February 2, 1988, this Court granted Ka-mareddine’s motion to abstain as to the counterclaim asserted by the debtor and denied the motion to abstain as to the debt- or’s objection to claim.
The Court having heard the testimony, examined the evidence presented, observed the candor and demeanor of the witnesses, considered the arguments of counsel and being otherwise fully advised in the premises, does hereby make the following Findings of Fact and Conclusions of Law.
This Court has jurisdiction over this proceeding pursuant to 28 U.S.C. § 1334. The objection to claim is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B). Moreover, pursuant to Bankruptcy Rules 3007 and 7001, this matter was properly brought as an adversary proceeding since, prior to the partial abstention order, the debtor included a counterclaim with its objection to claim.
The Court’s adjudication of this adversary proceeding constitutes a judgment on the merits of Kamareddine’s claim. The Court rejects Kamareddine’s contention that this is an “estimation” proceeding under Section 502(c) of the Bankruptcy Code. Kamareddine’s claim will be disallowed in its entirety for all purposes in these chapter 11 proceedings.
Kamareddine’s proof of claim in the amount of $450,000.00 is based upon the alleged value of the claimant’s interest in Atlas Marine Services, Inc. (“Atlas Marine” or “Company”), a corporation which was merged into the debtor corporation in February 1986.
The growth and development of Atlas Marine and the events leading up to the February 1986 merger are largely undisputed. Atlas Marine was founded in 1982 by Kamareddine, and two others, including Michael Cassaras (“Cassaras”), the present sole shareholder of the successor corporation Zodiac. Each shareholder contributed $2,500.00 in capital. The business was primarily engaged in engine room and galley repair on cruise ships and the brokering of stainless steel work. The evidence presented at trial reflected gross sales of approximately $500,000.00 in 1983 and $1.2 million in 1984.
During 1984, the principals of the Company considered creating a subsidiary company to engage in metal fabrication. Ka-mareddine initially expressed concerns about starting the fabrication shop but he joined in the decision to proceed. Kamar-eddine co-signed a $120,000.00 loan obtained from AmeriFirst Savings and Loan Association in January 1985 to finance the acquisition of equipment for the shop and joined with Cassaras in the decision to lease a larger facility to accommodate the new operation.
In early 1985, a conflict arose between Kamareddine and Cassaras. In a written list of demands presented by Kamareddine to Cassaras in or about March 1985, Ka-mareddine asserted he was the most valuable person in the business and should be *876given the authority to run the Company. Cassaras attempted unsuccessfully to resolve the conflict, recognizing that Kamar-eddine’s presence was critical to the successful continuation of the Company’s cruise ship business. In April 1985, Ka-mareddine resigned from the Company effective in early May.
After Kamareddine resigned, there were several months marked by a significant loss of business and a major conflict between the Company and Kamareddine. Kamareddine immediately began performing project wbrk for one of Atlas Marine’s most important prior accounts, and the Company’s sales dropped considerably.
After Kamareddine’s resignation, the Company attempted to raise capital and resolve the continuing disputes with Ka-mareddine by agreeing upon a buy-out price for his interest. Finally, unable to obtain capital or to resolve the ongoing dispute with Kamareddine, the Company entered into a merger transaction in which Atlas Marine was merged into the debtor.
The debtor was formed in 1985 by Cas-saras, and two others. Until the merger in February 1986, the debtor was primarily engaged in the business of ships’ chan-dlery. The merger with the debtor was effected for business reasons which included providing a vehicle for valuing Kamar-eddine’s interest.
The merger was accomplished on February 11, 1986, when Atlas Marine’s shareholders and directors passed resolutions approving the plan of merger. Immediately thereafter, on February 14, 1986, the Company notified Kamareddine of the merger and offered to purchase his shares of Atlas Marine for the sum of $5,000.00. This amount represented twice Kamareddine’s original $2,500.00 capital contribution when the Company was formed. Kamareddine rejected the offer and filed a lawsuit in the state court against the Company and two individuals.
The issue presented at trial was the value of Kamareddine’s shares in Atlas Marine at the time of the merger since, under Section 607.247, Florida Statutes, Kamared-dine was entitled to receive the value of his shares at that time. To determine the value of Kamareddine’s one-third stock interest in Atlas Marine, the Court must: (i) determine the fair value of the stock as of the day prior to the date on which the vote was effected approving the plan of merger; and (ii) must exclude any appreciation or depreciation in anticipation of the merger. Fla.Stat. § 607.247 (1987). The parties agree that the valuation date is February 11, 1986.
The Court finds that Kamareddine’s interest in Atlas Marine was worthless at the time of the merger in February 1986. The Company had a negative net worth of approximately $112,000.00 when the merger occurred and losses of $140,000.00 in the prior twelve months.
Kamareddine was a principal participant in Atlas Marine’s business and a major source of the Company’s primary business with the Royal Caribbean (“RCCL”) and the Norwegian Caribbean (“NCL”) cruise lines. Evidence introduced at trial establishing Kamareddine’s importance to the Company included Kamareddine’s demand letter in March 1985 and the admissions in Kamareddine’s deposition testimony. Although Kamareddine attempted at trial to minimize his role in the Company to reduce the impact of his departure, Mr. Cassaras’ testimony was the more credible testimony on this issue. Kamareddine was a key man in the business and his departure had a negative impact on the value of the Company.
For the purposes of adjudicating the debtor’s objection to claim, this Court does not assume any wrongdoing by Kamared-dine in taking business with him when he left the Company. That issue will be decided by the state court if the debtor prosecutes its counterclaim. However, Kamar-eddine’s departure precipitated a sharp decline in the Company’s sales and business which significantly reduced the value of the Company between May 1985 when Ka-mareddine departed, and February 1986, the valuation date for this proceeding.
Whether or not Kamareddine acted improperly in taking substantial business with him when he left the Company, it is *877clear that Kamareddine’s new business benefited and the Company suffered. In the nine months between Kamareddine’s departure in May 1985 and the merger in February 1986, Kamareddine’s new business, World Marine Services, Inc., enjoyed gross sales of more than $335,000.00 to the two companies, NCL and RCCL, which had previously represented 90% of Atlas Marine’s business. The Court must consider the decline in Atlas Marine’s business in valuing Kamareddine’s one-third interest at the time of the merger. Florida law entitles Kamareddine to the fair value of his interest at the time of the merger. The determination of that value must include the significant financial impact that his departure had on the Company.
In financial statements signed by both Cassaras and Kamareddine, the Company was valued at $300,000.00 in December of 1984. Based upon the losses incurred as a result of the start-up costs and operation of the metal fabrication business by the newly formed subsidiary, Atlas Metal Fabricators, Inc. (“Atlas Metal”), and based upon the losses occasioned as a result of Kamar-eddine’s departure from the business in May 1985, the $300,000.00 valuation placed on the Company in December 1984 represented the value of the Company at the most successful point in its history.
The fact that Mr. Kamareddine valued his one-third interest at only $100,000.00 when the Company was at its peak is significant evidence of the inflated value placed upon the one-third interest in February 1986 by Kamareddine and his expert after the Company had experienced losses in its fabrication business and losses as a result of Kamareddine’s departure.
The debtor’s expert, Dr. Earl Foster, presented testimony that was well reasoned and persuasive. Dr. Foster carefully examined the financial condition of the Company, both prior to and including February 11, 1986 and employed well accepted methods for valuing businesses in reaching his conclusion.
Dr. Foster’s analysis established the negative book value of the Company as of the date of the merger and the absence of any value based on other recognized, objective valuation methods. Under any objective measure based upon the financial status of the Company, a one-third minority interest in the business as of February 1986 was worthless.
By contrast, Kamareddine’s expert, Ken McKenzie, lacked credibility. Since it was impossible to conclude that Kamared-dine’s stock had significant value based upon the financial statements, McKenzie rejected the financial statements and assumed hypothetical sales and profit levels for 1985 and 1986 in reaching his conclusion. McKenzie’s assumptions bore no resemblance to the actual financial condition of the Company.
Under these circumstances, a Court may reject expert testimony and opinion. See In re Aircrash Disaster at New Orleans, Louisiana, 795 F.2d 1230 (5th Cir.1986). In that case, the Fifth Circuit reversed a jury verdict where it found “the assumptions of plaintiffs’ economist so abusive of the known facts, and so removed from any area of demonstrated expertise, as to provide no reasonable basis [for the damage calculation].” 795 F.2d at 1235. Mr. McKenzie’s opinions here are similarly abusive of the known facts. The Court finds a $450,000.00 valuation for a minority interest in an insolvent company is not credible.
In his trial testimony Kamareddine’s accountant, Steve Mountain, criticized the financial statements used by the debtor’s expert but Kamareddine offered no evidence of significant assets or income which were not reflected in the statements. The financial statements presented a fair picture of the Company’s financial situation during the periods critical to this analysis.
The Court finds that the debtor sufficiently demonstrated the factual predicate for introducing the financial statements into evidence over Kamareddine’s hearsay objection. The statements were prepared in the normal course of the debtor’s business by Charles Gomes, a certified public accountant, based upon information recorded in the normal course of business by personnel of the Company under the super*878vision of Mr. Cassaras. Kamareddine failed to demonstrate that “the source of information or the method or circumstances of preparation indicate lack of trustworthiness.” Rule 803(6) Fed.R.Evid.
In sum, the debtor properly commenced this adversary proceeding to adjudicate the validity of a $450,000 claim. The Court finds that the claimant’s one-third interest in the Company in February 1986 had no value. Accordingly, the debtor’s objection is sustained and the claim disallowed in its entirety.
A separate Final Judgment of even date has been entered in conformity herewith. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490660/ | MEMORANDUM AND ORDER
THOMAS JAMES, Bankruptcy Judge.
After the plaintiff, Delta Service Company, Inc., had completed the presentation of *67its evidence the defendant, Palatine National Bank, moved under Bankruptcy Rule 7041 [Fed.R.Civ.P. 41(b)] for dismissal of the complaint on the ground that upon the facts and the law Delta Service had shown no right to relief. The court will grant the motion and dismiss the complaint.
Delta Service seeks to avoid its transfer on January 21, 1983, of $89,773.83 to Palatine National under §§ 544 (count II) and 548 (count I) of the Bankruptcy Code [11 U.S.C. §§ 544 and 548] and hold the bank liable under Code § 550(a). (The court after the parties’ opening statements dismissed count III because Delta Service did not wish to proceed on this count.)
Code § 544(b) allows a debtor to use the applicable state’s law of fraudulent conveyance to set aside transfers that it made. Section 548(a) creates alternative, federal concepts of fraudulent conveyances. If a transfer were made within one year before the filing of debtor’s petition for relief under the bankruptcy code, and the debtor made the transfer with actual intent to defraud, the debtor may avoid the transfer. 11 U.S.C. § 548(a)(1). Alternatively, if the debtor received less than a reasonably equivalent value in exchange for such transfer and was insolvent on the date that the transfer was made, the debtor may again avoid the transfer. 11 U.S.C. § 548(a)(2).
Code § 550(a) provides for initial transferee liability under subsection (1) and subsequent transferee liability under subsection (2). In addition to any defenses given under the sections providing for the concepts of avoiding transfers, Code § 550(b)(1) limits the liability of a subsequent transferee who takes for value, in good faith and without knowledge of the avoidability of the transfer.
On January 21, 1983, Michael P. Ryan, president and sole shareholder of Delta Service, submitted to Palatine National Delta Service’s check no. 3360, dated January 20, 1983, for $89,773.83 payable to Palatine National, bearing the name Michael P. Ryan and drawn on Delta Service’s account at Jefferson State Bank of Chicago, Illinois. On January 20 and 21,1983, Delta Service was not and had never been indebted to Palatine National. Ryan and Dwight C. Adams were, however, as co-makers of a collateral promissory note. This note was secured by their assignment of their beneficial interest in a land trust, of which Palatine National was trustee. Subsequent to the receipt of this check Palatine National released the assignment of beneficial interest.
At the trial, Dennis McConnell, manager of various currency exchanges and management companies that Ryan owned, testified that on or about January 19,1983, Ryan directed McConnell to ascertain the balance due on the personal debt that Ryan and Adams owed Palatine National. McConnell made a telephone inquiry and learned that the balance due was $89,-773.83. McConnell, following Ryan’s further instructions, prepared check no. 3360 payable to Palatine National, which negotiated it.
Delta Service offered through McConnell’s testimony and that of another witness evidence that currency exchange balances were kept as low as possible at Ryan’s request in order to secrete funds from Travelers Express Company to which the currency exchanges owed 5.9 million dollars. To achieve these low balances in the currency exchange accounts McConnell caused funds to be transferred from the currency exchange accounts to management company accounts. Delta Service was a management company. Neither witness, however, testified that the funds of a particular currency exchange account were transferred into a “Delta Service” account or that “Delta Service” was a recipient of such funds. The court sustained Palatine National’s objections to the admissibility of this testimony on the grounds that it was not relevant, or although relevant, its probative value was substantially outweighed by the danger of unfair prejudice or confusion of the issues (Fed.R.Evid. 403).
This court has looked to the Seventh Circuit’s recent opinions in Bonded Financial Services, Inc. v. European American Bank, 838 F.2d 890 (7th Cir.1988), and in In the matter óf Xonics Photochemical, *68Inc., 841 F.2d 198 (7th Cir.1988), to resolve the issues of avoidability and liability and to review its determination of the admissibility of the proffered evidence.
From applying the principles enunciated in Bonded Financial the court concludes that Palatine National is an initial transferee under Code § 550(a)(1) and not a secondary transferee under Code § 550(a)(2) because Palatine National was the payee of the check and received the benefit of having the loan paid off. This distinction is important, for entities covered by Code § 550(a)(1) may not as has been noted use the value-and-good-faith defense provided by Code § 550(b)(1). Therefore, the court will be able to grant Palatine National’s motion to dismiss only if Delta Service has failed to introduce evidence to show that this transfer of $89,773.83 could be avoided under Code § 544 or Code § 548.
In Bonded Financial, 838 F.2d at 895, the Court of Appeals questioned to what extent did “intent” matter under Code § 550(a)(1). This court is of the opinion that we must look to the avoiding concepts under Code §§ 544, 545, 547, 548, 549, 553(b), or 724(a) to determine the answer. If the section setting forth the avoiding concept requires that intent be proved, intent must be proved. Both Illinois fraudulent conveyance law as incorporated by Code § 544 and Code § 548(a)(1) require proof that this transfer of $89,-773.83 was made with intent to hinder, delay or defraud creditors in order to set it aside. Intent, therefore, does matter in these actions.
The Court of Appeals also raised the question in Bonded Financial of whose intent matters. Of course, it is that of Delta Service. Thus, Delta Service must show that it had creditors on January 21, 1983 and then that this transfer to the bank did hinder, delay or defraud these creditors. Delta Service has submitted no such evidence, but rather has suggested through the proffered testimony that Delta Service was a part of Ryan’s scheme to defraud a certain creditor of the currency exchanges. Those generalizations of Delta Service’s witnesses that “moneys were transferred from currency exchanges to management companies” do not show that Delta Service intended to hinder, delay or defraud its creditors.
Moreover, these generalizations cannot be admitted into evidence to show Ryan’s scheme until Delta Service offers evidence as to how Delta Service fit into or was involved in Ryan’s machinations. To receive the testimony at this time the court would have to speculate as to how Delta Service were involved. The proffered testimony does not rise to the level of circumstantial evidence from which the court may deduce that currency exchange moneys were deposited in Delta Service’s account. Delta Service has failed to prove that it was a part of Ryan’s scheme.
Delta Service has brought to the court's attention its memorandum and order of September 25, 1987, in J.T.J.A. Corporation v. Roberts Protective Service, Inc., adversary no. 85 A 145 [available on WESTLAW, 1987 WL 46369]. The facts in the case at bar differ. There has been no showing that Palatine National had knowledge of Ryan’s machinations or participated in his scheme. If there had been such a showing the evidence would be admissible. Also, if Palatine National had been a subsequent transferee under Code § 550(a)(2), the witnesses’ testimony might be relevant under Code § 550(b)(1) to show the avoidability of the payment provided that Delta Service submitted proof that Palatine National possessed sufficient knowledge of Delta Service’s business activities or of Ryan’s machinations to have induced a reasonable person to investigate the source of the moneys used to pay the bank. Here, Delta Service offered no evidence to show that Palatine National had information sufficient to support an inference of knowledge to cause Palatine National to start an investigation on its own. See, Bonded Financial, Part TV, 838 F.2d beg. at 897.
As has been noted, Code § 548(a)(2) would permit Delta Service to recover if Delta Service had received less than a reasonably equivalent value in exchange for *69the transfer of the $89,773.83 and if Delta Service were insolvent on January 21,1983, the date of the transfer. There is no doubt that Delta Service received less than the reasonable equivalent value for the moneys were used to pay off the debt of Ryan and Adams. However, Delta Service submitted no evidence on the issue of insolvency. Therefore, it may not recover under Code § 548(a)(2). The court concludes that on the facts and the law Delta Service has shown no right to relief and that Palatine National’s motion to dismiss is to be granted.
It is therefore ordered that the motion of Palatine National Bank, defendant, to dismiss the complaint of Delta Service Company, Inc., plaintiff, after plaintiff has completed presentation of its evidence, is granted. Judgment is entered in favor of the defendant and against the plaintiff. Complaint dismissed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490684/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 liquidation case and the matters under consideration are two claims of non-dischargeability asserted by John R. Christen (Christen), the Plaintiff who instituted this adversary proceeding. The claim of non-dischargeability set forth in Count I of the amended Complaint is based on the factual allegation that the Defendant, Thomas A. Smith (Debtor), represented to the Plaintiff that he would obtain a release of a guaranty previously given by Christen to Manna Provisions, Inc. (Manna) who was a creditor of a corporation known as Brewmasters Steak House, Inc. (Brewmasters); that he never intended to obtain the release or, in the alternative, he knew that he would be incapable to obtain a release. It is further alleged in this count that the representations made by the Debtor were false and were made with the intent to deceive the *702Plaintiff. In the conclusionary portion, it is alleged that as a result of the conduct of the Debtor, the Debtor “obtained money, property and/or extension of credit” by false pretenses, false representations or actual fraud.
In support of the claims set forth in Count II, it is alleged that when Manna filed a lawsuit against Christen, Brewmas-ters and the Debtor, the Debtor informed Christen that he had been released on his personal guaranty; that he was only a witness and not a party to the litigation and assured him that he did not have to worry about the litigation. It is further alleged by Christen that during the litigation the Debtor filed numerous pleadings on behalf of Christen, all without the knowledge or informed consent of Christen; that Christen had valid defenses to the lawsuit filed by Manna and also a potential cross-claim against the Debtor, all of which he was unable to raise because of the Debtor’s action who acted as his attorney even though he had a conflict of interest. Based on the foregoing, it is contended by Christen that the amount paid to Manna by Christen in the amount of $225,000 by way of settlement of an adverse judgment entered against all the Defendants, including Christen, was a result of the Debtor’s fraud or, in the alternative, result of defalcation by the Debtor while acting in a fiduciary capacity. The amended Complaint also contained a claim set forth in Count III in which the Plaintiff sought a declaration of non-dischargeability based on § 523(a)(6) but counsel for Christen announced at the commencement of the trial that Christen no longer intended to pursue this claim.
The facts established at the final eviden-tiary hearing in support of and in opposition to these claims can be summarized as follows:
At the time relevant to this transaction, Christen was the president and majority stockholder of Brewmasters, the owner and operator of a steakhouse initially located only in Tampa, Florida, which later branched out in other cities not only in Florida, but also outside of Florida, i.e. Georgia. Manna was, almost from the inception, the exclusive supplier of meat and frozen products to all the restaurants which were operated either directly by Brewmasters, or by its several subsidiaries. The Debtor is a practising attorney. In addition, he also became the attorney for Brewmasters and its affiliates and was compensated on a monthly retainer basis and in early 1970 became a close personal friend of Christen and handled his personal affairs as an attorney. The fact of the matter is, he was the best man at Christen’s wedding.
Brewmasters was initially founded in 1971 by Christen and sometime later, the date of which is unclear from this record, the Debtor acquired 42V2% of the outstanding shares of stock in Brewmasters. Christen retained 42*/2% and H. Freed, an individual not involved in this litigation, the balance of 15%.
It appears that in the spring of 1982, the financial condition of Brewmasters and its affiliates deteriorated to such an extent that it became evident that it would be necessary to take some radical action to stabilize the financial affairs of the several corporations. Christen was about to depart for Switzerland and was anxious to resolve an apparent stalemate with the Debtor due to a disagreement as to the proper approach to be undertaken in order to solve the financial crisis of the corporations. Christen first offered to buy the Debtor’s interest in the corporations, an offer the Debtor refused. Christen then proposed to sell his interest to the Debtor. This proposal was accepted by the Debtor. At the request of Christen, the Debtor prepared an agreement memorializing same by a document entitled “Memorandum of Agreement”. The Agreement provided, inter alia, that the Debtor will acquire Christen’s interest in “Brewmaster Restaurants” (sic) represented by corporate stock in the Brewmaster’s Steakhouse, Inc., Countryside Restaurant, Inc. (parent and it’s affiliate), Ormond Steakhouse, Inc., Prime Time, Inc. (parent including Food Service Dynamics, Inc.) and Maitland Steakhouse, Inc. (and it’s affiliate), for an agreed purchase price of $250,000 cash or, *703in the alternative, for $500,000 payable on time over a ten (10) year period which obligation to bear interest at the rate of twelve (12%) percent per annum, with interest payable monthly. The crucial part of the Agreement is set forth in the next to the last paragraph which, because of its importance, is set forth verbatim and reads as follows:
“Smith will release and hold harmless Christen from any obligation from Federal withholding taxes as well as any personal liability to Manna Provision.”
It is without dispute that at the time of the execution of this document, Brewmas-ters were indebted to Manna on an open account in excess of $160,000, which obligation has been personally guaranteed by Christen. The record further reveals that after the execution of the “Memorandum of Agreement”, Christen was no longer involved in the affairs of Brewmasters or its affiliates and the Debtor became the chief executive and in sole charge of the operation of the several restaurants. However, it is without dispute that upon having been served with the Complaint filed by Manna against the Debtor, Brewmasters, its affiliates and Christen, Christen immediately contacted the Debtor who assured him that he will represent him in the lawsuit filed in Duval County, Florida. Smith did in fact file an answer on behalf of all of the Defendants, including Christen, participated in discovery and when his request for jury trial was denied, elected not to put forth any evidence in support of the defenses of estoppel and novation set forth in the answer he filed on behalf of the Defendants. The trial was concluded and judgment was entered by the trial court in the amount of $419,108.29 in favor of Manna against all Defendants. Christen was aware of the entry of the judgment even though he did not appear at the trial and discussed this matter with the Debtor who informed him that he would appeal the judgment. Christen told him that he will settle this matter and urged the Debtor to join in the settlement and pay a portion of it. The Debtor declined. Christen did in fact settle the claim of Manna for $225,000 by a cash payment of $150,000 and the balance represented by a note to be paid in to Manna in two years.
It appears that the personal guaranty of Christen to Manna was discussed at the time of the execution of the Agreement and reference to same was included in the Agreement at the suggestion of the Debt- or. It appears that it was understood both by the Debtor and Christen that the Debtor would obtain a release of Christen’s guarantee from Manna. It is obvious, however, that it should have been evident to Christen that the Debtor was not in a position to guarantee to secure a release of Christen’s guaranty from Manna. It also further appears, however, that Christen was not concerned about possible exposure on his personal guaranty due to the fact that he intended to leave the country with no intention to return. In fact, he stated to the Debtor that Manna can come and find him if it wanted to. It is without dispute that after the execution of the Agreement, Christen actually moved to Saint Barthele-my, an island in the French West Indies; that he offered for sale his home in Tampa and remained outside the country for at least four months but later returned and still resides in the United States.
It appears that after Christen sold his interest to the Debtor in Brewmasters and its affiliates, Manna resumed the business relationship with the restaurants operated by Brewmasters and its affiliates but insisted on the Debtor’s personal guaranty as a condition to extend credit. Manna did in fact obtain the Debtor’s guaranty in December, 1982 and resumed to sell to the restaurants on credit. Manna also requested and obtained a cross-collateralization agreement securing the debt of all the corporations operated by Brewmasters and its subsidiaries. There is no question and this Court is satisfied that Manna never agreed to release Christen on his personal guaranty and there is evidence in this record to indicate that if such release had in fact been insisted upon by the Debtor, Manna would not have agreed to sell on credit any merchandise to the restaurants operated by the corporations controlled by the Debtor. It is clear from the record that Christen *704never himself requested the Debtor to pursue the matter of release and he never sought a release of his personal guaranty, in spite of the oblique reference to a release in the Memorandum of Agreement.
These are basically the operative facts established at the final evidentiary hearing, based on which Christen contends that he is entitled to a declaration of non-discharge-ability of the sum of $225,000, a sum which he paid in part and obligated himself in part to pay Manna in settlement of the judgment obtained against him by Manna.
The exceptive provisions of the Code relied on by Christen are § 523(a)(2)(A) and § 523(a)(4). § 523(a)(2)(A) provides as follows:
Sec. 523. Exceptions to discharge.
(a) A discharge under section 727, 1141, [or 1328(b)], 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.
Considering the claim of non-dis-chargeability based on § 523(a)(2), it should be noted at the outset that it is without dispute that the Debtor did not obtain any of the “money”, “property”, “services” or “extension of credit” from Christen. To overcome the obvious, it is the contention of Christen, however, that the Debtor, because of his failure to live up to his promise to obtain a release of his personal guaranty to Manna, he in fact obtained an “extension of credit” from Manna; that the promise to obtain a release was false because the Debtor knew that he had no intention to obtain a release or, in the alternative, that he knew very well as an attorney that he was unable to fulfill his promise.
The difficulty with the proposition urged by Christen should be evident when one analyzes the legal significance of the Debt- or’s promise to obtain a release of Christen’s guaranty. First, as noted earlier, there is no evidence in this record to show that this Debtor obtained any credit from Christen. This being the case, one would be hard pressed to conclude that Christen did indirectly extend credit to the Debtor by receiving a “loan” which he never granted to the Debtor to begin with. The fact that Manna resumed dealings with the Debtor selling merchandise on open account to the several corporations on the partial strength of Christen’s guaranty granted long before Manna agreed to extend credit to Brewmasters and the other colorations is of no consequence. The fact of the matter is that Manna resumed to sell on credit to Brewmasters and its associates after it obtained the Debtor’s personal guaranty and a cross-collateralization of the assets of all restaurants operated by the corporation controlled by the Debtor.
Based on the foregoing, it is clear that Christen failed to establish with the requisite degree of proof an indispensable element of a viable claim under § 523(a)(2)(A), not to mention a total lack of proof of any reliance by Christen on any statement or representation made by the Debtor.
In addition to the claim just discussed, Christen also alleged that the debt owed to him by the Debtor is nondischargeable based on the alleged breach of fiduciary duty by the Debtor pursuant to § 523(a)(4) of the Bankruptcy Code. The matter as plead by the Plaintiff alleged in support of this claim, that when Christen and others were sued by Manna, the Debt- or informed Christen that he had been released on his personal guaranty, that he should not be concerned with the lawsuit because he would only be a witness and not a party to the litigation. It is also alleged by Christen that during the litigation, the Debtor filed numerous pleadings on Christen’s behalf all without his knowledge and informed consent; that he had a valid defense to the lawsuit filed by Manna and also a potential crossclaim against the Debtor, all of which he was unable to raise because of the Debtor’s action as his attorney, even though he had a definite established conflict of interest.
*705These are the factual allegations set forth in the Complaint in support of a claim that the amount of $225,000.00 which Christen payed by way of settlement to Manna should be declared to be nondis-chargeable. There is no question and this record is crystal clear that the Debtor acted as Christen’s attorney and it needs no elaborate discussion to point out that an attorney occupies the position of a fiduciary vis a vis a client. It is equally without any question that the interest of the Debt- or was to some extent adverse to the interest of Christen and, therefore, there might have been some ethical problems for the Debtor to appear in that lawsuit as counsel of record for Christen. There is not an iota of evidence on this record that the Debtor informed Christen that he had been released on his personal guaranty originally given to Manna; that he is only a witness in the lawsuit; don’t have to worry about it and he will take care of and will represent him. Be as it may, the claim of Christen based on the alleged breach of fiduciary duty is not supported by this record for several reasons. First, there is nothing in the record which indicates that Smith either before the lawsuit filed by Manna breached any duty he owed to Christen as an attorney, nor during the litigation with Manna. More importantly, however, even if one accepts the proposition that Smith acted with lack of candor vis a vis Christen by not informing Christen that he did not obtain the release of the personal guaranty of Christen from Manna, it is clear that Christen knew that he was being sued and accepted services of Smith representing him in that lawsuit. There is nothing in this record that indicates that Smith has done anything in connection with the lawsuit that would rise to the level of breach of fiduciary duty of an attorney. More importantly, however, the voluntary settlement Christen made with Manna was a unilateral decision made by him to settle the lawsuit in spite of Smith’s urging to fight the claim of Manna on the basis that they had meritorious defenses to the claim of Manna.
As noted earlier, the claim as set forth by Christen in Count III has been abandoned and this claim 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/8490685/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS the saga of a luxury yacht which, rather than ending up in a squall in the middle of the Atlantic Ocean, ended up in a very dry but heated storm in the Bankruptcy Court. This odd turn of events was the result of the financial demise of its creator, the yacht manufacturer, Garrett Marine, Inc. (Debtor), whose attempt to achieve rehabilitation under Chapter 11 failed and it ended up in Chapter 7 liquidation. The genesis of the controversy dates back to June 14, 1985 when the McKieman Group (George F. McKieman and Pat’s Fancy II) and Clipper Sales, Inc. (Clipper Sales), both claiming to be creditors of the Debtor, filed proofs of claims in the amounts of $133,000.00. (Claim Nos. 49 and 53). The original objection to these claims was filed by the Debtor. On September 9, 1985, at the conclusion of a duly noticed hearing on the objection, this Court entered an Order and directed that the issues raised by the objection should be treated in the context of an adversary proceeding governed by Part VII of the Bankruptcy Rules.
On September 30, 1985, Pat’s Fancy, II, George F. McKieman and Patricia McKier-nan filed their respective Complaints against the Debtor, Clipper Sales and Key Capital Corporation (Key Capital), the financier of a yacht which was to be built by *707the Debtor for the McKieman group. Clipper Sales, in turn, filed suit against the Debtor on October 2, 1985. These two Complaints were consolidated into this adversary proceeding presently under consideration. Following the consolidation of these proceedings, the McKieman Group and Clipper Sales, Inc. amended their Complaints. In brief, both Complaints, as amended, allege a breach of contract based on the Debtor’s failure to build and deliver a yacht. Additionally, the McKieman Group seeks monetary damages against Key Capital and Clipper Sales. Key Capital has filed a counterclaim against the McKieman Group for breach of contract and also has filed a cross-claim against the Debtor and Clipper Sales. The relief sought originally against the Debtor of course will be nothing more than claims against the Chapter 7 estate if ultimately found to be meritorious. The facts behind this complex dispute as established at the trial are as follows:
The Debtor, whose principal is Ben Garrett, was, at the time relevant, in the business of manufacturing sailing yachts. The yachts were marketed by Mr. Daryl Rasey, a boat broker. Sometime in 1983, Mr. Ra-sey, who is the sole stockholder and officer of Clipper Sales (Exhibit 32), arranged a meeting with McKieman who had expressed an interest in buying a Garrett-40, a vessel manufactured by the Debtor. In late 1983 or early 1984, McKieman and Rasey visited the Garrett factory and inspected the hull and deck of a Garrett-40. On February 2,1984, Mr. Rasey prepared a Memorandum of Agreement on the letterhead of a corporation apparently affiliated with Clipper Sales and known as Harbor West of Chicago, Inc. (Harbor West). This agreement named McKieman as purchaser of a Garrett-40 and Harbor West as the seller of the yacht. (Exhibit 27). Pursuant to this agreement, George McKieman and his wife, Patricia, paid $3,000 as a refundable deposit to “Clipper Sales-Harbor West” [sic]. (Exhibit 28). The agreement was conditioned upon McKieman’s satisfaction with the yacht, after a test sail. The test sail occurred in May or June of 1984 and it appears that McKiernans were satisfied with the yacht.
On July 6, 1984 the McKiernans entered into an additional agreement and executed a document titled “Memorandum of Agreement” with Clipper Sales. (Exhibit 32). Under this additional agreement, Clipper Sales agreed to sell a Garrett-40 to a corporation known as “Pat’s Fancy, II, Inc.” The agreement identified the hull and engine of the yacht by number, and specified that the $133,000 purchase price included a “sailaway package at no charge” including fenders, dock lines, ground tackle, and a flare kit. (Exhibit 32). Although Pat’s Fancy, II, Inc. was listed as the buyer of the boat, it is without dispute that the buyers in reality were to be the McKier-nans, who used the corporate entity “Pat's Fancy, II” simply for registration of the yacht through the Yacht Registry, Ltd. in Wilmington, Delaware (Exhibit 47). Simultaneously, the McKiernans and Clipper Sales negotiated for extra equipment such as life preservers, winches and spinaker gear to be included in the deal! (Exhibit 29 and 30).
The July 6 Memorandum of Agreement required the delivery of the yacht by mid-August, 1984. The Agreement also called for an additional payment at closing of $100,000 from Key Capital with whom the McKiernans arranged financing of the purchase in the interim. By July of 1984, the McKiernans had paid $30,000 to Clipper Sales to serve as an additional deposit on the yacht. (Exhibit 33 and 34). It appears that after receipt of the down payment, Clipper Sales issued a check to the Debtor in the amount of $8,910.92 in order to enable the Debtor to purchase the additional items which were to be included in the deal, and a check in the amount of $250 to George McKieman to purchase additional items for the yacht and various other checks totalling $8,946.92 again for items to be purchased to equip the yacht. (Exhibits 67-74). It appears that at the same time these agreements between Clipper Sales and the McKiernans were executed, Clipper Sales also negotiated for the purchase of the G-40 with the Debtor for $109,000. In this connection it should be *708noted that the total price agreed to be paid by the McKiernans was $133,000. It is evident that the difference between the $109,000 and $133,000 was to fund the purchase of the additional equipment and to pay Clipper Sales its commission of $8,000 for arranging the sale of the yacht to the McKiernans.
Mid-August of 1984, the time the yacht was to be delivered, came and passed with no delivery of the yacht to the McKiernans. It appears that the Debtor promised the McKiernans that the yacht would be completed by the end of 1984 and that the McKiernans did in fact authorize the Debt- or to use the yacht as a demonstrator until the beginning of the sailing season. The final date for delivery was fixed by agreement as April 1, 1985.
In early August, 1984, Rasey visited the Debtor’s warehouse and found that the G-40 was not even close to completion and the only evidence of the yacht was a mere hull with a bulkhead and with a partially completed deck. It further appears that the only additional equipment ever purchased by the Debtor for the McKiernans was $300 to $400 worth of flotation vests, fire extinguishers and various other items to be installed on the yacht. In addition, the McKiernans received some sails obtained by Clipper Sales which, of course, had no value to the McKiernans without the G-40 and these sails were eventually returned to the manufacturer.
To further complicate matters, in order to finance the purchase of the G-40, the McKiernans, on behalf of Pat’s Fancy, II, executed a Key Capital “Yacht Financing Application” (Exhibit 5) and entered into a “Marine Vessel Lease/Purchase Agreement” with Key Capital (Exhibit 12). The terms of this agreement provided that Key Capital would purchase a G-40 from Clipper Sales for the purchase price of $145,-000, would lease the boat to Pat’s Fancy for an initial monthly payment of $46,-095.81 and thereafter at $1,095.81 per month, and that Pat’s Fancy would have an option to buy the boat after all lease payments had been made to the extent of ten (10%) percent of the original purchase price of the yacht. At the same time, both Mr. and Mrs. McKiernan executed their personal guaranties of the purchase price stipulated in the agreement by Key Capital and Clipper Sales (Exhibits 16 & 17).
Although the Marine Lease/Purchase Agreement treats the transaction as a lease, there is hardly any doubt and it is without dispute that both Key Capital and the McKiernans treated the transaction as a financed sale. In fact, Key Capital filed a UCC-1 financing statement in Delaware listing the G-40 as the collateral for the loan to Pat’s Fancy. (Exhibit 18).
On July 19, 1984, a Bill of Sale was executed on behalf of Clipper Sales by Ra-sey naming Clipper Sales as the seller of the G-40 and Key Capital as the purchaser. (Exhibit 10). The agreed purchase price was to be $110,000, and even though the Bill of Sale named Clipper Sales as the seller, it is clear that Clipper Sales was acting merely as a broker, however, the Bill of Sale was signed by Rasey without properly identifying his status as such.
Sometime later, Key Capital’s documentation service received documents on the G-40. (Exhibits 7-9). Key Capital also received a written communication from Ben Garrett on behalf of the Debtor in which it was stated “upon receipt of the wire transfer of funds to our account. We will Federal Express the Manufacturer Statement of Origin and the Builder’s Certificate for Mr. George McKieman’s Garrett 40” (sic). (Exhibit 3). It is without dispute that the Builder’s Certificate signed by Ben Garrett on behalf of the Debtor indicated that the G-40 was a fully completed yacht. (Exhibit 9). On August 7, 1984, Key Capital transferred by wire $100,000, the balance of the purchase price, to the account of the Debtor (Exhibit 1 and 25). This payment was made to the Debtor despite the fact that the Debtor had never had any contract with Key Capital and that the written agreement with Clipper Sales called for payment of the balance at closing to Clipper Sales. (Exhibit 32). Needless to say, a closing never took place and, as could be expected, the Debtor never returned the *709funds to Key Capital or to the McKiernans or to Pat’s Fancy.
Even though the McKiernans never received delivery of the yacht, let alone a title to the yacht, they made payments to Key Capital pursuant to the Marine Lease/Purchase Agreement through February, 1986 and then defaulted. At this time, the payoff on the so-called lease was $104,433.70 plus interest on the balance for 28 days at the rate of 10.5% (Exhibit 46). It is undisputed that before default, the McKiernans made payments in the total amount of $31,326.50 to Key Capital. (Exhibit 37 and 46). In addition, the McKier-nans paid for insurance on the yacht and also expended funds for mooring the yacht, incurred expenses in connection with several trips to Florida and phone calls in attempting to follow up on the Memorandum Agreement. (Appendix A-3).
On November 30, 1984, the Debtor filed its Chapter 11 Petition. As may be expected by this time, the yacht was not delivered by the April 1,1985 deadline, and the Debt- or did not seek authority either to assume or reject the executory contract for the construction and the sale of the yacht.
At the time of the trial, the yacht was in the possession of Key Capital, who took possession of the G-40 hull and deck after the Debtor filed its Chapter 11 Petition and ostensively abandoned the yacht. Key Capital spent $70,976.10 for the ultimate completion and refurbishing of the yacht.
Through their eight count Complaint, the McKiernans seek relief against the Debtor, Key Capital and Clipper Sales. The claim set forth in Count I is based on an alleged breach of contract and seeks damages against the Debtor. The claim in Count II seeks declaratory relief, specifically a declaration that the McKiernans are not obligated to Key Capital under the Marine Vessel Lease/Purchase Agreement and on their personal guaranties. The claim in Count III is based on a breach of contract by Key Capital and in Count IV seeks recission of the Marine Vessel Lease/Purchase Agreement based on the contention that it fails to comply with the Retail Installation Sales and Service law of Massachusetts, Mass. Ch. 140C and 255D. The claim in Count V is based on the alleged negligence of Key Capital and seeks damages. The claim in Count VI alleges a breach of contract by Clipper Sales for its failure to deliver the G-40 to the McKier-nans. The claim in Count VII seeks money damages from the Debtor’s estate based on the alleged misrepresentation on the part of the Debtor by stating that the G-40 was completed or almost completed in the Builder’s Certification and Manufacturer’s Statement of Origin and ostensively seeks money damages. Lastly, the claim in Count VIII is based on the Debtor’s alleged conversion of the funds wired from Key Capital to the Debtor and seeks money damages.
Clipper Sales, in its answer, set forth an affirmative defense alleging that it should be indemnified by the Debtor in the event it will be held liable either to the McKiernans or to Key Capital.
Key Capital also filed a second Counterclaim against Pat’s Fancy alleging that under the Marine Vessel Lease/Purchase Agreement, Pat’s Fancy agreed to indemnify and hold Key Capital harmless from any and all claims arising out of, connected with, or resulting from the delivery, possession, and condition of the yacht.
Next, Key Capital filed a crossclaim against Clipper Sales alleging negligent or intentional misrepresentation, a breach of express warranties as set out in the Bill of Sale, and breach of implied warranties, and breach of contract under the Bill of Sale.
Finally, Key Capital also filed a counterclaim against Lawrence Kleinfeld, Trustee of the Debtor’s estate, even though Klein-feld is a defendant and not a plaintiff in either complaint based on alleged negligent or intentional misrepresentations by the Debtor. It should be noted that on June 18,1987, this Court entered an Order conditionally dismissing the counterclaim as no proof of claim had been filed by March 5, 1986, the bar date for filing claims in this case. The Order provided that in the event a proof of claim was filed by Key Capital, its counterclaim would be reinstated. As it *710appears that no claim was ever filed, the counterclaim should stand dismissed.
Clipper Sales also filed a Complaint against Lawrence Kleinfeld, Trustee, seeking indemnification from the trustee in the event the McKiernans prevails on its claim against Clipper Sales. It also seeks damages based on breach of contract.
Considering first the McKiernans' claim against Key Capital, there is no question that Key Capital failed to live up to its obligations owed to the McKiernans, regardless whether the transaction between the McKiernans and Key Capital was a financing agreement or a lease. There is no dispute that the McKiernans never received the yacht. Therefore, if the transaction was really a lease, the McKiernans could not be held liable for the remainder of payments owing under the agreement for the simple reason that a lessee of chattel cannot be held liable for lease payments for a chattel purportedly leased which the lessee never received. Clearly, delivery of the personal property to be leased is the essence of a lease of personal property. If the property is never delivered to the lessee, obviously the entire transaction failed and the lessee is relieved of all liabilities under the lease. Fla. Small Business Corp. vs. Miami Shipyards, 175 So.2d 46 (Fla. 3d DCA 1965). On the other hand, if the transaction was a financed sale, while the McKiernans would be facially liable by virtue of their signatures on the promissory note, the total failure of consideration would be a complete deferral. It is without dispute that the McKiernans never received the $100,000, the amount stated to be the principal amount in the note which they guaranteed. The delivery of the loan proceeds to the McKiernans would be a necessity to the enforceability of the liability under the note unless the McKiernans expressly authorized Key Capital to wire the funds to the Debtor. There is nothing in this record to support this, and it is clear that the McKiernans never authorized Key Capital to wire the $100,000 to the Debtor.
Based on the foregoing, this Court is satisfied that the McKiernans are not liable to Key Capital, regardless whether that contract between them and Key Capital was a lease of the yacht or a loan to finance the purchase of the yacht. From this it follows that the McKiernans are entitled to recover all payments with interest totalling $32,202.56 already paid to Key Capital, and the McKiernans are not liable on the balance of the obligation evidenced by the promissory note either under the Lease/Purchase Agreement or on the two individual guaranties. Accordingly, the McKiernans are entitled to a judgment on Counts II, III and V of their Complaint against Key Capital and on all counts of Key Capital’s Counterclaim against them which should be dismissed with prejudice. Based on the foregoing, it is not necessary to reconsider Count IV of the Complaint, which this Court already dismissed at trial.
Next, regarding the McKiernans’ claim against Clipper Sales, this Court is satisfied that Clipper Sales breached its contract with the McKiernans. As noted earlier, Clipper Sales failed to deliver the yacht as it was obligated to do under the Memorandum Agreement. Both the February 2, 1984 Agreement (Exhibit 27) and the Memorandum Agreement of July 6, 1987 (Exhibit 32) identified Clipper-Harbor West as the seller and the McKiemans/Pat’s Fancy as the buyers of the yacht. Assuming the McKiernans’ relationship with Key Capital was that of borrower/lender, then the $33,000 advanced to Clipper Sales as a deposit for the yacht should be refunded to the McKier-nans as the yacht was never delivered. Assuming the relationship between the McKiernans and Key Capital was that of lessee/lessor, then Clipper Sales was unjustly enriched by receipt of the $33,000. In any event, Clipper Sales should be directed to return this amount with interest to the McKiernans and judgment should be entered in favor of the McKiernans under Count VI of their Complaint.
Regarding the claim of the McKier-nans against the Debtor, this Court is satisfied that since no evidence has been presented as to any contractual relationship between the Debtor and the McKier-nans, judgment should be rendered in favor *711of the Debtor and against the McKiernans under Count I. Further, this Court is satisfied that the claims set forth in Counts VII and VIII of the Complaint are equally without evidentiary support and judgment should be rendered in favor of the Debtor and against the McKiernans.
Key Capital seeks relief against Clipper Sales based on negligent or intentional misrepresentations, breach of warranty, and breach of contract. It appears that Clipper Sales was, at least facially, the seller of the yacht and Key Capital was the buyer. As it turned out, Key Capital is now in possession of the yacht and as of the date of the commencement of the case claimed to be the owner of the yacht. From this it follows that Key Capital should not be allowed to recover from Clipper Sales based on an alleged breach of the Bill of Sale. Further, the Court is satisfied that any damages suffered by Key Capital were not due to any misrepresentation made by Clipper Sales to Key Capital. Therefore, Key Capital’s crossclaim against Clipper Sales should be dismissed.
This leaves for consideration the question whether the claim of Clipper Sales against the estate of the Debtor, i.e. against the Trustee, is of merit. It is without dispute that the Debtor failed to deliver a G-40 yacht pursuant to its oral agreement with Clipper Sales. However, the estate should not be held liable to Clipper Sales for $33,000 which Clipper Sales must return to the McKiernans as Clipper Sales was unjustly enriched by the receipt of the $33,000. Clipper Sales, however, should be entitled to have its claim allowed limited to the stipulated brokerage fee, as this Court is satisfied that Clipper Sales performed all its obligations which as a broker it owed to the Debtor. Further, Clipper Sales should be entitled to receive $8,910.92 which it paid to the Debtor. (Exhibit 67).
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/8490686/ | ORDER ON MOTION TO DISMISS
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a confirmed Chapter 11 case involving Henry C. Singleton, Jr. and Joanne Oliveri Singleton (Debtors). The matter under consideration is a Motion to Dismiss the adversary proceeding commenced by a Complaint filed on August 7, 1986 by Treasure Isle, Inc. (Treasure Isle) against Henry C. Singleton, Jr., one of the Debtors. The Complaint of Treasure Isle sets forth several claims, all of which seek a determination that the debt allegedly owed by Henry C. Singleton, Jr. to Treasure Isle is a non-dischargeable obligation. The claim set forth in Count I of the Complaint is based on § 523(a)(2)(A); the claim in Count II is based on § 523(a)(4); and the claim in Count III is based on § 523(a)(6).
On October 31, 1986, the Debtor filed a Motion and sought a dismissal of the Complaint. In support of the Motion the Debt- or urged, inter alia, that the Complaint *724failed to state a cause of action inasmuch as it failed to plead a viable claim for non-dischargeability under any of the Sections of the Bankruptcy Code relied on by Treasure Isle. The Motion was denied in due course. On August 27,1987, the Debt- or filed a Motion for Summary Judgment in which he asserted, for the first time, that Treasure Isle was not a creditor and, for this reason, it had no standing to assert a claim of non-dischargeability.
On September 23, 1987 this Court entered an Order on the Motion for Summary Judgment. Based on the representations made by counsel for the Debtors that in a suit filed by Treasure Isle against the Debtor, a final judgment was entered in the Circuit Court against Treasure Isle; that the Final Judgment was appealed, which appeal is still pending. Inasmuch as the Final Judgment in the Circuit Court action determined that the Debtor is not liable and is not indebted to Treasure Isle in any amount, this Court should defer ruling on his Motion for Summary Judgment pending a resolution of the state court litigation on appeal. The Order granted the request and deferred railing on the Motion for Summary Judgment. The Order further provided that the Debtor may file a request for a hearing on his Motion for Summary Judgment any time after the final disposition of the appeal and may reassert the grounds previously raised or any additional grounds which might be resolved on appeal by the Second District Court of Appeals.
The Debtor, rather than request a hearing on his Motion for Summary, on April 11,1988, filed a Motion to Dismiss. This is the Motion which is presently under consideration. In his Motion, the Debtor now alleges that this Court has, by its previous Order entered in the general case, already determined that Treasure Isle is not a creditor of the Debtor and for this reason it has no standing to assert a claim of non-dis-chargeability therefore its Complaint should be dismissed.
In order to put this matter in the proper perspective, a brief recitation of the procedural history of this ongoing controversy between Treasure Isle and the Debtors should be helpful.
On September 21, 1987, the Court entered an Order and scheduled a hearing to consider confirmation of the last Plan of Reorganization filed by the Debtors for November 25, 1987. On October 28, 1987, Treasure Isle filed an Objection to the Plan of Reorganization on the basis that the Plan failed to make appropriate provisions for the creditors of the Debtors. On November 24, 1987, this Court entered an Order and rescheduled the confirmation hearing for December 22, 1987. Notwithstanding the entry of the Order, this Court entered an Order on December 17, 1987, vacating the Order which continued the hearing on confirmation. On the same day, the Court also entered an Order which overruled the Objection of Treasure Isle and on December 21, 1987 entered an Order which confirmed the Plan of Reorganization.
On December 22, 1987, Treasure Isle filed a Motion for Rehearing and Reconsideration of the Order which overruled its previous Objection to the confirmation of the Plan of Reorganization. It also filed a further Objection to the Plan of Reorganization of the Debtor. On January 13,1988, this Court entered an ex parte Order which vacated the Order of Confirmation and rescheduled the same to be reconsidered in order to give Treasure Isle an opportunity to present its Objection to the Plan of Reorganization. On March 23, 1988, this Court entered an Order on the Motion for Reconsideration of the Order which vacated the Order of Confirmation filed by the Debtors. This Order made note of the fact that a civil suit filed against the Debtors by Treasure Isle in the Circuit Court of this Judicial Circuit was resolved in favor of the Debtors and against Treasure Isle. In addition, the Court also found that Treasure Isle was scheduled by the Debtors as a creditor holding a disputed, contingent and unliquidated claim and notwithstanding the requirement of Bankruptcy Rule 3002(a), Treasure Isle did not file a proof of claim although on August 7, 1986 it filed this adversary proceeding. Most importantly, the Court also concluded that even assum*725ing that the filing of the adversary proceeding was tantamount to satisfying the requirement of Bankruptcy Rule 3002(a), it was evident that the claim of Treasure Isle, if it had any, was a contingent and unliqui-dated claim and for this reason its claim cannot be allowed by virtue of § 502(c)(1).
Based on the foregoing, the Court concluded that Treasure Isle has no standing to object to confirmation and its alleged inability to present evidence on the question of feasibility was of no consequence and, therefore, the original Order of Confirmation was reinstated.
As noted earlier, the Motion to Dismiss the adversary proceeding was based on the contention of the Debtors that Treasure Isle is not a creditor and, therefore, lacks standing to maintain the adversary proceeding. While it is intimated by counsel for the Debtors that this issue was fully tried in the state court and was determined in favor of the Debtor and against Treasure Isle and was affirmed by the District Court of Appeals this record is totally lacking any evidence at this time on which this Court could base a determination of the status of Treasure Isle as a creditor and its right to maintain this adversary proceeding. For this reason, this Court is satisfied that it would be inappropriate to grant the Motion to Dismiss at this time. However, the Court is equally satisfied that the previously filed Motion for Summary Judgment should be rescheduled for hearing with due notice to Treasure Isle with leave granted to both parties to submit such legally competent supplemental exhibits relevant to the issue of Treasure Island’s standing as a creditor together with affidavits, in support of and in opposition to the Motion for Summary Judgment if one is filed.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion to Dismiss be, and the same is hereby, denied. It is further
ORDERED, ADJUDGED AND DECREED that the Motion for Summary Judgment be, and the same is hereby, rescheduled for the 29th day of June, 1988 at 2:15 p.m. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490687/ | ORDER ON MOTION TO ABSTAIN AND MOTION TO DISQUALIFY AND SUPPLEMENTAL MOTION TO DISQUALIFY
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a confirmed Chapter 11 case and the matter under consideration is presented in a seemingly endless battle, facially between Siesta Sands Development Company (Debtor) but in reality between Mr. and Mrs. Comeau (Comeaus) and Jay Lancer (Lancer) the original counsel of record of the Debtor. The Comeaus were, and one must assume still are, the sole officers, directors and stockholders of the Debtor. The overall controversy centers around the right of Lancer to receive compensation for services rendered to the Debtor during the pendency of the Chapter 11 case and, as such, to be accorded first priority in payment as cost of administration pursuant to § 507(a)(1) and to be paid pursuant to § 1129(a)(9) of the Bankruptcy Code.
The right to an award of attorney fees by Lancer is vigorously resisted ostensibly by the Debtor but as noted obviously by the Comeaus, on the grounds that he is not entitled to any allowance because of his alleged conflict of interest and because of an alleged fraud perpetrated by Lancer against the Debtor. In the alternative it is contended by the Corneaus that the amount sought by Lancer for his fee is, in any event, grossly excessive and if allowed it should be radically reduced.
The present matter under consideration is a Motion to Disqualify, a Supplemental Motion to Disqualify and a Motion to Abstain filed by the Debtor.
Before considering the Motions under consideration, it is appropriate for this Court to make the following observations. It is now admitted by Ms. Isaak, who originally represented the Comeaus, two of the petitioning creditors in this involuntary case but never formally the Debtor, that she is the author of all three Motions under consideration, notwithstanding the fact that they were signed and filed on behalf of the Debtor by Mr. Joel Treuhaft (Tre-uhaft). Treuhaft was, at the time the motions were filed, the third attorney of record for this Debtor, but who subsequently filed a Motion to Withdraw, a motion which is yet to be considered. In addition, the Motions were argued by Ms. Isaak even though Treuhaft was present but left in the middle of the hearing to attend to some other business. It is needless to say that is highly improper for an attorney to author a motion or a pleading and have another attorney who is not connected with the attorney to sign the motion or pleading and argue the same. While the conduct of Ms. Isaak technically did not violate Bankruptcy Rule 9011 because she is technically not an attorney of record for *727the Debtor and the motions were not signed by her, there is hardly any doubt that Ms. Isaak did author the motions indirectly on behalf of the Debtor and caused same to be filed by Treuhaft who acted only as a showman for the Debtor. Based on the foregoing is evident that Treuhaft did in fact violate F.R.C.P. 11 as adopted by Bankruptcy Rule 9011 which requires that every pleading, motion or other paper shall be signed by the attorney of record in the individual attorney’s name; that the signature of an attorney constitutes a certification that the attorney read the document and that to the best of his knowledge, information and belief, formed by him after reasonable inquiry, is well grounded in fact and is warranted by existing law. While one might argue that Tre-uhaft technically satisfied the requirements of Bankruptcy Rule 9011 by the fact that he read the motions, he certainly did not comply with the spirit of the rule which requires the attorney to conduct a reasonable inquiry to ascertain not only that the facts stated therein are well grounded, but also that the relief sought is warranted by existing law. Ordinarily this Court would entertain the application of Bankruptcy Rule 9011 and impose sanctions. Since the violation by Treuhaft was really only an indirect circumvention of the Rule, this Court will not at this time consider imposition of any sanctions against Treuhaft and against Ms. Isaak provided, however, that in the future any motion or other pleading authored by Ms. Isaak will be signed by Ms. Isaak and not an attorney not connected with her lawfirm.
MOTION TO DISQUALIFY AND SUPPLEMENTAL MOTION TO DISQUALIFY
The Motion to Disqualify and Supplemental Motion to Disqualify allege that this Court’s conduct and action created the appearance of impropriety thus this Court is duty bound to step aside and reassign this particular matter to another judge.
The motions are based on the proposition that this Court entered an Order on February 8, 1988, 84 B.R. 789, on the Order on Application for Attorney Fees filed by Lancer and Vandroff, P.A., in which, according to the Debtor, this Court made improper finding of fact and conclusions relating to issues which were never tried and for which there was no evidentiary support in the record. These issues were (1) the alleged conflict of interest of Lancer, and (2) the amount of reasonable fee to be allowed to Lancer, if any. The record reveals that in due time the Debtor filed a Motion for Rehearing and sought vacation in toto of the February 8th Order. This Court having considered the Motion and the Order involved concluded that the contentions advanced by the Debtor were in fact correct. For this reason on March 3, 1988, this Court entered an ex parte Order granting the Motion for Rehearing and vacated all reference in the February 8, 1988, Order to the findings which related to the issue of conflict of interest of Lancer and also any reference to the quantum and quality of the services rendered by Lancer. In addition the Order rescheduled hearing on these two remaining issues for a later date, which matter is yet to be tried.
The motion, although it is not very well articulated, is based on 28 U.S.C. § 455(a) which provides that:
Any Justice, Judge or Magistrate of the United States shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned.
It is well established that this Section of the Judicial Code requires a recusal if there is an appearance of partiality whether or not the judge is actually biased. The test for the appearance of partiality is whether an objective, disinterested observer fully informed of all the facts underlying the grounds (emphasis supplied) on which re-cusal was sought would entertain a significant doubt that justice would not be done in the case. The Courts are not uniform in their interpretation of this Section. Some construed this Section to hold that recusal is appropriate even though the impartiality of a judge might not be reasonably questioned, Potashnick v. Port City Const. Co., 609 F.2d 1101 (5th Cir.1980). Some Courts construed this Section to require recusal *728only when impartiality would be questioned by an objective, disinterested observer who is fully informed of all the facts underlying the grounds on which it is sought and would entertain a significant doubt that justice would not be done in a particular case.
Regardless which standard one accepts it is always important to keep in mind that this Court is duty bound by the admonishment stated in the case of In the Matter of National Union Fire Insurance, 839 F.2d 1226, 1228 (7th Cir.1988), to the effect that the judges have an obligation to litigants and their colleagues not to remove themselves needlessly and a judge should not bend over backwards disqualifying himself when a party expresses dissatisfaction with him in a case.
In the present instance the proffered testimony in support of the motion would be to the effect that this Court’s ruling on the issues which were not tried created the appearance of lack of impartiality because it pre-judged issues which were never tried. The record of this case belies even the remote possibility that any one could possibly arrive at this conclusion once that person is fully appraised of all the facts and especially the fact that the parts of the order complained of have been vacated and set aside by this Court ex parte upon motion for rehearing filed by the Debtor which did vitiate the errors complained of by the Debtor.
MOTION TO ABSTAIN
The third motion is entitled Motion to Abstain. This motion is based on the proposition that there is currently a lawsuit pending in the State Circuit Court between Lancer, who is suing the Comeaus and others for his attorney fees in which the Comeaus filed a Counterclaim asserting basically the same claims which are also involved in their objection to the fee application of Lancer pending in this Court.
Ms. Isaak was unable to cite any Code Section or any Rules in support of the Motion to Abstain, for obvious reason that neither 28 U.S.C. 1334(c)(1) the discretionary nor (c)(2) the mandatory abstention provisions apply to the matter under consideration. In light of the foregoing, Ms. Isaak conceded at the hearing that the Motion to Abstain is really a Motion to Abate the consideration of Lancer’s Fee Application in order to permit the State Circuit Court to make its determination of Lancer’s right to attorney fees in the pending lawsuit mentioned earlier. The Motion to Abstain treated as a Motion to Abate is also without merit for the following reasons.
First, it needs no elaborate citation of authorities to support what is obvious and basic, that there is nothing more intrinsic and inseparable part of administration of estates under Title 11, than allowances to professionals pursuant to § 330 of the Bankruptcy Code and Bankruptcy Rule 2016. Second, the task of acting on fee application in a case brought under Title 11 is uniquely a task which must be performed by the bankruptcy judge and cannot be delegated to any one, especially not to a State Circuit Court as urged by the Motion. It is obvious from the foregoing that it would be highly inappropriate for this Court to abdicate this duty and delegate the same to a State Circuit Court. It is equally evident, however, that the Comeaus are free to pursue their Counterclaim against Lancer. This conclusion, however, has no relevance to Lancer’s right, if he has one, to seek a fee allowance in this Chapter 11 case from this Court.
Based on the foregoing, this Court is satisfied that the Motion to Abstain treated as a Motion for Abatement is without merit and should be denied.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion to Disqualify be, and the same is hereby, denied. It is further
ORDERED, ADJUDGED AND DECREED that the Supplemental Motion to Disqualify be, and the same is hereby, denied. It is further
ORDERED, ADJUDGED AND DECREED that the Motion to Abstain, treated *729as a Motion for Abatement, be, and the same is hereby, denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490688/ | FINDING AS TO MOTION TO DISQUALIFY PURSUANT TO RULE 5004
HAROLD F. WHITE, Bankruptcy Judge.
This matter comes before the court upon the Motion to Disqualify Pursuant to Rule 5004 and the Affidavit to Support Disqualification Pursuant to Rule 5004 filed by the debtor, L. Peter Olcese (hereinafter referred to as “Olcese”), on behalf of the debtors. The matter was set for hearing with notice given to all interested parties. On May 10, 1988, the trustee, Ronald Ma-nus (hereinafter referred to as “Trustee”), by and through counsel filed his Response to Debtor’s Motion to Disqualify. The following were present at the hearing held May 13,1988: Olcese, represented by attorney John A. Schwemler, and the Trustee, represented by attorney Richard A. Wilson. Although Olcese had counsel, he filed and argued the Motion on behalf of the debtors.
The relevant facts and procedural history of this consolidated case are as follows. The debtors filed their petitions for relief under chapter 11 of the Bankruptcy Code on June 28, 1984 with representation by Attorney James A. Beck and attorney John A. Schwemler and the law firm of Brouse & McDowell. On September 5, 1984 the cases were consolidated for joint administration.
Prior to seeking relief in bankruptcy, the debtors were named as defendants in several state court lawsuits one of which was filed June 25, 1984 by attorneys John K. Keller and John M. Adams, of Vorys, Safer, Seymour & Pease, on behalf of the plaintiff, Integrated Petroleum Investor Committee (hereinafter referred to as “Committee”). The lawsuit requested a dissolution of limited partnerships, an accounting of monies received and disbursed as a result of the wells and oil and gas leasehold estates, and appointment of a receiver to take control of the wells and the oil and gas leasehold estates. The membership of the Committee, the plaintiff, was set forth in an attached exhibit.
Attorney Keller, on behalf of the Committee, filed a proof of claim in this consolidated case on November 8, 1984 which claim includes Exhibit A, a listing of the names and addresses of each member of the Committee, and Exhibit B, a narrative explanation of both the partnerships and their purpose and also the basis for the Committee’s claim.
Also prior to the June 28, 1984 filing for bankruptcy relief, specifically on January *91831, 1983, the Chief of the Division of Oil and Gas of the Ohio Department of Natural Resources ordered the debtors to either plug and abandon or put into production certain well sites. A Settlement Agreement was entered into June 3, 1983; however, the debtors failed to comply therewith. Subsequently, a lawsuit was brought by the landowners in Trumbull County Court of Common Pleas, Case No. 83-CV 65. On April 17, 1984 said state court entered judgment which would, and subsequently did, result in forfeiture of certain wells upon non-compliance with the Oil and Gas Lease and the judgment entry by the debtors.
Furthermore, per Olcese’s own testimony, the State of Ohio refuses to issue the debtors any permits to drill more well sites until there is compliance with all environmental laws. The State of Ohio (hereinafter referred to as “State”), prior to the bankruptcy filing, also brought suit against the debtors in Trumbull County Court of Common Pleas, Case No. 83-CV 1043, for their non-compliance with the state’s environmental laws. The debtors, pursuant to Adversary Complaint 587-0266, sought to enjoin the State from proceeding thereon which injunction was denied by this court on September 26, 1986. The Order Denying Injunction specifies that:
The court further finds from the admissions of the debtor that only at well No. 1 has the debtor attempted to comply with said statutes and at all other wells, being wells Nos. 2, 4, 7, 9, 14, 15, 3, 12, 13, and 11, the debtor has taken no action to comply with the agreement entered into with the State of Ohio and as required by state law. The court further finds that the debtor does not have funds available to meet the requirements as specified by the order of the Common Pleas Court of Trumbull County.
The court further finds that since the entry of the order of the Common Pleas Court of Trumbull County the debtor has been divested of interest in wells Nos. 2, 9,11,13, 14, 15 and presently the debtor is operating only wells Nos. 3, 4, 7, and 12, which wells are, as of this date, under suspension of operation due to the shutdown of LTV Steel and the debtor’s failure to comply with the brine disposal requirements of the State of Ohio.
The bankruptcy court determined that since the debtors no longer had control of the afore-stated wells, the State should be permitted to proceed with its action to correct the alleged violations and thereby denied the debtors’ request for an injunction. Therefore, as a result of the debtors’ noncompliance with the Settlement Agreement to which they agreed in 1983, the State, in 1986, was permitted to proceed to remedy the environmental situation.
The State, however, in its state court action, obtained a judgment for civil penalties, $200,000 against Integrated Petroleum Company, Inc. and $50,000 against Olcese, rather than a judgment for actual damages to the environment resulting from the debtors’ conduct. The State sought to have the civil penalties paid as an administrative expense which was denied by Order of this court on May 27, 1988.
On November 5, 1984 the court granted the debtors an extension of the exclusive time for them to file a plan of reorganization. The debtors failed so to do, and on November 12, 1985 the court ordered the debtors to file a Disclosure Statement and a Plan of Reorganization. Again, the debtors failed so to do and on June 24,1986, the debtors were granted another sixty days in which to file, and on September 22, 1986 another extension was granted until October 15,1986. To date, no Plan of Reorganization nor Disclosure Statement has been filed by or on behalf of the debtors.
A bank creditor requested appointment of a trustee on October 23, 1984 which matter was settled and the debtors remained as debtors in possession. Also, on April 7, 1986, another creditor moved for appointment of a trustee which motion was ultimately withdrawn. On August 5, 1986 the bank creditor again moved for appointment of a trustee to handle this estate with said motion granted on November 18, 1986 and the Trustee was appointed as to the debtors Olcese, Integrated Service, Inc., and Integrated Petroleum Company, Inc. *919On February 5, 1987 the Trustee was appointed as to the debtor, Integrated Energy Programs, Inc., as well. The appointment of a trustee occurred upon conclusion of a hearing, or trial, with the debtors and the creditor both filing post-trial briefs. At the hearing, the creditor also submitted, as Exhibit A, an “Examiner’s Report” conducted by Ernst & Whinney.
The docket is lengthy and an examination of same reveals numerous hearings have been held as well as pleadings filed. On April 4, 1988 the court, upon the issuance and hearing on a Show Cause Order, converted the case of the debtor, Olc-ese, to a chapter 7 and adjourned the hearing as to the other three estates to a later date. The debtor appealed the Order of Conversion and subsequently filed the Motion and Affidavit now before the court. On May 13,1988 the court heard and granted attorney Beck’s Motion to Withdraw As Attorney of Record and denied, for the time being, attorney Schwemler and the firm of Brouse & McDowell’s Motion to Withdraw.
ISSUE
Pursuant to 28 U.S.C. §§ 455(a) and (b) and 144, must the court recuse itself on the basis that it is disqualified?
DISCUSSION OF LAW
The debtors moved, pursuant to Bankruptcy Rule 5004 and 28 U.S.C. § 455(a) and (b) for an order recusing this court on the basis that the judge is disqualified per allegations made by the debtors. Bankruptcy Rule 5004(a) provides that: “A bankruptcy judge shall be governed by 28 U.S.C. § 455, and disqualified from presiding over the proceeding or contested matter in which the disqualifying circumstance arises or, if appropriate, shall be disqualified from presiding over the case.” Thus, disqualification of a bankruptcy judge is governed by 28 U.S.C. § 455 which provides, in pertinent part, as follows:
(a) Any justice, judge, or magistrate of the United States shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned.
(b) He shall also disqualify himself in the following circumstances:
(1) Where he has a personal bias or prejudice concerning a party, or personal knowledge of disputed evidentia-ry facts concerning the proceeding;
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Therefore, pursuant to section 455(a), a judge has an independent duty to recuse himself as the statute is a self-executing provision for the disqualification of federal judges. United States v. Amerine, 411 F.2d 1130, 1134 (6th Cir.1969) (interpreting predecessor to § 455(a)).
Two days before the hearing the debtors submitted an Affidavit to Support Disqualification Pursuant to Rule 5004 which speaks to disqualification for bias or prejudice pursuant to 28 U.S.C. §§ 144 and 455(b)(1).
Whenever a party to any proceeding in a district court makes and files a timely and sufficient affidavit that the judge before whom the matter is pending has a personal bias or prejudice either against him or in favor of any adverse party, such judge shall proceed no further therein, but another judge shall be assigned to hear such proceeding.
The affidavit shall state the facts and the reasons for the belief that bias or prejudice exists, and shall be filed not less than ten days before the beginning of the term at which the proceeding is to be heard, or good cause shall be shown for failure to file it within such time. A party may file only one affidavit in any case. It shall be accompanied by a certificate of counsel of record stating that it is made in good faith.
28 U.S.C. § 144. At the May 13, 1988 hearing, the debtors submitted a just-filed Statement to Support Disqualification Pursuant to Rule 5004.
That portion of the debtors’ motion which seeks disqualification under 28 U.S. C. § 455(a) will be addressed first. Section 455(a) requires the judge to disqualify himself when “his impartiality might reasonably be questioned.” The standard is an *920objective one in that it “asks what a reasonable person knowing all the relevant facts would think about the impartiality of the judge” rather than what the judge estimates to be his own ability to impartially hear a case. Roberts v. Bailar, 625 F.2d 125, 129 (6th Cir.1980). An analysis of the legislative history provides the following guideline:
In assessing the reasonableness of a challenge to his impartiality, each judge must be alert to avoid the possibility that those who would question his impartiality are in fact seeking to avoid the consequences of his expected adverse decision. Disqualification for lack of impartiality must have a reasonable basis. Nothing in this proposed legislation should be read to warrant the transformation of a litigant’s fear that a judge may decide a question against him into a “reasonable fear” that the judge will not be impartial. Litigants ought not [to] have to face a judge where there is a reasonable question of impartiality, but they are not entitled to judges of their own choice.
H.R. 1453, 93rd Cong., 1st Sess., reprinted in 1974 U.S.Code Cong. & Admin.News, 6351, 6355 (emphasis in original). Courts have an obligation to hear a matter “unless some reasonable factual basis to doubt the impartiality or fairness of the tribunal is shown by some kind of probative evidence.” Blizard v. Frechette, 601 F.2d 1217 (1st Cir.1979).
The debtors herein challenge this court’s impartiality on the basis that attorney John K. Keller is a member of the firm of Vorys, Sater, Seymour & Pease which firm includes a former bankruptcy judge, Robert J. Sidman. The record in this bankruptcy indicates that once in 1984 attorney Sidman appeared, and thereafter all pleadings and appearances were by attorney Keller or another member of the firm. The debtors, at one time, were represented by the firm of Baker & Hostetler which firm also includes a former bankruptcy judge. If the fact that a former bankruptcy judge is associated with a law firm appearing before a bankruptcy court in any given case is grounds for disqualification due to impartiality, there would be chaos in the system for, in at least one city in the Sixth Circuit, three former bankruptcy judges practice bankruptcy law. Therefore, the bankruptcy courts and bar would find it difficult to deliver justice to the people seeking bankruptcy relief.
As authority for its argument seeking disqualification of this court, the debtors cite Roberts v. Bailar, 625 F.2d at 129, and, in fact, recited the following at the hearing: “If there is a reasonable, factual basis for doubting the judge’s impartiality, ... [he] should disqualify himself_” The facts in Roberts are wholly unrelated to the facts in the case sub judice. The plaintiff, Roberts, brought a sex discrimination suit against her employer, the Postal Service and the Postmaster General. At the pre-trial, the District Judge stated he knew the Postmaster General and that he was an “honorable man” and “would never intentionally discriminate against anyone.” Roberts v. Bailar, 625 F.2d at 127. The Sixth Circuit, therefore, found that “[u]nder the circumstances of this case, it is clear that a reasonable person would question the impartiality of the District Judge.” Roberts v. Bailar, 625 F.2d at 129. “The alleged bias must derive from an extra-judicial source.... The nature of the judge’s bias must be personal and not judicial.” In re Beard, 811 F.2d 818, 827 (4th Cir.1987).
In this case, there is no factual basis for doubting the court’s impartiality. None of the parties were known to the court prior to the bankruptcy proceeding. The court did have knowledge and was acquainted with the counsel representing the debtors as said counsel have represented numerous parties before the bankruptcy court. Prior to this case, however, this court was not acquainted with attorney Keller of Vorys, Sater, Seymour & Pease.
In the case In re Johnson-Allen, 68 B.R. 812, 817-18 (Bankr.E.D.Pa.1987), the court sets forth cases in which “pre-bench contact of judges with the actual litigants, their counsel, and issues which have come before them on the bench have been rejected as bases for recusal.” (citations omitted). The court in Johnson-Alien denied *921recusal finding that the fact that the judge, prior to taking the bench, had litigated against another party in a case similar to the case before the court, would not be compelling enough for a “reasonable person, knowing all of the relevant facts” to conclude that the judge harbored a “personal bias or prejudice with respect to the case subjudice.” In re Johnson-Allen, 68 B.R. at 813.
In addressing the Affidavit in Support of Motion to Disqualify filed by the debtors pursuant to 28 U.S.C. §§ 144 and 455(b)(1), the court is mindful that the statutory language of section 144 is mandatory. However, “[t]he mere filing of an affidavit under this section does not automatically disqualify a judge. Behr v. Mine Safety Appliances Co., 233 F.2d 371 (3rd Cir.), cert. denied, 352 U.S. 942, 77 S.Ct. 264, 1 L.Ed.2d 237 (1956). Disqualification results only from the filing of a timely and sufficient affidavit.” United States v. Townsend, 478 F.2d 1072, 1073 (3d Cir.1973).
The Affidavit was filed two days before the hearing on the Motion to Disqualify which Motion was filed nearly four years after the filing of the bankruptcy petition. The debtors have appeared before this court on numerous occasions via counsel and personal appearances by Olcese. With such ample opportunity to raise the issue of impartiality, the debtors cannot claim the Affidavit is timely filed. The debtors were aware that attorney Keller represented creditors of the estate as said creditors were plaintiffs in a state court action filed shortly before the bankruptcy was filed. In the case In re Johnson-Alien, 68 B.R. at 814, the court found that the affidavit was timely as it was filed before any consideration by the court of the merits. Here, however, the debtors never objected to the proof of claim filed by attorney Keller in November, 1984. Neither did the debtors ever request disclosure of the creditors, i.e. the Committee members, which was readily available from the proof of claim and/or the complaint filed by the Committee in the 1984 state court action. Only upon the court’s April 4, 1988 Order of Conversion on Olcese’s case did the debtors argue impartiality. As the court finds the Affidavit to be untimely, it is unnecessary to determine its sufficiency.
Inasmuch as the court may not pass on the truth of the facts alleged in the Affidavit, and, in fact, must deem them to be true, Berger v. United States, 255 U.S. 22, 35-36, 41 S.Ct. 230, 233-34, 65 L.Ed. 481 (1921), the court need only determine if the facts are such that they would convince a reasonable person that the judge harbored a personal, as opposed to a judicial, bias against the debtors. For 28 U.S.C. §§ 144 and 455 must be construed in pari materia. And both sections speak to personal bias. United States v. Story, 716 F.2d 1088, 1091 (6th Cir.1983). Sections 455(b)(1) and 144 specifically include the term “personal” and the Johnson-Alien court determined that the “term must be read into [section] 455(a) as well.” In re Johnson-Allen, 68 B.R. at 817.
Section 455(b)(1) provides for disqualification when the judge has “personal knowledge of disputed evidentiary facts concerning the proceeding.” Considering all the pleadings and the testimony, the debtors have not alleged any personal knowledge by the court of disputed evidentiary facts concerning this bankruptcy. The alleged impartiality or bias, as set forth in the Motion, Affidavit and Statement, relates instead to judicial proceedings reflected in transcripts and orders.
Upon the court’s Order of Conversion, the debtors filed the Motion for Disqualification and Affidavit as the debtors, in the words of Olcese, “disagree with the court”. Although the statute for recusal “replaces the former ‘duty to sit’ standard and requires the use of reasonableness in a judge’s disqualification decision,” In re Krisle, 54 B.R. 330, 346 (Bankr.D.S.D.1985), “the law is clear in stating that a motion for recusal can never be based upon a judge’s adverse ruling made during the course of a proceeding.” In re Chandler’s Cove Inn, Ltd., 74 B.R. 772, 776 (Bankr.E.D.N.Y.1987), citing Berger v. United States, 255 U.S. 22, 41 S.Ct. 230, 65 L.Ed. 481 (1921). Recusal is not required be*922cause a party dissatisfied with the court’s ruling claims bias. 13A Wright, Miller & Cooper, Federal Practice and Procedure § 3549 (1984).
By Olcese’s own testimony and a complete review of the Affidavit and Motion to Disqualify, the debtors are dissatisfied with this court’s rulings, particularly as to the Order of Conversion for the debtor, Olcese. Further, the debtors are dissatisfied with this court’s management of its docket. Bankruptcy Rule 8001 provides for taking an appeal from a judgment, order, or decree of a bankruptcy judge. An appeal is the appropriate method for dealing with a litigant’s dissatisfaction with a court’s ruling. The debtors incorrectly testified that “the Code [sic] does provide Section [sic] 5004 when a disagreement does occur.” Bankruptcy Rule 5004 provides that a bankruptcy judge is governed by 28 U.S.C. § 455 and thus speaks to disqualification and not to disagreement. Furthermore, Olcese testified that “there is factual basis that I believe to be impartiality or prejudice.” However, the facts offered in the Affidavit, Exhibits, Motion and Statement pertain to judicial decisions or proceedings and not to extrajudicial sources. See In re Beard, 811 F.2d at 827. To reiterate, 28 U.S.C. §§ 144 and 455 are not intended “to enable a discontented litigant to oust a judge because of adverse rulings made, for such rulings are reviewable otherwise.” Berger v. United States, 255 U.S. at 31, 41 S.Ct. at 232.
This court does not consider recusal lightly. However, the “right to an impartial judge cannot be advanced so broadly as to permit 'judge-shopping.’ ” In re Krisle, 54 B.R. at 346, citing In re Martin-Trigona, 573 F.Supp. 1237, 1243 (D.Conn.1983). After nearly four years of adjudication of this complicated and myriad bankruptcy, this court could relieve itself of any further duties as to this estate. However, judges have a “duty not to avoid cases just because they are difficult or controversial.” United States v. Singer, 575 F.Supp. 63, 68 (D.Minn.1983).
On the basis of the foregoing, this court is not persuaded that recusal is required pursuant to 28 U.S.C. §§ 144 and 455. Therefore, the debtors’ Motion to Disqualify is denied. A separate order in accordance with this Finding shall be entered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490689/ | MEMORANDUM OPINION ON MOTION FOR SUMMARY JUDGMENT
RANDOLPH F. WHELESS, Jr., Bankruptcy Judge.
Facts:
The IRS filed a “Motion for Relief From the Automatic Stay” on September 14,1987 in the case of United Refining Company, United Refining Company of Pennsylvania and Kiantone Pipeline v. the United States Department of the Treasury Internal Revenue Service. In their motion, they sought modification of the stay to allow the IRS to offset its pre- and post-petition claims against a refund owed to the Debtors. The refund originated from an overpayment by United Refining Company (“United”) from the carryback of a net operating loss and unused investment tax credits in 1979.
Debtors responded by filing “Answer to United States of America’s (Internal Revenue Service) Motion for Relief from Stay,” on September 25, 1987. In addition, Debtors commenced an adversary on October 6, 1987. (Adv. no. 87-1072). In the adversary, the Debtors sought turnover of property, (the refund); a judicial determination of the amount, validity and priority of the IRS claims, including the claim by the IRS for post-petition interest pursuant to 11 U.S.C. § 506(b); and challenged the off-set rights of the IRS.
*29Subsequently the IRS, subject to a “Stipulation and Order” signed by this Court on March 14, 1988, withdrew their objection to the Plan of Reorganization. A Plan of Reorganization was confirmed on January 22, 1988 (subject to specified technical modifications and presentation of an Order of Confirmation.)
The above-referenced “Stipulation and Order” provides for a lifting of the automatic stay to permit the “Allowed IRS Claim” in the amount of $3,604,401.00. The “Stipulation and Order” expressly left open the rights of the parties to litigate both the IRS claim for post-petition interest, and the “Penalty Claim”. Debtors have presented this Court with numerous letter briefs citing authorities for the proposition that the IRS is not entitled to payment of post-petition interest, and this opinion will address that point.
DISCUSSION
Two recent Circuit cases are dispositive as to the issue of whether the IRS is entitled to post-petition interest on its claim. In re Ron Pair Enterprises, Inc., 828 F.2d 367 (6th Cir.1987) involved a Chapter 11 debtor who contended that 11 U.S.C. § 506(b) did not require a Plan of Reorganization to provide for payment of post-petition interest to the IRS on its claim. The parties stipulated that the claim of the IRS was oversecured.
The Court first looked to pre-Code law which established several exceptions to the general rule of payment of post-petition interest to an over-secured creditor. Essentially, courts had carved out an exception which provided that payment of post-petition interest was not appropriate when the lien was non-consensual (i.e. tax liens). The Sixth Circuit, after a thorough analysis of pre-Code law and consideration of the rules of statutory construction, held that 11 U.S.C. § 506(b) did not authorize payment of post-petition interest on a non-consensual lien.
In re Newbury Cafe, Inc., 841 F.2d 20 (1st Cir.1988) also dealt directly with the issue of whether an oversecured taxing authority is entitled to post-petition interest from a debtor’s estate on its claim. The Massachusetts Department of Revenue (“DOR”) had sought a finding that 11 U.S. C. § 506(b) provided for post-petition interest on the nonconsensual tax lien it held on the Debtor’s property.
The First Circuit looked directly to the words of § 506(b) as much of the confusion over the payment of post-petition interest on a nonconsensual lien has resulted from the grammatical structure of § 506(b). The section provides:
To the extent that an allowed secured claim is secured by property the value of which, after any recovery under subsection (c) of this section, is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement under which such claim arose.
The issue is whether “provided for under the agreement” modifies “interest on such claim” as well as “any reasonable fees, costs, or charges,” or just the latter. Specifically, does the comma placed after “interest on such claim,” prevent that phrase’s inclusion into the limitations provided for by § 506(b)?
Basing their decision on the well-founded precept of statutory construction that “... if Congress intends for legislation to change the interpretation of a judicially created concept, it makes that intent specific.”, the Court found that § 506(b) did not allow post-petition interest to an overse-cured non-consensual lienholder (i.e. the DOR) See Midlantic National Bank v. New Jersey Department of Environmental Protection, 474 U.S. 494, 501, 106 S.Ct. 755, 759, 88 L.Ed.2d 859 (1986).
In view of the two well-reasoned opinions cited above, this Court finds that the IRS is not entitled to post-petition interest based on 11 U.S.C. § 506(b). This opinion does not address the issue of the “Penalty Claim.” Counsel for United is to present an Order consistent with this opinion within 10 days of the receipt of it. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490691/ | SIDNEY C. VOLINN, Bankruptcy Judge,
dissenting:
The judge in effect told the parties that he would get out findings if they wished to appeal. There would not have been any point in adverting to findings in this context unless it was in his mind that the findings were related to finality of the order. To put it otherwise, implicit in court’s statement about findings was the notion that their entry was a precondition to an effective appeal. While the court set no time limit on presentation of the findings, appellant can contend that he took the judge at his word in considering that entry of findings by the judge was requisite to an effective appeal.
I would agree that waiting from June to November is a long time. But in fact the debtors requested that findings be entered in July, and the court deferred entering them until November and thereafter entered the order in question.
*101On this record United Artist Corp. v. La Cage Aux Folles, Inc., 771 F.2d 1265 (9th Cir.1985) is applicable. A party who reasonably and in good faith defers taking action as a result of a court’s ruling or statement should not be precluded from being heard on the merits of an appeal. As to the merits, I believe the record does not show that any party in interest, including the creditors, suffered detriment by reason of the deferred claim of exception. They will simply receive a windfall out of the debtor’s exempt property.
I therefore respectfully dissent. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490692/ | AMENDED ORDER RE STIPULATION OF SETTLEMENT
RALPH G. PAGTER, Bankruptcy Judge.
On September 15,1986, after notice to all interested parties, the Stipulation of Settlement dated August 25 and 26, 1986, between the Co-Trustees and the Securities and Exchange Commission came on for hearing before this Court.
Having considered the Stipulation of Settlement, the documents filed in response thereto, and argument and representations of counsel, and all the pleadings and documents in this bankruptcy case and these adversary proceedings; and it appearing to the Court that there exists a bona fide dispute between the parties to the Stipulation of Settlement as to the status and right or entitlement of the Commission to intervene or appear under Bankruptcy Code Section 1109(b), 11 U.S.C. § 1109(b), and to impose a constructive trust on certain funds transferred to the Co-Trustees pursuant to a Stipulation and Order dated March 21, 1984 entered in a then-pending case, SEC v. Thomas D. Carter, et al., No. 83-7645 RJK (C.D.Cal), and that upon entry of this Order the parties will have fully settled all the disputes between them concerning the disposition of those funds, and the funds will remain property of the debtors’ estates as earlier ordered by this Court; and it further appearing that resolution of these disputes will facilitate the expeditious processing of the claims filed in this estate; the Court finds that the notice given of the Stipulation of Settlement was appropriate given the particular circumstances herein; and that it is in the best interests of the parties to the Stipulation of Settlement, the claimants to the estates and the administration of the estates that this Stipulation of Settlement be approved. Accordingly, pursuant to Bankruptcy Rule 9019(a),
IT IS HEREBY ORDERED
(A) that the following orders of this Court be and hereby are vacated:
(1) Findings of Fact, Conclusions of Law and Order Denying SEC’s Motion for Summary Judgment; Granting Co-Trustees Summary Judgment; and Granting Co-Trustee’s Motion That Funds Held by the Co-Trustees Are Property of the Debtors’ Estate, entered November 27, 1985 [55 B.R. 543];
(2) Memorandum Opinion dated October 9, 1985 Granting Co-Trustees’ Motion for Order Determining Nature of Funds, Denying the Motion of the SEC for Summary Judgment and Granting Summary Judgment to the Co-Defendant Trustees;
(3) Order Denying Motion to Intervene, entered June 14, 1984, which denied the Commission’s Motion to intervene in the bankruptcy cases under 11 U.S.C. § 1109(b);
(4) Orders entered October 23, 1984 and November 7, 1984, which granted the Commission standing to prosecute the adversary proceedings pursuant to 11 U.S.C. § 1109(a) but which denied the Commission the right of appeal;
(B) that the following documents filed in these cases be and hereby are deemed withdrawn:
(1) All notices of appeal filed by the Securities and Exchange Commission;
*114(2) The Motion by the Securities and Exchange Commission to Intervene As Party in Interest Pursuant to Section 1109(b) of the Bankruptcy Code, filed April 4, 1984;
(C) that the Complaint to Receive Money and Impose Constructive Trust, filed by the SEC on July 23, 1984 in the adversary proceedings be, and hereby is, dismissed with prejudice.
IT IS FURTHER ORDERED that the funds transferred to the Co-Trustees pursuant to the March 21,1984 Stipulation and Order issued in Case No. 83-7645 RJK (C.D.Cal.) be and hereby are deemed property of the debtors’ estate herein.
SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490693/ | ORDER
JOHN L. PETERSON, Bankruptcy Judge.
Hearing was held, after notice, on March 6, 1987, on the motion of Citizens First National Bank (Bank) for relief from the automatic stay or, in the alternative, for an award of adequate protection.
The Bank holds a valid first security interest in collateral of the Debtor consisting of cattle, machinery, equipment, vehicles and land. The Bank produced evidence that the total value of .the collateral was $50,300.00, while the total debt due the Bank as of the date of the bankruptcy petition was $115,594.21. The Bank has thus shown to the satisfaction of the Court that there is no equity in the collateral. The Debtors filed a Disclosure Statement and Plan on March 4, 1987, but each document was not available to the Court at the hearing on March 6, 1987, due to mailing. In reviewing the Plan and Disclosure Statement, the Plan classified the claim of the Bank as Class II, proposes to sell “all vehicles and equipment not necessary to *129Debtors’ business operation * * * as soon as practical after approval of this Plan”, reduce the interest rate on the note to 6.5% beginning January 1, 1987, and pay the balance over 21 years, by annual payment of interest only in 1987, and principal and interest on December 31st of each year thereafter. The Disclosure Statement contains a dearth of information of the Debtors’ operations, but what can be gleaned from the Disclosure Statement is the Debtors’ net income from the following sources in 1986, to-wit:
Sale of oil drilling mud - $ 5,000.00
Mobile home moving 2,190.00
Building demolition and removal 6,500.00
Cattle ranching — 12,000.00 (40 calves @
$300 each)
Total $ 25,690.00
At the hearing on the Bank’s motion, the Debtors gave no testimony on income available for adequate protection payments, and refused to offer to the Court any basis on which to fashion an order providing for adequate protection.1 Furthermore, the Disclosure Statement is insufficient as a matter of law. See In Re Metrocraft Pub. Services, Inc., 39 B.R. 567, 568 (Bankr.N.D.Ga.1984), adopted by this Court in In Re Reilly, 71 B.R. 132 (Bankr.D.Mont.), holding:
“Relevant factors for evaluating the adequacy of a disclosure statement may include: (1) the events which led to the filing of a bankruptcy petition; (2) a description of the available assets and their value; (3) the anticipated future of the company; (4) the source of information stated in the disclosure statement; (5) a disclaimer; (6) the present condition of the debtor while in Chapter 11; (7) the scheduled claims; (8) the estimated return to creditors under a Chapter 7 liquidation; (9) the accounting method utilized to produce financial information and the name of the accountants responsible for such information; (10) the future management of the debtor; (11) the Chapter 11 plan or a summary thereof; (12) the estimated administrative expenses, including attorneys’ and accountants’ fees; (13) the collectibility of accounts receivable; (14) financial information, data, valuations or projections relevant to the creditors’ decision to accept or reject the Chapter 11 plan; (15) information relevant to the risks posed to creditors under the plan; (16) the actual or projected realizable value from recovery of preferential or otherwise voidable transfers; (17) litigation likely to arise in a nonbankruptcy context; (18) tax attributes of the Debtor; and (19) the relationship of the debtor with affiliates.”
In reviewing the above 19 criteria, the Debtors have only discussed, in brief form, elements dealing with sources of income. They now project in 1987 to earn, after expenses, up to $36,500.00 from their farm and other business operations, although their estimates are conclusatory and based on skeptical opinions. In Re Fierman, 21 B.R. 314, 315 (Bankr.E.D.Pa.1982), holds that a disclosure statement must set forth a factual basis for each opinion because “[S]ueh information is essential for a party weighing the credibility and merits of the *130plan”. It would be more reassuring to the Court, and certainly the creditor, for the Debtors to detail by description the trucks and equipment which they say are not necessary for their continued operation, and which they propose to sell, so each creditor would have some idea what the specifics of the Plan really entail.
A quote from In Re Clark Technical Associates, 9 B.R. 738, 740-41 (Bankr.Conn.1981), is appropriate to the Debtors’ stance in this case:
“The debtor, on the other hand, failed to satisfy its burden of proof, imposed under Code § 362(a)(2), as to all other issues under Code § 362(d). It is not enough for a debtor to argue that the automatic stay should continue because it needs the secured property in order to propose a reorganization. If this were the test all property held by debtors could be regarded as necessary for the debtors’ reorganization. The key word under Code § 362(d)(2)(B) is ‘effective’; the property must be necessary to an effective reorganization. If all the debt- or can offer at this time is high hopes without any financial prospects on the horizon to warrant a conclusion that a reorganization in the near future is likely, it cannot be said that the property is necessary to an ‘effective’ reorganization. In Re Terra Mar Associates, 3 B.R. 462 (Bankr.B.C.Conn.1980); In Re Riviera Inn of Wallingford, Inc., 7 B.R. 725, C.C.H. ¶67,726 (Bankr.B.C.Conn.1980); In Re Hutton-Johnson Co. Inc., 6 B.R. 855 (Bankr.S.D.N.Y.1980).
* * * * * *
In the circumstances of this case the court has no discretion when the plaintiff, as the senior secured creditor, requests a relief from the automatic stay. The plaintiff's secured interest is not adequately protected and the debtor has not offered any additional protection. It is not for the court to determine what will constitute adequate protection of the secured creditor’s interests; the debtor must affirmatively propose protection of the secured interest, and this the plaintiff has not done. In Re San Clemente Estates, 5 B.R. 605, 6 B.C.D. 838 (Bankr.S.D.Calif.1980); In Re Riviera Inn of Wallingford, Inc., supra; In Re Hutton-Johnson Co. Inc., supra.
Since the debtor does not have any equity in the property in question, as required under Code § 362(d)(2)(A), and since the property is not necessary to an ‘effective’ reorganization within the meaning of Code § 362(d)(2)(B) because no reorganization currently appears likely, this court must lift the automatic stay. Code § 362(d) provides that in such circumstances ‘the court shall grant relief from the stay ...’. [Emphasis added].”
The creditor Bank has clearly demonstrated there is no equity in the Debtors’ property. The Debtors’ attitude toward the Bank notwithstanding, it was incumbent upon the Debtors to satisfy the statutory requirements of Section 362(g)(2), which states the party opposing such relief from stay has the burden of proof on all issues except that of equity in the property. Even though pressed by the Court to make an offer of adequate protection, the Debtors and their counsel wholly failed to intelligently approach the matter. Since the Debtors have the burden of proof to affirmatively meet that issue, and it is not the Court’s duty to try the Debtors’ case or fashion adequate protection on its own, the Court is left with no alternative but than to grant the Bank’s motion for relief from stay.
IT IS ORDERED the motion of Citizens First National Bank for relief from the automatic stay provisions of Section 362 (11 U.S.C. § 362) of the Bankruptcy Code is granted under authority of Section 362(d) and (g) of the Code.
. On March 9, 1987, the Debtors filed an "Offer and Proposal of Adequate Security” which fixes the secured debt of the Bank at $50,000.00, and proposes to pay 10% per annum interest beginning March 6, 1987. In addition, the Debtors propose to sell immediately all vehicles, machinery and equipment not necessary to conduct their operations and apply the sales proceeds to interest and principal. The same would be true of cattle sales. There is no evi- , dence in this record as to the offer on interest being at market rate, and the vagueness of unnecessary equipment is not cured. Indeed, the Bank's testimony was that the prevailing market rate of interest was 13% for the same type and term of loan. See United States v. Neal Pharma-col Co., 789 F.2d 1283 (8th Cir.1986). Further, the Bank, because of the procedure adopted by the Debtors, has been foreclosed to test the offer of adequate protection at the hearing, duly noticed for March 6, 1987. For that reason alone, the offer must be refused consideration. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490694/ | MEMORANDUM OPINION AND ORDER
BENJAMIN E. FRANKLIN, Chief Judge.
This matter came for hearing on the debtors’ motion for turnover of income tax refund and the trustee’s related motion to set aside order allowing the debtors to *174claim the refund as exempt on May 11, 1988. [The trustee's motion to set aside was not formally set for hearing. However, this Court will also consider the trustee’s motion because it involves the same subject matter as the debtors’ motion.] The debtors, Dale Francis Feuerborn and Angela Louise Feuerborn, appeared through counsel, Mary Catherine Jackson. The trustee, David C. Seitter, appeared pro se.
FINDINGS OF FACT
This Court finds that the facts are not at issue, are undisputed, and can be derived from the record as follows:
1. On November 18, 1986, the debtors, Dale Francis Feuerborn and Angela Louise Feuerborn, filed a petition for relief under chapter 7 of Title 11 of the United States Code. David C. Seitter was appointed trustee.
2. On April 24, 1987, the debtors filed an amendment to their schedule B-4 to exempt their 1986 income tax refund in the amount of $1,800.
3. On May 15, 1987, notice of the amendment pursuant to 11 U.S.C. § 102 was mailed to the debtors, scheduled creditors, the trustee, and all interested parties. The notice stated that if no objection to the amendment was filed with the Clerk on or before June 5, 1987, the amendment was deemed allowed as filed.
4. The trustee failed to file an objection by the deadline, June 5, 1987, nor at any time thereafter.
5. On July 10, 1987, this Court entered an order allowing the amendment of the Schedule B-4 to exempt the income tax refund.
6. On July 14, 1987, a copy of this order allowing the amendment was sent to the trustee.
7. Thereafter, the debtors through their attorney, contacted the trustee by telephone and by mail in order to retrieve the refund checks. The trustee refused to turnover the checks.
8. On April 5, 1988, the debtors filed a motion for turnover of the income tax refund checks and mailed a copy of the motion to the trustee. The motion for turnover was set for hearing on May 11, 1988.
9. On May 6, 1988, the trustee filed a motion to set aside this Court’s prior order allowing the amended claim of exemption. The trustee requested the order be set aside for excusable neglect under F.R.C.P. 60(b). The trustee also filed an objection to the debtors’ motion that same day.
10. On May 11, 1988, these matters came for hearing.
CONCLUSIONS OF LAW
Certainly if the trustee, David C. Seitter, had timely objected to the amended claim of exemption of the income tax refunds on or before June 5, 1987, this Court would have sustained the objection and denied the amendment. This Court has held that income tax refunds attributable to pre-petition withholdings are property of the estate. See In re Rash, 22 B.R. 328 (Bankr.D.Kan.1982). In the usual case, income tax refunds go into the estate to be distributed by the trustee to the creditors rather than to the debtor.
However, the trustee failed to timely object to the debtors’ amended claim of exemption of the refunds and this Court entered an order allowing the exemption on July 10, 1987. The issue now before this Court is whether the trustee should be ordered to turnover the refunds to the debtors or whether the July 10, 1987 order should be set aside for excusable neglect on the trustee’s part under F.R.C.P. 60(b).
Unfortunately, after reviewing the record and the trustee’s motion, and listening to statements of counsel, this Court cannot find excusable neglect in this case. I say unfortunately because I am really disinclined to turn the refunds over to the debtor. Kansas has one of the most generous set of state exemption statutes to which the debtors have taken full advantage. To now allow the debtors to exempt even more by receiving the income tax refunds surely results in a windfall to the debtors. The real losers in this case are the unsecured creditors, not the trustee.
*175However, this Court is bound by the parameters of rule 60(b) of the Federal Rules of Civil Procedure in granting relief from a judgement or order. Rule 60(b) provides that on motion and upon such terms as are just, the court may relieve a party or a party’s legal representative for “mistake, inadvertence, surprise, or excusable neglect.” The rule further provides that a motion on these grounds shall be made within a “reasonable time.”
In the present case, this Court can find neither that the trustee’s neglect was “excusable” nor that the timing of the trustee’s motion was “reasonable.” The trustee really fails to offer any explanation or excuse at all as to why he failed to object to the amendment in the first instance. He just states that he “intended” to file an objection but that “due to an oversight” he failed to do so. That is no excuse. The trustee had at least four notices that the debtors were improperly attempting to exempt income tax refunds. He had the original May 15, 1987 notice of the amendment. He had the July 10, 1987 Order allowing the amendment. He also had the debtors’ attorney contacting him by phone in August, 1987 and by mail on September 19, 1987, about the refunds. With all these reminders, the trustee did not get around to filing a motion to set aside the order until May 6, 1988, ten months after the order allowing the amendment.
IT IS THEREFORE, BY THE COURT, ORDERED That the trustee’s motion to set aside the prior July 10,1987 Order allowing the debtors to claim the refunds as exempt be and the same hereby is DENIED.
IT IS FURTHER, BY THE COURT, ORDERED That the debtors’ motion for turnover of the income tax refunds be and the same hereby is SUSTAINED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490695/ | ORDER ON REHEARING OF ORDERS ON OBJECTION TO CLAIMS
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 case and the matter under consideration is the third Motion for Rehearing filed by Walter N. Smith and a group of claimants who, at times, describe themselves as “equity security holders,” even though it is evident that this Debtor does not, and never did, have any holders of equity security interest, being a non-profit corporation. Walter N. Smith and the others are all former members of the Mandalay Shores Cooperative Housing Association, Inc. (Association), the Debtor in this case. The motion filed by Walter N. Smith and the other claimants is addressed to a previous Order entered by this Court which disallowed the interest portion of their claims but overruled other objections interposed by the Association which sought the total disallowance of these claims on several different legal theories.
It is the contention of Walter N. Smith and others that they are entitled to have their claims allowed with interest based on a contract, either written or oral. In sup*185port of this proposition they urge that the receipt given by the Association to the members when they made their initial contribution to the Association provided for a refund of the contribution, plus interest. In addition, it is also contended that the president of the Association, Mr. Burr, clearly promised orally several times that the members who desired to leave the Association would be entitled to receive the money which they had contributed and would receive interest on same.
The facts which are basically without dispute and which appear from the extensive record of not only this Chapter 11 case but also the previous Chapter 11 cases are as follows.
At the time pertinent to the matter under consideration, the apartment complex, known as Mandalay Shores Apartments, was owned by the Department of Housing and Urban Development (HUD), an Agency of the United States Government. Sometime in the summer of 1979, it appeared that HUD was about to sell the complex to a private entrepeneur, and the tenants of the complex became apprehensive that if this occurred the new owner most likely would turn the complex into a condominium project or at least after acquisition would raise the rent of the tenants to such extent that some of the tenants would not be able to remain as tenants in the complex.
In order to prevent this from occurring, in August, 1979, Mr. Jack Burr proposed the creation of an entity for the purpose of negotiating with HUD for the purchase of the complex on behalf of the tenants. In fact on August 7, 1979, a non-profit corporation was formed comprised of the tenants as the members of the Association who lived in the Mandalay Shores Apartments at that time. Pursuant to the original bylaws of the Association organized as a nonprofit corporation was formed for the sole purpose of acquiring ownership of the complex from HUD and operating the same as a cooperative housing facility giving the tenants control over the operation and, most importantly, to assure that the rents of the members would not be raised, or at least they would be stabilized at a level which the members would be able to afford. It was proposed first that the tenants who joined the Association would have an option to buy a full membership in the Association or place monies in escrow, which funds were to be refunded in the event the Association was unable to purchase the complex according • to the bylaws. A full membership was available only to the tenants who actually lived in the building but escrow membership was also available to all who desired to become members, whether they lived in the complex or not. The funds needed for the down payment for the proposed purchase were collected without any difficulty and the parties who contributed funds were given a receipt, which in pertinent part, reads as follows:
“As you were informed at our general meetings, by unanimous vote your membership certificate when issued after the title to Mandalay Shores Apartment is acquired cannot be sold by you, but you will have the right to surrender the same together with possession of your apartment to the Cooperative Association and will receive full redemption payments including any interest which may have accrued thereon. You are also informed by unanimous vote that in order to prevent any forfeiture of our $100,000 earnest money paid to HUD with our offer on August 10, 1979, there cannot be any redemption of any shares until after HUD accepts our offer and title passes to your co-op. In the event HUD rejects our offer, you will be called to a general meeting of all members to vote and decide our next step to protect our interest and lifestyle here at Mandalay Shores Apartments.”
The Association was unsuccessful in purchasing the building from HUD and the complex was ultimately sold by HUD to a private entity. When it became apparent that the Association lost all chances to acquire the project, several members demanded refunds of their contributions. Although some received a refund, Walter Smith and other members of the Association who demanded a refund did not receive a refund of their contribution. In fact, a group headed by Ms. Fulton, all who con*186tributed funds to the Association for the purpose of acquiring ownership of the complex from HUD, actually filed a suit against the Association and its officers in the Circuit Court in and for Pinellas County in which they sought a refund from the Association of their contributions, and damages on various grounds. In light of this development, the Articles of Incorporation of the Association were amended at the urging of Mr. Burr at a membership meeting at which the dissident members were excluded. The amendment broadened the original stated purpose of the Association — to include as one of the purposes of the Association, the acquisition of another facility, not specified, in order to provide housing to its members.
The Association, having been faced with the suit filed by the Fulton Group in which the Circuit Court actually appointed a receiver for the assets of the Association, i.e., the funds collected from the members, filed its first Voluntary Petition for Relief under Chapter 11 of the Bankruptcy Code in this Court in April, 1981. In spite of repeated attempts to achieve the confirmation of the several plans of reorganization, the Association failed to accomplish this goal, primarily due to the opposition of the dissident members headed by Walter Smith. As the result on September 11, 1985, this Court entered an Order and denied confirmation of the latest plan of reorganization entitled Modified Plan for an Arrangement, filed June 22, 1984, on the grounds that the Modified Plan did not meet the standard for confirmation required by § 1129 of the Bankruptcy Code inasmuch as the Plan submitted did not provide payment in full for Walter N. Smith and others of their claims limited to the amounts actually contributed, plus interest. However, the Court granted the Association 30 days to file an amended plan to meet the defects which were found to exist in the Modified Plan of Reorganization. The Order further provided that in the event that the amended plan was not filed within the time fixed or the case was not converted voluntarily to a Chapter 7 liquidation case, the Chapter 11 case would be dismissed. These alternatives were inescapable in light of the fact that the Association, being not a monied corporation, thus an entity not subject to be an involuntary debtor by provision of Section 303(a) of the Bankruptcy Code.
The Debtor having failed to file an amended Plan of Reorganization this Court entered an Order on October 24, 1985 and dismissed the Chapter 11 case of the Association.
On November 4, 1985, the Association filed its second Voluntary Petition for Relief under Chapter 11 in the Northern District of Illinois, even though the only nexus the Association had in that District was the funds collected from the members which were deposited in an Illinois banking institution in an interest bearing account. It took no time for the Bankruptcy Court in the Northern District to grant the Motion to Dismiss the second Chapter 11 case filed by Walter N. Smith, et al and on December 19, 1985, the second Chapter 11 case filed by the Association was dismissed. On appeal, the Order of Dismissal was affirmed by the District Court.
On November 13, 1985, or about 21 days after the dismissal of the first Chapter 11 case, Walter Smith, et al filed a Motion to Intervene in the Circuit Court lawsuit filed by Ms. Fulton and other dissident members. This Motion was denied by the Circuit Court on March 7, 1986.
On March 31, 1986, the Association filed its third Chapter 11 case. Subsequently, Walter N. Smith, et al filed their proofs of claim in this third Chapter 11 case just as they did in the first Chapter 11 case based on their contributions made to the Association back in 1981, and sought a refund, together with interest computed from the date of their contribution up to the date of the filing of the Association’s third Chapter 11 petition. In due course the Association filed objections to the claims of Walter N. Smith and the other former members and sought a disallowance of their claims, the matter presently under consideration by this Court. As noted earlier, the objections were considered previously and were originally overruled, but by virtue of the last order, reconsidered and allowed the claims albeit without interest.
*187In support of the objection to these claims the Association contends again:
(1) that these claims are time barred by the Statute of Limitations Chapter 95.11 of the Florida Statutes, and § 108(c)(2) of Title 11 U.S.C.;
(2) that the claimants have availed themselves of the benefits of their membership in the Association, and therefore they are estopped from asserting any claims against the Association on equitable grounds;
(3) that the interest on their claims even if allowed includes unmatured interest and hence not allowable pursuant to § 502(b)(2) of the Bankruptcy Code, moreover there was no contract for payment of interest existed between the Association and Walter Smith, et al;
(4) that the Association being a not-for-profit corporation created pursuant to Chs. 617.01, 617.011 and 617.10, of the Florida Statutes, is bound by provisions of these Statutes, one of which prohibits any distribution of income or corpus to members or directors of the Association. Moreover, so contends the Association, the District Court in Illinois, in an action filed by the Association, already determined that the Association is a tax exempt organization un.der § 501(c) of the Internal Revenue Code and as such cannot as a matter of law make distribution to members of the income earned by the Association on the funds contributed by the members of the Association without jeopardizing its tax exempt status.
At the duly scheduled and noticed hearing on objections to these claims, counsel for Walter N. Smith, et al represented to the Court that he was appearing on behalf of all of the dissident members of the Association and not only on behalf of Walter N. Smith and he was properly retained by the other dissident members.
At the conclusion of the hearing this Court entered an Order on the Objections to Claims filed by the Association. The Court overruled the objections based on the Statute of Limitations and ruled that the claimants were entitled to interest on their claims from the date of their deposit up until the filing of this case. The Court deferred ruling on the objections based on the defense of estoppel and continued the hearing on that matter until a later time. It further appears that the Court also took under advisement the effect, if any, of the decision of the District Court in the Northern District of Illinois concerning the Association’s tax exempt status and the impact of that decision on the rights of these claimants to interest on their contributions made to the Association.
This Order generated several Motions for Rehearing by the Association. In its Motions the Association contended that the Order was inconsistent with the Court’s previous ruling on the issue of interest. In addition, the Association also sought a determination that the part of the Order which referred to unidentified creditors, as “et al” in the phrase “Walter N. Smith, et al”, should be stricken. The Motions for Rehearing were granted and subsequently Orders were entered striking any reference to unidentified creditors in the Court’s previous order as “et al” and disallowing any interest on the claim of Walter Smith. As noted earlier that at some time prior to this last hearing, the Court already heard the objection to these claims based on doctrine of estoppel and entered an order overruling the objection based on that theory because there was no evidence of any detrimental reliance on the part of the Association on any conduct by these claimants to sustain an objection based on estoppel.
The current Motion for Rehearing filed by Walter Smith, et al alleges that the use of words “et al” only served to reflect that the attorney for Walter Smith represents, in addition to him, several other former members and the use of the words “et al” has been continuously used throughout this case and also in the previous Chapter 11 cases. Thus, their identity is known to all, including to the Association. In addition, Walter Smith asked that the Court rehear the Order which disallowed their claim for interest. The Court granted the Motion for Rehearing as to the interest issue only. However, at the hearing the Association again attempted to raise the previously asserted bases for its objections, i.e., Statute *188of Limitations and Estoppel and the impact of the tax exempt status of the Association on those claimants to right to interest in light of the fact that this Court’s previous disposition of these defenses were correct and there was nothing ever presented in support of these propositions, this Court will reaffirm its previous position and will no longer consider these defenses.
This leaves for consideration whether or not these claimants are entitled to have their claim allowed limited only to the principal contribution or are entitled to interest on their claims and if so for what time period and at what rate should the interest be calculated if interest is allowed.
It is the contention of Walter Smith and the others that they had a contract with the Association which provided that they will be entitled to the return of their deposit placed with the Debtor with interest upon request. The right to receive a refund with interest is based on the receipts, claimed to be a contract, which were given to the members when they initially made their contributions. The reliance on these receipts as a document which gives the right to receive a refund with interest is obviously misplaced for the following reasons:
It is important to note first that the receipt expressly stated that membership certificates when issued by the Association after (emphasis added) title to Mandalay Shores Apartment is acquired, cannot be sold. Second, a fair reading of the receipt clearly justifies the inference that the receipt only indicated an intent to make a refund with interest to a member after title to the complex was acquired. This should be apparent based on the fact that had the Association refunded all or most of the contributions made by members before the acquisition of the complex (emphasis supplied), then the sole purpose of the entire undertaking of the Association would have been frustrated. Even a cursory reading of the receipt indicates that the right to a refund with interest was specifically conditioned upon an occurrence of an event which never occurred, to wit, the acquisition of title to the complex by the Association. Whether or not Walter Smith and the others would be entitled to a refund with interest on the theory of promissory estop-pel or on the alleged oral promises made by Mr. Burr, the president of the Association, cannot be considered by this Court at this time for the simple reason that the tape recorded meeting at which time these alleged promises were made, are not properly before this Court. While the tape was previously proffered to be introduced into evidence and in fact has been marked for identification it was never admitted into evidence. Therefore this Court cannot take judicial notice of its contents.
Based on the foregoing, this Court is satisfied that the objections to the claims of Walter Smith and the others, (not only to receive a refund of the initial contribution, but also to receive interest) must be sustained based on the written contract or on the so called alleged oral contract or on the theory of promissory estoppel.
This leaves for consideration the question whether or not under the applicable local law is one entitled to the interest of monies which were placed with another on the theory of recission for failure of consideration of the contract. In opposing the right of these claimant’s to interest on this theory the Association relies on the case of Paradis vs Second Avenue Used Car Co., 61 So.2d 919 (S.Ct.Fla.1952). Even a cursory reading of Paradis indicates that the Debtor’s reliance on this case is totally misplaced. The issue for determination in Paradis was whether or not vendors were entitled to retain the earnest money paid on a contract for realty as liquidated damages. This Court is satisfied that Paradis is not controlling and therefore rejects the Debtor’s assertion that interest cannot be allowable under a theory of recission.
While it is true that a denial of interest may be appropriate on equitable principles where the defendant did not have control or beneficial use of the deposited funds, see 32 Fla.Jur.2d, Interest & Usury, the converse of this would allow interest on deposited funds where the defendant did *189exercise control and obtained beneficial use of the monies.
In the present instance the funds contributed by the members were placed in an interest earning account in a Chicago bank and constantly earned interest. The funds were never placed in an escrow account and were, technically, at all times available to the Association to be used during all these years, but for the pendency of the several Chapter 11 cases during which the Association was subject to the ordinary legal restrictions placed on the use of the funds, a restriction which is placed on all Debtors-in-Possession in Chapter 11 in general. The fact of the matter is and the Court takes judicial notice of the same that the funds were actually used to pay, with Court approval, the cost of administration of the first Chapter 11 case. Be that as it may, this Court is satisfied that if the interest claimed by Walter Smith and the others is not recognized by this Court, the interest earned on the original principal sum of $880,000.00 would inure to the benefit of the Association. This certainly would be a totally unacceptable result, a grossly unfair windfall to the Association who, through legal manuverings frustrated the claims for refund of these claimants for almost ten years. The fact that this result may produce adverse or negative tax consequences either to the claimants or to the Association, a matter not entirely clear is certainly not relevant to the matter under consideration. In any event, this Court is not prepared to address this question at this time.
One last comment. It was evident to this Court almost from the very beginning that the interest of all parties of interest would have been served only by an immediate total liquidation of all assets of the Association, that is, a distribution of the monies collected from the members after it became evident that the Association became unable to purchase the Mandalay Shores Apartment complex. Unfortunately, this is not what occurred and after an innumerable amount of hours expended by an army of attorneys, the affairs of this Association are still in disarray, and the dissident members are still waiting to recover the monies contributed by them. Many of them already have died and unless this Association proposes a plan which provides for a refund with interest for the dissident members, there is no end in sight simply because the alternatives are frightening and still unacceptable to this Court. This is so because a dismissal would have no doubt made certain that the dissident members not only will not receive interest on the funds, but will not ever receive a dime of the monies contributed. Since, as noted earlier, the Association is not amenable to involuntary liquidation, being a non-monied corporation under Section 303 of the Bankruptcy Code, the only equitable solution is to allow the claims of the dissident members with interest in the hope that the Association management will see the light and propose a confirmable plan and finally bring an end to this very protracted administration of this third Chapter 11 case which, hopefully, will be the last.
Based on the foregoing, this Court is satisfied that the previous Order entered on January 13, 1988, which held that Walter Smith and the other members similarly situated are not entitled to have their claims allowed with interest was incorrect and should be vacated and set aside and their claims as filed should be allowed with interest.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the objections of the Debtor to the claims of Walter Smith and the other dissident members self described as “Equity Security Holders” be, and the same are hereby, overruled and their claims be, and the same are hereby, allowed with interest to be computed from the date of demand of the refund, i.e., February 15, 1981, until March 31,1986, the date of the filing of the third Chapter 11 case by this Debtor. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490696/ | MEMORANDUM OPINION AND ORDER
HELEN S. BALICE, Bankruptcy Judge.
This matter came before the court on John Deere Company’s motion to dismiss the Trustee’s complaint seeking a determination that John Deere is not entitled to insurance proceeds by virtue of its perfected security interest in a combine that was destroyed by fire. The parties subsequently treated that motion as one for summary judgment.
John Deere is the assignee of a retail installment contract/security agreement dated June 22, 1981 entered into between Clements Supply Co., Inc. and Barbara L. and Dudley B. Durham, Jr. on behalf of Double D Farms. Double D, Mr. and Mrs. Durham and a related corporation filed Chapter 11 cases on December 19, 1983. John Deere on April 16,1984, filed its proof of claim in the amount of $82,486.67 claiming a security interest in a corn head and combine. The three cases were substantively consolidated on April 25, 1984 and thereafter referred to as the Durham case.
Dudley B. Durham DBA Double D Farms, using estate funds, purchased from State Farm Fire and Casualty Company a policy of insurance covering the period August 1, 1984 to August 1, 1985. The combine which was destroyed by fire on November 14, 1984 was one of the 25 scheduled items covered under the policy. Although the parties refer to this policy as a renewal, it is obvious upon examination that it is a new policy.
The agreement under which John Deere holds a security interest in the combine makes no reference as to whether a security interest in proceeds was intended. However, the financing statement indicates “proceeds of the collateral are also covered.” The agreement also warns on its face that “[n]o insurance unless John Deere Company accepts this instrument.” Over the executed assignment on the reverse side of the agreement appears the following:
Notice of Physical Damage Insurance
If John Deere Company (Deere) becomes holder of the Note which is on the face of this contract, physical damage insurance will be provided covering the equipment which is being purchased on this contract. The physical damage insurance shall terminate if the indebtedness is discharged, or if Deere’s security interest in the equipment terminates, or if the indebtedness becomes in default and Deere discontinues Premium Payments therefore, or if the Retail Installment Sales Floater Policy terminates. The insurance is being purchased by Deere at its own expense. Upon acceptance of said Note by Deere, you will be furnished an advice which describes this insurance protection.
John Deere states that when the loss occurred, the combine had a market value of $50,000, there was approximately $56,-720 owed to it in connection with the security agreement covering the combine1 and that it would receive $25,000 from the John *302Deere Insurance Group. (Defendant’s Reply Brief, p. 7; Delp Affidavit A-l & 2.)
Both parties look to 11 U.S.C. § 552(b) as the basis for their right to the insurance proceeds.
Section 552(b) specifies that if a security agreement entered into before the commencement of a bankruptcy case creates a security interest in property of the debtor which extends, inter alia, to proceeds, then that security interest extends to proceeds acquired by the estate after the commencement of the case to the extent provided by the agreement and by applicable nonbank-ruptcy law. That statement is qualified by the last clause of the section which gives the court discretion, after notice and a hearing, to order otherwise based upon the equities of the case.
Although the security agreement is silent as to any right to proceeds, the applicable nonbankruptcy law (6 Del.C. § 9-203(3)) provides that unless otherwise agreed, a security agreement gives the secured party the rights to proceeds provided by Section 9-306. That Section provides:
(1) “Proceeds” includes whatever is received upon the sale, exchange, collection or other disposition of collateral or proceeds. Insurance payable by reason of loss or damage to the collateral is proceeds, except to the extent that it is payable to a person other than a party to the security agreement ...
The Trustee argues that the Chapter 11 estate qualifies for the exception in that the proceeds of the policy are payable to a “person other than a party to the security agreement”. At first blush this argument appears to be without merit in light of the Supreme Court’s decision in N.L.R.B. v. Bildisco and Bildisco, 465 U.S. 513, 104 S.Ct. 1188, 79 L.Ed.2d 482 (1983), declaring that for the purposes of § 365 of title 11 a debtor-in-possession is not a new entity. That Section permits a debtor-in-possession to deal with its contracts in a manner it could not have done absent a bankruptcy filing. The Court reasoned that if a debtor-in-possession were a new entity, there would be no need for the Code to provide a means for rejecting executory contracts since the debtor-in-possession would not be bound by such contracts in the first place.
Bildisco is distinguishable. Here, the Code creates upon the filing of a case an estate composed of all property in which a debtor had a legal or equitable interest. 11 U.S.C. § 541(a). The estate is a new entity. In a Chapter 11 case, the debtor becomes a debtor-in-possession charged with the duty of preserving that estate. 11 U.S.C. §§ 1107(a), 1106(a)(1) and 704(2). The security agreement imposed no obligation on the Durhams to insure the combine. John Deere, upon assignment, undertook that responsibility. Mr. Durham in recognition of his fiduciary duty to the bankruptcy estate used estate funds to purchase the State Farm policy naming it as loss beneficiary. The estate was not in existence when the security agreement was executed. Thus, the trustee must prevail under applicable nonbankruptcy law inasmuch as the insurance proceeds are payable to the bankruptcy estate which is not a party to that agreement.
The Trustee’s alternative argument is moot. Moreover, if John Deere were entitled to the proceeds, the issues raised by the Trustee’s claim that the equities warranted payment to the estate would have required a hearing.
An order is attached.
ORDER
AND NOW, May 11, 1988, there being no genuine issue of material fact and for the reasons stated in the Memorandum Opinion,
IT IS ORDERED THAT summary judgment is granted in favor of James L. Patton, Jr., Trustee of the Durham estate, Plaintiff, and against John Deere Company, Defendant.
. The agreement covered not only the combine but also a corn head with delivered cash prices in June 1981 of $75,332.50 and $18,935, respectively. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490697/ | BENCH DECISION AND ORDER JUNE 7, 1988
HELEN S. BALICK, Bankruptcy Judge.
The debtors are seeking a reduction in the rate of interest claimed by Community Federal Savings and Loan Association on its default judgment entered in a foreclosure action against debtors’ principal residence on July 1, 1987.
Community argues that its rights cannot be modified under § 1322(b)(2) of title 11, United States Code and that it is entitled to the contract rate of interest stated in the mortgage.
Debtors look to § 506(b) of title 11 for authority to apply equitable principles for reduction of an interest rate when a creditor is oversecured.
Under Delaware law, 6 Del.C. § 2301, a judgment carries the contract rate of interest or, if there is no contract rate, 5% over the Federal Reserve Discount Rate as of the time interest is due. Thus, Community is entitled to the principal amount of its judgment and interest at the rate of 18% from date of entry. Section 506(b) does not give the court any discretion to determine reasonableness of the interest rate permitted under Delaware law.
Chief Judge Schwartz in the Shelly case (38 B.R. 1000, D.Del.1984) noted that if Congress had desired bankruptcy courts to modify state court judgments it would have used explicit language. It did not do so. Consequently, debtors’ objection to Community’s claim is DISMISSED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490698/ | MEMORANDUM DECISION
ROBERT CLIVE JONES, Chief Judge.
The Debtor, Desert Enterprises (“Debt- or”), objects to the claim of secured creditor First Western Savings (“First Western”). For the reasons set forth below, the objection is overruled and the claim will be allowed.
FACTS
On April 18, 1977, Robert Bigelow and Robert Banks borrowed $500,000 from American Savings & Loan Association (“ASL”). They executed a note in favor of ASL in the amount of $500,000 bearing interest at 10% per annum for twenty-five years. The payments required by the note were $4,545 per month.1 The note was secured by a deed of trust on an apartment complex, the Oak Tree Apartments, in Las Vegas, Nevada (“Property”).
In June 1977, Bigelow and Banks transferred the Property to Marlene Azine and Buttons Swerdloff, d/b/a Oak Tree Associates. On January 8, 1979, the Property was transferred to Debtor. When ASL became aware of the latter transfer, it sent a letter dated June 2, 1980, to Debtor requesting that Debtor submit an application to assume the loan, and indicating that ASL had the option of calling the note due or of allowing the assumption. Debtor subsequently filed an application, and on June 24,1980, ASL wrote to Debtor indicating that the assumption of the note had been approved, but with a new interest rate of 13.5%. On July 10, 1980, Debtor wrote to ASL indicating that it could not afford the loan at 13.5% and requesting that the interest rate be 11.75%. An internal memo dated July 15, 1980, was sent to the ASL loan committee indicating that Debtor requested the loan be at 11.75%. A notation on the memo dated July 24, states that the 13.5% figure is final.
From June, 1980 to March, 1981 Debtor apparently continued to make payments of $4,911.15 which were accepted by ASL. On March 31, 1981, ASL sent Debtor a new loan payment coupon, due April 10, 1981, along with a letter stating that the interest rate on the loan has been changed to 15% and that the new total payment on the loan would be $6,637.58 per month. Debtor sent another check for $4,911.15 that was returned by ASL along with a letter dated April 14, 1981. The letter stated that the monthly payments were now $6,637.58 and indicated that an assumption and modification agreement was enclosed for signature by Debtor. Finally, on May 15, 1981, ASL sent a letter to Debtor indicating that the interest rate on the loan would be 16% beginning with the June 10, 1981 payment, although Debtor had an option of purchasing one point on the loan and bringing the interest rate to 15% with total payments being $6,637.58.
Debtor apparently neither replied to any of the letters sent by ASL during March, April and May of 1981, nor signed the assumption and modification agreement. In June, 1981, however, Debtor began making $6,637.58 monthly payments to ASL. Debtor continued to make these payments until August, 1986. On February 23, 1987, Debtor filed a Chapter 11 petition. Debtor subsequently objected to the claim of First Western, the successor-in-interest to ASL. Debtor asserted that it had overpaid ASL in the approximate amount of $150,000, and that it was entitled setoff because of First Western’s “breach of duty and good dealing” owed to Debtor. First Western opposed Debtor’s objection, and on October 27, 1987, a hearing was held. Following *633additional briefing by the parties, the Court took the matter under advisement.
This Memorandum Decision constitutes the Court’s finding of fact and conclusions of law pursuant to Bankruptcy Rule 7052.
QUESTIONS PRESENTED
A. Whether the interest rate on the promissory note was modified from 10% to 15%.
B. Whether the modification is enforceable.
DISCUSSION
A. Modification of the Note
The original promissory note bore an interest rate of 10% per annum. First Western claims that when it allowed Debtor to assume the loan, the interest rate was increased to 15%. Debtor claims that First Western has not shown that the parties ever agreed to a modification.
Under Nevada law, a written contract may be orally modified by the parties. Joseph F. Sanson Inv. Co. v. Cleland, 97 Nev. 141, 142, 625 P.2d 566 (1981); Clark County Sports Ent., Inc. v. City of Las Vegas, 96 Nev. 167, 172, 606 P.2d 171 (1980); Silver Dollar Club v. The Cosgriff Neon Co., 80 Nev. 108, 110, 389 P.2d 923 (1964). Although evidence of a modification must be clear and convincing, “consent to a modification may be implied from conduct consistent with an asserted modification.” Clark County Sports Ent., Inc., 96 Nev. at 172, 606 P.2d 171.
In the case at bar, the correspondence admitted into evidence and the conduct of the parties indicates that the parties agreed to increase the interest rate on the note to 15%. In June, 1980, First Western offered to let Debtor assume the promissory note with an increased interest rate of 13.5%. Debtor made a counter-offer of 11.75%, which First Western rejected. The status quo remained the same for eight months while Debtor made payments at the old rate. Then in March, 1981, First Western made a new offer to let Debtor assume the note with an interest rate of 15%. Debtor responded by making a payment at the old rate which was rejected. First Western again indicated that its offer was to let Debtor assume with the rate of 15%. First Western then indicated that the rate would be the 16%, or 15% if Debtor purchased a point. After the latter offer, Debtor began making payments at the 15% rate which payments were accepted by First Western for over five years. This conduct clearly indicates that the parties had agreed that the new interest rate on the note would be 15%. Accordingly, First Western has established that a modification of the interest on the note occurred.
B. Enforceability of the Modification
Debtor argues that the interest rate modification is unenforceable because (1) the payments at the 15% rate were made under duress, (2) the modification violates the statute of frauds, and (3) there is a failure of consideration.
Debtor claims that because First Western allegedly threatened to foreclose if the higher payments were not made, Debtor made the payments under protest and duress. Accordingly, Debtor asserts that the contract is unenforceable on grounds of duress. I disagree. First, there is no evidence that First Western threatened Debtor with foreclosure. The only suggestion of a “threat” is the June 2, 1980 letter in which First Western stated that it had the option to exercise the due-on-sale clause. This is not a “threat of foreclosure.” Second, there is no evidence that the payments were made under duress or that Debtor protested making the payments: Debtor never wrote to First Western or to ASL indicating that it was making the payments under protest and there is no evidence of oral communications to that effect between Debtor and either lender. Even if Debtor objected to making the higher payments, it is difficult to understand why Debtor made the payments for more than five years then filed bankruptcy before raising the issue. Finally, First Western’s “threat” to enforce the due-on-sale clause was the exercise of a legal *634right, which does not constitute duress.2 25 Am.Jur.2d Duress and Undue Influence § 18 (1964 & Supp.1987).
Debtor next argues that the modification agreement is unenforceable because it does not comply with the statute of frauds. The Nevada Statute of Frauds requires that, in general, all contracts that either involve land transactions or that will not be completed within one year must be in writing. See Nev.Rev.Stat. §§ 111.-205, .210. The note in the case at bar comes within the statute because it is secured by a deed of trust. See Summa Corp. v. Greenspun, 96 Nev. 247, 252, 607 P.2d 569 (1980). There is, however, an exception to the statute of frauds where the doctrine of part performance applies. Id.; Zunino v. Paramore, 83 Nev. 506, 509, 435 P.2d 196 (1967). The doctrine of part performance applies where (1) the terms of the oral agreement are definitely established, (2) the acts of the performing party are “done with a view to the agreement being performed,” and (3) the party seeking to enforce the agreement has performed or is ready and willing to perform the essentials of the agreement on his part. Summa Corp., 96 Nev. at 253, 607 P.2d 569. Part performance must be shown by an “extraordinary measure or quantum of evidence....” Id.
Applying this standard to the case at bar, I conclude that the doctrine of part performance applies. The only contractual term in question is the interest rate which, under the modification, is “definitely established” at 15% per annum. Debtor’s making of payments at the higher rate of interest was aimed at repaying the loan at 15% and was therefore “done with a view to the agreement being performed.” Finally, First Western performed its part of the bargain by allowing Debtor to assume the loan and forebearing from exercising the due-on-sale clause. Part performance therefore takes the modification agreement out of the statute of frauds.
Debtor next argues that the modification agreement is unenforceable because First Western gave no consideration for the agreement. First Western’s consideration for the modification agreement was its forbearance from exercising the due-on-sale clause. Debtor argues that there was a lack of consideration for one of two reasons. First, Debtor asserts that due-on-sale clauses are unenforceable under Nevada law. Alternatively, Debtor asserts that First Western waived the right to enforce the due-on-sale clause.
I turn first to the enforceability of the due-on-sale clause in Nevada at the time of the modification. In First Commercial Title v. Holmes, 92 Nev. 363, 550 P.2d 1271 (1976), the Nevada Supreme Court held that where a trustor of a deed of trust sold the encumbered property outright, the beneficiary under the trust deed could exercise a due-on-sale clause without proving impairment of its security. Holmes is analogous to the case at bar. Debtor argues that Nevada law has changed. Debtor apparently relies upon Boyes v. Valley Bank, 101 Nev. 287, 701 P.2d 1008 (1985). There, a trustor under a deed of trust sold the encumbered property to a third party using an installment land contract. The court held that, before it could exercise the due-on-sale clause in the trust deed, the beneficiary had to show that its security was impaired by the sale. The court specifically distinguished Holmes because Holmes involved an outright sale rather than an installment land contract. The court indicated that the validity of the holding in Holmes was “problematical”. Nevertheless, Holmes was clearly still good law both when the note was originally executed and when the assumption in the case at bar occurred. I conclude, therefore, that the due-on-sale clause in the instant deed of trust was enforceable at the time of the modification.
Finally, Debtor asserts that, even if the due-on-sale clause was enforceable, First Western waived its right to enforce it by accepting payments at the 10% interest rate from August, 1980 to March, 1981. I disagree. A waiver is the intentional relin*635quishment of a known right. Reno Realty & Inv. Co. v. Homstein, 72 Nev. 219, 225, 301 P.2d 1051 (1956). The intent to waive a right must be clearly and unequivocally manifested. Melahn v. Melahn, 78 Nev. 162, 166, 370 P.2d 213 (1962). Rondas v. Washoe County Bank, 50 Nev. 181, 188, 254 P. 1080 (1927). Moreover, the party asserting waiver must have been misled to his prejudice by the alleged waiver. Melahn, 78 Nev. at 166, 370 P.2d 213.
Here, between June, 1980 and May, 1981, the parties were negotiating regarding the Debtor’s assumption of the loan. ASL’s acceptance of payments at the lower rate while the new rate was being negotiated does not unequivocally indicate its intent to waive the due-on-sale clause. Moreover, ASL had indicated its intent to exercise the due-on-sale clause unless assumption by Debtor could be arranged. Thus, ASL’s acceptance of the payments did not mislead Debtor to its prejudice and did not “lull Debtor into inactivity” regarding the clause. See Id.; Summa Corp. v. Richardson, 93 Nev. 228, 235, 564 P.2d 181 (1977). Because the due-on-sale clause was enforceable and had not been waived, First Western’s forbearance to exercise the clause could properly serve as consideration for the modification agreement. 17 Am.Jur.2d Contracts § 114 (1964 & Supp. 1987).
CONCLUSION
The interest rate on the promissory note was modified by agreement of the parties from 10% to 15% as of June, 1981. The modification is enforceable. Debtor’s objection to the claim of First Western is therefore overruled and the claim is allowed with an interest rate running at 10% before June, 1981 and at 15% thereafter. Debtor retains the right to object to actual computation of amounts owed. A separate order will be entered.
. It appears that the total monthly payments were actually $4,911.15, which included impounds for taxes.
. The enforceability of a due-on-sale clause in Nevada is discussed below. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490699/ | ORDER ON AIRLINE REPORTING CORPORATION’S MOTION FOR REHEARING AND CLARIFICATION OF ORDER ON MOTION FOR SUMMARY JUDGMENT
ALEXANDER L. PASKAY, Chief Judge.
This cause came on for hearing upon a Motion for Rehearing and Clarification of Order on Motion for Summary Judgment [72 B.R. 380] filed by Airline Reporting Corporation (ARC), the plaintiff in the above styled adversary proceeding. ARC seeks a rehearing of this Court’s Order denying its Motion for Summary Judgment.
The Court considered the record and finds that the motion is well taken and shall be granted. Accordingly, it is,
ORDERED, ADJUDGED and DECREED that the Motion for Rehearing and Clarification of Order on Motion for Summary Judgment filed by ARC be and the same hereby is granted. It is further,
ORDERED, ADJUDGED and DECREED that the Order on Motion for Summary Judgment be and the same hereby is vacated and set aside. It is further,
ORDERED, ADJUDGED and DECREED that in the event the adversary proceeding is not dismissed within 30 days, the matter shall be set for final evidentiary hearing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490700/ | ORDER ON MOTION TO DISMISS
ALEXANDER L. PASKAY, Chief Judge.
This is a Chapter 7 liquidation case and the matter under consideration is a Motion to Dismiss the case, filed by James R. Jessell, the duly qualified and acting Trustee of the estate of the above-named Debtor corporation. The Trustee seeks a dismissal of this Chapter 7 case on the ground that the Debtor corporation failed to abide by an order of this Court which directed an appearance of the Debtor (sic) at the rescheduled 341 meeting of creditors; and for failing to file Amended Schedule of Assets and Liabilities within 30 days from the date of the Order of Conversion.
In due course the Motion was scheduled for hearing at which time the Court heard argument of the Trustee in support of his Motion and, having considered the record, is satisfied that the Motion is without merit and should be denied for the following reasons:
The record reveals that Bird & Stowe, Inc., the Debtor corporation, filed its original Petition for Relief under Chapter 11 on July 18,1985. The Schedule of Assets filed by the Debtor on the same date reveals that the Debtor was the owner of Lot 74 located in Carol Ridge Subdivision in Lee County, Florida, valued by the Debtor at $3,000.00; that in addition the Debtor owned machinery, fixtures and equipment valued at $24,100.00, office equipment and furnishings valued at $11,397.00, inventory valued at $20,000.00, and accounts or contracts valued at $47,630.00. It appears from the Schedule of Liabilities that the lot described is free and clear of liens and the only secured claim is held by Ashley Aluminum who is supposed to have a lien of the inventory and accounts receivable, securing an indebtedness in the approximate amount of $34,300.00.
On April 23, 1987, counsel of record for the debtor filed a Motion to Withdraw and at the same time he filed his Motion to Convert to Chapter 11 case to a Chapter 7 liquidation case. Counsel in support of his Motion to Withdraw stated, inter alia, that the Debtor closed its business and is no longer operating, that all remaining assets of the Debtor are located at the formal business premises of the Debtor and are available for sale and disposal by the Trustee.
On April 30, 1987, this Court entered an order and converted the Chapter 11 case to a Chapter 7 case and appointed Mr. James R. Jessell as interim Trustee for the estate. It appears that the president of the corporation, Mr. William C. McMorris, advised the Court and the Trustee that he obtained employment in Atlanta and sought to be excused from appearing at the 341 meeting. He also advised the Trustee as to the location of the corporation’s books and records and gave the address of the bookkeeper of the corporation, Mr. Charles Gor-man, whose address is (SunnyDell Plaza, Suite M, 3586 Tamiami Trail, Port Charlotte, Florida 33952) and who would be *692available to furnish any and all information necessary for the administration of the estate.
From the foregoing’ it is apparent that it would be highly improper and inappropriate to grant the Trustee’s motion to dismiss this Chapter 7 case for the following reasons:
It is quite evident and needs no elaborate discussion to note that the administration of a Chapter 7 case is not dependent upon the Debtor’s compliance with the requirements of the Bankruptcy Code. If this would be the case the Debtor could easily defeat the very purpose of Chapter 7 liquidation case by simply not appearing at the meeting of the creditors or not filing the necessary papers which in turn under the theory advanced by the Trustee would assure dismissal, giving the Debtor a free hand to dispose of the assets of the estate. It is obvious that this is not what Congress had in mind when it structured the provision of the Bankruptcy Code governing liquidation of the assets under Chapter 7. In addition it was not the intention of Congress when it created the office of a trustee and spelled out the duties of a trustee, paramount of which is the trustee’s duties to collect the properties of the estate and reduce the same to money that a non-compliance by Debtor would permit the Trustee to abdicate the responsibilities of the office. Section 704(1) of the Bankruptcy Code.
Based on the foregoing, this Court is satisfied that the reasons stated in the Trustee’s Motion to Withdraw are unacceptable and must be rejected.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion to Dismiss the case filed by James R. Jessell, the Trustee, be, and the same is hereby, denied. It is further
ORDERED, ADJUDGED AND DECREED by the Court that the Trustee shall forthwith proceed to comply with the requirements of § 704(1) and promptly proceed to administer the assets of the estate as required by the Bankruptcy Code. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490701/ | ORDER ON APPLICATION FOR ALLOWANCE OF ADMINISTRATIVE EXPENSE AND OBJECTIONS TO PAYMENT OF SAME
ALEXANDER L. PASKAY, Chief Judge.
This is a Chapter 11 case in which the plan of reorganization has yet to be confirmed. The matter under consideration is an Application for Allowance of Administrative Expense filed by Elias Moran Aro-semena (Dr. Arosemena) as Curador of Florida Peach Corporation of America, International Division and Objections to the Application of Dr. Arosemena. The Objection is filed by the Debtor, Maxwell Wells, Trustee and Robert Lurie, principal of the Debtor. In its Application, Dr. Arosemena seeks an allowance to be charged as cost of administration pursuant to § 503 of the Bankruptcy Code, in the sum of $204,-607.74. The amount sought is broken down into two items. The sum of $114,-626.00 represents expenses allegedly incurred by Dr. Arosemena for legal fees owed to the law firm of Smith and Hulsey. *701The balance of the Application relates to legal services rendered by the law firm of Bush, Ross, Gardner, Warren and Rudy in connection with the firm’s representation of Dr. Arosemena in the case of International Food Corporation (IFC), a related Chapter 11 case still pending in this Court, and also in conjunction with this current Chapter 11 case. The facts which are without dispute and germane to the Application under consideration can be summarized as follows:
Florida Peach Corporation of America, International Division (FPCAID), a Panamanian Corporation, was involved and is still involved as a Debtor in an involuntary bankruptcy in the Republic of Panama since February 3, 1982. In connection with the Panamanian bankruptcy, Dr. Aroseme-na was appointed as Curador (i.e. Trustee) for the estate of FPCAID. On May 4, 1982, International Food Corporation of America,S.A. a second Panamanian Corporation, (IFC), filed a voluntary petition for relief under Chapter 11 in the Middle District of Florida, Tampa Division. On May 24, 1982, Dr. Arosemena appeared in the case of IFC as a foreign representative of FPCAID and filed a Petition to Commence a Case Ancillary to Foreign Proceedings, pursuant to § 304 of the Bankruptcy Code, in the Middle District of Florida, Jacksonville Division, Case No. 82-3040-A in order to pursue certain adversary proceedings against the Debtor. An Order for Relief was entered on October 14, 1982, and on November 19, 1982, Dr. Arosemena filed a Motion in this Court seeking to intervene in an adversary proeeding styled International Food Corporation of America, S.A., vs. United States of America, et al, Adversary Case No. 82-0702, an adversary proceeding commenced in the Tampa Division IFC case. The Motion was filed pursuant to Bankruptcy Rule 7024, at that time Rule 724, in which Dr. Arosemena asserted that under Panamanian Law the Curador was the legal representative of FPCAID and the creditors of that corporation and sought the recovery of assets of FPCAID which were claimed to have been fraudulently transferred to IFC by the principal Robert Lurie, who was and still is the principal of both corporations. On December 15, 1982, Judge Proctor entered an Order transferring the Jacksonville Chapter 11 case of IFC to the Tampa Division, and on March 1, 1983, this Court entered an Order which dismissed the case stating that the ancillary proceeding was no longer necessary because this Court had permitted Dr. Arosemena to intervene in an adversary proceeding which was instituted in the case of International Food filed in the Tampa Division of the Middle District.
The legal services to Dr. Arosemena were rendered by two law firms, neither of which was authorized by this Court to be retained. Obviously all these services were rendered to Dr. Arosemena by the two law firms prior to the commencement of this Chapter 11 case which was filed on April 3, 1986. The Application is challenged by several parties, primarily on the basis that the requested fees clearly represent services rendered by professionals to Dr. Aro-semena, a creditor, prior to the commencement of the current Chapter 11 case. These objections are indeed well taken as the incurred fees obviously were not actual and necessary costs and expenses incurred in connection with the preservation of the assets of this estate during the pendency of the case.
This leaves for consideration, therefore, the question whether or not it is proper to charge this particular estate for the attorney fees pursuant to § 503(b)(3)(D), which provides as follows:
§ 503. Allowance of administrative expenses (b) After notice and a hearing, there shall be allowed administrative expenses, other than claims allowed under § 502(f) of this title, including — •
(3) the actual, necessary expenses, other than compensation and reimbursement specified in paragraph (4) of this subsection, incurred by—
(D) a creditor, an indenture trustee, an equity security holder, or a committee representing creditors or equity security holders other than a committee appointed under section 1102 of this title, in making a substantial contribu*702tion m a case under Chapter 9 or 11 of this title ...
The Court has heard argument of counsel for Dr. Arosemena and the objecting parties, has considered the Application together with the record and is satisfied that while the claim of Dr. Arosemena against this estate may be properly allowed as an unsecured claim, the same cannot be charged as a cost of administration of this estate for several reasons. First, all these services were rendered to Dr. Arosemena prior to the commencement of the current Chapter 11 case. Second, the expenses sought to be reimbursed are payments of legal fees to counsel who were never authorized to be employed by this Court in this particular case and, therefore, under the appropriate Section of 503 and as provided for by § 330 of the Bankruptcy Code, no such fee could be allowed as charged under § 503 as costs of administration and accorded a first priority under § 507(a)(1).
Moreover, it is clear that Dr. Arosemena and the attorneys who represented him at that time did not act on behalf of the entire estate, but they represented only the particular creditors who are involved in the Panamanian Bankruptcy Case, as distinguished from the entire estate of FPCAID as exists in this Court.
Based on the foregoing, it is
ORDERED, ADJUDGED AND DECREED that the Application be, and the same is hereby, denied. It is further
ORDERED, ADJUDGED AND DECREED that the Opposition to Application for-Allowance of Administrative Expense treated as an Objection filed by Maxwell Wells, as Trustee, be, and the same is hereby, sustained. It is further
ORDERED, ADJUDGED AND DECREED that the Motion Against Payment of Any Funds to Curador Arosemena, treated as an Objection filed by Robert Lurie, be, and the same is hereby, sustained. It is further
ORDERED, ADJUDGED AND DECREED that the Response to Application for Allowance of Administrative Expense, treated as an Objection filed by the Debtor, be, and the same is hereby, sustained. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490702/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE came on before the Court upon the Complaint of the liquidating trustee of the Miami Center Liquidating Trust (the “trust”) against the Miami Center Joint Venture (MCJV), Olympia & York Equity Corp. and Olympia & York Florida Equity Corp. (0 & Y, collectively), Theodore B. Gould (Gould) and The Bank of New York (the “bank”) in the nature of a declaratory decree, pursuant to Bankruptcy Rule 7001, to determine an interest in property, and to determine the parties’ rights in connection with the marshaling and disbursing of the estate’s assets, to wit, the sum of $14,557,754.00 found to be due and owing in accordance with the allowance of Claim 502 filed in these consolidated proceedings by MCJV, and to determine what rights the liquidating trustee has to seek contribution from the bank, and to further determine the rights of the bank in accordance with such contribution and the Court having heard the testimony, examined the evidence presented, observed the candor and demeanor of the witnesses, considered the arguments of counsel and being otherwise fully advised in the premises does hereby make the following Findings of Facts and Conclusions of Law:
The bank’s Amended Consolidated Plan of Reorganization (the “plan”) was confirmed on August 8, 1985, and became effective on October 10, 1985, after the debtors failed to supersede the order of confirmation. The confirmation order was affirmed by the district court, 59 B.R. 340 (S.D.Fla.1986), and the 11th Circuit Court of Appeals dismissed an appeal of the order as moot because the plan was substantially consummated. Miami Center Limited Partnership v. Bank of New York, 838 F.2d 1547 (11th Cir.1988). The plan created a liquidating trust with a provision for the appointment of a liquidating trustee to administer the trust. The plan further provided for the Court to retain jurisdiction of the case to hear and determine the remaining outstanding claims, such as, the 502 lease claim.
Although the confirmation of the bank’s plan was subsequently affirmed on appeal, this Court’s determination that certain MCJV leases were true leases and the issue of whether MCJV’s 502 lease claim should have been equitably subordinated in the plan was appealed to the district court. At the time of confirmation, this Court ordered that the bank guarantee payment, in full, of the MCJV 502 lease claim up to $14,400,000.00 if the bank was unable to obtain a reversal of the true lease decision and the subordination of MCJV’s claims was not affirmed. Subsequently, the district court ordered, and the bank posted, a surety bond of $15,000,000.00.
The district court affirmed this Court’s true lease ruling and in a subsequent opinion, dated March 24, 1987, reversed that portion of the order of confirmation finding MCJV’s claim to be improperly subordinated and remanded the matter for further consideration by this Court. The district court directed that on remand this Court resolve two issues: first, the value the 502 lease claim and second, the respective interests in the claim held by O & Y and the liquidating trust, as the owner of debtor Gould’s interest. Furthermore, the district court specified the method of payment of the 502 lease claim as follows: first, from the cash remaining available to the liquidating trustee; second, from any property controlled by the trustee in MCJV, including Gould’s interest; and third, from the surety bond provided by the bank to guarantee O & Y’s payment under the plan.
Upon remand, this Court, on May 8, 1987, valued the 502 lease claim at $14,557,-*715754.00. The Court further directed that the liquidating trustee file and serve, within fourteen days, the instant complaint to determine the respective interests of 0 & Y and the liquidating trustee in the claim.
MCJV is a general partnership formed in the State of Florida by Gould & 0 & Y, the general partners. Gould was named the managing venturer upon MCJV’s inception. Debtor Miami Center Limited Partnership and MCJV entered into lease agreements involving MCJV’s furniture, fixtures, and equipment (FF & E) which are the basis of MCJV’s 502 lease claim. Additionally, MCJV owns four vacant lots near the existing Miami Center Project where Gould & 0 & Y planned to construct two additional phases of the Miami Center. However, disputes arose between the partners which resulted in Gould initiating arbitration proceedings and the postponement of the project. When the Chapter 11 petition was filed the parties were still involved in arbitration which continued after relief from stay was obtained.
The arbitration award was in debtor Gould’s favor finding 0 & Y had breached the Joint Venture agreement and providing Gould with the opportunity to purchase 0 & Y’s interest in MCJV. However, since the award did not delineate alternatives should Gould default on any purchase arrangement he might initiate flowing off the award, the arbitration award was reversed by the United States Court of Appeals for the Second Circuit. Olympia & York Florida Equity Corp. v. Gould, 776 F.2d 42, 46 (2d Cir.1985).
Prior to the second circuit’s decision and the time the arbiters reconvened, the bank’s plan of reorganization was confirmed thereby necessitating the involvement of the liquidating trustee. Once the arbitration proceedings resumed, the parties could not agree to a Final Modified Award and the arbiters advised the liquidating trustee that if no agreement was reached then the proceedings would be dismissed and the prior award vacated.
The liquidating trustee authorized Gould to enter into the arbitration negotiations to settle the differences between MCJV and the trust estate. The liquidating trustee advised the arbiters that he would agree to, and recommend to the Court approval of, a Final Modified Award, provided 0 & Y unconditionally agreed to make a payment of $6,300,000.00 to the liquidating trustee on or before June 30, 1988. The funds were designated as an advance of a portion of the equity surplus that Gould, as a partner, would likely receive upon liquidation of MCJV’s assets in a favorable real estate market. An additional consideration of the settlement by O & Y was its release of a $69,672,518.00 claim against the estate. The above terms were memorialized in a letter agreement dated June 26, 1986 and signed by the liquidating trustee, O & Y and Gould.
The Final Modified Award vests O & Y with the sole discretion whether to dissolve MCJV or retain the MCJV properties for sale or to finance them for development, in whole or in part. The award further provides that MCJV’s liabilities shall be paid in the following order of priority: class a— $16,000,000.00 principal amount of the outstanding first mortgage loan which is presently owned by O & Y; class b — (i) payment to O & Y of all advances to MCJV for carrying costs and charges plus interest from March 1, 1984 to December 31, 1985, (ii) payment of all interest payable to O & Y upon advances made by O’ & Y to MCJV from the inception of the Joint Venture to February 29, 1984, (iii) payment of indebtedness of MCJV to O & Y for future real estate taxes plus interest, (iv) the above subclasses i-iii are payable pari passu with payment to Gould of the balance of his return of capital less several enumerated setoffs, (v) the above subclasses i-iii will be increased to the extent of future advances or financing by O & Y for carrying costs and taxes, plus interest; class c — payment to O & Y of the principal amount of O & Y’s advances to MCJV less the $16,000,-000.00 mortgage, plus interest; class d— the above indebtedness to O & Y and to Gould, after December 31, 1985, shall bear interest at O & Y’s average annual corporate cost of borrowing; and class e — any equity balance, after discharge of the above indebtedness, and all debts to third *716parties, will be distributable to 0 & Y and Gould in equal shares.
DISTRIBUTION OF THE 502 LEASE CLAIM
The liquidating trustee and the bank argue that the 502 lease claim should be distributed in equal shares between 0 & Y and Gould. They support their position by referring to the district court opinion, dated March 24, 1987 where, in a footnote, the judge requested that this Court “determine whether the arbitration proceedings had any effect that would alter the general partners’ 50% interest.” Additionally, they argue that under both § 620.68(1), Fla.Stat. and the Final Modified Award that Gould, therefore the liquidating trustee, and 0 & Y each own equal shares in MCJV’s assets, including MCJV’s lease claim.
0 & Y’s primary argument is that § 620.755, Fla.Stat. should be applied to the distribution of the $14,557,754.00 which provides that all of the partners’ interests in capital and equity are subordinate to debts to third parties. Therefore, unless there is an equity surplus available after payments of all of MCJV’s debts, the equal shares provision is not applicable. Their secondary argument, which the Court finds to be persuasive, is that even if the priorities listed for debt repayment are followed as designated in the Final Modified Award, the question of an equal shares equity surplus distribution is never reached since the $14,447,754.00 would be depleted after it is applied against the “class a” priority indebtedness which is a $16,000,000.00 mortgage loan.
The Court agrees with the bank and the liquidating trustee that O & Y and the liquidating trustee, on behalf of Gould, each own a 50% share in the equity or capital surplus of the MCJV assets and that the arbitration proceeding did not affect that interest. However, the Court finds that the 502 lease claim is owned by the partnership, MCJV, therefore any liquid asset coming into the partnership must be distributed according to the priorities designated in the partnership agreement, or as in this case, the Final Modified Award. The order of priority listed in the Award designates that the “class a” mortgage is to be the first debt paid. Neither the district court order nor the letter agreement modified the terms reached in the settlement that culminated in the Final Modified Award aind the Court is compelled to enforce those provisions as agreed to by the parties.
Florida partnership law regarding the priority of debt repayment is not applicable, as argued by O & Y, since the parties entered into a written agreement specifying a different order of priority. § 620.755 Fla.Stat. (1987). Additionally, to find, as argued by the bank and the liquidating trustee, that the 502 lease claim should be divided in equal shares between the partners would require a finding by this Court that the value of the MCJV assets is such that the partners are guaranteed an equity surplus distribution of $14 million dollars. The Court is not in a position to make such a finding, especially in light of the diverse figures it received regarding the value of the properties from the respective parties, ranging from $80 million to $104 million. Additionally, although this Court heard the parties’ statements as to value, no appraisal testimony was received, therefore, such a valuation at this juncture would be inappropriate.
Therefore, the Court finds that the $14,-557,754.00 claim should be paid to MCJV to be distributed according to the Final Modified Award to the “class a” creditor, O & Y, as the owner of the outstanding first mortgage.
THE $6,300,000.00 PAYMENT
The liquidating trustee agreed to the settlement proposed in the Final Modified Award and entered into the letter agreement with MCJV’s partners for the consideration of receiving from O & Y a guaranteed premature capital distribution of $6,300,000.00 on or before June 26,1988. In addition, O & Y withdrew its substantial claim in the estate. O & Y agreed to pay this sum to the liquidating trustee to obtain the sole discretion as to the’disposition of MCJV and its assets.
*7170 & Y argues that the $6.3 million should be distributed according to the priorities established in the Final Modified Award. 0 & Y further argues that the letter agreement does not definitively state that the liquidating trustee shall receive the entire $6.3 million, but that $6.3 million is the maximum amount he is entitled to receive by June 26, 1988. 0 & Y argues that if the order of priority found in the Award is followed that first, the remaining amount due on the first mortgage must be paid and second, the liquidating trust, on behalf of Gould will be paid pari passu with the other creditors of “class b” resulting in a distribution to the estate of a fraction of the $6.3 million.
After considering the Final Modified Award and the letter agreement as documents designed to compliment one another, the Court cannot accept 0 & Y’s position. If the letter agreement were read as suggested by 0 & Y, then the liquidating trustee had no incentive to agree to the Final Modified Award’s terms since he bargained for the $6,300,000.00 distribution in an effort to marshal liquid assets for the trust within the near future rather then speculate indefinitely on a more favorable market within which to liquidate. Also, O & Y benefited by agreeing to pay the liquidating trustee the money in return for acquiring the exclusive control over the disposition of MCJV’s properties, whether it decided to liquidate or carry the properties. Based on the relative positions of the parties at the time the agreements were formulated, the only plausible conclusion is that O & Y guaranteed a $6,300,000.00 payment to the liquidating trustee on or before June 26, 1988.
Furthermore, MCJV was not a party to the letter agreement, only the liquidating trustee, O & Y and Gould were involved. The agreement and the concessions given by the liquidating trustee were to O & Y’s benefit, as the primary creditor, not to the partnership. As a result, the order of distribution specified in the Final Modified Award is not applicable since, unlike the 502 lease claim, MCJV is not principally involved and the agreement is between the partners, therefore outside the Award’s provisions. Therefore, the Court finds that O & Y is liable to the liquidating trustee for $6,300,000.00 in accordance with their letter agreement dated June 26, 1986.
METHOD OF PAYMENT
As previously mentioned, the district Court specified in its opinion the method of payment of the claim by the trustee once this Court determines who is entitled to a distribution. The first source of payment will come from the cash which remains available to the liquidating trustee. However, it is probable that there will be no cash available from which the liquidating trustee may pay MCJV after distributions are made to the various creditors, including the administrative claimants. The second source of payment is from any property controlled by the trustee, including Gould’s interest in MCJV. With regards to this source of funding, this Court finds that the only control or interest Gould has remaining in the MCJV properties is his residual, possibly illusory, equity surplus right after all of MCJV’s debts have been satisfied. The Court finds that this source of funding does not contemplate the forced liquidation of the MCJV’s properties which would be in contravention of the Final Modified Award and the letter agreement.
It therefore appears that MCJV’s claim will have to be paid through the bank’s surety bond. The bank is concerned that payment through the bond will subject it to double payment for the true leases which the bank contends were included within the purchase price it paid for the Miami Center. However, no double payment will occur since the bank will have those remedies provided in the plan, as modified, and as provided in the supersede-as bond. Therefore, the bank is not left unprotected, but has a claim upon which it may anticipate distribution.
In summary, the Court finds that:
1. the $14,557,754.00 MCJV 502 lease claim shall be paid by the liquidating trustee to MCJV for distribution according to the order of priority specified in the Final Modified Award;
2. the method of payment of the 502 lease claim to MCJV by the liquidat*718ing trustee shall be completed according to the district court’s opinion, dated March 24, 1987, with the clarification that the liquidating trustee shall pay cash only from funds remaining available after other creditors and administrative claimants have been paid and that the liquidating trustee has no power to force the liquidation of the MCJV properties since, according to the letter agreement, and the Final Modified Award the only control left to Gould is his right to an equity surplus distribution after all MCJV debts are paid at some point in the future. The provisions of the supersedeas bond remain in effect as they relate to the guarantee of payment on the 502 lease claim; and
3. the $6,300,000.00 payment provided in the letter agreement shall be paid by O & Y to the liquidating trustee pursuant to the letter agreement.
A separate Final Judgment of even date has been entered in conformity herewith. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490703/ | ORDER
KENNETH J. MEYERS, Bankruptcy Judge.
This matter is before the Court on a Motion to Dismiss Complaint to Determine Dischargeability of Debt. The parties involved in this dispute, Frank Richards, Jr. (“defendant”), and John Wright, Dan Mun-dell and Charles Mundell (“plaintiffs”), each claim that the other is barred by collateral estoppel from relitigating the issues raised in the adversary complaint.
The Court initially notes that, for purposes of defendant’s motion to dismiss, all allegations in the complaint must be accepted as true. In re Smurzynski, 72 B.R. 368, 369 (Bkrtcy.N.D.Ill.1987); In re Haas, 36 B.R. 683, 688 (Bkrtcy N.D.Ill.1984); In re Oien, 22 B.R. 720, 721 (Bkrtcy.D.S.D.1982). “Very little is required in a complaint as long as it sets forth the basis upon which relief is sought.” In re Over-myer, 32 B.R. 597, 602 (Bkrtcy.S.D.N.Y.1983). A motion to dismiss a complaint must not be granted unless it clearly appears that the plaintiff can prove no set of facts under its pleadings which would entitle it to the relief requested. Cruz v. Beto, 405 U.S. 319, 322, 92 S.Ct. 1079, 1081, 31 L.Ed.2d 263 (1972); In re Smurzynski, supra, at 370; In re Haas, supra.
The Complaint to Determine Discharge-ability of Debt, which is the subject of the present Motion to Dismiss, was filed on *978January 19,1988. In their complaint, plaintiffs allege that they are judgment creditors of defendant and that defendant induced them to invest in Red River Development, Inc., an oil and gas exploration company, by making false representations as to the amount of production of wells operated by Red River Development. Plaintiffs ask that the judgment debts owed to them by defendant be held nondischargeable pursuant to § 528(a)(2).
The judgment debts to which plaintiffs refer are from a lawsuit plaintiffs filed, along with four other persons, on August 9, 1983, in the Circuit Court of Marion County, Illinois. In the first seven counts of that complaint, plaintiffs sought recovery of the funds they invested in Red River Development based on defendant’s sale of securities which were not registered as required by Illinois securities laws.
Count VIII of the complaint set forth a claim based on common law fraud. Plaintiffs alleged that defendant made false representations as to the production of various oil wells and that he provided plaintiffs with false and fraudulent production reports. Plaintiffs also alleged that the false representations were made with the specific intent of convincing plaintiffs to invest in the wells and that defendant knew or should have known that plaintiffs would rely on the representations as true and accurate information. Finally, plaintiffs claimed that they made various investments in reliance on the false representations.
On July 15, 1985, the trial court entered judgment in favor of plaintiffs on the securities law counts and in favor of defendant on the common law fraud count. On appeal, the Illinois Appellate Court affirmed the trial court’s decision as to defendant’s liability on the securities law counts and his lack of liability on the common law fraud count. Wright v. Richards, 494 N.E.2d 1269, 98 Ill.Dec. 942, 144 Ill.App.3d 450 (1986).
Subsequently, defendant was charged by the United States Attorney for the Southern District of Illinois with conspiracy (18 U.S.C. § 371) and mail fraud (18 U.S.C. § 1341) in connection with the same Red River Development scheme. On November 21, 1986, defendant entered a plea of guilty to the federal charges. As part of his guilty plea, he also agreed to the facts stated in the prosecution’s version of the offense. This Court has not been informed as to the sentence imposed on defendant, if any, by the District Court.
In his motion to dismiss, defendant argues that the doctrine of collateral estop-pel bars plaintiffs from relitigating the issues raised in the adversary complaint because: (1) the issues are identical to those raised in Count VIII of the state court action; (2) the issues were actually litigated in the Circuit Court of Marion County, Illinois; (3) the issues were necessarily litigated in- the Circuit Court; and (4) the Circuit Court order was a valid and final judgment.
In response, plaintiffs point out that by pleading guilty to the federal criminal charges, defendant admitted committing fraud on the plaintiffs. In other words, his guilty plea directly contradicts the state court decision in his favor on the common law fraud count. Plaintiffs argue that defendant’s guilty plea collaterally estops him from denying his fraudulent conduct and that, therefore, they are entitled to a judgment of nondischargeability under § 523(a)(2). Plaintiffs also argue that since the fraud issue was neither fully litigated nor essential to the state court lawsuit (which was primarily an Illinois securities law action), collateral estoppel would not apply.
“ ‘Collateral estoppel’ or ‘issue preclusion’ prevents parties from relitigating only those issues actually and necessarily litigated in a prior proceeding.” In re Freeman, 68 B.R. 904, 906 (Bkrtcy.M.D.Pa. 1987). It is well established that a state court action will have collateral estoppel effect on a subsequent dischargeability complaint when the following requirements are met:
1. The issue sought to be precluded must be the same as that involved in the prior action.
*9792. The issue must have been actually litigated;
3. The determination of the issue must have been essential to the final judgment; and
4. The party against whom estoppel is invoked must be fully represented in the prior action.
Klingman v. Levinson, 831 F.2d 1292, 1295 (7th Cir.1987); In re Herwig, 77 B.R. 662, 663-64 (Bankr.S.D.Ill.1987); In re Roemer, 76 B.R. 126, 128 (Bankr.S.D.Ill.1987).
Plaintiffs have brought this action under § 523(a)(2) of the Bankruptcy Code which provides in pertinent part:
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained, by— (A) false pretenses, a false representation, or actual fraud ...
In order to succeed in an action under § 523(a)(2)(A), a creditor must establish that: (1) the debtor made a representation; (2) at the time the representation was made the debtor either knew it was false or made it with such reckless disregard for the truth as to constitute willful misrepresentation; (3) the representation was made with intent to deceive; (4) the creditor relied on the representation; and (5) the creditor suffered a loss as a result of the misrepresentation. In re Kimzey, 761 F.2d 421, 423 (7th Cir.1985); In re Kyriazes, 38 B.R. 353, 354 (Bkrtcy.N.D.Ill.1983).
Although the language used to describe them is somewhat different, the elements to be established in a common law fraud action under Illinois law are identical to those under § 523(a)(2)(A). The common law fraud elements are: (1) A false statement of material fact; (2) knowledge or belief by the party making the statement that the statement is false or his awareness that he is ignorant of the truth; (3) the statement was made for the purpose of inducing the other party to act; (4) the party to whom the statement was made had a right to rely on it and did rely on it; and (5) reliance by the party to whom the statement was made led to his injury. See-feldt v. Millikin National Bank of Decatur, 506 N.E.2d 1052, 1055, 107 Ill.Dec. 161, 164, 154 Ill.App.3d 715 (1987); Wright v. Richards, supra, 494 N.E.2d at 1274, 98 Ill.Dec. at 947. “Reasonable reliance” on the false representation is an element of both an Illinois common law fraud action and a nondischargeability action under § 523(a)(2)(A). Glazewski v. Coronet Insurance Co., 483 N.E.2d 1263, 1266, 91 Ill.Dec. 628, 631, 108 Ill.2d 243 (1985); See-feldt, supra; In re Kimzey, supra; Matter of Esposito, 44 B.R. 817, 824 (Bkrtcy.S.D.N.Y.1984). Additionally, both types of actions require the same standard of proof, that of “clear and convincing evidence.” Matter of Bogstad, 779 F.2d 370, 372 (7th Cir.1985); In re Bonnett, 73 B.R. 715, 717 (C.D.Ill.1987); Wright v. Richards, supra.
Both the present adversary complaint and the prior state court action raise the same issues of fact, i.e., (1) whether defendant fraudulently induced plaintiffs to make certain oil and gas investments by making representations which he knew to be false or misleading or which he made with reckless disregard for the truth; (2) whether he intended for plaintiffs to rely on the representations; (3) whether plaintiffs did in fact rely on the representations and sustained losses; and (4) whether such reliance was reasonable. The elements necessary to establish each of the actions are identical as is the “clear and convincing evidence” standard of proof. Clearly, the issues sought to be precluded by defendant in this action were the same as those litigated in the prior state court action. Therefore, the first requirement for collateral estoppel has been met.
From a review of the Illinois Appellate Court’s opinion, as well as the trial court’s order, it is apparent that the fraud issue raised in the present complaint was actually litigated in the state court and that a determination of that issue was essential to the state court’s final judgment. As the appellate court noted:
*980The [trial] court could believe Prank Richards did not know the information he gave plaintiffs was untrue and could also believe he was not culpably ignorant of its truth ... A finding that Frank Richards had no intent to deceive was not against the manifest weight of the evidence ... Consequently, we affirm the [trial] court’s judgment for all defendants on the fraud count.
Wright v. Richards, supra, 494 N.E.2d at 1274-75, 98 Ill.Dec. at 947-48.
Plaintiffs do not take issue with the finality of the state court judgment, but they do question whether the fraud issue was fully litigated and essential to the pri- or action. Specifically, they claim that their state court action was based primarily on violations of Illinois securities laws and that the fraud count was essentially an afterthought on which little effort was expended at trial. They argue that they should not have been forced to have litigated the fraud issue in state court in anticipation of the “defense of bankruptcy.”
That the fraud count was actually an important part of plaintiffs’ case is indicated by the fact that only by establishing fraud could plaintiffs hoped to have recovered the punitive damages they requested. Id. 494 N.E.2d at 1274, 98 Ill.Dec. at 947. Furthermore, the fact that the fraud issue was raised on appeal and was thoroughly discussed by the appellate court indicates that it was, in fact, fully litigated and essential to the prior action.
The final criteria for the application of collateral estoppel also appears to have been met as neither party claims that it was not fully represented in the prior action. Therefore, the Court concludes that the prior state court action meets all the criteria for the application of collateral es-toppel and that plaintiffs should be precluded from raising their fraud claims in this case. However, this does not end the inquiry because defendant pled guilty to federal criminal charges involving the same facts as in both the prior state court action and this case. As a result, the collateral estoppel effect of the guilty plea must also be examined before a decision on the motion to dismiss can be rendered.
A guilty plea may have collateral estop-pel effect on a subsequent civil action. Appley v. West, 832 F.2d 1021, 1026 (7th Cir.1987). It may also have collateral es-toppel effect on subsequent dischargeability proceedings in bankruptcy court. In re Goux, 72 B.R. 355, 360 (Bkrtcy.N.D.N.Y.1987); In re Vandrovec, 61 B.R. 191, 196 (Bkrtcy.D.N.D.1986). A guilty plea must meet the same criteria as any other civil or criminal proceeding in order to have collateral estoppel effect in a subsequent proceeding. “[T]he requisite elements of collateral estoppel may be met by a plea of guilty providing the charge to which the plea is entered contains the requisite elements of the latter civil proceeding.” In re Vandrovec, supra, 61 B.R. at 197.
In the present case, defendant pled guilty to charges of conspiracy and mail fraud. Neither charge contains all the requisite elements for nondischargeability of a debt under § 523(a)(2). For example, the crime of conspiracy involves an agreement to violate the law, not the violation of the law itself. United States v. Frans, 697 F.2d 188, 192 (7th Cir.), cert. denied, 464 U.S. 828, 104 S.Ct. 104, 78 L.Ed.2d 107 (1983). Therefore, defendant’s guilty plea to a conspiracy charge involving fraud would not necessarily establish that he had made a false representation or committed fraud for purposes of § 523(a)(2). Additionally, the defendant’s guilty plea on the mail fraud charge does not establish proof of fraud under § 523(a)(2) because proof that the intended victim was actually defrauded is not a necessary element of the crime of mail fraud. United States v. Go-odpaster, 769 F.2d 374, 378-79 (6th Cir.1985); United States v. Keane, 522 F.2d 534, 545 (7th Cir.1975).
Notwithstanding the fact that the elements of the crimes to which defendant pled guilty are not the same as the elements of fraud under § 523(a)(2), plaintiffs argue that the guilty plea is an admission that defendant did in fact commit fraud and that, therefore, he should be precluded from arguing that his debt to them is dis-*981chargeable. Several courts have held that a plea of guilty operates as an admission of all material facts alleged in the criminal charge. Appley v. West, supra, 832 F.2d at 1026; United States v. Mathews, 833 F.2d 161, 163 (9th Cir.1987); In re Goux, supra, 72 B.R. at 359.
In the present case, the criminal charge against defendant specifically alleged that he had made false representations regarding the production of oil wells operated by Red River Development to induce individuals to invest in the project. By pleading guilty to the charge, defendant admitted that he had defrauded plaintiffs. However, defendant’s admission does not establish all the elements necessary for nondis-chargeability.
As noted previously, one of the elements needed to establish nondischargeability of a debt under § 523(a)(2) is that the creditor reasonably relied on the false representation. Reasonable reliance is also an element of an Illinois common law fraud action.1 However, reasonable reliance is not an element that was admitted to or proven by defendant’s guilty plea. Therefore, while the guilty plea may establish collateral estoppel as to some of the elements of § 523(a)(2), it cannot be used to establish reasonable reliance. See, Matter of Esposito, 44 B.R. 817, 824 (Bkrtcy.S.D.N.Y.1984).
In Esposito, the court refused to use the collateral estoppel effect of a guilty plea to establish nondischargeability of a debt under § 523(a)(2). However, the court relied on affidavits submitted in support of a motion for summary judgment to find reasonable reliance and, ultimately, to find the debt nondischargeable. Id. at 824-28.
The situation in the present case is distinguishable because the court in Esposito only had to deal with the collateral estoppel effect of one guilty plea while this Court faces a question involving two, apparently contradictory, prior actions. However, given the fact that the state court judgment in defendant’s favor clearly acts as a collateral estoppel as to all elements of nondis-chargeability under § 523(a)(2), while his guilty plea fails to address the element of reasonable reliance, this Court finds that the collateral estoppel effect of the state court judgment precludes plaintiffs from relitigating their fraud claims in this Court.
IT IS THEREFORE ORDERED that defendant’s Motion to Dismiss Complaint to Determine Dischargeability of Debt is GRANTED and that the complaint is DISMISSED.
. The court in the parties’ state court action never reached the question of "reasonable reliance" because it found that defendant lacked the requisite knowledge and intent to deceive the plaintiffs. Wright v. Richards, supra, 494 N.E.2d at 1274-75, 98 Ill.Dec. at 947-48. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490724/ | MEMORANDUM DECISION
ALFRED C. HAGAN, Bankruptcy Judge.
The unsecured creditors committee moves for an order removing Attorney Ford Elsaesser from the management committee of the debtor and the appointment of a nominee of the creditors committee in place of Mr. Elsaesser. The basis of the motion is the contention Mr. Elsaesser is ineligible to serve as both counsel for the debtor and as a member of the management committee under the provisions of 11 U.S.C. § 327.
Although the motion raises the issue of Mr. Elsaesser’s ability to serve as a member of the management committee, as opposed to his ability to serve as a professional person under the provisions of § 327, I will consider the issue of whether Mr. El-saesser is a “disinterested person” under the code provisions as the creditors committee contends.
11 U.S.C. § 327 designates the necessary criteria for the appointment of professional persons. An appointee under the section must be a disinterested person and not have an interest adverse to the estate. A “disinterested person” is defined in 11 U.S. C. § 101(13)(A) as a person “... not a creditor, an equity security holder, or an insider ...” as far as the issues in the instant case are concerned. Under 11 U.S. C. § 101(30)(B), an “insider” includes a director or “person in control” of the debtor. The creditors committee contends Mr. El-saesser’s position on the management committee is tantamount to a directorship.
Clearly, a lawyer who has served as an officer or director of the debtor corporation prior to its filing is an insider and thus is not a disinterested person under the above code provisions. The key question in this case is whether a lawyer who takes part in management decisions after the filing ought to be considered an insider. I conclude such is not an insider situation.
The typical insider problem inherently derives from a pre-petition situation. I question if such an entity as a post-petition insider can exist. Likewise, the director disqualification would be limited to a pre-filing or prepetition situation, as would also be true in the case of a “person in control of the debtor” under § 101(30)(B)(iii). The purpose of the disqualification provisions of § 327(a) is to preclude involvement in the administration of the debtor’s estate by a professional person previously involved in the management of the debtor prior to the filing of the petition. I therefore conclude a professional person, in this case Mr. El-saesser, is not precluded as a matter of law from participating in the administration of an estate both as a professional person under § 327 and as a member of the management team directing the process of reorganization in a Chapter 11 case.
The creditors committee’s motion will be denied by separate order. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490725/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW REGARDING DEBTOR’S OBJECTION TO PROOF OF CLAIM NO. 25 FILED BY RON ALLEN TRUCKING COMPANY, INC.
GEORGE L. PROCTOR, Bankruptcy Judge.
This case is before the Court upon the Frenz Enterprises, Inc.’s Objection to Proof of Claim No. 25 filed by Ron Allen Trucking Company, Inc. (“Allen”) in the amount-of $113,228.14. Allen’s claim is based upon road construction work performed by it on behalf of Frenz Enterprises, Inc. (“Frenz”). Frenz argues that it was released from its liability to Allen pursuant to a Final Waiver of Lien and General Release agreement entered into between the parties.
A hearing on the objection was held on May 24, 1988, at the conclusion of which the Court directed the parties to submit written memoranda of law in' support of their positions. Upon the evidence presented, the Court enters the following findings of fact and conclusions of law:
FINDINGS OF FACT
1.In 1986, the debtor, Frenz Enterprises, Inc., entered into a contract with Nim Construction Company for the performance of dredge and excavation work on a public works project for the City of Orlando, Florida.
2. Frenz orally sub-contracted the work to be performed on the project to Allen. Allen began work on the project on or about May 27, 1986, and completed the assignment sometime on or about August 27, 1986.
3. During the time Allen was laboring under the subcontract, a dispute arose regarding the scope and quality of the work performed by Allen. Allen contended that it had completed the work on the project satisfactorily and was entitled to be paid in accordance with the billings submitted. Notwithstanding, Frenz refused to pay, asserting that Allen had failed to properly perform work on the project.
4. In June, 1986, Allen received two checks from Frenz for $40,000.00 and $30,-000.00. However, Frenz stopped payment on the latter check and Allen was unable to collect those funds. As of September 1, 1986, there was some $113,228.14 due on the subcontract.
5. At the hearing, Allen testified that Frenz’s failure or refusal to pay for the work caused it to suffer financially, thereby causing the business to default in its payment of bills and obligations. Allen claims that these facts were made known to Frenz yet Frenz continued to withhold payment.
6. On November 26, 1986, Allen executed and delivered to Frenz a Final Waiver of Lien and a General Release. The General Release recited that in consideration for Allen’s execution of said instrument Frenz would pay Allen $91,569.18.
7. In addition to the standard release language, the General Release provided that:
“This Release shall apply specifically to but not be limited to, any and all matters or things, claimed or asserted, including any claims or obligations F may have which relate to work done or materials provided at McLeod Road Site Treatment Improvement, Phase II, Contract 3, Water Conservation 2, Orlando, Florida, South Lagoon, including but not limited to the check made payable to Ron Allen Trucking from Frenz in an amount of $30,000.00 which was cancelled by Frenz. *222I hereby expressly acknowledge that this Release is a legally binding instrument and is executed by my own free will without any coercion or duress on the part of the Releases whatsoever.”
8. Allen’s president testified that the General Release and Final Waiver of Lien were executed on the advice of Allen’s attorney. Allen was aware that it had the right to refuse to execute the General Release and to return the consideration so that it could proceed against the surety on the project.
CONCLUSIONS OF LAW
1. Allen seeks to avoid the terms of the Release on two grounds, failure of consideration and economic duress.
2. Allen’s argument that the General Release is ineffective because of a failure of consideration is not supported by the testimony and documentary evidence presented in this cause.
3. Allen claims that payment of the settlement funds of $91,569.18 had to be made on November 26, 1986, as a condition to the validity and effectiveness of the General Release. However, this condition was not set forth in the General Release and no evidence was presented that Frenz had agreed to such condition. In fact, Allen’s testimony showed that it understood that there would be a slight delay of a few days between the time of execution of the release and the receipt of the monies specified therein. Accordingly, the Court concludes that there was no failure of consideration.
4. The second argument concerns the doctrine of economic duress. That doctrine permits an aggrieved party to rescind an agreement which was entered into under severe financial anxiety or pressure.
The courts generally look to three basic elements in determining whether an obligee, in agreeing to a compromise of earlier contractual rights and accepting payment in an amount less than actually due, is entitled to avoid the otherwise binding effect of his settlement due to economic duress. They are: (1) a wrongful act which (2) overcomes the will of a person who (3) has no adequate legal remedy to protect his interests. 25 Am.Jur.2d, Duress and Undue Influence, § 7.
5. The mere withholding of payment of a debt alone does not constitute such economic duress as will avoid a settlement reached or release executed. 9 A.L. R.4th, Refusal to Pay — Economic Duress, § 3, p. 942, 949.
6. In the instant case, there is no evidence that Frenz made any threat against Allen or committed any wrongful or illegal act. The evidence shows that Frenz simply refused to pay an amount that Allen claimed it was entitled to receive under the oral sub-contract. In light of Frenz’s dispute with Allen regarding the scope and quality of work performed and the absence of any action by Frenz that precipitated Allen’s financial problems, the Court cannot conclude that Frenz exerted excessive economic influence.
7. The Court has considered the 'demeanor and sincerity of Allen and found him to be an experienced businessman who, before signing the release, sought the advice of independent counsel. It is difficult for the Court to conceive of any situation presented in this case which would have overcome the free will of Mr. Allen.
8. Even if Allen’s claim of economic duress were to be recognized, economic duress merely renders a release so executed voidable and not void per se. A voidable release may then be ratified and affirmed by a subsequent action of the releasor. The retention of the consideration by one sui juris with knowledge of the facts will amount to a ratification of a voidable release executed by him in the settlement of a claim, where the retention is for an unreasonable time under the circumstances of the case. 10 Fla.Jur.2d, Compromise, Accord and Release, § 34.
In this case, Allen has retained $91,-569.18 as consideration for execution of the General Release. This amount represents a fair settlement of his claim and does not indicate any overreaching by this debtor so *223as to shock the conscience of the Court. Furthermore, there is no evidence that Allen disavowed the General Release at any time before this case was filed or that he has offered to tender the release proceeds back to Frenz. The Court finds that the settlement acts as a satisfaction of Allen’s claim in its entirety.
9. Finally, the Court recognizes that Allen had several legal alternatives to signing the General Release. For instance, Allen could have pursued its rights against the surety that furnished the bond on the public works project or alternatively, it could have filed a civil action against Frenz and the bonding company for the sums owed. Allen had these remedies available yet chose not to pursue them.
10. The Court concludes that Allen has failed to demonstrate that it executed the General Release as a result of economic duress or business compulsion inflicted by Frenz. The Court finds that Frenz’s Objection to Proof of Claim No. 25 filed by Ron Allen Trucking Company should be sustained.
The Court will enter a separate order consistent with these findings. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490727/ | MEMORANDUM OPINION
GEORGE L. PROCTOR, Bankruptcy Judge.
This case is before the Court upon Motion to Value Security filed by Robert Van Hellemont (“Van Hellemont”) on January 12, 1988. A hearing on the motion was held June 22, 1988, and the Court finds:
FACTS
On May 20, 1987, Van Hellemont filed a Motion for Relief from Stay, to Modify Stay, for Replevin, and for Adequate Protection. Thereafter, the movant and debtor entered into a stipulation for adequate protection which included a provision granting Van Hellemont “a post-petition security interest of the same nature and to the extent as the security interest held by Van Hel-lemont prior to the filing of the Petition.”
The adequate protection agreement gave Van Hellemont a second priority security interest in all of debtor’s present and after-acquired equipment, inventory, furniture, fixtures, accounts, general intangibles, chattel paper, leasehold improvements, goods, instruments; and the proceeds thereof were subordinate to the lien of Freedom Savings and Loan.
At the hearing on motion to value, the parties stipulated that the value of mov-ant’s claim was $236,509.07. The issue before the Court is to value, pursuant to 11 U.S.C. § 506, the secured portion of that claim.
DISCUSSION
Section 506(a) of the Bankruptcy Code provides, in relevant part:
An allowed claim of a creditor secured by a lien on property in which the estate has an interest, ... is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property, ... and is an unsecured claim to the extent that the value of such creditor’s interest ... is less than the amount of such allowed claim.
Ordinarily, the value of a secured creditor’s claim is determined as of the petition date. In re Adams, 2 B.R. 313 (Bkrptcy.M.*238D.Fla.1980); In re Canaveral Seafoods, Inc., 79 B.R. 57 (Bkrtcy.M.D.Fla.1987). Here, however, the parties have agreed to value the claim as of the hearing date, June 22, 1988. The Court is willing to accept this date for valuation purposes. The parties have also agreed that the first lienholder, Freedom Savings and Loan, has a secured claim against the estate of $271,-970.00.
At the hearing, an appraisal by Ramsey & Sons of debtor’s inventory was offered by debtor and admitted into evidence. That report placed a value of $276,145.00 on those items. The Court finds this to be a fair and accurate appraisal. By deducting the value of Freedom Savings and Loan’s secured claim against those assets, Van Hellemont’s interest in inventory and equipment comes to $4,175.00.
Van Hellemont introduces figures taken from debtor’s April, 1988, monthly financial statement as evidence of the value of the accounts receivables, cash proceeds and deposits. These figures indicate a value of $47,242.97 for cash proceeds and $147,-773.32 for accounts receivables. Combining these figures with the appraised value of debtor’s inventory and equipment and deducting Freedom’s secured claim of $271,970.00 would allow a secured claim of $199,191.29.
The debtor disputes these figures and suggests that the true value of the cash proceeds and accounts receivable is much lower. Specifically, debtor’s president, Richard E. Plymale, testified that as of June 22, 1988, the value of the accounts receivable was $77,000.00 and that cash proceeds were $6,000.00. Debtor’s president then testified that some $2,500.00 of debtor’s inventory and equipment was encumbered by leases. If the Court were to accept debtor’s testimony as to valuation, the value of Van Hellemont’s secured claim would be $84,775.06.
The Court is unwilling to accept either of these figures. First, the Court has reservations about using four month old assessments as to value when both parties agreed to value the collateral as of the hearing date. Secondly, there is no independent supporting evidence that these estimates are accurate.
Similarly, the Court finds debtor’s testimony to be wholly inadequate. This testimony was based on an “interim report” prepared by the debtor which showed approximately $77,000.00 to $87,000.00 in accounts receivable and some $6,000 in cash. This “interim report” was never introduced into evidence and debtor’s president himself admitted on cross-examination that the report was probably inaccurate. The Court finds, therefore, that this evidence lacks credibility and is insufficient to support a finding as to valuation.
Due to this lack of evidence, the Court will schedule further hearings on this matter and counsel for both parties will be instructed to provide credible, reliable and independent evidence as to the value of accounts receivable and cash as of the hearing date. The Court is willing to accept the appraisal done by Ramsey & Sons as the value of debtor’s inventory and equipment.
The Court will enter a separate order in accordance with this opinion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490728/ | DECISION AND ORDER DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
WILLIAM A. CLARK, Bankruptcy Judge.
PROCEDURAL POSTURE
This matter is before the court upon a motion by defendant White Allen Chevrolet *683for summary judgment against plaintiff/debtor Louvenia R. Robinson. Plaintiffs counsel has not filed a memorandum in response. Defendant’s motion is not accompanied by an affidavit or other supporting document and, as such, is the equivalent of a motion for judgment on the pleadings. From the pleadings it appears that defendant is asserting an artisan’s lien for work performed by it upon plaintiff’s automobile prior to bankruptcy and refuses to return the automobile to the chapter 13 debtor until it has been paid in full. Plaintiff’s complaint requests the court to find defendant in violation of the automatic stay provisions of 11 U.S.C. § 362 and to order' defendant to turn over the motor vehicle to plaintiff.
CONCLUSIONS OF LAW
Fed.R.Civ.P. 56(c) provides that—
[t]he judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.
In the instant proceeding two grounds exist for denying defendant’s motion for summary judgment: 1) on the basis of the undisputed facts presently before the court, defendant is not entitled to judgment as a matter of law, and 2) not all of the facts necessary for a final adjudication have been submitted to the court in this adversary proceeding.
Initially, the court notes that under the facts disclosed in the pleadings, defendant has obtained an artisan’s lien under Ohio law in the motor vehicle of plaintiff:1
[B]y the well settled provisions of the common law ... an artisan who performs labor, lends skill, or furnishes material for the building or repair of chattel property has a lien upon the chattel to which he has contributed to his labor, skill, or material while he retains such chattel property in his possession. Shearer v. Bill Garlic Motors, Inc., 59 Ohio App.2d 320, 324; 394 N.E.2d 1014, 1016 (Ohio Ct.App.1977) (quoting Metropolitan Securities Co. v. Orlow, 107 Ohio St. 583, 140 N.E. 306, 307 (1923)).
In its memorandum of law defendant takes the position that release of the automobile to the debtor is not justified without immediate payment to the defendant. However, in a case in which the IRS seized a debtor’s property to satisfy a tax lien (prior to the filing of the debtor’s reorganization petition), the Supreme Court found that Section 542(a) of the Bankruptcy Code requires a creditor “to seek protection of its interest according to the congressionally established bankruptcy procedures, rather than by withholding the seized property from the debtor’s efforts to reorganize.” U.S. v. Whiting Pools, Inc., 462 U.S. 198, 212, 103 S.Ct. 2309, 2317, 76 L.Ed.2d 515 (1983).2
As does all bankruptcy law, § 542(a) modifies the procedural rights available to creditors to protect and satisfy their liens.... In effect, § 542(a) grants to the estate a possessory interest in certain property of the debtor that was not held by the debtor at the commencement of reorganization proceedings. The Bankruptcy Code provides secured creditors various rights, including the right to adequate protection, and these rights replace the protection afforded by possession. Id. 462 U.S. at 206-207, 103 S.Ct. at 2314-2315.
Although defendant is not entitled to full payment prior to returning the automobile to plaintiff, it is entitled to adequate protection of its lien interest and it is this issue which involves facts which have not been submitted to the court in the adversary proceeding. To determine whether defendant will be adequately protected un*684der the terms of the debtor’s chapter 13 plan, it is necessary that evidence of detailing defendant’s claim, the value of the automobile and the expected depreciation in value be placed before the court. In addition, because loss of possession ordinarily results in the termination of an artisan’s lien, if the motor vehicle is to be returned to plaintiff certain orders must be issued to preserve and protect defendant’s lien status until its claim is satisfied.
For the foregoing reasons, it is ORDERED that defendant’s motion for summary judgment is DENIED, and that counsel for plaintiff and defendant be prepared to identify the details of the defendant’s claim, value of the automobile and rate of depreciation of value at the pretrial conference on Thursday, September 1, 1988, at 10:30 AM.
IT IS SO ORDERED.
. Insufficient evidence is before the court to make a determination of the amount of the lien.
. Although Whiting Pools was decided in the context of a chapter 11 proceeding, the decision is equally applicable to chapter 13 cases. See, e.g., Associates Commercial Corp. v. Attinello (In re Attinello), 38 B.R. 609 (Bankr.E.D.Pa.1984); Tektronix Employees Federal Credit Union v. Titel (In re Titel), 37 B.R. 173 (Bankr.Ariz.1984). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490729/ | *693MEMORANDUM ON PLAINTIFFS’ MOTION FOR PARTIAL SUMMARY JUDGMENT
RICHARD S. STAIR, Jr., Bankruptcy Judge.
Plaintiffs filed a “Motion For Partial Summary Judgment” on June 28, 1988, seeking a judgment striking the fifth, seventh, eighth, and ninth affirmative defenses relied upon by defendant in its answer.1 Defendant filed its response in opposition to plaintiffs’ motion on July 26, 1988. Plaintiffs did not file supporting affidavits with their motion nor did defendant, with its response, file affidavits or other eviden-tiary material supporting its opposition. The court heard oral argument on August 2, 1988.
This is a noncore proceeding. 28 U.S.C. A. § 157(c)(1) (West Supp.1988). The parties have consented to the entry of appropriate orders and judgments by the bankruptcy judge. 28 U.S.C.A. § 157(c)(2) (West Supp.1988).
I
Plaintiff, Public Service Electric and Gas Company (PSE & G), owns and operates the Hope Creek Generating Station (Hope Creek), a nuclear-powered electric generating plant in New Jersey. The co-plaintiff, Bechtel Construction, Inc. (Bechtel), assign-ee of Bechtel Power Corporation, was retained by PSE & G as its agent to oversee construction of the Hope Creek project. During construction plaintiffs were required to install a radiological monitoring system (RMS) designed, in part, to detect, monitor and report radiation levels. On July 30, 1982, plaintiffs entered into two purchase orders with the debtor, No. 10855-J-361-AC and No. 10855-J-371(Q)-AC in the amounts of $3,067,962 and $805,-709, respectively, to produce the RMS for installation at Hope Creek. Both purchase orders require the debtor to provide performance and payment bonds in the amount of the total price of each purchase order.
On September 27, 1982, the debtor, as principal, and defendant, as surety, executed the requisite performance and payment bonds relative to the debtor’s obligations under the two purchase orders.2 Each performance and payment bond, consisting of a two-page written document, contains the following identical provision relevant to changes in the scope of work (Changes Clause) under the purchase orders:
The Surety and Seller further agree that any modifications, additions or alterations which may be made in the terms of the Purchase Order or in the work to be done thereunder, or any extensions of the Purchase Order or other forebearance on the part of either the OWNER or Seller to the other, shall not in any way release the Seller and the Surety, or either of them, their heirs, assigns, executors, administrators and successors, from their liability hereunder, notice to Surety of any such modifications, additions, extensions or forebearance being hereby expressly waived.
The debtor did not complete performance under the purchase orders and defendant, upon demand, refused payment of its obligations under the performance and payment bonds. The debtor filed its voluntary petition under Chapter 11 of title 11 of the United States Code on March 29, 1985. Plaintiffs, on July 20, 1987, filed their four-count complaint in the United States District Court for the Eastern District of Tennessee seeking damages from defendant at Counts I and III for breach, of contract, and seeking at Counts II and IV a determination of liability for bad faith pursuant to Tenn.Code Ann. § 56-7-105(a) (Supp.1987).3 *694On October 27, 1987, the District Court determined this proceeding to be related to a case under title 11 and referred the case to the bankruptcy court for disposition pursuant to 28 U.S.C.A. § 157(c)(1) and (2) (West Supp.1988).
In their “First Amended Complaint” filed July 18, 1988, plaintiffs reassert at Counts I and II their entitlement to damages for breach of contract. Counts II and IV of their original complaint are not restated but are replaced by Count III, which asserts a claim for damages premised upon a “tort of bad faith,” and Count IV, which asserts a claim for damages for “breach of implied covenant of good faith.” Under Count I plaintiffs seek damages in the amount of $10,742,805 for breach of the performance bonds; under Count II they seek damages in the amount of $100,806.27 for breach of the payment bonds; under Counts III and IV they seek damages in the amount of $10,848,611.27; and they further seek an award for punitive damages in the amount of $10,000,000.
In its answer defendant, contending its obligations under the bonds have been discharged by plaintiffs’ actions, relies upon the following affirmative defenses:
FIFTH DEFENSE
The Purchase Orders executed by BPC[4] and TEC[5] contemplated a future agreement as to the Software Functional Design Specification (SFDS), which the parties left open and intended to agree upon within a reasonable time after execution of the Purchase Orders. TEC submitted a proposed SFDS to BPC but BPC failed -to approve it, and instead initiated a continuing stream of design changes which so altered the scope of the agreement contemplated by the Purchase Orders as to constitute an entirely different agreement than the one which American agreed to bond, and thereby discharged American as surety.
SEVENTH DEFENSE
American has been discharged from any obligation under the bonds, because plaintiffs had so materially increased and altered the scope, terms, and performance of the Purchase Orders that the revised performance required of TEC, as principal, was far beyond the contemplation of the parties to the Bonds and materially increased the risk that was assumed by the defendant surety in September 1982.
EIGHTH DEFENSE
Plaintiffs are barred from recovering under the Bonds because they have materially breached the requirements of the Purchase Orders by their continued and wrongful changes to the scope or function of the design, by their failure to promptly review and approve the Software Functional Design Specifications, by their failure to approve or recommend approval of price adjustments to which TEC was entitled, by their interference with and hindrance of TEC’s efforts to perform the work, and by their other wrongful acts towards TEC.
NINTH DEFENSE
American is not liable to plaintiffs under the Bonds, because plaintiffs and the principal TEC abandoned the original Purchase Orders and created a new contract or novation, and that American at no time consented to, was compensated for, or otherwise agreed to be surety on such said new contract.
II
By their “Motion For Partial Summary Judgment,” plaintiffs contend the Changes Clause in the performance and payment bonds executed by defendant as surety anticipated modifications and changes in the design and scope of work encompassed within the purchase orders; that defendant’s consent to any modification and *695change was not required; that defendant expressly waived notice of any modification or change; and that defendant’s liability under the bonds is not affected by any modification and change, Thus, plaintiffs argue that defendant’s affirmative defenses purporting to place at issue the scope and materiality of design changes, modifications, and/or alterations to the purchase orders must be stricken as a matter of law.
Defendant contends the four defenses at issue are “premised on the existence of changes in scope and dollar magnitude of the purchase orders, and departures from the original radiation monitoring system design, which are so great as to be beyond the contemplation of the parties.” American’s Response To Plaintiffs’ Motion For Partial Summary Judgment, p. 2 (emphasis in original).
Additionally, plaintiffs contend that if they do not prevail on their legal theory, they are nonetheless entitled to a summary judgment striking defendant’s fifth, seventh, eighth, and ninth defenses. Plaintiffs argue that defendant has failed to establish the existence of a genuine issue of material fact relative to the four defenses at issue as required by Fed.R.Civ.P. 56(c), incorporated into Fed.R.Bankr.P. 7056.
Ill
Summary judgment under Rule 56(c) is appropriate “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” This court is not prepared to hold, as a matter of law, that the Changes Clause in the performance and payment bonds executed by defendant is broad enough to encompass any change or modification to the purchase orders executed by Bechtel and the debtor, without regard to whether those changes or modifications constitute a material or radical departure from the original work contemplated by the parties.
Plaintiffs are not entitled to a summary judgment premised exclusively upon the language of the Changes Clause. In a case involving a provision in a surety bond similar to the provision confronting the court in the instant proceeding, the 8th Circuit noted in material part:
By the express terms of the bond in suit, no alterations in the terms of the construction contract, no alterations in the work to be done under it, no extension of time for the performance of the contract, and no other forbearance on the part of either party to the other, are to release the principal or the surety. This, we think, is clear import of the language used.
The question then is not whether the contractor under the terms of the contract could have been compelled to perform the work as altered by the new drawings, but whether the principal and the surety upon the bond were released by reason of the changes in the contract and in the work which were agreed to by the contractor and the plaintiff. If this were a bond conditioned merely for the faithful performance of a contract, and making no mention of alterations, an entirely different question would be presented.
It is well settled law that, even though a construction contract provides that alterations may be made during the progress of the work, radical or revolutionary changes — changes not fairly within the contemplation of the parties at the time the contract was made— changes constituting, a material departure from the original undertaking — do not come within its terms and will therefore release a nonconsenting surety upon the usual performance bond.
It is also well settled that material changes not so extensive as to constitute a departure from the original contract— changes which are fairly within the scope of the original undertaking — changes which may reasonably be said to have been originally contemplated by the parties as permissible alterations — are covered by a construction contract permitting alterations, and the making of such *696changes does not release the surety on the ordinary performance bond.
Massachusetts Bonding & Ins. Co. v. John R. Thompson Co., 88 F.2d 825, 829 (8th Cir.1937) (citations omitted), cert. denied, 301 U.S. 707, 57 S.Ct. 941, 81 L.Ed. 1361 (1937).
It seems patently clear from the pleadings that there were substantial changes and modifications to the purchase orders. Defendant’s total liability under the two performance bonds at their execution was limited to $3,873,671; plaintiffs seek through the instant proceeding to recover $10,742,805 on the performance bonds, a sum almost triple defendant’s original obligation, and $100,806.27 on the payment bonds. The extent, affect, and significance of these changes will be established at trial.
IV
Additionally, plaintiffs, relying upon the recent Supreme Court case of Celotex Corp. v. Catrett,6 contend that defendant has offered none of the evidentiary materials identified in Rule 56(c) except its answer in support of its opposition to their motion. They therefore assert their “Motion For Partial Summary Judgment” should be granted as defendant has not established a genuine issue as to a material fact relative to the four defenses at issue.
In Celotex a defendant in an asbestos products liability suit moved for summary judgment more than one year after the filing of the complaint. It argued that no evidence connected the decedent with its asbestos, and, in particular, that the plaintiff in her answers to interrogatories failed to identify any witnesses who could testify about the decedent’s exposure to its asbestos products.7 The District Court granted summary judgment but was reversed by the Court of Appeals, which held that Rule 56 imposed upon the movant a “burden of coming forward with proof of the absence of any genuine issues of material fact.”8 The Court of Appeals determined that since the defendant had offered no evidence in support of its motion, summary judgment must be denied.9 The Supreme Court reversed, holding that in an appropriate case a moving party not bearing the ultimate burden of proof may rely on the record to show the absence of a genuine dispute relative to a material fact.10 More particularly, in addressing the burden of the moving party under Rule 56, Justice Rehnquist, speaking for a majority of the Court, stated:
Of course, a party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,” which it believes demonstrate the absence of a genuine issue of material fact.
Celotex, 106 S.Ct. at 2553. Once the moving party meets this responsibility, the Court determined that Rule 56(e) requires the nonmoving party to go beyond the pleadings and to produce evidentiary material in the form identified at Rule 56(c) sufficient to designate specific facts showing that there is a genuine issue for trial.11
In a concurring opinion, Justice White, further enunciating the duties of the moving party, noted:
[T]he movant must discharge the burden the rules place upon him: It is not enough to move for summary judgment without supporting the motion in any way or with a conclusory assertion that the plaintiff has no evidence to prove his case.
*697... It is the defendant’s task to negate, if he can, the claimed basis for the suit.[12]
Id. at 2555.
It appears to this court that Celotex stands, in part, for the proposition that the movant’s burden under Rule 56 is satisfied only upon the showing of an absence of evidence to support an essential element of the nonmoving party’s case. The majority in Celotex held that once the moving party satisfies its initial burden of explaining the basis of its motion to the court and pointing out portions of the record indicating the lack of a genuine issue of material fact, it is not required to “support its motion with affidavits or other similar materials negating the opponent’s claim.” Celotex, 106 S.Ct. at 2553 (emphasis in original).
Plaintiffs have not met their initial burden of “identifying those portions of ‘the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any’ which [they] believe[] demonstrate the absence of a genuine issue of material fact.”13 In fact, plaintiffs, in a “Memorandum In Support Of Motion For Partial Summary Judgment” filed contemporaneously with their motion, make no reference to any lack of evidence to support defendant’s fifth, seventh, eighth, and ninth defenses. They ground their motion exclusively on the legal sufficiency of these four defenses when considered within the context of the Changes Clause.14
Fed.R.Civ.P. 56(e) provides in material part:
When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of the adverse party’s pleading, but the adverse party’s response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party.
Plaintiffs have not supported their “Motion For Partial Summary Judgment” as required by Rule 56(e). Having failed to discharge the burden placed upon them by Rule 56, plaintiffs have failed to establish lack of a genuine issue as to a material fact.
For the reasons stated herein, plaintiffs’ “Motion For Partial Summary Judgment” will be denied.
.Defendant’s original answer, filed August 26, 1987, was amended August 2, 1988, in response to plaintiffs’ "First Amended Complaint” filed July 18, 1988. Its fifth, seventh, eighth, and ninth defenses are perpetuated in its amended answer.
. The debtor and defendant executed individual performance and payment bonds relative to each purchase order.
. On June 21, 1988, this court, having determined that Tenn.Code Ann. § 56-7-105(a) (Supp.1987) had no application, granted defendant’s motion for partial summary judgment *694filed March 25, 1988, thereby dismissing Counts II and IV of the complaint. 88 B.R. 182.
. Bechtel Power Corporation.
. Technology For Energy Corporation.
. 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
. See Celotex, 106 S.Ct. at 2551.
. Catrett v. Johns-Manville Sales Corp., 756 F.2d 181, 184 (D.C.Cir.1985) (footnote omitted).
. The court did not evaluate plaintiffs evidence in opposition to the motion for summary judgment filed against it by defendant.
. Celotex, 106 S.Ct. at 2553-54.
. Id. at 2553.
. In the case sub judice, this phrase would more appropriately be worded: "It is the plaintiffs’ task to negate, if they can, the affirmative defenses relied upon by defendant.”
. Celotex, 106 S.Ct. at 2553.
. As was pointed out in a supplemental memorandum filed by defendant after oral argument, its answer to plaintiffs’ first set of interrogatories filed October 9, 1987, identifies numerous documents in support of its fifth, seventh, eighth, and ninth defenses, as well as names and addresses of witnesses it relied upon in making a determination that it had been discharged from its obligations under the performance and payment bonds at issue. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490731/ | *886MEMORANDUM OPINION AND ORDER
BENJAMIN E. FRANKLIN, Chief Judge.
This matter came for hearing on June 30, 1988, on plaintiff Burger King Corporation’s motion to reconsider, alter, or amend order of dismissal, and motion to file response out of time. The plaintiff appeared through counsel, J.B. King. The defendant, John Ercy Wilkinson, appeared through counsel, Phillip Turner.
FINDINGS OF FACT
After hearing statements of counsel, examining the files, exhibits and statements therein, the Court finds as follows:
1. On January 30, 1985, John Ercy Wilkinson (Case No. 85-20111), Marianne Wilkinson (Case No. 85-20112), and B-K of Kansas, Inc. (Case No. 20110) filed separate petitions for relief under chapter 11 of Title 11, United States Code.
2. This Court takes judicial notice of all relevant pleadings in the above captioned bankruptcy case files.
3. On April 9, 1987, after various long and protracted court battles between Burger King Corporation and the above chapter 11 debtors, this Court converted the cases from chapter 11 to chapter 7 of Title 11, United States Code.
4. On October 20, 1987, the last day for filing complaints under section 523, Burger King Corporation filed the instant complaint (Adversary No. 87-0248) to determine the dischargeability of a debt under sections 523(a)(2)(A), 523(a)(4), and 523(a)(6) against both John Ercy Wilkinson and Marianne A. Wilkinson.
5. On November 18, 1987, John Wilkinson filed a motion to strike the complaint on various grounds including that it improperly joined the two bankruptcy cases.
6. On December 16, 1987, Burger King Corporation filed a motion for leave to amend the complaint to delete any references to Marianne Wilkinson (Case No. 85-20112). That same day the Court granted Burger King Corporation leave.
7. On December 23, 1987, Burger King Corporation filed the amended complaint.
8. On December 28, 1987, Wilkinson filed a notice of appeal of this Court’s order granting leave to amend and motion to stay order pending appeal.
9. On January 25, 1988, this Court denied the debtor’s motion to stay pending appeal.
10. On March 23, 1988, Wilkinson filed a motion to dismiss the amended complaint on various grounds including lack of service of process and lack of jurisdiction. On March 24, 1988, this Court set the matter for hearing on May 2, 1988.
11. On March 29, 1988, the Honorable Dale E. Saffels, United States District Judge for the District of Kansas, denied Wilkinson’s application for leave to appeal interlocutory order.
12. On April 28, 1988, Wilkinson submitted an order to this Court sustaining the motion to dismiss due to Burger King’s failure to file a written response within 20 days as required by Local U.S. District Court Rule 206(b). That same day this Court signed the Order of Dismissal and notified the parties that the May 2, 1988 hearing was no longer necessary.
13. On May 6, 1988, Burger King Corporation filed a motion to reconsider, alter, or amend the order of dismissal and a motion to file their response to the motion to dismiss out of time.
14. On May 17, 1988, Wilkinson filed a response to both motions.
15. On May 23, 1988, Burger King Corporation filed a reply to the response.
16. On June 30, 1988, this Court heard both motions and took the matters under advisement.
CONCLUSIONS OF LAW
The plaintiff, Burger King Corporation, presents two arguments in support of setting aside the order of dismissal and allowing the responses to be filed out of time, one procedural and one substantive.
*887Procedurally, the plaintiff argues that this Court should not have signed the order of dismissal because the adverse party submitted the order without being directed to do so in violation of F.R.C.P. 58. As such, the plaintiff argues that they had no opportunity to object to the issuance of the order. However, this Court must reject this argument as a reason to overturn the order. This Court has since allowed the plaintiff the opportunity to object through the subsequent motions to reconsider and file out of time.
Substantively, the plaintiff primarily argues that, under Tenth Circuit cases and other case law, the dismissal was too severe a sanction and was an abuse of discretion. For the following reasons, this Court does not agree.
The Tenth Circuit case of Woodmore v. Git-N-Go, 790 F.2d 1497 (10th Cir.1986) recently addressed the use of dismissal as a sanction and the standards for abuse of discretion. In Woodmore, a local rule of the United States District Court for the Eastern District of Oklahoma required that parties submit a pretrial order by a Court ordered date, and that failure to do so would result in dismissal. The plaintiff failed to timely submit the pretrial order and on the following day the District Court sua sponte dismissed the case. The Tenth Circuit first reviewed the case law in this area:
The Supreme Court has held that a dismissal because of a lawyer’s repeated failures to meet court requirements does not penalize a client unjustly. Link v. Wabash Railroad Co., 370 U.S. 626, 633-34, 82 S.Ct. 1386, 1390-91, 8 L.Ed.2d 734 (1962). That case reserved decision on whether a single incident — in Link an unexplained absence from a pretrial conference — would justify dismissal. Id. at 634, 82 S.Ct. at 1390.
In Joplin v. Southwestern Bell Telephone Co., 671 F.2d 1274 (10th Cir.1982), we reversed the same district court involved here when it dismissed a case with prejudice for failure to file a pretrial memorandum. The pro se litigant in Joplin had made significant efforts to comply with the court’s pretrial instructions. The litigant filed an affidavit stating that he had contacted defense counsel for assistance and submitted a pretrial “order” with an explanation to the court before the memorandum was due. The court had not accepted the memorandum for filing. Id. at 1275-76. In those circumstances, we found the dismissal was an abuse of the court’s discretion.
Joplin is distinguishable on its facts and does not require reversal in this case. But other recent Tenth Circuit sanction cases do require reversal. In In re Baker, 744 F.2d 1438 (10th Cir.1984), the en banc court emphasized the trial court’s power to impose sanctions. But we strongly stressed that the punishment be imposed on the person at fault:
“It is the trial court’s duty, within the spirit of its total powers, including Rule 16, to impose sanctions and compensating awards of expenses, including attorney’s fees, in a manner designed to solve the management problem. If the fault lies with the attorneys, that is where the impact of sanction should be lodged. If the fault lies with the clients, that is where the impact of the sanction should be lodged.”
Id. at 1442.
In contemporaneous cases we concluded that dismissal was too severe a sanction for attorney error, see Hollis v. United States, 744 F.2d 1430, 1433 (10th Cir.1984), or remanded for the trial court’s statement as to why the particular circumstances demonstrated a need for the sanction imposed, see In re Russell, 746 F.2d 1419, 1420 (10th Cir.1984). In another case we remanded for reconsideration because the trial court did not have the benefit of our recent opinions in this area. DG Shelter Products Co. v. Forest Products Co, 769 F.2d 644 (10th Cir.1985). In Shelter Products we suggested that the trial court must expressly consider the alternative of attorney sanctions. Id. at 645.
Id. at 1498-99. The Court went on to reverse and remand:
*888In the case before us the record does not demonstrate any default other than failure to meet the trial court’s deadline for a pretrial memorandum; the default appears to be that of the attorney; the trial court neither held a hearing nor invited responses as to what sanctions should be applied; it did not explain why dismissal was the most appropriate sanction.
We hold that, when a case is dismissed with prejudice or dismissed without prejudice at a time when the statute of limitations would ban refiling, a trial court must explain why it imposed the extreme sanction of dismissal. We realize, of course, that in the instant case the district court made its decision before we issued the opinions cited above to this effect. Thus the district court did not have the benefit of those rulings. We therefore consider it appropriate to reverse and remand for reconsideration in light of those cases.
In compliance with Woodmore and the other Tenth Circuit cases cited therein, this Court has already held a hearing, read briefs on the issue, and will now explain why dismissal is the most appropriate sanction rather than attorney’s fees.
First, this is not a case like Woodmore in which the attorneys just failed to get a pretrial order on time. This case involves the failure to respond to a motion to dismiss of a section 523 complaint. Motions to dismiss are always serious matters. The plaintiff knows this and should have been extra diligent in responding. In addition, a section 523 complaint is an extremely important matter in that the essence of the right of the debtor granted under the federal bankruptcy statute is on the line, namely the discharge of certain debts. A plaintiff should be prepared to proceed to trial with all due diligence when he files such a suit.
Second, the plaintiff’s purported showing of “excusable neglect” is wholly without merit. At one point, the plaintiff indicates that they thought that, by setting the motion to dismiss for oral argument, this Court would allow them to just show up and argue without a written response. At another point, they indicate that they planned to file a written response at the hearing. I am not sure which excuse to believe. However, either excuse is insufficient. The plaintiff has experienced and seasoned counsel who is aware that a written response on the day of hearing will not aid the Court in deciding the case from the Bench. The plaintiff attempts to evade this by stating that the debtor’s motion was so frivolous and full of “red herrings” that this Court would not have needed a written response to decide the issue. I have read the debtor/defendant’s motion and do not agree.
Third, this is not a “single incident” case like Woodmore or the cases cited therein. Certainly the plaintiffs missed just one response date. However, that error is one among many abuses that date back through the main bankruptcy case. This court must view this error and even this entire adversary in the context of the main bankruptcy cases. The parties have been waging a bitter battle over a Burger King franchise dating back to 1985, the filing of the bankruptcies. The parties have been completely uncooperative with each other and the fight has been reduced to clashes of personalities. Each side has abused this Court’s local rules time after time and has sorely tested this judge’s patience. Inevitably, when one side or the other has filed a motion, the other side will either miss the response date or ask for multiple extensions. When that happens the first party will strenuously object. The voluminous docket sheets of the main case files and of even this adversary case point this out time after time. This Court has been extremely patient with these parties up to this point. However, the Court finds that it must at some point regain some kind of control of this case and dismissal is the appropriate sanction to do just that.
IT IS THEREFORE, BY THE COURT, ORDERED that the plaintiff’s Burger King Corporation, motion to reconsider, alter, or amend the order of dismissal is DENIED.
*889IT IS FURTHER, BY THE COURT, ORDERED That the plaintiffs motion to file response out of time is DENIED! | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490732/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a contested discharge proceeding and the matters under consideration are two claims set forth in the adversary proceeding commenced by Natalie Smolik (Plaintiff) against Ross Reinhart, Bonnie L. Reinhart (Debtors) and Buddy Ford as Trustee. The original complaint consists of two counts. In Count I the Plaintiff seeks a determination by this Court that defendant Ross M. Reinhart (Mr. Reinhart) is indebted to the Plaintiff in the amount of $47,500.00 and this debt should be declared to be nondischargeable based on the allegation that Mr. Reinhart obtained funds from the Plaintiff by false pretenses and by actual fraud. In addition the Plaintiff in this Count also seeks punitive damages, an assessment of costs, interest, and reasonable attorney fees. In Count II of the Complaint, the Plaintiff seeks an order from this Court directing the Trustee to examine the conduct of the Debtors in order to determine whether or not grounds existed for denial of the Debtors’ discharge. In due course, the Debtors and the Trustee filed their respective answers to the Complaint. However, Count II of the Complaint was voluntarily dismissed by the Plaintiff on April 29, leaving Mr. and Mrs. Reinhart as the only Defendants. The facts relevant to the remaining claim as developed at the final evidentiary hearing reveal the following:
Mr. Ross Reinhart (Mr. Reinhart) was at one time a minister of the Church of the *941Nazarene, and he was engaged in several businesses, but by the fall of 1986 he was no longer in business because of ill health. In early October 1986 the Plaintiff through a mutual friend met Mr. Reinhart who, after indicating to the Plaintiff that he wanted to go back into business but lacked funds to start the business, asked the Plaintiff for $10,000 for the purpose of renting a place of business to start a silk screen printing business and buying some equipment for the same. It is without dispute that the Plaintiff did issue one check payable to Ross Reinhart in the amount of $5,000 drawn on the account of the Chase Bank of Florida and a second check on the same date in the same amount drawn on a First Federal Savings and Loan account. Both checks carry the legend “loan.”
In November of the following month, Mr. Reinhart told the Plaintiff that he was apprehensive that he was going to lose his home because he was behind on his mortgage payments, and the Plaintiff subsequently gave Mr. Reinhart a check in the sum of $4,600 to make the delinquent- payments on his house. Meanwhile, the business in fact had started and, although it is unclear to what extent, did manufacture some bags for banks. On January 13, 1987, Mr. Reinhart told the Plaintiff that he wanted to buy an automatic multi-print silk printing machine for which he needed $22,250 as a down payment. Mr. Reinhart also told the Plaintiff that this would be handled as an investment by her in the corporation which he was to form and in which the Plaintiff would receive 51% of all outstanding shares. The business which, as noted earlier, had already started in the fall and was operating under the name of Southern Exposure Screen Printing and maintained a checking account under that name.
It is without dispute the Plaintiff did in fact involve herself in the operation of the business, albeit to a limited extent. She wrote checks on the account of Southern Exposure Screen Printing and was basically familiar with the cash position of the business, so much so that on January 20, she deposited $1,000 in the business account and three times deposited an additional $1,000 to cover operating expenses of the business. There is no question that she made these advances to the business voluntarily and not pursuant to any request made by Mr. Reinhart. The evidence is uncontroverted that she made these payments because she did not want the business she was involved in to have outstanding or unpaid bills. It is equally without dispute that the business was never incorporated and, of course, the Plaintiff never received corporate stock establishing a 51% interest in the corporation promised to be formed by Mr. Reinhart.
The record indicates the only repayment she ever received from Mr. Reinhart was $200 although she received some other checks but none of them were honored by the drawee bank. There is nothing in this record to indicate that the Plaintiff had any dealings with Mrs. Reinhart at any time.
This is the entire record based on which this Court is called upon to determine the viability of the claim asserted by the Plaintiff in Count I of the Complaint. It should be noted at the outset there is no question that neither the initial $10,000 advanced on October 20, 1986, the $4,600 advanced on November 10, the $1,000 advanced on January 20, nor the three additional advancements in the amount of $1,000 each were advanced or loaned by the Plaintiff to Mr. Reinhart on the reliance of any .statement, let alone false statements made by Mr. Reinhart. Thus, the claim of nondischargeability concerning these amounts clearly cannot be sustained on this record.
This leaves for consideration the dis-chargeability vel non of the sum of $28,-550.91 loaned or advanced by the Plaintiff on January 13 for the purpose of purchasing an automatic silk screen printing machine and the balance of $449.09 to be used as operating capital. It is without dispute that the down payment was made on the machine but it was never actually acquired because in the meantime the Plaintiff voluntarily decided not to be united with Mr. Reinhart any further and refused to advance any additional funds. Due to Mr. *942Reinhart’s inability to carry on the business, the business ultimately failed.
Based on this scenario, it is the contention of the Plaintiff that she did advance the $28,550.91 in reliance on the statement and promise of Mr. Reinhart that he would form a corporation and that she would receive 51% of the outstanding shares in the corporation.
It is a well established proposition that one cannot establish actionable fraud based on a promise to do something in the future unless there is proof that at the time the promise was made the promisor had no intention to fulfill the promise or as a matter of fact or a matter of law the person is unable to fulfill the promise. In re Ciarleglia, 50 B.R. 455 (Bkrtcy.M.D.Fla.1985); In re Fordyce, 56 B.R. 102 (Bkrtcy.M.D.Fla.1985); Bissett v. Ply-Gem Industries, Inc., 533 F.2d 142 (5th Cir.1976); In re Firestone, 26 B.R. 706 (Bkrtcy.S.D.Fla.1982). There is some evidence that Mr. Reinhart did intend to form a corporation, but because of a sloppy business organization he did not seriously pursue the matter although made some attempt to contact an accountant as to how to form a corporation. However, the record is equally consistent with the proposition that he never actually intended to form a corporation. It is clear under the established law that the burden of proof is on the Plaintiff to establish fraud by clear and convincing evidence. In re Barrup, 37 B.R. 697 (Bkrtcy.Vt.1983) Inasmuch as the evidence on the crucial issue is in equilibrium and equally supports the claim of the Plaintiff and the position urged by Mr. Reinhart, there is hardly any question that the Plaintiff failed to carry this burden and for this reason the claim of nondischargeability cannot be sustained.
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/8490733/ | ORDER ON OBJECTION TO CLAIM NO. 89 OF ATTORNEY’S TITLE INSURANCE FUND
ALEXANDER L. PASKAY, Chief Judge.
THIS CAUSE came on for hearing upon the Debtors’ Objection to Claim No. 89 filed by Attorney’s Title Insurance Fund. At the duly scheduled and noticed hearing on the Objection to the Claim, the Court heard argument of counsel, considered the record, and finds that the pertinent facts relevant to a resolution of the controversy to be as follows:
At the time relevant to the matter under consideration, the Debtor, James M. Hagle, was the record owner of certain real estate located in Polk County, Florida. It appears that in 1982 and 1983 ad valorem taxes were assessed against the property in the amounts of $225.42 and $237.11, respectively. It is undisputed that the Debtor never paid these ad valorem taxes.
On June 23, 1986, pursuant to a contract to sell real estate, the Debtors transferred the subject property to Lakeside Inns, Inc., warranting that the property was free and clear of all liens. In connection with the transaction, Claimant issued an owner’s title insurance policy to the purchaser without exception to the ad valorem taxes notwithstanding the fact that they had not been satisfied. Upon learning of the defects in their title, Lakeside instituted suit against the Claimant in which judgment was entered in favor of Lakeside. Subsequently, Claimant was required to pay $723.35 in satisfaction of the outstanding taxes and thereby became subrogated to the rights of Lakeside Inns.
On September 26, 1986, Debtors filed their petition for relief under Chapter 11. The Claimant filed its proof of claim in the Debtors’ bankruptcy case on March 7, 1988, to which the Debtors filed their objection, contending that the claim filed by Attorney’s Title Insurance arose through the negligence of the Claimant and that, therefore, they were not liable to the Claimant for any amounts. The main thrust of the Debtors’ argument is that the title insurer, having issued the title insurance policy and prepared the warranty deed, is estopped from recovery against the Debtors because of its own negligence. In support of its proposition that their claim should be allowed, the Claimant cites the case of Harvey v. J.H. Holdings, Inc., 310 So.2d 371 (2d D.C.A.1975) In Harvey the sellers of certain real estate agreed to convey title to the buyers by sufficient warranty deed, warranting title to be free and clear of all liens. The title insurer, Lawyers Title Insurance Corporation, issued an owner’s title insurance policy to the buyer. After the buyer took possession, it learned that an easement over the property had been granted by the Sellers to an abutting property owner. The buyer sued the title insurer for money damages and a final judgment was entered by the trial court in favor of the buyer in the amount of $7,800.00. The title insurer and subrogee of the buyer then sued the seller for reimbursement of the money it had paid to the buyer. The sellers in Harvey, as the Debtors in this present case, urged that they were free from liability to the title insurer because the title insurer was estopped from *954recovery because of its own negligence. The court there, however, held that the insurer was not estopped from suing to collect reimbursement from the sellers because the sellers themselves had granted the easement in question and it was a matter of public record. Similarly, in the present case, the Debtors knew of the taxes assessed against their real property. Pursuant to the sales transaction, Debtor warranted that his title was free and clear of all liens. While it is true that the title insurance company, the Claimant, was negligent in not finding and disclosing the defects in this title to the buyers, the same cannot be said vis-a-vis the sellers. Put another way, the title insurance company does not owe any duty to the seller/Debtor and, therefore, it may make a claim for reimbursement of the money paid to the buyers.
Based on the foregoing, this Court is satisfied that the Debtors’ Objection to Claim No. 89 of Attorney’s Title Insurance Fund be, and the same is hereby, overruled and the claim is allowed as filed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490735/ | MEMORANDUM OPINION ON ORDER OF REMAND
A. JAY CRISTOL, Bankruptcy Judge.
This case was tried by my predecessor, the Honorable Joseph A. Gassen. It was appealed and remanded before I was appointed to the bench. On or about August 14, 1985, a few months after my appointment, the successful appellant, Sombrero Reef, Inc., made a “Motion for Order Setting Aside and Withholding Order of Remand,” in the United States District Court, Appeal Case No. 83-1114-CIV-Eaton.
A year or so later on December 12, 1986, Judge Eaton signed an Order Denying the Motion of Sombrero Reef, Inc. to Withold Order of Remand. The December 12, 1986 order again remanded the matter to the Bankruptcy Court in accordance with the Order of Remand entered by Judge Eaton on March 7, 1985.
It is difficult to deal with the remand of a matter tried before another judge. The court file and the record in this matter is enormous. I did not have the benefit of hearing the trial or being present at the numerous hearings which occurred long before my arrival on the scene. I am, therefore, limited to dealing with the record to carry out the remand.
Certain things are clear in the record. On June 6, 1983, Judge Eaton entered two orders. “Order Granting Extension of Time to File Appellant’s Brief and Limiting Service of Briefs, etc.” The order was in response to the “Motion for Extension of Time to File Appellant’s Brief and for Order Limiting Service”, signed by Samuel L. Heller, Esquire, on behalf of Sombrero Reef, Inc. Paragraphs 2 and 4 of the motion state as follows:
2. Appellant further represents to the Court that the only party having an interest in an appeal proceeding is Appel-lee KINGSAIL CORPORATION OF MARATHON as all of the other Appel-lees’ lien interests in the property were satisfied on December 16, 1982 when the property involved herein was sold by order of the Bankruptcy Court or their lien interests were extinguished as a result of the sale free and clear of liens ordered by the court. Appellee KINGSAIL CORPORATION OF MARATHON, the third mortgagee, was the most junior lien creditor receiving sale proceeds and any reversal of the final judgment appealed herein would affect only Appellee KING-SAIL CORPORATION OF MARATHON.
*9904. Appellant SOMBRERO REEF CLUB, INC. further moves for entry of an order limiting service of all briefs, pleadings and notices herein to Appellee KINGSAIL CORPORATION OF MARATHON as it is the only party herein that presently has any financial interest in the disposition of this appeal for the reason set forth above.
Paragraph 2 of Judge Eaton’s Order states:
1. That said motion be, and the same is hereby granted; Appellant SOMBRERO REEF CLUB, INC. is hereby granted until June 20, 1983 to file its main brief herein.
2. That inasmuch as Appellee KING-SAIL CORPORATION OF MARATHON is the only appellee having an interest in the disposition of the pending appeal, Appellant SOMBRERO REEF CLUB.... INC. will only be required to serve all briefs, pleadings and notices herein upon Appellee KINGSAIL CORPORATION OF MARATHON.
The second Order entered by Judge Eaton on June 6, 1983 states:
This date the Court entered an Order in this cause, styled “Order Granting Extension of Time to File Appellant’s Brief and Limiting Service of Briefs Etc.” The Order, inter alia permits Plaintiff to serve all future papers on only one named Defendant, Kingsail Corporation of Marathon, upon Plaintiff’s representation that Kingsail is the only Defendant below with any interest in the present appeal.
It is, however,
ORDERED that Plaintiff/Appellant shall serve, by first class mail, a copy of this Order, as well as copies of its motion for limited service and Order approving same upon each named Defendant below. Any such Defendant may inform the Court, and Plaintiff’s counsel, in writing and within twenty (20) days of the date of this Order of its desire to participate in this appeal. Any defendant who makes such an appearance shall thereafter be served with all briefs and other documents, and shall enter this appeal in accordance with the Bankruptcy Rules.
No defendant, other than Kingsail Corporation of Marathon, appeared or informed the court of its desire to participate.
It thus appears that only Kingsail Corporation of Marathon can be affected by this order on remand.
The matter before the court on remand is a post-appeal proceeding on a 1982 complaint filed by the debtor, Sombrero Reef Club, Inc., which sought the imposition of a Section 506(c) lien on the debtor’s own real property, a 57 room marina resort facility (“the marina resort”) in Marathon, Florida. When the marina resort was sold, pursuant to a court ordered auction held several weeks after this court entered its September 10, 1982 final judgment, the successful bidder was the third mortgagee, Kingsail Corporation of Florida (“Kingsail”) which acquired the real property for $1,485,000 cash. The defendant who remains as a party to the present adversary proceeding is only Kingsail.
The debtor claimed its lien in part1 for the reasonable value of those services the debtor’s counsel, Samuel L. Heller (“Heller”), had rendered herein. The services resulted in this court removing (in a series of litigation efforts initiated by debtor’s counsel) the interests of several hundred parties who had purchased from the debt- or, before bankruptcy, right-of-use timeshare contracts, that represented a total of 390 time-share weeks. Bankruptcy Judge Joseph A. Gassen awarded the debtor a $48,500 lien for Heller’s legal services. On appeal, the United States District Court for the Southern District of Florida remanded the cause to this Court with a direction that it re-determine the Section 506(c) expenses *991to which the debtor is entitled for its attorney’s fees and that this court explain its calculation of the extent of the benefit conferred upon the secured creditor by the services of the debtor’s attorney.
At a retrial proceeding held by this court on July 2, 1987, the only parties that appeared were Caribank and Kingsail. Cari-bank argued that it is not a party. Both the debtor and Caribank requested that this court take judicial notice of the prior trial proceeding conducted by Judge Gas-sen and certain matters, discussed infra, that related to the appeal proceeding in the District Court. Neither the debtor nor Car-ibank offered any additional testimony or exhibits.
The issues now before this court are:
1. What was the reasonable value of the legal services the debtor’s counsel performed in removing from the defendants’ collateral the time-sharing contracts?
2. What was the extent of the benefit conferred upon Kingsail as a result of the legal services that secured removal of the time-share contracts from the fee title?
Debtor argues that if the amount of benefit to any of the four defendant-lien creditors exceeds the $48,500 previously awarded by this court, then this court may surcharge the cash distribution of the benefit-ted defendants. He argues that the $1,485,000 auction sale proceeds should be charged an additional amount that this court determines is due debtor for its Section 506(c) lien for the attorney’s services. He argues this notwithstanding that three of the four defendants did not fully participate in the appeal to the District Court. The court has already indicated that it does not believe any defendant has any liability other than Kingsail. If the other three defendants were in fact still parties for purposes of this proceeding, the court does not believe that they were in any way benefited and that all benefits inured to only the most junior lienholder that received some payment.
FINDINGS OF FACTS
1. On September 30, 1980, the debtor filed its chapter 11 petition to avoid losing its marina resort in a mortgage foreclosure.
2. In the first fourteen months of its chapter 11, the debtor signed purchase agreements with five separate buyers each of whom defaulted or was otherwise unable to consummate the purchase of the marina resort because it was burdened with several hundred executory right-of-use time-share contracts the debtor had sold to the public in the period 1978-1980. Each contract sold to the time-share purchaser the right to use one room in the facility for one week annually for a period of 30 years; the extant contracts at the filing of the chapter 11 represented approximately 390 time-share room/weeks.
The mortgage interests of each of the four parties holding mortgages on the debt- or’s property were subject to four pre-bankruptcy nondisturbance agreements each mortgagee had executed with the debtor in compliance with Florida law.2 Under the nondisturbance agreements that Caribank, First National Bank of Marathon and Kingsail executed, each agreed that any mortgage foreclosure would not extinguish or impair the rights of the time-share contract holders.
3. By the summer of 1981, five of the debtor’s contracts to sell the marina resort had fallen through. Heller therefore concluded that the property would remain unmarketable so long as the time-share contracts remained outstanding. In mid-1981 Heller initiated on behalf of the debtor, a series of litigation efforts in this court in an attempt to destroy the time-share contracts as burdens on the marina resort’s title. The first such action resulted in a declaratory judgment which extinguished *992130 of the 390 time-share weeks (by reason of various contract defaults that the debtor established.)
In November 1981, the debtor launched two proceedings in this court in an attempt to unburden the marina resort from the contracts evidencing the remaining 260 time-share weeks. It moved to reject the time-share contracts as executory contracts under Section 365 of the Bankruptcy Code and simultaneously brought an adversary suit against 264 defendants (the holders of the time-share contracts) to obtain a declaratory judgment that if rejection was authorized by the court, the interests of the time-share buyers would not survive rejection as either lessees or real estate purchasers in possession. This suit also asked for a permanent injunction to restrain the time-share members from attempting to come onto the debtor’s property.
On March 24, 1982, this court3 authorized the debtor to reject all of the remaining time-share contracts and entered a declaratory judgment that none of the timeshare purchasers retained any interest in the debtor’s marina resort that survived rejection under Section 365. All time-share holders were permanently enjoined from thereafter coming upon the debtor’s marina resort.
4. Appraisal testimony received in the 1982 trial established that in August 1982, the debtor’s marina resort had a gross fair market value of $3,150,000 — without reduction for the burden of the time-share contracts. As the 30-year contracts then had an average remaining life of 28 years, the value of that burden on the fee title was also established by appraisal testimony to be $432,000. Thus, the legal services debt- or’s counsel performed in removing the time-share contracts confered a $432,000 benefit to the property and to the interests of the defendant-lien creditors.
5. The debtor’s counsel established at trial through detailed time records and testimony that out of 2,039 hours of service rendered in the chapter 11 proceeding (as of August 24, 1982), approximately 900 hours was expended in eliminating the time-share contracts, securing a determination as to the validity, priority and amount of liens, negotiating with zoning officials to preserve development permits which would permit the debtor to increase the number of residence units and construct a pier addition adjoining its property and in securing an agreement with the Florida Department of Natural Resources to preserve a submerged sovereignty land lease the debtor had effected before bankruptcy. (These valuable permits and lease would have otherwise expired during the chapter 11.)
6. Uncontroverted expert testimony from a South Florida bankruptcy practitioner of 34 years experience confirmed that the legal questions involved in these litigation efforts were novel. The ruling that debtor’s counsel secured [that timeshare interests could be rejected as exec-utory contracts and were not entitled to post-rejection protection under either Section 365(h) or Section 365(i)] apparently contributed to the actions of Congress which extended the protection of Section 365(h) to purchasers of time-share interests in the Bankruptcy Amendments and Federal Judgeship Act of 1984.4 Collier observed in 2 Collier on Bankruptcy (15th ed.) ¶ 365.09 (at page 365-58):
The reason for the legislative change was case law holding that timeshare interests could be rejected as executory contracts and that the purchasers were not entitled to protection under either section 365(h) as lessees or section 365(i) as vendees [citation to In re Sombrero Reef Club, Inc., 18 B.R. 612, 6 C.B.C.2d 506 (B.Ct., S.D.Fla.1982) ].
7. This court previously held in its 1982 final judgment that:
The attorney for the debtor in possession has established that a reasonable fee for his services in the litigation concerning the time-share membership agreements and in determining the validity, priority, and amount of liens far exceeds the amounts which can be assessed *993under § 506(c). The Court finds that a benefit has resulted to the secured parties by reason of that litigation. Had this not occurred, each of the secured parties would have been put to the inconvenience and expense of resolving the issues created by the time-share memberships and the disputes among the lienors. The court finds that the reasonable amount of the attorney’s fees for the debtor in possession which can be awarded under § 506(c) for those services is $48,500.... (emphasis supplied).
None of the defendants ever challenged the above finding “that a benefit has resulted to the secured parties by reason of (the litigation initiated by debtor’s counsel)” by appealing or cross-appealing the final judgment.
8. The court finds that the total reasonable value of the aforementioned legal services performed by debtor’s counsel was $48,500. (The Order of Remand from the District Court states: “The Bankruptcy Court shall award no less than $48,500 on remand.”)
9. On August 14, 1985, — some five months after the District Court had entered its Order of Remand, — the debtor filed a motion in the District court to Modify the Order of Remand so as to withhold the court’s mandate against all of the defendants-appellees other than Kingsail. As only Kingsail had been served with the debtor’s brief that had prompted the District Court to reverse this court’s final judgment. The debtor asked this District Court to set aside its Order of Remand so as to grant5 all of the other appellees 20 days in which to file a brief on the merits. The only defendant who responded to the debtor’s motion was Caribank. Caribank objected to the debtor’s motion. The District Court denied the debtor’s motion (observing in its December 12, 1986 order that “withholding remand and directing the ap-pellees to file briefs would result in an inefficient use of judicial resources”).
CONCLUSIONS OF LAW
1. the court concludes that the benefit conferred to Kingsail Corporation of Marathon is equal to the reasonable value of the legal services performed by the debtor's counsel in securing the removal of .the time-share contract and performing- the other services, described supra, that preserved the property for the benefits of Kingsail Corporation of Marathon. The debtor was therefore entitled to recover from the proceeds of sale of the real property, pursuant to Section 506(c) of the Bankruptcy Code.
Accordingly, the court will enter a separate Final Judgment against the defendant, Kingsail Corporation of Marathon, for said amount together with interest thereon from September 10, 1982. .
. In its original complaint the debtor also sought a lien for the reasonable value of insurance premiums advanced by debtor to preserve the resort and for the reaonable value of a watchman’s services; this Court’s September 10, 1982 final judgment (entered by Bankruptcy Judge Joseph A. Gassen) awarded the debtor a Section 506(c) lien for the insurance premiums and the watchman’s services. That portion of the final judgment was not appealed and is therefore not before the Court at this time.
. Prior to 1981, the applicable regulations restricting the marketing of time-share memberships were contained in the Florida Administrative Code. The provision of the 1981 Florida Real Estate Time-Sharing Act that governed nondisturbance agreements in 1982 (when this Court rendered its decision regarding the debt- or’s time-share contracts) was and is Section 721.08, Florida Statutes.
. In re Sombrero Reef Club, Inc., 18 B.R. 612 (Bankr.S.D.Fla.1982).
. Pub.L. No. 98-353 (1984).
. An order affording to those appellees who did not initially participate in briefing the right to submit briefs after the appellate court’s decision was entered by the Tenth Circuit Court in Perington Wholesale, Inc. v. Burger King Corp., 631 F.2d 1369 (10th Cir.1979) wherein the Court held, 631 F.2d 1380:
Carpenter ... did not participate in the briefing and arguments on appeal, apparently based upon its view, which we reject, that no appeal was taken of the order dismissing it from the suit. Although Carpenter forfeited its right to be heard on the merits, this Court now chooses to grant Carpenter twenty days from the date of entry of this opinion to file a brief on the merits of its case, if it has contentions to make on the rulings decided against it. See Fed.R.App.P. 3(a). The mandate against Carpenter will be withheld until the Court has considered any brief so filed, (emphasis added). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490736/ | MEMORANDUM DECISION AND ORDER DENYING MOTION OF FSLIC FOR RECONSIDERATION AND FOR NEW TRIAL
A. JAY CRISTOL, Bankruptcy Judge.
This matter came before the Court on Tuesday, July 5, 1988 on the Motion of the FSLIC for Reconsideration and for New Trial. By its motion, the Federal Savings and Loan Insurance Corporation as receiver for Sunrise Savings and Loan Association (“FSLIC”) seeks reconsideration of the Court’s May 9, 1988 Order Allowing and Authorizing Payment of Interim Compensation and Reimbursement of Expenses to Attorneys for the Debtor (court paper 80), alleging that West Coast improperly paid the allowed fees and costs from FSLIC’s cash collateral. FSLIC has moved pursuant to Bankruptcy Rules 9023 and 9024, incorporating Rules 59 and 60 of the Federal Rules of Civil Procedure, respectively. Finding that the motion fails under both rules for the reasons set forth below, the Court denies FSLIC’s motion.
Motion for New Trial — Rule 59
First, FSLIC seeks a “new trial” pursuant to Rule 59. That rule provides: “A motion for a new trial shall be served not later than 10 days after the entry of the judgment.” Fed.R.Civ.P. 59(b). The order which FSLIC asks the Court to review was entered on the docket May 16, 1988. FSLIC filed and served its motion June 24, 1988, substantially more than ten days after entry of the order. Thus, FSLIC’s motion under Rule 59 is untimely and therefore denied. See, e.g., Hulson v. Atchison, T & S. F. Ry., 289 F.2d 726, 729 (7th Cir.1961) (“Rule 59(b) ... prohibits a trial court from granting a motion for new trial made after the expiration of 10 days after entry of judgment. ‘The trial court did not have jurisdiction to hear and pass on reasons for a new trial which were not assigned and served on defendants within ten days after the entry of the judgment.’ ” (quoting Fine v. Paramount Pictures, 181 F.2d 300, 303 (7th Cir.1950))); Barone v. Strouse, Greenberg Mortgage Co., Inc. (In re Campfire Shop, Inc.), 71 B.R. 521, 522 (Bankr.E.D.Pa.1987) (Rule 59 “must be interpreted strictly, and Motions must be served upon opposing counsel within ten (10) days of the Order in question, or they must be summarily denied because of our absence of jurisdiction to consider them.”).
Motion for Relief from Order — Rule 60
FSLIC also seeks relief from the May 9 order under Rule 60. That Rule permits the Court to grant a party relief from a judgment or order because of mistake, excusable neglect, newly discovered evidence or fraud. However, not only has FSLIC failed to plead any grounds for re*995lief under Rule 60, but FSLIC also has failed to meet the applicable standard.
Even the most liberal review of FSLIC’s motion fails to reveal any allegations of mistake, excusable neglect, newly discovered evidence or fraud which might form the basis for relief under Rule 60. At the hearing on FSLIC’s motion, counsel for FSLIC argued that the grounds for the motion were a combination of all of the grounds set forth in the rule but failed to proffer specific facts which could demonstrate mistake, excusable neglect or fraud. The burden was on FSLIC to do so. See Solaroll Shade & Shutter Corp., Inc. v. Bio-Energy Sys., Inc., 803 F.2d 1130, 1132 (11th Cir.1986). Nor did counsel proffer any newly discovered evidence.
The determination of a motion for relief from a judgment or order under Rule 60 is within the Court’s discretion. E.g., id. at 1132. “Rule 60(b) ‘is an extraordinary remedy [, however,] which may be invoked only upon a .showing of exceptional circumstances,’ and, most courts using Rule 60(b) in this manner have limited its use accordingly.” Tucker v. Commonwealth Land Title Ins. Co., 800 F.2d 1054, 1056 (11th Cir.1986) (citations omitted) (quoting Griffin v. Swim Tech Corp., 722 F.2d 677, 680 (11th Cir.1984)). As I have noted before while sitting as a visiting bankruptcy judge in the Middle District of Florida: “Forgetfulness and the press of other more important business is insufficient to establish excusable neglect.” In re Uiterwyk Corp., 57 B.R. 166, 166 (Bankr.M.D.Fla.1986). “Carelessness is not synonymous with excusable neglect.” Id. In this case, the Court finds no mistake or surprise and has heard no new evidence and therefore denies FSLIC’s motion. See United States ex rel. Duval Tile Supply, Inc. v. Byer Indus., Inc., 794 F.2d 1560, 1561 (11th Cir.1986).
In sum, FSLIC’s motion for reconsideration and new trial was untimely under Rule 59(b) and fails to come within any of the bases for reconsideration under Rule 60. Accordingly, it is hereby
ORDERED that the Motion of the FSLIC for Reconsideration and for New Trial is DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490737/ | MEMORANDUM OF DECISION ON TRUSTEE’S OBJECTION TO CLAIM
ALAN H.W. SHIFF, Bankruptcy Judge.
The trustee objects to the claim of Chase Manhattan Bank, N.A. (Chase), asserting that the underlying debt was released by novation.1
BACKGROUND
On February 7, 1980, the debtor (Stader) filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code and listed in Schedule A-3 an unsecured, undisputed debt to Chase in the amount of $537,-524.07. On May 12, 1980, a discharge was granted. On December 19, 1980, Chase instituted an adversary proceeding to revoke Stader’s discharge, see 11 U.S.C. § 727(d), and thereafter established at trial that Stader had fraudulently concealed valuable real estate from his schedule of assets. As a consequence, Stader’s discharge was revoked. In re Stader, Adv. No. 5-81-0001 (Bankr.D.Conn. July 21, 1982). On July 25, 1983, Stader amended Schedule A-3 to designate his debt to Chase as “disputed”. The disputed debt relates to the following personal guaranties of loans made by Chase to two corporations in which Stader was president and sole shareholder.
On September 5, 1972, Stader executed a guaranty of debts incurred by Stader Asso-*31dates, Inc. (Stader Associates),2 the builder and owner of Cross River Plaza, a shopping center in Cross River, New York (Center). On October 16, 1972, Stader executed an identical guaranty of the obligations of Re-dats, Inc. (Redats),3 the owner and operator of a restaurant in the Center.
Chase maintains that the personal guaranties were in effect when, on June 3,1974, Stader, as president of Redats, executed a note for $68,800.004 and when, on December 9, 1974, Stader, as president of Stader Associates, executed a note for $396,-156.04.5 The trustee concedes the validity of the notes, but asserts that the personal guaranties were released by novation.6
DISCUSSION
I
Choice of Law
The trustee argues that a federal court sitting in Connecticut should apply Connecticut law when resolving matters of contract interpretation. In addressing a choice of laws question, this court previously recognized that “federal courts must apply the substantive conflict of law rules of the forum state in which it sits.” In re U.S. Repeating Arms Co., 67 B.R. 990, 994 (Bankr.D.Conn.1986), citing, Klaxon Co. v. Stentor Electric Manufacturing Co., Inc., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941). Connecticut courts give effect to agreements between parties regarding the substantive law to govern the interpretation and enforcement of their contract. Gannett Co., Inc. v. Register Publishing Company, 428 F.Supp. 818, 824 (D.Conn.1977), citing, Poliak v. Danbury Mfg. Co., 103 Conn. 553, 131 A. 426 (1925); Fairfield Lease Corp. v. Pratt, 6 Conn.Cir. 537, 278 A.2d 154 (1971); Vending Credit Corp. v. Trudy Toys Co., 5 Conn.Cir. 629, 260 A.2d 135 (1969). Paragraph 5 of each guaranty provides, inter alia, that “obligations and liabilities arising hereunder shall be construed according to the laws of the State of New York.”7 I therefore conclude that New York law controls Stader’s liability under those guaranties.
II
Novation
Under New York law, in order to establish a novation, each of the following four elements must be present: (1) a valid prior obligation; (2) the agreement of all parties to a new contract; (3) the extinguishment of the old obligation; and (4) a valid new contract supported by consideration. Callanan Industries v. Micheli Contracting, 124 A.D.2d 960, 508 N.Y.S.2d 711, 712, (3d Dept.1986); Wasserstrom v. Interstate Litho Corp., 114 A.D.2d 952, 495 N.Y.S.2d 217, 219 (2d Dept.1985); Town & Country Linoleum & Carpet Co. v. Welch, 56 A.D.2d 708, 392 N.Y.S.2d 517, 518 (4th Dept.1977); see also, French American Banking Corp. v. Flota Mercante, 609 F.Supp. 1352, 1357 (S.D.N.Y.1985); VJK Productions v. Friedman/Meyer Productions, 565 F.Supp. 916, 921 (S.D.N.Y.1983). As to the fourth element, the discharge of the original contract ordinarily constitutes sufficient consideration for the substituted contract. Wasserstrom, supra, 495 N.Y. S.2d at 219.
Under non-bankruptcy law, the party asserting a claim of novation has the burden of establishing the “clear and definite intention on the part of all concerned that such is the purpose of the agreement.” Beck v. Manufacturers Hanover Trust Co., 125 Misc.2d 771, 481 N.Y.S.2d 211, 218 (Sup.Ct.1984) (quoting 22 N.Y.Jur.2d, Contracts, § 406, pp. 321-322); see also 58 *32Am.Jur.2d Novation § 32 (1971). However, that burden does not require proof of an express novation. A novation may be implied or inferred from all surrounding circumstances. National Equipment Rental, Ltd. v. Sebert Mfg. Corp., 42 Misc.2d 415, 248 N.Y.S.2d 374, 376 (Sup.Ct.1964); French American Banking Corp., supra, 609 F.Supp. at 1358. That procedure will apply here because it comports with the assignment of burdens of proof in bankruptcy claims litigation. Generally, “[a] properly filed proof of claim 'constitute^] prima facie evidence of the validity and amount of the claim.’ Consequently, a debtor or trustee who objects to a proof of claim has the burden of going forward with evidence in rebuttal. The ultimate burden of persuasion, however, is upon the creditor, and in that regard, the creditor must prove his claim by a fair preponderance of the evidence.” In re Central Rubber Products, Inc., 31 B.R. 865, 867 (Bankr.D.Conn.1983) (citations omitted); see also, Matter of Fidelity Holding Co., Ltd., 837 F.2d 696, 698 (5th Cir.1988). Here, the trustee’s objection is based upon novation. If he succeeds, Chase will have no claim to prove; if he doesn’t, the claim will be allowed.
a.
The Redats Note
The trustee contends that Chase orally agreed to release Stader from his guaranty of the Redats note if Stader found someone acceptable to Chase to replace him as operator of the restaurant. The trustee bases his contention on Stader’s uncontroverted8 testimony that the following events led to the novation of the Redats guaranty.
Redats initially borrowed money from Chase in 1972.9 At that time, Chase required Stader to sign a hypothecation agreement, pledging certain personal savings passbooks as collateral.10 Following the closing of the restaurant in May, 1973, Stader was advised by Paul Dallak, a manager and assistant treasurer at Chase’s Cross River branch,11 that his personal guaranty would be released if he produced “a viable tenant who would assume the operation of the restaurant or take it ov¡er in a form acceptable to the bank....”12 In September or October 1973, Stader introduced John Lium to Dallak as a person interested in taking over the restaurant and the Center.13 Dallak referred the matter to Charles Schroeder, a Chase vice-president, who had the authority to enter into such negotiations.14 Lium and Stader met with Schroeder in late September or early October 1973.15 In March 1974, Dallak informed Stader that Lium had been approved by Schroeder to take over the restaurant and “if Lium is going to take over the notes, you will be relieved of your guarantee.”16 In June or July 1974, Dal-lak told Stader that the passbooks would be returned, “and then the guarantee would be cancelled [or] released. ...” 17 Thereafter, Stader’s passbooks and hypoth-ecation agreements were returned, and Lium eventually assumed control of the restaurant.18
*33Stader’s testimony was bolstered by his August 4, 1974 letter19 to Dallak:
It is my understanding since the restaurant is closed, Redats, Inc. is no longer functioning, the Hypothecation agreements have been returned and lium in [sic] assuming the control and responsibilities [sic] of Redats that I am neither corporately or psersonally [sic] responsible for any existing debts.
An April 15, 1976 letter is to the same effect.20 In that letter, Stader responded to a demand by Chase for the repayment of the Redats note by reminding Chase of the agreement reached by him, Lium and Schroeder, and questioning why the bank had waited almost two years to communicate with him if it “believed that I was personally responsible.” 21
I find that Stader’s testimony is credible and convincing. Moreover, Chase’s own records support Stader’s account of the novation. In an April 29, 1974 file memo, Schroeder wrote that “the Redats loan ... has since been assumed by the Hungry Lion Restaurant, who [sic] leased the restaurant space from Stader.”22 I am accordingly persuaded that Chase and Stader entered into negotiations which culminated in Chase’s approval of Lium to operate the restaurant and assume its obligations and resulted in a concomitant release of Stader from his personal guaranty.
b.
Stader Associates Note
The trustee contends that Chase orally agreed to relieve Stader from his guaranty of the Stader Associates note if Stader would turn over management of the Center to Chase. The trustee’s contention is based upon Stader’s testimony corroborated by Frederick Jambes, his friend and advisor.
Stader testified that after the Redats no-vation, he asked Dallak about the possibility of obtaining a release on the Stader Associates guaranty. Dallak stated that he would confer with Schroeder, who thereafter proposed that Chase lend Stader Associates $60,000.00 to pay certain liens on the Center in return for Stader Associates’ execution of a new secured note in the amount of its total outstanding balance guaranteed by Stader. Stader testified that he did not accept that proposal because it did not relieve him of his personal liability, and that he telephoned Schroeder to request an arrangement similar to the Redats novation.23 In response, Schroeder arranged for a meeting with Stader sometime in late October or early November 1974.24 At that meeting, Stader, accompanied by Jambes, reasserted his position that Schroeder’s proposal was unacceptable because it failed to release his personal guaranty.25 According to Stader, Chase then proposed that it assume managément of the Center and offered to release his guaranty provided that he executed the following documents on behalf of Stader Associates: a new note, a second mortgage to secure the new note, and a confession of judgment in the amount of the old note. In addition, Stader was to personally execute irrevocable stock powers in favor of Chase.26
On November 19, 1974, Stader executed the confession of judgment.27 On Decém-ber 9, 1974, Stader signed a $896,156.04 note28 and mortgage29 and a blank form captioned “Irrevocable Stock/Bond Pow*34er”.30 Stader testified that as of December 9, 1974, he had no management role; he did, however, retain title to the Center.31 Chase opened a collateral account for the receipt of rents32 and had Stader sign letters on Chase’s stationary, informing tenants that Chase was assuming management of the Center and would be collecting the rents.33 Stader thereafter referred any communication from tenants to Chase.34 The only further involvement Stader had with the Center occurred in August 1975 when he attempted to regain control after receiving notice of foreclosure by the holder of the first mortgage.35
Chase attempted to rebut Stader’s testimony by the introduction of various memo-randa from its files in which Chase officers referred to the guaranty as late as August 1975. Those references are, however, merely the mistaken impression by those officers of the consequence which followed from Stader’s execution of the note, mortgage, confession of judgment and irrevocable stock powers.
Jambes’ testimony corroborates Stader’s account of Chase’s offer of novation. Jambes testified that he accompanied Stader to a meeting with Chase.36 According to Jambes, Stader was asked “to release everything to them, mortgages and papers and all kinds of documents ...”37 in return for which Chase would “consider the property as a guaranty and [would] remove [the] ... personal guaranty.”38
Having reviewed the documents and assessed the credibility of the witnesses, I am convinced that Stader would not have executed a new note, mortgage, confession of judgment and irrevocable stock powers without a concomitant release of his guaranty. Accordingly, I conclude that Stader’s guaranty of the Stader Associates note was extinguished by novation.
CONCLUSION
For the foregoing reasons, the trustee’s objection to Chase’s claim is sustained and judgment shall accordingly enter in his favor.
. Generally, in order to be entitled to a distribution from a chapter 7 bankruptcy estate, see 11 U.S.C. § 726, a creditor is required to file a proof of claim, see 11 U.S.C. § 501(a); Official Form 19, which is deemed allowed unless a party in interest objects, see 11 U.S.C. § 502(a). The time within which to file a proof of claim is governed by Rule 3002, but when notice of insufficient assets to pay a dividend has been given to creditors pursuant to Rule 2002(e), creditors need not file their claims unless the clerk notifies them that the payment of a dividend appears possible, see Rule 3002(c)(5).
A search of the record reveals that Chase has not filed a proof of claim. This was initially reported as a no asset case. After Stader’s discharge was revoked in recognition, inter alia, that there were undisclosed assets, see text infra, a notice should have been but was not sent to Chase and other creditors under Rule 3002(c)(5).
Neither party has raised this issue. To the contrary, both have treated Chase’s claim as though a proof of claim had been filed. This decision recognizes the de facto status of Chase's claim.
. Claimant’s Exhibit 3.
. Claimant’s Exhibit 1.
. Claimant’s Exhibit 2.
. Claimant’s Exhibit 4.
. The trustee also claimed a recoupment which was denied by the July 28, 1985 partial summary judgment entered in favor of Chase. Thereafter, on July 22, 1987, during the course of the extended hearing held on this matter, the trustee filed an Amended Substituted Objection to Claim.
.Claimant's Exhibits 1 and 3.
. Chase contends that the trustee's failure to call John Lium (the party who assumed management of the restaurant) as a witness supports an inference that Lium’s testimony would have been unfavorable to the trustee’s theory of novation. Under federal law, in order to support such an inference, Chase was required to show that the trustee's control over Lium was such that he was able to assure Lium’s appearance at trial, or that Lium was available to testify and subject to subpoena. Matter of Unit, Inc., 45 B.R. 425, 431-32 (Bankr.S.D.Ohio 1984); Matter of Pal Transport, Inc., 13 B.R. 935, 939 (Bankr.M.D.Fla.1981). No such showing has been made here.
. Tr., September 23, 1986, Vol. I at 4.
. Id. at 4-5; Trustee’s Exhibit A and H.
. Tr., September 23, 1986, Vol. I at 4.
. Id. at 10-12.
. Id. at 13.
. Id. at 14.
. Id. at 15.
. Id. at 16-17.
. Id at 17-18.
. Id. at 13, 16 and 18.
. Trustee’s Exhibit D.
. Trustee’s Exhibit E.
. Id.
. Trustee’s Exhibit B. At this time, the novation of the Stader Associates guaranty had not yet occurred and Stader was still managing the Center.
. Tr, September 23, 1986, Vol. I at 26-29; Trustee’s Exhibit F.
. Tr., September 23, 1986, Vol. I at 30; Vol. II at 23.
. Tr., September 23, 1986, Vol. I at 30-32.
. Id. at 32-33.
. Trustee's Exhibit N.
. Claimant’s Exhibit 4.
. Trustee’s Exhibit M.
. Trustee’s Exhibit K; Tr., September 23, 1986, Vol. I at 37-38.
. Id. at 40.
. Id. at 42.
. Trustee’s Exhibit 25.
. Tr., September 23, 1986, Vol. I at 57.
. Id. at 42-43.
. Tr., September 24, 1986, Vol. III at 8.
. Id. at 10.
. Id. at 14. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490739/ | ORDER ON MOTION FOR IMPOSITION OF SANCTIONS AND FOR CLARIFICATION OF ORDER OF DISMISSAL
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a dismissed Chapter 11 case whose dismissal effect has been suspended pending the resolution of a Motion to Impose Sanctions filed by Savers Federal Savings & Loan Association (Savers Federal) and a Motion for Clarification of Order of Dismissal filed by Security Properties, Inc. (SPI). The Motion filed by Savers Federal seeks an imposition of sanctions against counsel for James H. Hagle who signed the involuntary Petition for Relief on behalf of Wedgewood Golf Associates, Ltd. (Debtor), as the general partner of the Debtor. The Motion for Clarification filed by SPI is addressed to this Court’s Order which dismissed the Chapter 11 case with prejudice.
At the duly scheduled hearing on the motions, this Court reviewed the motions together with the record, heard arguments of counsel and finds that a brief recap of the procedural history of this Petition and its predecessors would be helpful to a resolution of the matters under consideration.
On September 30, 1987, James M. Hagle and Stephen H. Alex, who claimed to be general partners of Wedgewood, filed a voluntary petition on behalf of the partnership. On October 13, 1987, SPI attacked the Chapter 11 Petition and sought a dismissal based on its contention that SPI is the general partner of the limited partnership, i.e., Wedgewood; it did not consent to the filing; and that Stephan H. Alex is not the general partner of Wedgewood, neither is Hagle, and, therefore, the voluntary petition filed on behalf of Wedgewood (Wedge-wood I) was an unauthorized voluntary petition. The Motion was heard in due course and was granted. However, the dismissal was without prejudice and granted leave to Hagle and Stephen H. Alex to file an involuntary Chapter 11 against Wedgewood pursuant to Section 303 of the Bankruptcy Code, if the proper parties so deemed to be advised. The Order of Dismissal did not deal with the status of Hagle or Stephen Alex as general partners of Wedgewood.
On November 16, 1987, Gary B. Alex, Stephen H. Alex and James Hagle, all who claimed to be general partners at Wedge-wood, filed an involuntary petition against Wedgewood pursuant to § 303(b)(3) of the Bankruptcy Code. The Petition was signed by James Hagle as general partner who stated in the Petition that the only non-joining general partner is James P. White. On December 7, SPI filed its second Motion to Dismiss Wedgewood II. The Motion was based again on the proposition that Mr. David F. DeSerio and Mr. R.C. Fernon, Jr., the attorney who filed the Petition, had no authority to act on behalf of Gary H. Alex, one of the alleged petitioning general partners; that Stephen H. Alex was not the general partner; that the signatures were not verified as required by 28 U.S.C. 1746 and Bankruptcy Rule 1008. In addition SPI also contended that whatever capacity Hagle and Stephen H. Alex had to act as general partners at one time it was effec*512tively terminated prior to the commencement of Wedgewood II.
On January 6, 1988, this Court granted the Motion and dismissed Wedgewood II solely on the basis that the Petition was not verified, thus it was filed in violation of 28 U.S.C. 1746 and Bankruptcy Rule 1008. The Order of Dismissal retained jurisdiction to consider the Motion to Impose Sanctions sought by SPI.
On January 28, 1988, Hagle again as a claimed general partner of Wedgewood filed a new Involuntary Petition for Relief under Chapter 11 (Wedgewood III). On September 17, 1988, SPI again filed a Motion to Dismiss restating basically the same facts alleged in its previous two motions, which were granted and which dismissed Wedgewood I and Wedgewood II. The basic thrust of the attack by SPI was based on the proposition that James Hagle and his wife filed their own voluntary petition on December 10, 1986, therefore, by virtue of Fla.Stat. 620.124(4)(e), Hagle ceased to be a general partner of Wedgewood. This Statute provides, inter alia, that a person ceases to be a general partner of a limited partnership if that person is adjudged a bankrupt or insolvent or has entered against him an order for any relief in any bankruptcy or insolvency proceeding.
On May 25, 1988, this Court granted the Motions to Dismiss filed by SPI and by Savers, but retained jurisdiction to consider the Motions to Impose Sanctions filed both by SPI and by Savers, 86 B.R. 711. It further appears from the record that the order granting the Motion to Dismiss Wedgewood III was based on the finding by this Court that this Debtor, i.e., Wedge-wood, Ltd., a partnership, will not be able to effectuate a meaningful reorganization because of an irreconcilable dissension between the internal management of the partnership.
As noted earlier, the motions under consideration are the Motion to Impose Sanctions by SPI for the alleged violation of the certification requirement of Bankruptcy Rule 9011 and the Motion to Impose Sanctions by Savers. The Motion of Savers is based on the contention that each of the three petitions, Wedgewood I, II, and III, were filed improperly; that Hagle and his counsel knew that the petitions were improperly filed; they filed solely for the purpose to forestall Savers efforts to foreclose its mortgage on the one and single asset owned by this limited partnership.
The Motion to Impose Sanctions of SPI is based on the contention that all three petitions were filed by Mr. Fernon and Mr. DeSerio on behalf of Hagle and others who all very well knew that they had no authority to file either the original voluntary petition, Wedgewood I, or the two subsequent involuntary petitions. As noted earlier, this contention is based in turn on the proposition urged by SPI that Hagle ceased to be a general partner of Wedgewood by virtue of the fact that he himself filed a petition for relief in this Court in Chapter 11 on January 28,1988, therefore, by virtue of Fla.Stat. 620.109, his capacity to function as a general partner was terminated, thus, he no longer had any authority to file any documents as a general partner on behalf of Wedgewood. In addition, SPI also contends that whatever interest Stephen H. Alex had claimed, it was also terminated and he was no longer the general partner of Wedgewood. Based on the foregoing, it is the contention of SPI that the signature of Mr. Fernon on the document stating that Hagle and Stephen H. Alex were the general partners was false, knew it to be false, and was not well grounded in fact and, therefore, violated Bankruptcy Rule 9011.
The Motion to Impose Sanctions of Savers is based on the contention that the Petition for Relief filed by Hagle on behalf of Wedgewood originally or as a voluntary petition, (Wedgewood I), or the two successive involuntary petitions, (Wedgewood II and Wedgewood III) were filed in bad faith; filed solely for the purpose of har-rassment of Savers and without just cause and, therefore, the imposition of sanctions is appropriate on counsel who had known and should have known that none of the Petitions for Relief were well grounded by facts nor could they have been supported by existing law.
*513Opposing the Motions For Sanctions, counsel for Hagle contends that each of the Petitions were filed in good faith. Mr. Fernon admits, as he must, that as the result of Mr. Hagle’s filing of his own individual voluntary Petition for Relief, his general partnership interest in the partnership was effectively terminated by operation of law. Notwithstanding, it is Mr. Fernon’s contention that the surviving general partners of Wedgewood consented to his readmission as a general partner; that Hagle continued to participate in the partnership affairs without objection of the other general partners. Based on these facts that the other general partners of Wedge-wood would consent to the filing of a Chapter 11 petition, counsel for Hagle filed the first Petition for Relief for the Debtor, Wedgewood I in good faith. In addition, Mr. Fernon contends that after the first Order of Dismissal, Hagle filed an involuntary petition for relief under Chapter 11 again believing that he was still a general partner of the Debtor. Counsel explains his failure to sign the second petition for relief as inadvertence. Finally, counsel for Hagle again contends again that the third Petition (Wedgewood III) was filed in good faith based on the belief that Hagle had the authority to sign the involuntary petition as a general partner.
Mr. Fernon does not seriously challenge the proposition that by virtue of the operation of 620.124(4)(c) Hagle ceased to become a general partner when he filed his voluntary petition on his own behalf. However, Mr. Fernon contends that Chapter 620.109, Fla.Stat., requires to amend the certification of limited partnership within 30 days after a happening of certain events, including a withdrawal of a general partner and the admission of a new general partner. Based on this proposition, it is urged by Fernon that because the certificate of partnership was never amended, the status of Mr. Hagle as a general partner was a fairly debatable proposition; the claim asserted on his behalf to be a general partner was made on good faith and arguable and, therefore, the signature of Mr. Fernon which certified Hagle was a general partner was well-grounded in fact or, at least, may have been supported by existing law, and was fairly debatable. Based on the foregoing, Fernon contends that the imposition of sanctions sought by SPI under these circumstances is unwarranted.
Having considered the respective contentions by the parties and this record, this Court is satisfied that the imposition of sanctions against either Mr. Hagle or Mr. Fernon in favor of SPI is not warranted. First, the contention advanced by SPI that Stephen H. Alex’s general partnership status was terminated was not supported by any compentent evidence. In sum, the controversy between SPI and Mr. Hagle and Mr. Stephen H. Alex was basically an internal strife between the general partners. These alone would not serve sufficient ground to conclude that Hagle or his counsel acted in bad faith when he filed Wedge-wood I, II and III, which in turn would warrant the imposition of sanctions.
Savers, who is the holder of a first mortgage, was permitted to commence a foreclosure action when Wedgewood I was filed on September 30, 1987. When Wedgewood I was dismissed, Savers was not able to commence a foreclosure action by virtue of the fact of the commencement of Wedgewood II which, as noted earlier, was also dismissed. Neither was Savers able to assert his rights under its mortgage note against the subject property by virtue of the filing of Wedgewood III. It should be noted, however, that Savers did not file a motion for relief from the automatic stay until Wedgewood III was already pending and, of course, Saver’s motion to lift the stay was denied as it became moot in light of the fact that Wedgewood III was dismissed. The Motion to Impose Sanctions by Savers was basically asserted on the ground that the Chapter 11 petitions filed by and against Wedgewood was filed in bad faith and, therefore, it was proper to dismiss the same for cause under § 1112(b) of the Bankruptcy Code. None of the documents filed by either Mr. Hagle or by Mr. Fernon or Mr. DeSerio stated facts asserting affirmatively that Wedgewood is capable of effectuating reorganization. Thus, clearly the sanctions provision of Bankrupt*514cy Rule 9011 is not applicable and cannot be invoked since there was no violation of the certification rule by either Hagle or by Attorney Fernon. Based on the foregoing, this Court is satisfied that the Motion for Sanctions filed by Savers is equally without merit and should be denied.
This leaves for consideration the Motion for Clarification of the Order of Dismissal filed by SPI. SPI seeks a clarification of the Order which stated that the Chapter 11 is dismissed with prejudice. It is the contention of SPI that it itself would not be precluded to seek relief in the bankruptcy court if so deemed to be advised, and, therefore, the Order should be amended by providing that Wedgewood III is dismissed as such without prejudice to the right of any other general partner, including SPI to file a petition for relief if it is so deemed to be advised. This Court is satisfied that the Order of Dismissal was never intended to preclude SPI to seek relief under Chapter 11 and, therefore, its Motion for Clarification should be granted to specify that dismissal is without prejudice to other parties, that is, prejudice vis-a-vis all other parties other than SPI.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion to Impose Sanctions be, and the same is hereby, denied. It is further
ORDERED, ADJUDGED AND DECREED that the Motion for Clarification of Order of Dismissal be, and the same is hereby, denied, and the Order should be made to reflect that as it relates to the rights of SPI, it is without prejudice. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490740/ | ORDER ON MOTION FOR SUMMARY JUDGMENT
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 case and the matters under consideration are claims set forth in a two count Complaint filed by Business Products, Inc. (Debtor). The Complaint, which names Mark Accord, Gus Hermann, Vince Paglino, Modular Mailing Systems, Inc. and International Mailing Systems, Inc., f/k/a Better Packages, Inc., as Defendants, seeks, in Count I, compensatory punitive damages against all the named Defendants except International Mailing Systems, Inc., f/k/a Better Packages, Inc. (IMS). The claim for damages against these Defendants is based on tor-tious interference with business relationships. The claim set forth in Count II also seeks damages against IMS based on an alleged unjustified unilateral termination of a dealership between the Debtor and IMS.
The current matter under consideration is a Motion for Summary Judgment filed by IMS. It is the contention of IMS that there are no genuine issues of material fact and it is entitled to a resolution of the claim asserted by the Debtor in its favor as a matter of law. The following facts which appear from the record are without dispute:
In October, 1983, the Debtor and IMS entered into a contractual relationship whereby the Debtor was appointed to be an authorized dealer for the products manufactured by IMS. The agreement was not formalized and the only written documentation concerning this contractual relationship between the Debtor and IMS is a letter (Exhibit A attached to the Complaint). The letter, dated October 14, 1983, signed by Howard H. Kuiper, National Sales Manager of IMS, was addressed to Mr. Clark Gunn, President of the Debtor. This letter, in essense, stated that Business Products, Inc., the Debtor, was recognized as a factory authorized dealer for IMS/Hasler postage meters and mailing machines. The letter failed to contain any other specific terms concerning the arrangement between the Debtor and IMS. Further, it was totally silent as to the duration of the relationship and there is no mention in the letter of the terms of the arrangement between the parties or of the procedure for terminating the relationship. Because of the letter’s lack of specificity, it is evident that both parties had an absolute right to terminate the relationship at any time.
The deposition of the president of the Debtor (Gunn’s Deposition, Page 25, Line 24) clearly indicates that no one on behalf of IMS told the president of the Debtor that the relationship between the parties was for a specified period of time. It appears that the relationship between the parties deteriorated and in December, 1984, IMS terminated the Debtor’s dealership (Exhibit 3 to the Deposition of Dunn). Based on the foregoing, it is the contention of IMS that under the laws of the State of Florida, there is no viable cause of action for terminating a dealership agreement which is terminable at will, that is which does not have a fixed term and does not contain a provision for the procedure to deal with defaults under the agreement and termination of the agreement, citing Florida-Georgia Chem. Co. v. National Laboratories, Inc., 153 So.2d 752 (Fla. 1st DCA 1963). Florida-Georgia involved an action by an agent who sought to recover damages for the breech of an oral exclusive sales agency agreement. The District Court of Appeals, on appeal from the final judgment by the Circuit Court which dismissed the third amended complaint, reversed. The Court of Appeals stated that under the laws of this State, a contract which contains no provision for duration or termination is lacking in mutuality or certainty of consideration and may be terminated by either party at will. Further, the Court stated that a termination of the contract is not a breach of the contract and, therefore, will not support an action for *516damages. In Florida-Georgia, the Court of Appeals reversed only because the amended complaint alleged that the breach occurred prior to the termination while the agreement was still in effect. The Court of Appeals relied for its holding on cases from other jurisdictions, e.g. Abrams v. George E. Keith Co., 30 F.2d 90 (3d Cir., 1929) and Meyer v. Pulitzer Pub. Co., 156 Mo.App. 170, 136 S.W. 5 (Mo.A.pp.1911). IMS also cites, in support of its Motion, the case of Muller v. Stromberg Carlson Corp., 427 So.2d 266 (Fla. 2d DCA 1983). Muller involved a termination of the employment contract which contained the language indicating that the contract was terminable at will of either party. Based on this, the Court held that the unilateral termination created no viable claim for damages.
In opposition of the Motion, the Debtor relies on Burger Chef Systems, Inc. v. Burger Chef of Fla., Inc., 317 So.2d 795 (Fla. 4th DCA 1975). Burger Chef involved the termination of a franchise where the franchisee sought a judgment compelling specific performance and an injunction preventing the franchisor from terminating the franchise. The Court of Appeals held that mutuality of obligations and remedies are essential to a claim for specific performance and if the mutuality is lacking there is no right to specific performance. Even a cursory reading of Burger Chef leaves no doubt that it furnishes no support to the claim of the Debtor. By way of dicta, the Court of Appeals stated that the franchisee might obtain damages for the breach by the franchisor under certain circumstances, and stated, quoting 62 Am.Jr.2d 769 § 12 (Termination of Franchise 1972) that an arbitrary termination of a contract without cause may form the basis for a viable claim for damages. This statement was based on the proposition that in a franchise situation the franchisee usually makes a substantial committment in time and money to develop and establish the business of selling the product or service of which the franchisor will also be a beneficiary. Thus it would be unfair to permit the franchisor to wait until this is done and then unilateraly terminate the franchise agreement. The quoted statement in Am. Jur.2d also states that generally franchise contracts have a specific term of years and, of course, a franchise agreement which fixes a definite term cannot be terminated unilaterally solely at the option of the franchisor. There is nothing in Burger Chef which would even remotely resemble the facts in this case, all of which are without dispute. First, there is nothing alleged in the Complaint that this a franchise agreement. Second, there is nothing in this record to indicate that the Debtor, in reliance of the dealership agreement, made substantial committments in time and money to develop and establish a business of selling the product of IMS. Based on the foregoing, this Court is satisfied that the claim for damages against IMS as stated in Count II of the Complaint cannot be sustained.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Summary Judgment be, and the same is hereby granted, and Count II of the Complaint is hereby dismissed with prejudice. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490741/ | ORDER ON OBJECTION TO CLAIM OF EXEMPTIONS
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 liquidation case and the matter under consideration is the Debt- or’s right to claim as exempt a certain residence located in Miami, Dade County, Florida, as homestead pursuant to Article X, Section 4 of the Florida Constitution. The exemption claim of the Debtor is challenged by the Trustee who contends that the property involved does not qualify as homestead, therefore, is not subject to exemption because it is not the actual residence of the Debtor.
In support of the Objection to the exemption claim, the Trustee requests that this Court take judicial notice of the Petition for Relief filed by the Debtor and certain testimony of the Debtor given under oath at the time he was examined at the meeting of creditors called pursuant to § 341 of the Bankruptcy Code.
The following facts as they appear from the record and which are relevant to the matter under consideration are as follows:
The Debtor who is an attorney, albeit no longer practicing as such, filed his voluntary petition on February 29, 1988. In his petition, the Debtor stated under penalty of penury that he resided for 180 days or for a longer portion of the preceding 180 days at 504 Sixteenth Avenue, West Palmetto, Florida. At the time the Debtor was examined at the § 341 meeting under oath, in response to the question' “How long have you lived at 504 Sixteenth Avenue, West Palmetto, Florida?” the Debtor responded, “Approximately seven months.”
In support of his contention that his residence was in Miami, Dade County, contrary to what he stated in his Petition and at the meeting of creditors, the Debtor now claims that his residence is in fact in Miami, and that he stayed in Palmetto only on the advice of his doctors who indicated that because of an alleged severe heart condition, he should not be traveling to Miami. Although there is no direct evidence on his state of health, it appears that the Debtor has undergone an angioplasty in Miami, which is a diagnostic tool to determine suspected heart disease. There is no evidence, however, that the Debtor was hospitalized during his stay in Palmetto or even treated by a doctor. Moreover, the Debtor admitted that he traveled while he maintained his residence in Miami, and he did not understand the questions he was asked at the § 341 meeting and that he assumed the term “Have you lived.simply meant a temporary stay. In addition, the Debtor now contends that when he stated on his Petition that he resided at 504 Sixteenth Avenue, West Palmetto, Florida, within this district for the preceding 180 days, he misunderstood the question.
Based on this record, it is the contention of the Trustee relying on the case of In re McCarthy, 13 B.R. 389 (Bkrtcy.M.D.Fla.1981) that under Florida law the homestead *518must be the actual place of residence of the family and the character of property as homestead depends upon an actual intent to reside there as a permanent place of residence, coupled with the fact of actual residence. Id., citing, Lanier v. Lanier, 95 Fla. 522, 116 So. 867 (1928)
There is evidence in this record that the property involved in this controversy was in fact at least at one time the residence of the Debtor, thus ordinarily would be exempt from a claim of creditors as homestead pursuant to Article X, Section 4 of the Florida Constitution. It is intimated by the Trustee’s objection, although not very well articulated, that while the property may have been the homestead at one time, it has been effectively abandoned by the Debtor and his actual residence is, in fact, in Palmetto, Florida as stated on his Petition and as stated by him when he was examined at the § 341 meeting. Unfortunately, however, there is no evidence in this record to show that the Debtor did, or ever intended in fact to abandon the Miami property as his homestead and relocate with presumed intentions to reside in Palmetto, Florida. The only evidence on this point is that the Debtor now resides on the property in Miami and the property in Palmetto, Florida is a property owned by his parents, who reside on the property.
It should be noted that similar facts were involved in the case of Monson v. First National Bank of Bradenton, 497 F.2d 135 (5th Cir.1974). In Monson, the Debtors, husband and wife, resided in Braden-ton, Florida, but because of domestic difficulties, they separated. Mrs. Monson moved to Bowling Greene, Kentucky, obtained a position of employment, enrolled in a junior college, obtained a loan from a Kentucky bank and placed her child in the public schools of Kentucky. Mr. Monson obtained a position as a traveling salesman and had not been physically present in the former home in Bradenton at any time prior to the filing of the voluntary petition for bankruptcy. Under the initial objection to the claim of exemption, this Court concluded that the Munsons effectively abandoned the homestead and no longer maintained actual residence in the state of Florida, thus the property in Bradenton did not qualify for homestead exemption. On appeal to the District Court, this Court's decision was affirmed. On appeal to the Fifth Circuit, 497 F.2d 135, the Court of Appeals reversed the District Court and concluded that the record failed to sustain the proposition that the Monson’s effectively abandoned the homestead as they always had the intention and desire to move back to the home and re-establish themselves as residents in Manatee County, Florida, on the property as soon as their financial problems were resolved.
In the present instance, as noted earlier, the Debtor in fact currently resides on the property located in Dade County, Florida. While it is true that for a short time his wife also joined him in Palmetto, the property in Palmetto is not owned by him as far as it appears from this record, but by his parents, thus he clearly cannot claim the same as his homestead. While it is true that the Debtor, who had legal training, stated under oath twice that he resided in Palmetto, this does not necessarily support the proposition that he in fact intended and did in fact abandon his residence in Miami. Based on the foregoing, this Court is satisfied that the Trustee’s Objection to claim of exemption should be overruled and the property located in Date County, Florida should be deemed to be the Debtor’s homestead; thus, exempt pursuant to Article X, Section 4 of the Florida Constitution and not subject to administration.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Objection to Claim of Exemption be, and the same is hereby, overruled. It is further
ORDERED, ADJUDGED AND DECREED that the Debtor is hereby entitled to claim as exempt the property owned by him in Miami, Dade County, Florida. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490742/ | MEMORANDUM OPINION
GEORGE L. PROCTOR, Bankruptcy Judge.
This case is before the Court upon cross motions for summary judgment filed by the plaintiff, Scott W. Putney, Trustee (“Trustee”), and the defendants, Don H. Dalton and Nancy M. Dalton. The issue presented is whether the trustee may avoid an unrecorded and allegedly defective mortgage on debtors’ homestead and preserve the benefits for the estate. Upon the evidence presented at the hearing held June 22, 1988, the Court finds in favor of plaintiff.
FACTS
On January 18, 1982, the debtors, James W. Dalton and Mary M. Dalton (“Debtors”), executed an unrecorded mortgage note in the amount of $15,000.00 to the defendant, Don H. Dalton. The mortgage states in relevant portion that “this note with interest is secured by a mortgage on real estate, of even date herewith, made by the maker hereof in favor of the said payee, and shall be construed and enforced according to the laws of the State of Florida.”
On April 3, 1985, the debtors filed a voluntary petition under Chapter 13 of the Bankruptcy Code which was converted to Chapter 7 on December 9, 1985. Scott W. Putney was appointed as Chapter 7 trustee.
In the debtors’ original Chapter 13 Statement, they stated, under penalty of perjury, that the defendant, Don H. Dalton, held a mortgage on debtors’ real estate. The only real estate owned by the debtors at that time, other than two burial plots in Albany, Kentucky, was their home located *520in Orlando, Florida. The Statement of Intentions filed by the debtors showed that defendants’ mortgage encumbered the home in Orlando.
On February 26, 1986, the defendants filed a proof of claim in the amount of $15,000.00 which listed as consideration “an unrecorded mortgage on residence.” However, the affidavit of Don H. Dalton which accompanied the proof of claim stated, "... this loan was never intended to be a secured loan.... I filed the Proof of Claim in this case as an unsecured creditor as I do not claim a mortgage on my father’s homestead.” An objection to that claim was filed March 2, 1988, and the Court has deferred ruling on that objection pending resolution of this adversary proceeding.
DISCUSSION
This action was brought under the “strong arm” provisions of § 544(a) of the Bankruptcy Code. That section provides:
The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by ...
(3) a bona fide purchaser of real property, other than fixtures, from the debt- or, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser and has perfected such transfer at the commencement of the case, whether or not such a purchaser exists.
In this case, the plaintiff seeks to invalidate the effect of an unrecorded mortgage on debtors’ homestead. The defendants have defended the action primarily on two grounds: (1) that the mortgage note does not constitute a “transfer” within the meaning of § 101(50) of the Bankruptcy Code; and (2) that the trustee cannot avoid the transfer of an interest on exempt property. There can be no argument that, but for these questions, the trustee is otherwise entitled to invalidate the lien on debtors’ property.
Section 101(50) of the Bankruptcy Code defines transfer as:
... every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property, including retention of title as a security interest and foreclosure of the debtor’s equity of redemption; ....
Defendants argue that because the note was ineffective under Florida law to effect a transfer of an interest in debtors’ realty, no “transfer” within the meaning of § 101(50) took place. Defendants’ position is based in part on § 697.01, Florida Statutes (“Instruments Deemed Mortgages”) and § 697.02, Florida Statutes (“Nature of Mortgage”). Those statutes provide:
697.01 Instruments Deemed Mortgages—
(1) All conveyances, obligations conditioned or defeasible, bills of sale or other instruments of writing conveying or selling property, either real or personal for the purpose or with the intention of securing the payment of money, ... shall be deemed and held mortgages.... 697.02 Nature of a Mortgage—
A mortgage shall be held to be a specific lien on the property therein described, and not a conveyance of the legal title or of the right of possession.
Defendants argue that because the mortgage note fails to contain sufficient words of conveyance or security and because it fails to contain a legal description of the property encumbered, the note fails to qualify as a mortgage under Florida law. Accordingly, defendants contend that a transfer of an interest in property did not take place.
Defendants’ position is without merit. Under Florida law, an instrument constitutes a mortgage if the facts and circumstances surrounding the transfer indicate that the instrument was given for the purposes of securing the payment of money. Such is the case here. The parties clearly contemplated that the obligation be “secured by a mortgage on real estate” even though that property was not adequately *521described. Furthermore, the evidence indicates that the parties intended the note to secure the repayment of the $15,000 loan. Their son’s subsequent disclaimer of any interest in that property after this complaint was filed is ineffective to destroy the legal effect of that mortgage.
The fact that a mortgage is defective in some manner does not preclude the creation of an equitable mortgage. Reed v. Dyal, 397 So.2d 389 (Fla. 1st DCA 1981); Wagner v. Roberts, 320 So.2d 408, 410 (Fla. 2d DCA 1975). All that is required is there be an intent to create a mortgage, and such is the case here. Accordingly, the Court concludes that the debtors transferred an interest in their property within the meaning of § 101(50). Whether that mortgage is effective as to a subsequent purchaser is a question which the Court need not decide.
As for defendants’ second contention, the Court finds that the trustee is entitled to avoid the transfer of an interest in property irrespective of its exempt status. Section 544 of the Bankruptcy Code is not limited to “property of the estate” as opposed to “exempt property,” but to any transfer of property by the debtor. Furthermore, § 544 allows the trustee to avoid any obligation incurred by the debtor that is avoidable by a hypothetical lien creditor or a hypothetical bona fide purchaser of property. See e.g., In re DiPalma, 24 B.R. 385, 9 BCD 1131 (Bkrptcy.D.Mass.1982); In the Matter of Hulk, 8 B.R. 444, 7 BCD 339 (Bkrptcy.D.Conn.1981).
The Court has reviewed the other arguments raised in this adversary proceeding and concludes that, at the very least, the debtors “transferred” an equitable interest in their real property to the defendants. Under § 544, the trustee is entitled to avoid the transfer of that interest. The Court finds further that under § 551 of the Bankruptcy Code, the trustee is entitled to preserve the benefit of that mortgage for the estate.
The Court will enter a final judgment granting plaintiff’s motion for summary judgment, denying the defendants’ motion for summary judgment, and allowing the mortgage to be avoided and invalidated but preserved for the benefit of the estate. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490744/ | MEMORANDUM OPINION
RONALD S. BARLIANT, Bankruptcy Judge.
This case is before the Court on the Motion of Burton Graham for the Payment of Rent. Mr. Graham was a fifty percent partner with George B. Glickley (“Glickley Sr.”) in G & G Land Partnership (“G & G Land”), which owned the premises where the Debtor, Modern Steel Treating Company, is located pursuant to an oral lease. Mr. Graham is also a fifty percent shareholder in Modern Steel. Mr. Graham claims in his motion that he is entitled to 50% of the rents due from Modern Steel for the months of October, 1987 through February, 1988. Notwithstanding the Debtor’s argument to the contrary, this Court has jurisdiction to decide Mr. Graham’s motion. That motion, however, will be denied for the reason that whatever rent is payable by the Debtor is subject to an assignment of rents and therefore is not payable to Mr. Graham.
Mr. Graham and Mr. Glickley Sr. are the owners of real estate at 1010 West 122nd Street, Chicago, Illinois. Together, they formed the partnership which leased the land to Modern Steel. Modern Steel had been paying rent to G & G Land under a vague oral lease which did not fix a rental. So far as this court can determine, the amount of any month’s rent is largely a matter of the Debtor’s discretion. Whatever rent was paid to the partnership was divided equally between the two principals.
On March 6, 1986, the Debtor filed its voluntary petition for relief under Chapter 11 of the Bankruptcy Code. According to the Debtor's monthly statements, rent payments (in varying amounts, as high as $15,-000) were consistently made to G & G Land from the inception of the Chapter 11 case until October, 1987. In October and December, 1987, nothing was paid for rent, and in other months after October, the amounts paid were substantially less than in prior months. Mr. Graham claims that the reduction of rent payments coincided with a substantially equivalent increase in the salary paid to Mr. Glickley Sr. Mr. Graham also claims that prior to August, 1987, Glickley Sr. was taking more than his 50% share of the G & G Land rents, and therefore the partnership terminated by operation of law. In any event, Mr. Graham gave written notice that he was dissolving the partnership on August 28, 1987. Each partner was then individually entitled to his 50% share of the rents.
The Debtor has maintained a long banking relationship with Cole Taylor Bank/Drovers (“Drovers”). The Debtor is presently indebted to Drovers in the princi*47pal amount of $1,460,000. This debt is secured by the Debtor’s assets and by the real estate jointly owned by Mr. Graham and Mr. Glickley Sr., and occupied by the Debtor. As additional security for the debt to Drovers, Mr. Graham and Mr. Glickley Sr. executed an assignment of rents to Drovers. In September 1987, Drovers exercised its assignment of rents and demanded that rents be paid directly to Drovers instead of to G & G Land or to Mr. Graham and Mr. Glickley Sr. Payments have been made to Drovers under cash collateral orders. It is not clear whether any rents have also been paid to Drovers. Drovers has objected to Mr. Graham’s motion, asserting its rights under the assignment of rents.
The Debtor initially argues that the Bankruptcy Court does not have jurisdiction to hear this matter. Alternatively, the Debtor and Drovers argue that under the assignment of rents only Drovers is entitled to the rents and therefore, Graham’s motion must be denied.
Jurisdiction
Initially, the Debtor argues that this is neither a core proceeding nor a “related to” proceeding. The Debtor claims that this is merely a dispute between creditors that does not involve the Debtor. The Court disagrees.
The Debtor correctly cites In re Xonics, Inc., 813 F.2d 127 (7th Cir.1987) for the proposition that disputes among creditors that do not involve property of the estate and do not affect the rights of any other creditors, do not fall under federal bankruptcy jurisdiction. Had this been a dispute among Drovers, Mr. Graham and Mr. Glickley Sr. individually, as the Debtor argues, then the analogy to Xonics would have been appropriate. That is not the case. Mr. Graham’s motion requests an order directing the Debtor to pay rent to Mr. Graham. Disposition of the motion will affect the rights of the Debtor and may affect distributions to other creditors.
In re PCH Associates, 60 B.R. 870 (S.D.N.Y.1986), held that an application filed by a lessor which sought an order from the Bankruptcy Court directing the Debtor to pay rent to the lessor was a core proceeding under 28 U.S.C. § 157(b)(2)(A). There, the Debtor owned and operated a hotel which was located on land subject to a sale and leaseback agreement between the Debtor and the lessor. Since the lessor’s motion sought payment of rent from the estate, the Court held that the action was for the “allowance or disallowance of claims against the estate.” 28 U.S.C. § 157(b)(2)(A). Similarly, Graham’s motion seeks payment of rent from the Debtor’s estate. This Court’s determination of whether Mr. Graham is entitled to the rents will certainly affect the administration of the estate in that any funds distributed to Mr. Graham pursuant to an order granting his motion will deplete the funds available to operate the Debtor’s business and will deplete the funds available to other creditors. Accordingly, this matter is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and this Court has the conferred authority to render a final decision on the motion.
Payment of Rents to Graham
We therefore reach the substance of Mr. Graham’s motion. Mr. Graham claims as “administrative rent” an amount equal to one-half the rent he claims should have been paid from September, 1987 through February, 1988. ■ He calculates that the Debtor paid $12,016 before September (which appears to be an average, since the actual amounts varied) and therefore requests $6,008 for each month from September through February.
Mr. Graham makes several disturbing points. For example, it is odd that Mr. Glickley Sr.’s salary increased at the same time that rental payments decreased and that the increase in salary was approximately equal to the decrease in rental payments.1 The concurrence of these events is *48only partially explained by Modern Steel s financial improvement at the same time. It is also troubling that no rental payments were made by Modern Steel to Drovers after Drovers demanded that the rents be paid to it pursuant to the assignment of rents in September, 1987.
However, none of these serendipitous events help Mr. Graham recoup his lost rental payments. The fact remains that Mr. Graham and Mr. Glickley Sr. entered into a contract with Drovers, which gave the bank the right to demand the rental payments directly from Modern Steel. Since Drovers’ has exercised that right, Mr. Graham has relinquished whatever right he otherwise might have had to receive rent from the Debtor. Mr. Graham may elect to challenge Drover’s rights or pursue Mr. Glickley Sr. individually for the misappropriation of rents paid prior to September, 1987. Neither action would involve administration of the Debtor’s estate or distribution of the Debtor’s assets. The Bankruptcy Court would therefore not have jurisdiction over such claims. With respect to the claim that is before this Court for “administrative rent”, as between Drovers and Mr. Graham, it is Drovers that has a right to receive such rent as the Debtor pays or may owe, not Mr. Graham (or, for that matter, Mr. Glickley, Sr.). Additionally, there is no written lease, no fixed rent and no evidence of the value of the use and occupancy of the premises. Therefore, there is no basis upon which this Court could require the Debtor to pay additional rent for past months, even if Mr. Graham had a right to receive it.
Accordingly, an Order will be entered denying Mr. Graham’s motion for payment of rent.
. Mr. Graham in his written closing argument raised for the first time an objection to the payment of any salary to Mr. Glickley Sr. on the ground that this Court has never authorized Mr. Glickley’s employment. Mr. Graham suggests that this Court sua sponte bar further salary payments. This Court declines that invitation, without deciding whether an insider’s employ*48ment requires prior Court approval or whether Mr. Glickley Sr.’s compensation is reasonable. Those issues have not properly been raised here.
Rather, this Court will direct the ClerkJto send a copy of this opinion to the United States Trustee. The United States Trustee is requested to confer with counsel for the Debtor and Mr. Graham and to otherwise investigate the matters discussed in this opinion (and such other matters as may come to his/her attention). This Court will set the bankruptcy case for a status conference, at which time the United States Trustee may report to the Court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490745/ | MEMORANDUM OF OPINION
LEWIS M. KILLIAN, Jr., Bankruptcy Judge.
This case is before the Court on Creditor Household Finance Company's (HFC) complaint to determine dischargeability of its debt pursuant to 11 U.S.C. § 523(a)(2)(B). A trial was held on August 26, 1988. The Court, having heard the testimony, examined the evidence presented, observed the candor and demeanor of the witnesses, and considered the arguments of counsel, makes the following findings.
On August 29, 1986, the Debtor contacted a number of financial institutions — including HFC — by telephone seeking information about a signature loan. The Debtor provided HFC with certain financial information in response to telephonic questions. The information included income, assets and certain debts. The only mortgage information requested was with regard to the debtor’s home. Later that afternoon, HFC called the Debtor to advise her that a loan in the amount of $2,500 had been approved. The Debtor was advised she could pick up her check at HFC that afternoon.
The Debtor arrived at the HFC office shortly before closing and was instructed by the office manager to copy only the debt information HFC had taken from her tele-phonically onto a form financial statement (Plaintiff’s Exhibit 1) in her own handwriting, and sign the statement, as required by HFC procedures. No additional information was requested. The Debtor testified the HFC loan check was prepared and issued before arrived. In addition, she testified she was told by the office manager to include the following sentence on the form: “I have no other debts”. As instructed, Debtor wrote the statement as her last entry.
On her Chapter 7 petition, Ms. Winter listed additional debts in existence at the time of the HFC loan that were not listed by her on the HFC statement of debts. In particular, she listed on her petition a note and mortgage to First Federal Savings and Loan Association of Largo encumbering a condominium unit located in Alabama.
On October 7, 1987, Debtor filed her petition for relief under Chapter 7 and listed HFC as an unsecured creditor. On January 13, 1988, HFC filed a complaint objecting to the discharge of its debt under Section 523(a)(2)(B) of the Bankruptcy Code.
Section 523(a)(2)(B) provides:
*135§ 523. Exceptions to discharge
(a) A discharge under section 727, 1141, 1228(a), 1228(b), 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—
(B) use of a statement in writing—
(i) that is materially false;
(ii) respecting the debtor’s or an insider’s financial condition;
(iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive;
Exceptions to discharge as set forth in § 523 are to be liberally construed in favor of the debtor and strictly construed against the creditor, In re Hunter, 780 F.2d 1577 (11th Cir.1986), to carry out the “fresh start” policy of the Bankruptcy Code. In re Linn, 38 B.R. 762 (9th Cir. BAP 1984). The creditor seeking a determination of nondischargeability bears the burden of proving by clear and convincing evidence the elements set forth in § 523(a)(2)(B). In re Hunter, supra, at 1579.
Debtor does not dispute that she did not list on the HFC financial statement the note and mortgage on the Alabama condominium. Rather, she testified she contacted HFC to gather information about a loan, not intending to apply by telephone that day. She gave HFC all of the information it requested over the telephone, but there were no questions regarding secured debt other than her home mortgage. HFC contacted her, informed her she had been approved for the loan based on the telephone information she had given earlier that day, and advised her the check was ready. We find that the Debtor did not intend to deceive HFC. Signing the loan documents in this case was a mere formality. The allegedly false document signed by the debtor contained only a portion of the information given to HFC over the telephone. It made no reference to income or assets. Under the circumstances, HFC has not shown that it reasonably relied on the written statement of the Debtor before approving the loan. HFC made no showing either of intent to deceive or how the omitted information affected the approval of the loan. ITT Financial Services v. Robert Finley and Rita Fowler, 89 B.R. 938 (Bkrtcy.M.D.Fla.1988).
We find Plaintiff, Household Finance Company, has failed to prove, by clear and convincing evidence, the elements of § 523(a)(2)(B). Accordingly, the debt shall not be excepted from discharge.
The Debtor requested a reasonable attorney’s fee and the costs of defending this action. Section 523(d) of the Bankruptcy Code provides the Court may award attorney fees to debtors who successfully contest a determination of dischargeability with regard to a consumer debt. Section 101(7) of the Code defines a consumer debt as one that is incurred “by an individual primarily for personal family or household purposes.” Debtor testified she borrowed money to help her husband with a cash flow problem in his business. The debt incurred does not constitute a consumer debt as required by Section 523(d). Accordingly, an award of attorney’s fees and costs is inappropriate.
A separate judgment will be entered in accordance with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490746/ | ORDER ON MOTION FOR PARTIAL SUMMARY JUDGMENT
ALEXANDER L. PASKAY, Chief Judge.
THIS CAUSE came on for hearing with notice to all parties in interest upon a Partial Motion for Summary Judgment filed by Santo and Irma D’Alfonso and Italia Abate (Plaintiffs), the Plaintiffs in the above-captioned adversary proceeding. It is the contention of the Plaintiffs that no material issues of fact exist as to their priority position as to certain funds resulting from a sale of property of the Debtor-in-Possession, and thus, this question may be resolved as a matter of law. The Court has considered the Motion, together with argument of counsel and the record, and finds the chronological summary of the undisputed facts relevant to a resolution of the matter under consideration to be as follows:
The matter in controversy involves the respective priority of mortgages held by the Plaintiffs and holders of equal dignity mortgages referred to as “EDM’s” on a parcel of real estate in Pinellas County, Florida, known as the Dolphin Motel. The motel was at one time owned by the Plaintiffs as co-owners. On November 15, 1983, *151prior to the time the Debtor acquired ownership of the Dolphin Motel, the President of the Debtor executed on its behalf documents entitled “equal dignity mortgages” which purported to convey to 30 individuals a mortgage interest encumbering the motel facility. It should be noted that each of the “EDM” mortgages contained the following clause.
“This is a second mortgage. This is one second mortgage of equal dignity to be part of various equal dignity second mortgages to be given in the total amount of $314,000.00.”
“... and that said land is free and clear of all encumbrances except mortgage in favor of Rochester Resorts, Inc., in the original amount of $248,000.00 and recorded even date herewith.”
As noted above, at the time-these mortgages were executed, the Dolphin Motel was still owned by the Plaintiffs.
On November 16, 1983, the day after the Debtor executed the “equal dignity mortgages”, the Plaintiffs as assignors and the Debtor as assignee executed a document titled as “Assignment of Agreement for Deed” (Assignment), which assigned the entire interest of the Plaintiffs in the Dolphin Motel to the Debtor. The Agreement further provided, inter alia, as follows:
“This Assignment of Agreement for Deed is subject to a purchase money mortgage of even date in the sum of one hundred forty-seven thousand dollars ($147,000.00)”
In connection with the Assignment, the President of the Debtor also executed a purchase money mortgage naming the Plaintiffs as mortgagees. The Assignment was subsequently recorded in the public records of Pinellas County, Florida, on December 9, 1983, at 4:13 p.m. Precisely one minute after the Assignment was recorded, the “EDM’s” were recorded at 4:14 p.m., and the purchase money mortgage executed in connection with the Plaintiffs’ Assignment of Agreement for Deed was then recorded exactly one minute thereafter at 4:15 p.m.
On February 25, 1985, the Debtor filed its Chapter 11 Petition, and Robert Vinney and Jeffrey Warren (Trustees) were ultimately appointed as co-Trustees for the estate of the Debtor. On December 2, 1986, the co-Trustees sold the Dolphin Motel with court approval free and clear of all liens, with the proviso that all liens against the property would be transferred to the proceeds of the sale. The property was sold for $470,000.00. The net proceeds from the sale after paying closing costs and the first mortgage held by an entity known as Rochester Resorts, Inc., totalled $117,666.61. It is these proceeds to which the Plaintiffs contend they are in a first priority position superior to the position of the holders of the EDM’s.
While there is a question of fact as to whether the Plaintiffs’ purchase money mortgage was subordinated by express agreement to the EDM’s, this Court will limit its consideration to the sole question whether the Plaintiffs’ mortgage is superi- or in right to the EDM’s described previously. Based on the record, this Court is satisfied that no material questions of fact exist as to the question of the respective priorities between the Plaintiffs’ mortgage and the EDM’s, and, therefore, this dispute may be resolved as a matter of law.
In a nutshell, it is the contention of the Plaintiffs that their mortgage is entitled to first priority position regardless of the fact that the EDM’s were recorded prior in time, based on the fact that the EDM’s had notice of the Plaintiffs’ mortgage due to the recordation of the Assignment of Agreement for Deed, which as noted, was recorded one minute prior to the EDM’s. In opposition, it is the contention of the EDM’s that they had no notice of the Plaintiffs’ mortgage at the time their mortgages were recorded and, therefore, they should be entitled to a priority position based on the Florida recording statutes discussed below.
The initial governing provision dealing with priorities of mortgages is Fla.Stat. 695.01(1) (1987), which provides as follows:
1. No conveyance, transfer or mortgage of real property ... shall be good and effectual in law or in equity against creditors or subsequent purchasers for valu*152able consideration and without notice unless the same be recorded according to law; ....
In turn, Fla.Stat. 695.11 (1987) provides as follows:
INSTRUMENTS DEEMED TO BE RECORDED FROM TIME OF FILING.
All instruments which are authorized or required to be recorded in the office of the clerk of the circuit court of any county in the state of Florida, and which are to be recorded in the “official records” as provided for under F.28.222, and which are filed for recording on or after the effective date of this act, shall be deemed to have been officially accepted by the said officer, and officially recorded, at the time he affixed thereon the consecutive official register numbers required under F.28.222, and at such time shall be notice to all persons. The sequence of such official numbers shall determine the priority of recordation. An instrument bearing the lower number and the then current series of numbers shall have priority over any instrument bearing a higher number in the same series, (emphasis added)
Based upon the above-cited statutes, it is clear that initially the priority of the mortgages should be considered solely with reference of their time of recordation — the EDM’s first, and the mortgage of the Plaintiffs, second. Thus, granting the Plaintiffs first priority can only be justified if the EDM’s had notice of the Plaintiffs’ mortgage.
It is well established that the burden of proof as to notice is on the party claiming priority, Rambo v. Dickenson, 92 Fla. 758, 110 So. 352 (1926). As it is undisputed that the EDM holders did not have actual notice of the Plaintiff’s Assignment of Agreement for Deed or purchase money mortgage at the time the EDM’s were recorded, in order to prevail the Plaintiffs must establish that the EDM’s had at least constructive notice of their claimed interest in the subject property. See Cone Bros. Const. Co. v. Moore, 141 Fla. 420, 193 So. 288 (Fla.1940).
This is so because it has been traditionally recognized that the concept of notice includes constructive as well as actual notice, and constructive notice exists when a document has been recorded in the public records. Leffler v. Smith, 388 So.2d 261 (Fla. 5th DCA 1980) This recordation of a document provides constructive notice of both the document itself and of the facts set forth in the document provided it contains adequate information giving notice of the interest claimed. Id.
While it is clear that the Assignment recorded on December 9, 1983, at 4:13 p.m., contained a clause which technically provided constructive notice to the EDM’s as to the Plaintiffs’ mortgage, it is also clear that in this situation all the documents in issue were delivered to the title company and then recorded simultaneously, and as such this Court is satisfied that no reasonable definition of “constructive notice” would contemplate a literal one minute’s difference in recordation time as notice of a prior recorded mortgage. Therefore, based upon the fact that the EDM’s recorded their mortgage prior in time to the Plaintiffs and because the EDM’s did not have actual or constructive notice of the Plaintiffs’ mortgage, the Plaintiffs’ Motion for Summary Judgment must be denied.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Partial Motion for Summary Judgment be, and the same is hereby, denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490747/ | MEMORANDUM OPINION AND ORDER ON REMAND
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a confirmed Chapter 11 case and the matter under consideration is the right of Richardson Realty, Inc. (Richardson Realty), to be compensated for its services rendered to the estate in connection with the sale of the assets consisting of real properties of Sarasota Land Company (Debtor). The matter is before this Court pursuant to an Order entered by the United States District Court for the Middle District of Florida, on appeal, which remanded the matter to this Court for additional consideration. The procedural background of the present controversy as appears from the record is as follows:
On May 29, 1984, this Court entered an Order authorizing the nunc pro tunc employment by the Debtor of Richardson Realty, and to pay Richardson Realty the sum of $32,000, representing a brokerage commission based on services previously rendered by Richardson Realty in negotiating a court-approved sale of certain property of the estate.
On May 23,1985, almost a full year later, the Debtor filed a Motion entitled, “Motion to Revoke Nunc Pro Tunc Order Authorizing Employment of Real Estate Brokers and Requiring Return of Monies Paid to Professional Persons”. The Motion sought an order from this Court vacating the prior orders, one which approved the Application for Sale of Real Estate and the other which authorized the Debtor to employ Richardson Realty nunc pro tunc and to pay a real estate commission in conjunction with the sale approved by the Court. The Motion also sought an Order requiring all profes*154sional persons paid in this case to place monies received by them in the registry of the court pending this Court’s reconsideration as to what compensation, if any, should be paid to professional persons involved in the closing. The basis for the Motion was that the net proceeds from the sale of the property, which, as noted, was negotiated by Richardson Realty, were less than had originally been contemplated by the Debtor, and as the result left no funds to pay the attorney fees to M. Jay Lancer, counsel of record for the Debtor.
On August 30, 1985, having granted the Motion for Rehearing, this Court held a final hearing to consider the merits of the Motion. On March 31, 1986, 59 B.R. 657, this Court entered an order reducing the commission to Richardson Realty from $32,000 to $8,340 and required Richardson Realty to refund the balance of $23,660 to the Debtor. This Order was appealed by Richardson Realty and on February 19, 1988, the District Court for the Middle District of Florida entered the memorandum decision which remanded the case to this •Court and directed that this Court consider whether it had authority to consider the Motion to Vacate Orders under either 11 U.S.C. § 328(a), under its inherent equitable powers, or pursuant to Bankruptcy Rule 9024 which makes F.R.C.P. 60 applicable to bankruptcy cases. Finally, in the event F.R.C.P. 60 governs, this Court was directed to determine whether the Motion to Vacate Orders in question was timely filed.
Section 328(a) of the Bankruptcy Code permits a bankruptcy court to authorize employment of a professional person on any reasonable terms. This Section further provides, however, that notwithstanding the initial approval of the terms of employment, the Court may reconsider the order awarding fees and allow compensation different from the compensation originally approved, if it is determined that the original compensation approved turns out to be improvident in light of developments which could not have been anticipated.
It should be pointed out at the outset that as the District Court noted, § 328(a) of the Bankruptcy does not provide a basis for reconsideration of a nunc pro tunc order approving fees for professional services already rendered. Moreover, this Court did not rely on § 328(a) of the Bankruptcy Code in reconsidering the nunc pro tunc order under consideration, but instead relied on its equitable powers to revisit an administrative order. Thus, as the District Court already held, all motions for reconsideration of bankruptcy court orders are, unless specifically excepted, subject to reconsideration only pursuant to Bankruptcy Rule 9024, which in turn adopts Federal Rule of Civil Procedure 60, citing, In re Six and Forty Investment Group, 752 F.2d 515 (10th Cir.1985) and In re Whitney Forbes, Inc., 770 F.2d 692 (7th Cir.1985). Further, this Court’s allowance of nunc pro tunc professional fees was a final order, see e.g., In re Four Seas Center, Ltd., 754 F.2d 1416 (9th Cir.1985) unless a party obtains relief from the order in question pursuant to F.R.C.P. 60.
F.R.C.P. 60 governs relief from judgments or orders and provides in pertinent part as follows:
Rule 60. Relief from Judgment or Order
(b) Mistakes; Inadvertance, Excusable Neglect; Newly Discovered Evidence; Fraud, etc.
On motion and upon terms as are just, the court may relieve a party or a party’s legal representative from a final judgment, order or proceeding for the following reasons:
(1) mistakes, inadvertance, surprise, or excusable neglect; ...
(6) any other reason justifying relief from the operation of the judgment. 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 ...
The Debtor argues that the ground for reconsideration under Rule 60(b) was a mistake, i.e., the Debtor’s mistaken understanding that the sale would produce enough funds for payment of attorney fees even after the payment of the broker’s *155commission in the amount approved by this Court by the Nunc Pro Tunc Order under consideration. Further, it is the contention of the Debtor that as the Motion was filed within one year, it was timely filed and further, that if this Court determines that it was not timely filed, there was no prejudice to Richardson Realty. In opposition of the proposition urged by the Debtor, it is the contention of Richardson Realty that there are no grounds under F.R.C.P. 60(b) which support this Court’s reconsideration of the Order, and in any event the Motion for Reconsideration was not timely filed as it was not filed within a reasonable time after the entry of the Order from which the relief sought.
Based on this record, this Court is satisfied that F.R.C.P. 60(b)(2)-(5) are inapplicable in this instance as there are no allegations of newly discovered evidence, fraud, or misrepresentation. This leaves for consideration whether or not the Debtor is entitled to be relieved from the Order based on mistake or pursuant to the catchall provision of F.C.R.P. 60(b) which authorizes the relief for any other reasons justifying the relief from the judgment or the order.
First, it should be pointed out that the Rule, while it has a one year limitation, also requires that the motion for relief shall be made within reasonable time and in any event not more than one year. What is reasonable is, of course, depending on the facts of each case and in the case of a mistake it is obvious that the motion must be filed promptly after discovering the mistake. In this context, the Court usually considers the parties’ interest in the finality of the order or the judgment, the reason for delay, the ability of the party seeking relief to learn earlier of the grounds for relief and lastly, the possible prejudice to the other parties who might have relied on the finality of the order. Ashford v. Steuart, 657 F.2d 1053 (9th Cir.1981). In this particular instance, the motion was filed six days short of the maximum time allowed, i.e. one year from the date of entry of the order which authorized the payment of commission to Richardson Realty. It is inconceivable to this Court that the Debtor did not find out until practically the expiration of the one year that the funds produced by the sale would not leave enough funds to pay attorney fees. Based on the foregoing, this Court is satisfied that the Motion was not filed within a reasonable time and, therefore, should be denied.
Even assuming, without admitting, that since the Motion was filed technically within the one year it still should be considered, the Court must consider the only possible basis for relief, the alleged mistake urged by the Debtor which is the only possible subsection which might support the position urged by the Debtor.
This Court is hard pressed to find any mistake, inadvertance, surprise, or excusable neglect based on this record. The Application for approval of the sale set forth in extreme detail the terms and conditions of the real estate contract, including the purchase price and the commission structure. In fact, the Nunc Pro Tunc Application for Compensation filed by counsel of record for the Debtor who prepared the Nunc Pro Tunc Application urged at that time that the brokerage commissions were fair and reasonable and within the market rate of the area. The fact of the matter is that what really occurred here was nothing more than a gross miscalculation by counsel of the total amount of debt secured by liens encumbering the subject property who now complains about the Order allowing commissions not because the commissions fixed by this Court were unfair or unreasonable, but because the sale did not leave enough money to pay his fees, at least not in the amount sought.
Based on these undisputed facts, one would be hard pressed to accept the proposition urged by the Debtor that the Order allowing the commission to Richardsons Realty was based on an honest mistake of all parties involved and not on a unilateral mistake of counsel who miscalculated the amount of liens which had to be satisfied from the proceeds of the sale. This fact, coupled with the fact that the Debtor itself considers that the amount to Richardson Realty was fair and reasonable and compa-*156rabie with the prevailing market rate, leads this Court to find that the Debtor failed to demonstrate any justification for the relief it seeks.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Order on Motion Concerning Nunc Pro Tunc Employment and Compensation of Professionals entered by this Court on March 31, 1986, be, and the same is hereby, vacated. It is further
ORDERED, 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 be, and the same is hereby, denied. It is further
ORDERED, ADJUDGED AND DECREED that the Order Nunc Pro Tunc Authorizing Debtor to Employ Real Estate Brokers and Authorizing Payment of Commission be, and the same is hereby, affirmed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490748/ | ORDER ON MOTION FOR ADEQUATE PROTECTION
ALEXANDER L. PASKAY, Chief Judge.
THIS CAUSE came on for hearing upon a Motion for Adequate Protection filed by NCNB National Bank of Florida (NCNB). The Court has considered the Motion, together with the record, heard argument of counsel, and finds the pertinent facts to be as follows:
On February 6, 1985, the Debtor, Mar-Bel Cabinets, Inc., executed a promissory note in favor of NCNB in the amount of $40,000.00 to evidence its indebtedness in the same amount to NCNB. To secure the payment of the note, the Debtor executed a security agreement which specifically granted NCNB a security interest in, inter alia, all the accounts, inventory, and contract rights owned by the Debtor at the date of the agreement and hereafter acquired. It appears that on April 4, 1986, Wayne Williams, the President and sole shareholder of Mar-Bel, sold the company’s business assets to Carwill, Inc. (Car-will). On April 18, 1986, NCNB made a loan to Carwill in the amount of $90,000.00. It further appears that the Debtor through its President, Wayne Williams, guaranteed the repayment of the loan to Carwill by NCNB. On January 19, 1988, the Debtor filed its Voluntary Petition for Relief under Chapter 11 of the Bankruptcy Code. Subsequently, NCNB filed this Motion for Adequate Protection claiming it was a secured party to the inventory, accounts receivable, merchandise, equipment, furniture and fixtures of the Debtor’s, pursuant to the security agreement of February 6, 1985, and pursuant to the Debtor’s guarantee of Car-will, Inc.’s obligation dated April 24, 1986. It is undisputed that both the Debtor and Carwill defaulted under the terms of their respective promissory notes. On April 20, 1988, this Court entered an Order directing the Debtor to make adequate protection payments to NCNB in the amount of $100.00 per month as to the February 6, 1985 note and set a pre-trial hearing to determine whether NCNB is entitled to adequate protection as to the $90,000.00 note made by Carwill and guaranteed by the Debtor.
At the hearing on that issue, counsel for NCNB urged this Court to compel the Debtor to make adequate protection payments with respect to the April 18, 1986, promissory note made by Carwill to NCNB and guaranteed by the Debtor. It is the contention of NCNB that the loan made to Carwill which was guaranteed by the Debt- or is a future advance for which the Debtor is liable to NCNB and which, pursuant to the provisions of the existing security agreement executed by the Debtor, is secured by the Debtor’s inventory, accounts receivables, etc. In opposition to the Motion for Adequate Protection, the Debtor alleged that the parties never intended that the Debtor’s guarantee of Carwill’s indebtedness would be secured by the collateral securing Debtor’s note to NCNB.
The Security Agreement entered into between the Debtor and NCNB specifically stated in Paragraph Three:
“as security for the payment of all loans in advances now or in the future made *174hereunder and for all borrower’s liabilities, including any extensions, renewals, or changes in form of any thereof, borrower hereby assigns to bank and grants to bank security title to and a security interest in (a.) all accounts and inventory owned by borrower at the date of this agreement; (b.) all accounts and inventory at any time hereafter acquired by borrower; (c.) all of borrower’s existing contract rights and all of borrower’s contract rights which come into existence at any time hereafter; (d.) all proceeds of all such account, contract rights and inventory; (all of which may sometimes be herein referred to as the ‘collateral’).”
In addition, the promissory note executed by the Debtor to NCNB contains the following clause:
“To secure the payment of this note and all other indebtedness of the Obligor to Holder, however and whenever incurred or evidenced, whether primary, secondary, direct, indirect, absolute, contingent, sole, joint, or several, due or to become due, or which may be hereafter contracted or acquired, whether arising in the ordinary cause of business or otherwise (hereinafter with this note, collectively called Liabilities).”
The issue is whether or not the Security Agreement entered into between NCNB and the Debtor which was properly executed to secure the original obligation owed by the Debtor to NCNB secures the Debt- or’s subsequent guarantee on Carwill’s indebtedness to NCNB?
Counsel for the Debtor admits, as she must, that security agreements which include future advance clauses are not per se invalid. See Florida Statute Section 679.9-204(4). However, in her Memorandum of Law, counsel for Debtor cites several cases which stand for the proposition that a future advance will only be secured by a prior mortgage if the parties intended the future advance to be secured by the mortgage. The shortcoming of the cases proffered by counsel for the Debtor is that these cases deal with future advances secured by mortgages on real property as opposed to personal property and as such are governed by Florida Statute 697.04(1). Since the adoption of the Uniform Commercial Code by the State of Florida, future advances with reference to personal property are governed by Section 697.04(1) of the Florida Statutes. Under Florida Statute § 697.04(3), there is no requirement for the enforcement of a future advance clause that the future advance be made within the scope of the agreement or within the parties contemplation. Be that as it may, this Court is satisfied that the promissory note and the security agreement executed by the Debtor contain clear and unambiguous language and, therefore, the parties’ intent must be derived from the four corners of the agreement and note. Robert C. Roy Agency v. Sun First National Bank, 468 So.2d 399 (Fla.App.1985). The respective clauses explicitly include every conceivable type of liability of the Debtor to the Bank. Therefore, pursuant to the security agreement, the indebtedness guaranteed by the Debtor is secured by the same collateral set forth in the original security agreement. Based on the foregoing, this Court is satisfied that the Motion for Adequate Protection Payments as to the guarantee should be set for hearing to determine the amount of adequate protection payments.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that a separate hearing shall be set for October 7, 1988, at 2:00 p.m., to determine the amount of adequate protection payments to be made by the Debtor to NCNB for its guarantee of Carwill’s indebtedness to NCNB. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490749/ | *178FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE having come before the Court upon the complaint of William Roe-melmeyer (the “trustee”) against Javier and Ines C. Rodriguez (the “debtors”) to revoke the debtors discharge pursuant to 11 U.S.C. § 727(a)(6)(A) and (d)(3), and the Court having heard the testimony, examined the evidence presented, considered the arguments of counsel, and being otherwise fully advised in the premises, does hereby make the Following Findings of Fact and Conclusions of Law:
Jurisdiction is vested in this Court pursuant to 28 U.S.C. § 157(a), (b) and § 1334(b), and the district court’s general order of reference. This is a core proceeding in which the Court is authorized to hear and determine all matters relating to this case in accordance with 28 U.S.C. § 157(b)(2)(J).
The debtors received their discharge on April 13, 1987. Thereafter, on February 27, 1987, this Court entered an order wherein the debtors agreed to purchase the non-exempt property of the estate from the trustee for $1,508.00. The debtors made five payments of $200.00 but defaulted in the payments of the remaining installments to the trustee in the amount of $508.00.
The trustee’s adversary complaint alleges that the debtors discharge should be revoked for their failure to comply with this Court’s February 27, 1987 order. The debtors were served, pursuant to Bankruptcy Rule 7044(b), at the address listed in their bankruptcy petition on August 5, 1988. The debtors did not file an answer and failed to appear at the scheduled trial on September 13, 1988.
Under 11 U.S.C. § 727(d)(3) a bankruptcy court may revoke a debtors discharge upon request by the trustee. The discharge may be revoked if the debtor has refused to obey an order of the court as specified under 11 U.S.C. § 727(a)(6)(A). The trustee has not received payment from the debtors for the remaining installments due under the terms of the February 27, 1987 court order. Therefore, the Court finds, that the debtors discharge is revoked under 11 U.S. C. § 727(d)(3) for their failure to obey this Court’s order of February 27, 1987.
A separate Final Judgment of even date has been entered in conformity herewith. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490750/ | DECISION and ORDER ON:
(1) MOTION OF ROSSIN and SNIDER FOR SUMMARY JUDGMENT;
(2) PLAINTIFF’S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT AGAINST SAID DEFENDANTS; and
(3) MOTION TO JOIN FREVERT AS A PARTY DEFENDANT
BURTON PERLMAN, Bankruptcy Judge.
This adversary proceeding is brought by a plaintiff who is a Chapter 11 debtor in this court, against an entity identified as Knox Equipment Leasing-1981, Ltd. (“Knox”), and a large number of individual defendants. The plaintiff was a dealer in heavy Caterpiller Equipment, and sold a number of units to Knox. Upon default, plaintiff repossessed the equipment and sold it. In the present proceeding, plaintiff seeks to recover from the defendants the deficiency resulting after the sale.
Two of the defendants, Stanley Cohen and Harrison Snider, named in the complaint, have died. Their personal representatives, Jay Rossin for Stanley Cohen, and Mary Lou Snider for Harrison Snider, have been substituted in this proceeding for their respective decedents. James W. Frevert is co-personal representative with Mary Lou Snider of the Estate of Harrison Snider, and plaintiff seeks to join Frevert as a party in this proceeding. Apart from that motion, now before us are two other motions. In the first, defendants Jay Ros-sin, personal representative of the Estate of Stanley Cohen, deceased, and Mary Lou Snider, personal representative of the Estate of Harrison Snider, deceased, move to dismiss themselves as parties defendant herein. The basis for their motion is the failure of plaintiff to file timely claims in the Florida probate proceedings for the estates of Stanley Cohen and Harrison Snider. Plaintiff opposes such motion, and has filed a cross-motion in which it seeks a declaration from this court that the personal representatives are bound by the final judgment rendered in this court. The same issues will be determinative of all three motions and consequently we deal with all three motions in this Decision and Order.
The relevant facts are not disputed. Pri- or to their deaths, personal service in this adversary proceeding were obtained over defendants Stanley Cohen and Harrison Snider. Stanley Cohen died March 6, 1986. Jay Rossin was appointed his personal representative in the Probate Court of Florida on March 18, 1986. Harrison Snider died December 7, 1986. Mary Lou Snider was appointed his personal representative on December 16, 1986. A Florida statute, § 733.702, provides:
(1) No claim or demand against the decedent’s estate that arose before the death of the decedent, including claims of the state and any of its subdivisions, whether due or not, direct or contingent, or liquidated or unliquidated; no claim for funeral or burial expenses; no claim for personal property in the possession of the personal representative; and no claim for damages, including, but not limited to, an action founded on fraud or another wrongful act or omission of the decedent, is binding on the estate, on the personal representative, or on any beneficiary unless presented:
*456(a) Within 3 months from the time of the first publication of the notice of administration, even though the personal representative has recognized the claim or demand by paying a part of it or interest on it or otherwise. ******
(2) No cause of action heretofore or hereafter accruing, including, but not limited to, an action founded upon fraud or other wrongful act or omission, shall survive the death of the person against whom the claim may be made, whether an action is pending at the death of the person or not, unless the claim is filed in the manner provided in this part and within the time limited.
Pursuant to the foregoing statute, Rossin published a notice on March 28, 1986 advising that all claims were to be filed by June 28, 1986. Mary Lou Snider published a notice on December 22, 1986 stating that all claims against the Estate of Harrison Snider were to be filed by March 22, 1987. (There is a dispute of fact presented by counsel in their memoranda as to whether plaintiffs counsel was in fact advised of the death of Harrison Snider prior to March 22, 1987. It is doubtful that the kind of passing reference relied upon by defendant in this regard can serve as actual notice. In any case, we prefer to base our denial of the motion of defendants for summary judgment upon grounds other than this issue of fact.)
In its memorandum contra, that of the moving defendants for summary judgment, plaintiff opposes the motion for two reasons. The first is that the moving personal representatives were by agreement substituted as defendants for their respective decedents in this proceeding on August 6, 1987. This, says plaintiff, is determinative of the issues here presented because such substitution was pursuant to Rule 25(a)(1) of the F.R.Civ.P., and that rule determines survivorship of the claim in each instance against the respective estate, not Florida law. This ground of opposition, however, cannot resolve the issues here presented. The motion here presented by defendants has nothing to do with the regularity of their joinder as defendants here. Rather does it have to do with a contention that even if these defendants remain as parties to this action, such litigation as to them is pointless because plaintiff is precluded by the Florida nonclaim statute from now asserting a claim against either estate in Florida.
We therefore proceed to the second ground upon which plaintiff opposes the motion of defendants, for such second ground does indeed squarely meet the contention of defendants. Such second ground by plaintiff is that a recent decision of the U.S. Supreme Court is directly applicable to the Florida statute upon which the moving defendants rely and, based upon that case, good ground for a holding that the Florida statute is unconstitutional is shown. That case is Tulsa Professional Collection Services, Inc. v. Pope, 485 U.S. -, 108 S.Ct. 1340, 99 L.Ed.2d 565 (1988).
In its Pope decision, the Supreme Court held that, if the identity of a creditor was known or reasonably ascertainable to a decedent’s personal representative, the due process clause requires that the creditor be given actual notice by mail or other means reasonably designed to ensure that actual notice is received. Notice by publication is not adequate, and a state’s probate non-claim statute cannot bar a creditor’s claim where a known or reasonably ascertainable creditor was not given actual notice of the decedent's death and the requirement that a claim must be filed.
The Supreme Court relied upon its earlier Fourteenth Amendment cases in reaching its conclusions in Pope. Beginning with the case of Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 70 S.Ct. 652, 94 L.Ed. 865 (1950), it was held that state action affecting property must generally be accompanied by notification of that action to those having an interest in that property. The Court in Pope then went on to discuss Mennonite Board of Missions v. Adams, 462 U.S. 791, 103 S.Ct. 2706, 77 L.Ed.2d 180 (1983), where it was held that a mortgagee’s interest in real property sold for taxes could not be cut off without his having been given actual notice of the sale. Notice by publication was found to be insufficient to provide due process to the mortgagee under the Fourteenth Amendment. After reviewing its *457previous decisions, the Supreme Court in Pope then found that an unsecured creditor’s claim against a probate estate is property protected by the Fourteenth Amendment and that the operation of a nonclaim statute in connection with probate proceedings constitutes state action.
While the nonclaim statute in Pope was that of the State of Oklahoma, it appears to be indistinguishable in principle from the Florida statute now before us. This is a strong showing that the Florida statute is unconstitutional. For that reason, we must conclude that the moving defendants have failed to show, as required by Rule 56 of the F.R.Civ.P., that they are entitled to judgment as a matter of law. Their motion therefore must fail.
From this conclusion, it follows that the motion to join James W. Frevert, co-personal representative of the Estate of Harrison Snider, should be granted, since it has not been established that the co-personal representative, Mary Lou Snider, is not a proper party defendant. Such motion will accordingly be granted.
This leaves before us, then, the question of whether our application of the Pope case here ought to lead us to a ruling that plaintiff is entitled to collect its claim, if it is successful in establishing liability in this court, against the respective Florida probate estates. But in taking such a position, plaintiff is failing to recognize that there is a difference between obtaining a judgment against a personal representative and the enforcement of that judgment against the probate estate. As we have already indicated, the personal representatives who are defendants in this case have not shown that plaintiff may not proceed to judgment against them on the present claim. But this does not mean that plaintiff has shown that it is entitled to a declaration that it is entitled to recover from the probate estates in Florida if they succeed in establishing liability here.
The indicated procedure in the event of such a finding of liability would be for plaintiff to file claims against the respective probate estates in Florida. At most, what Pope does for plaintiff is show that it would most likely be unconstitutional for the Florida Probate Court to reject such claims on the basis of the Florida nonclaim statute. There is no showing by plaintiff that unconstitutionality of the Florida non-claim statute must automatically require that the Florida Probate Court allow the claims. The collectability of any judgment obtained by plaintiff against the respective estates is simply not part of the present litigation, and, except to the extent of showing the likelihood of unconstitutionality of the Florida nonclaim statute by analogy to the Oklahoma statute as held in Pope, the parties have not litigated that issue fully. We have no idea what issues would arise in the Florida Probate Court on the present question and it is beyond the bounds of the present litigation to adjudicate that question.
Accordingly, plaintiffs motion for partial summary judgment will be denied because plaintiff has failed to show that it is entitled to judgment as a matter of law, as required by Rule 56 of the F.R.Civ.P. In addition, the motion of defendants Rossin and Snider for summary judgment is denied. The motion to join James W. Frevert, co-personal representative of the Estate of Harrison Snider, as a party defendant is granted.
So Ordered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490774/ | MEMORANDUM OPINION
R. GLEN AYERS, Jr., Chief Judge.
This case comes before this Court on a Motion For Relief From Stay filed by Chase Leasing Co. Ltd. (hereafter referred to as Chase Leasing). The issue presented is whether the agreement signed by Chase Leasing and the Debtor, P.W.L. Investments, is a “true lease” or a security interest evidencing a disguised sale.
P.W.L. Investments is in the retail and wholesale liquor sales business. It decided to purchase a computerized point of sale system consisting of both hardware and software. Prior to its initial contact with Chase Leasing, P.W.L. Investments selected the hardware and software, negotiated the purchase price and negotiated the terms for the continual updating of the software. P.W.L. Investments had obtained a provisional line of credit for the purchase price of $78,705.00. In an effort not to increase its balance sheet liabilities, P.W.L. Investments contacted Chase Leasing. P.W.L. Investments knew that Chase Leasing was in the business of leasing equipment to commercial and business users. Chase Leasing is not and has never been in the business of lending money or directly financing the purchase of equipment.
On October 1, 1986 the parties entered into a written agreement entitled a Business Equipment Master Lease (the Lease). This Lease covered the computer hardware and software P.W.L. Investments had previously decided to purchase with its line of credit. This allowed P.W.L. Investments to obtain the equipment it wanted without *681affecting its credit. The lease term was for five years with monthly payments of $1,899.57. The payments included the sales tax prorated over five years. The Lease contained a renewal clause of one year with monthly payments of $773.96 which could be exercised at the discretion of the Lessee. Article 3.02 of the Lease required a security deposit equal to ten percent of the purchase price of the equipment to be leased ($7,900.00) that would be fully refunded at the end of the Lease. The security deposit could also be applied to the purchase price of the leased goods, or could be used to cure any defaults. Articles 6, 7, and 9 provided that 1) all maintenance was the sole responsibility of the Lessee: 2) the risk of loss and damage was on the Lessee: 3) all taxes were the sole responsibility of the Lessee: and, 4) the Lessee must keep the equipment insured for its full value and carry liability insurance. Articles 10 and 11 established that the leased equipment was the personal property of the Lessor. The Lease transferred no right, title, or equity. Article 13 set out the purchase option. At any time after November 1, 1986 until the termination of the Lease, P.W.L. Investments could purchase the leased equipment at fair market value.
The equipment was installed, the software customized, and the employees trained, all at Chase Leasing’s expense. Before making its first monthly lease payment, P.W.L. Investments filed a Chapter 11 petition in this Court. As of this date Chase Leasing has received no payments.
It is the contention of the Debtor/Lessee that the agreement signed on October 1, 1986 was merely a security agreement; that, P.W.L. Investments had purchased the equipment; and, therefore, that Chase Leasing is only entitled to adequate protection under the Bankruptcy Code. On the other hand, Chase Leasing, the Creditor/Lessor, has filed a Motion to have this Court grant a Relief from Stay, order P.W. L. Investments make postpetition lease payments in their full amount, order P.W. L. Investment accept or reject the lease, and, further, if P.W.L. Investments fails to accept or reject the lease or comply with its terms, order such relief the Court deems proper.
The Bankruptcy Code does not define a “true lease”, but it does define a security interest as a lien on goods created by agreement. See 11 U.S.C. § 101(37) (1976 Ed.Supp. II). Congress has stated “Whether a consignment or a lease constitutes a security agreement under the Bankruptcy Code will depend on whether it constitutes a security interest under applicable state or local law.” See In re Peacock, 6 B.R. 922, 924 (Bankr.N.D.Tex.1980); House Report No. 95-595, 95th Cong. 1st Sess. (1977) 313-14, U.S.Code Cong. & Admin.News 1978, p. 5787, 6270-6271. The applicable Texas law .as to whether an agreement is a “true lease” or a security interest, is section 1.201(37) of the Texas Business and Commerce Code which states:
“Security interest means an interest in personal property or fixtures which secures payment or performance of an obligation. Unless a lease or consignment is intended as security, reservation of title thereunder is not a ‘security interest’ ... Whether a lease is intended as security is to be determined by the facts of each case; however, a) the inclusion of an option to purchase does not of itself make the lease one intended for security, and b) an agreement that upon compliance with the terms of the lease the lessee shall become or has the option to become the owner of the property for no additional consideration or for a nominal consideration does make the lease one intended for security.”
Tex.Bus. & Com.Code Ann. 1.201(37) (Tex. UCC) (Vernon Supp.1987).
In order to reach a decision as to whether the agreement signed by Chase Leasing and P.W.L. Investments is a “true lease” or a disguised sale in the form of a security interest this Court will apply the three tier test used by most jurisdictions including Texas. See Sunset Enterprises, Inc. v. B & B Coal Co., Inc., 38 B.R. 712, 715 (W.D. Va.1984); In re Brookside Drugstores, 3 B.R. 120, 122 (D.Conn.1980); In re Huffman, 63 B.R. 737, 738 (Bank.N.D.Ga.1986); In re Peacock, 6 B.R. 922, 924 (Bank.N.D. *682Tex.1980). For the agreement to be held a security interest each of the tests or tiers must be satisfied; simply put they are:
1. the finding of a definite obligation to pay rentals during the lease term in an amount substantially equivalent to the fair market value of the leased goods plus a financing charge;
2. an option to become the owner of the leased property at the end of the lease for no consideration or for a nominal consideration;
3. whether the lessor has effectively bargained away the absolute right to retake control of the leased goods.
See Sunset, 38 B.R. at 715.
In addition, section 1.201(37) requires that this court “... determine the intent of the parties in the light of the facts and circumstances of each case and that the substance of the document rather than mere formality of wording must be examined to determine whether the transaction involved is a lease or a security agreement.” Davis Brothers v. Misco Leasing, Inc., 508 S.W.2d 908, 912-13 (Tex.Civ.App.1974, no writ). In essence, given all the factors surrounding the agreement and economic realities, the real issue is the ultimate intent of the parties. The court will address each of the three tiers and the agreement as a whole in deciding whether it is a “true lease” or a security agreement.
To satisfy the first tier of the analysis it must be shown that the Lessee is under an absolute obligation to make regular payments to the Lessor. It is undisputed that P.W.L. Investments agreed to make monthly payments to Chase Leasing in the amount of $1,798.41 plus sales tax. The Lease provides in Article 3 that the Lessee shall remain liable for the full amount of the Lease obligation. If the total of these payments over the life of the lease equals the original purchase price plus interest, then the courts tend to consider the agreement a security interest. In the agreement signed by the parties in the instant case, the payments during the primary term total $107,904.60 exclusive of sales tax. The difference between the Lessor’s purchase price and the total payments is $29,199.60, which this Court considers the Lessor’s profit for handling the Lease (or interest) and compensation for any loss it might sustain on the transaction. The majority of leases used today provide for the lessor to recoup his costs and make a profit by charging lease payments in excess of his initial cost. If merely making a profit makes a lease a security agreement, then every lease would be a security agreement. Chase Leasing, like most business, operates to make a profit. It does so by charging more in rental payments than its purchase price. Making a profit in and of itself will not warrant a finding that the agreement is a security interest. Therefore, under the first tier the economic realities show the agreement to be a “true lease”.
The profit should always equal or exceed the comparable interest return which a lender would receive for the use of money in a true financing agreement. Therefore, it makes little or no sense to rely heavily on the “first tier”; except for short term leases (car rentals and equipment rentals), all or almost all commercial leases will look like financing agreements. Here, for example, the “finance charge” equals or exceeds the very highest equivalent commercial loan rate (it is at least 15%).
The second tier concerns the lessee’s option to purchase the leased equipment. If the agreement provides, upon compliance with the terms of the lease, that the lessee shall become, or has the option to become, the owner of the property for no additional consideration or for a nominal consideration, the court is compelled as a matter of law to find that the lease is intended as a security interest. See Federal Sign and Signal Corp. v. Berry, 601 S.W.2d 137, 139 (Tex.Civ.App.—Austin, 1980, no writ); Tackett v. Mid-Continent Refrigeration Co., 579 S.W.2d 545, 548 (Tex.Civ.App.— Fort Worth, 1979, writ ref’d n.r.e.); Tex Bus. & Comm.Code Ann. 1,201(37) (Tex. UCC) (Vernon Supp.1987). As previously stated, Article 13.01 of the Lease provided for a purchase option of the leased goods. The purchase price would be the agreed fair market value of the equipment at the *683time the option was exercised. The determination as to what is a nominal sum has been the subject of much controversy in bankruptcy courts. Courts have held the sum of $1.00 to be a nominal amount. See In re Vailancourt 7 U.C.C.Rep. 748, 759 (D.Maine 1970); but see National Equipment Rental Ltd. v. Priority Electronics Corp. 435 F.Supp. 236, 239 (E.D.N.Y.1977) (if fair market value of equipment at end of lease was $1.00 and $1.00 is option price, then $1.00 is not nominal consideration).
The question then is how to determine what is nominal. The most common approach has been to compare the option price to the fair market value of the equipment. If the two figures are basically equal then the option price is not nominal and the lease payment are compensation for use of the equipment. See e.g., In re Marhoefer Packing Co., 674 F.2d 1139, 1144-45 (7th Cir.1982); Matter of Fashion Optical Ltd., 653 F.2d 1385, 1390-91 (10th Cir.1981); In re Washington Processing Co., Inc., 3 U.C.C.Rep. 475, 478 (S.D.Cal.1966); National Equipment 435 F.Supp. at 239; FMA Financial Corp. v. Pro-Printers, 25 U.C.C.Rep. 950, 954 (Utah 1979).
The second approach the courts have taken in determining what is nominal is comparing the option price as a percentage of 1) the original cost, 2) the total lease payments, or 3) the fair market value. The percentage method makes the determination of what is nominal too subjective. As the cases cited in the Lessee’s brief demonstrate, there is no uniformity as to what percentage is considered nominal. See Percival Construction Co. v. Miller & Miller Auctioneers, Inc., 19 U.C.C.Rep. 244, 248-49 (10th Cir.1976) (25% of original cost); In re Polaris Industries, Inc., 14 U.C.C.Rep. 182, 185-86 (E.D. Tenn.1973) (10% of original cost). This Court determines that the more objective method of comparing the option price to the fair market value is the correct approach to take. The Lease clearly states that the option price would be the agreed fair market value at the time the option was exercised. Thus, following the weight of case law and common sense, the fair market value of the equipment in the case at hand is considered more than nominal consideration.
Here, although the Lessor had informed the Lessee that the “projected” fair market price would be ten percent of cost, there does not appear as a matter of law to have been an express, pre-lease agreement fixing fair market price. Such an agreement would clearly violate the rational of a “market price,” objective rule, concerning the purchase option issue.
The third tier of the analysis is the court’s inquiry into whether the Lessor effectively bargained away his absolute right to regain possession or control of the leased equipment. See In re Peacock, 6 B.R. at 925. When the Lessor has the right to retake control over and use of the leased property, then a “true lease” may be inferred by the court. See Matter of Tillery, 571 F.2d 1361, 1363 (5th Cir.1978). Conversely, if it can be shown that the lessor has no right to retake control over the leased goods, and the lessee acquired a proprietary interest in them, this will evidence a security interest. See In the Matter of Anton’s Lounge & Restaurant, Inc., 40 B.R. 134, 135 (Bankr.E.D. Mich.1984). The court in In re Peacock set out the three ways in which the lessor can effectively bargain way his absolute right of control over the goods: 1) the obligation to dispose; 2) the reasonably anticipated option; or 3) the useful life lease. See In re Peacock, 6 B.R. at 925-26.
First, if the lease provides that at the termination of the lease, the lessee is obligated to dispose of the property, and the lessee is entitled to any profit and bears any loss resulting from such disposition, then the lessee has acquired equity in the leased goods. The lessor has bargained away his right to absolute control. See Matter of Tillery, 571 F.2d at 1363. Article 11 of the Lease clearly states that the Lessee shall have no right, title or interest in leased goods; as such, the Lessee has no equity in the equipment. If the Lessee chose not to exercise its purchase option, then the Lessor would be obligated to retake possession of the hardware and software, dispose of it, and would not have to *684account for the proceeds. Therefore, Chase Leasing and not P.W.L. Investments has the obligation for final disposition of the property.
Second, when a lease provides for a purchase option and the court finds that the parties could have reasonably anticipated that the option would be exercised, then that is persuasive evidence that the lease is intended as a security interest. See In re Peacock 6 B.R. at 926. In the instant case, it has been established that the option price was the fair market value of the equipment and that unless the option is exercised the Lessee has no interest in the equipment. Since the subject matter of the lease is computer hardware and software, items known for their rapid decline in value (or obsolescence),, the Lessee would not make its determination as to purchase or return the leased goods to Chase Leasing until the time the option would be exercised. The Lessee would examine the new hardware and software on the market and decide what would be in its best interest. In turn, Chase Leasing could be left with unleasea-ble or unsellable goods. Thus, it can not be said that exercising the option would be the Lessee’s “only sensible alternative.” Put another way, the risk of obsolescence is on both parties. Neither benefits from the “market value” purchase option.
The third method by which the lessor could bargain away his absolute right to retake possession or control is where the lessee retains the property for its entire useful life, leaving the lessor with no significant residual value. See Leasing Service Corp. v. American National Bank & Trust Co., 19 U.C.C. Rep. 252, 256 (D.N.J.1976). In the case at bar, the primary term of the lease was for five years with a one year renewal option, a total possible lease period of six years. The undisputed evidence at trial established that the useful life of the leased goods was ten years, twice the length of the primary term of the lease. “Useful life” and value at end of term are not interchangeable in this case. The computer hardware and software may have little value to a third party at the end of the lease term, but the leased equipment will still be functional. Additionally, the Transfer of Investment Tax Credit set the useful life at ten years, a document which P.W.L. Investments accepted. Therefore, Chase Leasing did not relinquish its rights in the equipment for more than half of its expected useful life. Consequently, it cannot be shown that under any of the three tests set out in the third tier, Chase Leasing effectively bargained away the right of absolute control.
After having gone through the three tiered analysis as set out by case law, this Court finds it important to look at the intent of the parties and the economic realities of the agreement before a final determination can be made. The true intent of the parties can only be ascertained by examining the agreement as a whole. Several courts have set forth the factors which should be considered when determining whether the intent of the parties was for the agreement to be a lease or a security interest. See e.g. Matter of Fashion Optical, Ltd., 653 F.2d 1385, 1389 (10th Cir.1981); In re Brookside Drugstore, 3 B.R. 120, 122-23 (D.Conn.1980); In re International Plastics, 18 B.R. 583, 586 (Bankr.D. Kan.1982). If upon a balancing of these factors, the weight favors the lessee, then the agreement is in reality a “true lease.” If on the other hand, the balance tips toward a security interest, then the agreement is a disguised sale.
Factors indicative that the agreement is a lease include the following:
1. whether the total amount of the lease payments is reasonable given wear, tear, and obsolescence of the equipment,
2. whether the purchase option price of the equipment at the end of the lease is approximately equal to its fair market value,
3. whether the lessor is in the business of leasing goods of the type involved in the agreement,
4. whether the lessee acquires no equity in the equipment during the lease,
5. whether the useful life of the equipment exceed the term of the lease,
Factors which indicate that the agreement is a security interest include the following:
*6851. whether the lessee bears the risk of loss,
2. whether the lessee is required to pay the taxes and insurance on the equipment,
3. whether the equipment subject to the agreement was selected by the lessee from a third party and purchased by the lessor for this specific lessee,
4. whether the lessee must make a substantial non-refundable deposit,
5. whether the lessor discounts the lease at a bank or similar institution,
6. whether warranties generally found in a lease a excluded by the agreement,
7. whether the agreement permits the lessee to purchase the property at a nominal price at the end of the primary term,
8. whether there was a provision in the agreement for liquidated damages,
9. whether the agreement permits the lessor to file a UCC financing statement.
First, in the present case, the figures show that the lessor is being compensated for his capital outlay and the decrease in value of his assets. It has already been established that the monthly payments P.W.L. Investments was obligated to make amounted to the initial cost of the equipment plus a profit to Chase Leasing. This profit is compensation for its operating costs, investments in the equipment, and the loss it might suffer at the termination of the Lease if the equipment had decreased substantially in value. The purchase option price set by the Lease is whatever the fair market value of the equipment is at the time the option is exercised. The Lease specifically states that P.W.L. Investments shall acquire no rights or interests in the leased goods. Testimony at the the hearing established that the useful life of the equipment was ten years while the primary lease term was only five. Therefore, each factor required to establish that the intent of the parties was to execute a lease is present.
Now the Court will consider the factors tending to evidence a security interest. The Lease places the risk of loss on the Lessee as well as a requirement that the Lessee keep the equipment fully insured. While tending to show a security interest, this also shows that the Lessee was required to insure the equipment to cover itself in the event of any loss. The hardware and software which are the subject of the Lease had been selected by the Lessee prior to any contacts with the Lessor. Because the needs of the Lessee were so specialized, it would be reasonable for the Lessee to select the equipment from a third party vendor himself. The Lease required a ten percent refundable deposit to be made by the Lessee to the Lessor. The Lessor is in the sole business of leasing equipment and never discounted the agreement to a bank. The Lease does disclaim all warranties, express and implied; a term generally found. As stated above, the purchase option was set at the fair market value of the equipment and thus, was not nominal. The Lease does not make provisions for liquidated damages. Finally, Chase Leasing did file a UCC financing statement. Again, while these facts tend to show a security interest, they also reflect prudent business decisions designed to protect Chase Leasing under all contingencies.
Although certain factors surrounding the instant transaction have been held to evidence a security interest by some courts (Lessee’s duty to insure, pay the taxes, and bear the risk of loss, and the Lessor’s disclaimer of warranties) these factors are essentially matters of contract negotiation. See In re Peacock, 6 B.R. at 926-27. Therefore, when the evidence supporting a “true lease” is balanced against that supporting a security interest, the scale tilts to the side of a “true lease.”
Applying the three tier analysis to the agreement at hand, this Court makes the following conclusions. The first tier requires a finding that there was a definite obligation to pay rentals equal the purchase price plus a financing factor. The agreement called for total payments of $107,904.60 of which $29,199.60 was profit to be paid over five years on highly depreciable assets. This evidences a “true lease”. The second tier calls for a purchase option *686that is for nominal consideration or no consideration. The fair market value of the equipment at the time the option is exercised is more than nominal consideration, again evidencing a “true lease.” Under the third tier, the lessor must have bargained away his right to retake control of the leased equipment. The evidence established that the Lessor at all times retained ownership of the equipment, the useful life exceeded the lease term, and that the Lessee acquired no equity. Applying the third tier, this agreement is a “true lease.” When the intent of the parties is taken into account and the economics of business are applied, the agreement is a “true lease.” Consequently, this Court finds that the Master Business Equipment Lease entered into between Chase Leasing and P.W.L. Investments is a true lease. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490751/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
GEORGE C. PAINE, II, Chief Judge.
The following constitutes findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052. This is a core proceeding. 28 U.S.C. Section 157(b)(2)(A).
This proceeding was commenced by the filing of a complaint by the Trustee to recover certain transfers by the Debtor to the defendants as preferential under 11 U.S.C. Section 547(b). On June 30, 1988, the Court entered a judgment in favor of the Liquidating Trustee and against the defendants granting the plaintiffs motion for summary judgment. The judgment was avoided as preferential the transfers to the defendants and entered judgment against them, jointly and severally, in the amount of $51,805.34, plus costs and prejudgment interest.
Prior to the entry of Judgment, this Court granted plaintiffs Motion to Strike the motion for summary judgment filed by Dexter A. Christenberry on March 13, 1987. See Order entered April 7, 1987, (J. Bare) in Adversary Proceeding No. 3-85-0103. The Court, however, reserved decision on the plaintiffs request for sanctions against Mr. Christenberry pursuant to 28 U.S.C. § 1927 and Federal Bankruptcy Rule 9011.
The Liquidating Trustee filed a Memorandum in support of his motion for sanctions. Mr. Christenberry did not respond to the motion. At the hearing held before the Court on August 16, 1988, in Nashville on the plaintiff’s motion for sanctions in the Bucher case, Adversary Proceeding No. 3-84-00344, the Court also ruled upon the motion previously reserved by Judge Bare. The Court, in its discretion, based its ruling on the briefs, the motion for sanctions and the record as a whole in this proceeding. For the reasons stated in the *468Memorandum filed on Sept. 20, 1988, in DuVoisin v. Bucher, 91 B.R. 463, (Bankr.E.D.Tenn.), which Memorandum is incorporated herein by reference, the Court hereby GRANTS the plaintiff's Motion for Sanctions filed March 23, 1987.
The Liquidating Trustee’s counsel has submitted an Affidavit which details the legal fees incurred in responding to the defendants’ Motion for Summary Judgment. Mr. Norwood’s Affidavit reflects that Hunton & Williams expended a total of 8.25 hours at the hourly rates of $150.00 for John A. Lucas and $120.00 for Gregory G. Little as a consequence of Mr. Christen-berry’s motion. The Court finds that the hours expended and expenses incurred were reasonably necessary. The Court further finds that the hourly rates are reasonable. INVST Financial Group v. Chem-Nuclear, Inc., 815 F.2d 391, 405 (6th Cir.1987). Accordingly, the Liquidating Trustee is entitled to recover compensatory damages of $1,215.00. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490753/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge,
THIS IS a Chapter 7 case and the matter under consideration in this adversary proceeding is a claim presented by a “Complaint for Turnover” filed by the Trustee, George T. Hadley (Trustee) filed against Laura L. Blair (Ms. Blair), the Defendant named in the Complaint. Also under consideration is a counterclaim filed by Ms. Blair seeking the imposition of a constructive trust on a residential real property sought to be recovered by the Trustee. The facts relevant to a resolution of this matter and as established at the final evi-dentiary hearing are as follows:
Ms. Blair is an elderly widowed woman in her 80’s, who presently resides at 5702 16th Avenue, South, Gulfport, Florida. She purchased this property sometime in the 1950’s and has lived there since. W.T. Williams (Debtor) is a licensed physical therapist who describes himself as a “nurse of a sort” who resided at the time relevant across the street from Ms. Blair. The Debtor and Ms. Blair became fast friends in 1983. It is undisputed that the Debtor frequently took meals to Ms. Blair, ran errands for her, drove her to the doctor, and generally took care of her. It should be noted, however, that she has been and still is fully capable to take care of herself and does not suffer from any significant impairment of mind or body. For instance, in spite of her advanced age, she has been able to ride a tricycle, cut her own grass and do her own shopping.
On November 1,1983, Ms. Blair executed a Last Will and Testament (Plaintiffs Exh. 2) witnessed by two individuals, neither of which was the Debtor. After a $100 religious bequest, Ms. Blair bequested the remainder of her estate to the Debtor, and appointed the Debtor as the personal representative of her estate. In addition around this same time, Ms. Blair placed the Debt- or’s name as a signatory on certain of her bank accounts and named the Debtor as an additional holder of certain certificates of deposit owned by her.
On December 22, 1983, it appears that the Debtor accompanied Ms. Blair to her attorney’s office, where she requested Mr. Ruiz, the attorney, to prepare paperwork to convey her residence to the Debtor while retaining a life estate. It appears that although Mr. Ruiz did prepare a quit claim deed conveying the property to the Debtor reserving a life estate in her favor, Mr. Ruiz refused to assist her to complete the transaction as she could not produce any documentation to properly identify herself. Although the record is unclear on this point, it appears that the Debtor then drove Ms. Blair to her bank, at her request, where she requested to see a notary public and then outside the presence of the Debt- or, requested the bank employee to notarize her signature on the deed to her residence transferring title from the Defendant to the Debtor. (Plaintiff’s Exh. 1). This executed deed was subsequently recorded on December 23, 1983, by the Debt- or.
On February 26, 1985, the Debtor executed a quit claim deed of the property in favor of his cousin, Gordon H. Finch (Finch) (Defendant’s Exh. 2) for a consideration of $10,000.00; whether Finch actually paid this amount to Debtor is unclear. The conveyance was, of course, subject to the life estate of Ms. Blair.
On April 1, 1985, the Debtor filed his Chapter 7 Petition. It appears that in November, 1985, Ms. Blair filed suit in the circuit court for Pinellas County against Finch and sought to invalidate the conveyance by her to the Debtor. In connection with this lawsuit, Ms. Blair recorded a lis pendens on the property. Due to the failure of Finch to comply with discovery rules, Ms. Blair sought and ultimately obtained an order striking all pleadings filed by Finch, and around August, 1986, a Final Judgment was entered by default in favor of Ms. Blair against Finch by the Circuit *611Court. Although the circuit court did not make any finding of facts regarding the Debtor’s conduct, the Final Judgment ordered Finch to reconvey any and all interest he held in the property to Ms. Blair. The Final Judgment also declared that Ms. Blair was entitled to fee simple ownership of the property free and clear of any interest of the Debtor. On June 3, 1987, the Final Judgment was affirmed on appeal per curiam by the Second District Court of Appeal of the State of Florida.
Shortly after the commencement of this Chapter 7 case, the Trustee filed an adversary proceeding, No. 86-126, styled “George Hadley, Trustee v. Gordon Finch” in which the Trustee sought to invalidate the conveyance of the Gulfport property from the Debtor to Finch as a fraudulent transfer pursuant to § 548 of the Bankruptcy Code. In February of 1987, this Court entered a Final Judgment by default in favor of the Trustee which directed Finch to convey the Gulfport property to the Trustee.
While the Trustee concedes that Ms. Blair has at minimum a life estate in the Gulfport property, it is his contention that pursuant to the Final Judgment entered by this Court against Finch, the Gulfport property is property of the estate, and, therefore, Ms. Blair should be ordered to convey the property to the Trustee for administration for the benefit of creditors of the estate of the Debtor. In this connection it should be noted that the Trustee contends that at the time he filed the adversary proceeding against Ms. Blair and at the time the Debtor filed his Chapter 7 Petition, he had no knowledge of the pending state court suit concerning the Gulfport property. Thus, the Trustee contends that since he was not a party to the state court litigation, any judgment entered by that court can not act as a binding determination of the estate’s right to the Gulfport property. Finally, the Trustee contends that in any event, Ms. Blair’s attempt to assert a constructive trust on the Gulfport property is invalid as it may be avoided by the Trustee pursuant to § 544(a)(3) of the Bankruptcy Code. In opposition, Ms. Blair contends that the Gulfport property is not property of the estate; that principles of res judicata and collateral estoppel dictate that the state court judgment governs the parties’ respective ownership rights to the Gulfport property, and, in the alternative, that a constructive trust should be imposed on the property in her favor as the Debtor allegedly obtained title to the Gulfport property by fraud, misrepresentation, and undue influence.
It should be noted at the outset that § 542 of the Bankruptcy Code was never designed to apply to the Trustee’s attempt to obtain title to real property which he alleges is property of the estate. Instead, § 542 was designed to allow the Trustee to obtain possession of tangible personal property belonging to the Debtor, but that is in the possession of another.
However, even assuming the Complaint is procedurally proper, based on the foregoing facts, it is evident that the threshold issue is whether the Gulfport property is in fact, property of the estate. This question, of course, is governed in turn by § 541 of the Bankruptcy Code, which provides in pertinent part that the property of the estate includes all legal or equitable interests of the debtor in property as of the commencement of the case. There is no question and it is without dispute, that at the time of the commencement of this case, legal title to the Gulfport property was held by Finch, subject to the Defendant’s life estate, and thus, the Debt- or had no legal or equitable interest in the Gulfport property.
It is equally clear, however, that the Trustee is empowered to recover properties transferred by the Debtor pursuant to either § 548 or under other special voiding powers granted to the Trustee by the Bankruptcy Code, e.g., § 544 — § 547 and § 549. In fact, as noted previously, the Trustee sought such a recovery pursuant to § 548 of the Bankruptcy Code in the adversary proceeding filed against Finch, and obtained a final judgment by default against Finch. However, this final judgment is without legal significance simply because it entitled the trustee to recover *612for the estate only whatever interest the Debtor had in the property. Of course, the Trustee has no greater rights than those of the Debtor, except those rights based on the special voiding powers granted to the Trustee by § 544, § 545, and § 547 of the Bankruptcy Code. In this case the Debtor had no interest in the property for the following reasons:
It is well settled that the resolution of the effect of a state court judgment on subsequent litigation in a federal court is governed by the full faith and credit statute, 28 U.S.C. § 1738. This statute provides that state judicial proceedings “shall have the same full faith and credit in every court within the United States ... as they have by law or usage in the courts of such State ... from which they are taken.” 28 U.S.C. § 1738. Based on the application of the foregoing to this proceeding, this Court is satisfied that as the issue of ownership of the Gulfport property was resolved with finality in the Circuit Court, the principle of collateral estoppel precludes relitigation in this Court of the same issue. See Fla. Jur.2d, Judgments and Decrees, § 114. Because the Circuit Court had already directed Finch to convey the property to Ms. Blair at the time this Court entered its Final Judgment directing Finch to convey the property to the Trustee, Finch was incapable of complying with this Court’s final judgment. Moreover, at the time this Court entered its Final Judgment against Finch, the title to the property was already held by Ms. Blair as the Circuit Court judgment provided that in the event Finch failed to eonvey the property within 10 days of the entry of the Final Judgment, then the Final Judgment itself would act to transfer the title to the Gulfport property.
This being the case, the Debtor had no legal or equitable interest in the Gulfport property on the date of the commencement of this case, therefore, neither does the Trustee. Accordingly, based on the principles of collateral estoppel, this Court is duty bound to recognize the Circuit Court judgment as determinative of the respective parties’ rights of the parties to the Gulfport property, therefore, Ms. Blair is deemed to be the fee simple owner of the Gulfport property free and clear of any interest of the estate of Williams.
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/8490754/ | ORDER ON MOTION FOR RECONSIDERATION OF 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 a Motion for New Trial, Rehearing, Reconsideration and to Alter or Amend Judgment and Findings of Fact and Conclusions of Law. The Motion is filed by John R. Christen (Christen), the Plaintiff who instituted this adversary proceeding against Thomas A. Smith (Debtor). At the conclusion of the Final Evidentiary Hearing on May 17, 1988, this Court entered its Findings of Fact, Conclusions of Law and Memorandum Opinion and concluded that Christen is not entitled to relief on any of the counts set forth in his Amended Complaint. 86 B.R. 701.
In his motion, Christen seeks 1) a new trial, 2) rehearing and 3) a reconsideration. Christen also seeks to alter or amend the judgment and findings. Inasmuch as there is no allegation in the Motion that there is any newly discovered evidence which could not have been obtained at the time of the trial and which if presented would have produced no material different results and there is no justification to grant a new trial. In re Devault Mfg. Co., 4 B.R. 382 (Bankr.D.Pa.1980) aff'd, 14 B.R. 536 (E.D. Pa.1981). Considering the part of the Motion which seeks an amendment to the judgment, it is also without merit for the single reason that no judgment has been entered yet, thus the motion is premature. This leaves for consideration the Motion which seeks a reconsideration and amendment of the “Findings.”
As noted earlier, on May 17, 1988, this Court entered its Findings of Fact, Conclusions of Law and Memorandum Opinion. Based on the record established at the final evidentiary hearing, this Court concluded that Christen failed to establish with the requisite degree of proof any of the elements of a viable claim based on § 523(a)(2)(A); and the proof presented in support of a claim set forth in Count II of the Amended Complaint also equally lacked evidentiary support; the claim set forth by Christen in Count III of his Complaint has been abandoned. On May 24, Christen filed a Motion to Amend Pleadings to conform to the evidence. The proposed Amendment sought to change the pleading to reflect that the Defendant agreed to obtain a recision of the Plaintiff’s guaranty to Manna; that he failed to do so; that he took advantage of the continuing effectiveness of Christen’s guaranty by continuing to make credit purchases from Manna; and that he failed to inform Christen that his guaranty remained in effect. Based on the foregoing, it is now asserted by Christen the first time that the Defendant’s initial undertaking and agreement to cancel Christen’s guaranty and his failure to disclose to the Plaintiff the continuing existence of the guaranty misled and defrauded the Plaintiff. The proposed amendment based on these newly asserted claims now attempts to claim breach of a fiduciary duty. It was to state a viable claim of dischargeability pursuant to § 523(a)(4). *614On June 29, 1988, the Court granted the Motion to Amend.
The Plaintiff in his Motion seeks a reconsideration of the Findings and contends that this Court’s findings are contrary to the weight of the evidence in the following respects: 1) a finding of this Court as appears on Page 5 of the Memorandum Opinion that it should have been evident to Christen that the Debtor was not in a position to secure a release of Christen’s guaranty from Manna was in error. In addition, it is Christen’s contention that this Court was incorrect in concluding that Christen was not concerned about any possible exposure on his personal guaranty; that this Court failed to mention a fact which, according to Christen, is critical that Manna would not continue to sell to Brew-masters Restaurant on credit without Christen’s guaranty and the Defendant never disclosed this fact to Christen; that Christen was contending that this Court erred in concluding that there was no evidence in the record to establish that the Debtor did obtain any money, property or service or extension of credit from Christen. In addition, it is the contention of Christen that this Court erred in suggesting in the Findings that the Debtor’s lack of candor is irrelevant because Christen knew he was being sued.
•Lastly, it is also contended by Christen that this Court erred by finding and concluding that Christen voluntarily settled the claim of Manna in that it was a settlement of a judgment which was not voluntary.
Considering these new contentions seri-atim, it should be stated that Christen is correct to the extent that the statement on Page 5 of the Memorandum Opinion should have made it clear that the statement referred to the indebtedness which then existed to Manna and not to any future indebtedness which the Brewmaster Restaurants might have incurred with Manna. In this connection, it should also be noted that at the time Christen sold his interest in the Restaurant in 1982 to the Debtor, Manna was no longer selling to the Restaurants on credit and did not resume selling on credit until several months after the June 1982 transaction when Christen no longer had anything to do with the operation of the Restaurants. However, this alleged error in the Findings, is of no consequence, and is immaterial and certainly would not warrant changing the ultimate conclusion of this Court. Considering Christen’s contention of an error relating to this Court’s statement that Christen was not concerned about his possible exposure on his personal guaranty, this is really nothing more than the other side of the same coin and relates to the previous allegation of error. Thus, while it might have been unclear, and the finding should have reflected that his lack of concern related to any future exposure on his guaranty. This so-called error equally would not warrant changing the ultimate conclusion arrived at by this Court. Neither is the claim by Christen that Manna would not have continued to sell on credit to the Restaurants without Christen’s guaranty and the Defendant had a duty to disclose this fact to Christen.
Concerning the claim that this Court erred to conclude that the record is devoid to support any claim under § 523(a)(2)(A), this Court is satisfied that there is not an iota of evidence in this case that the Debtor obtained any money, property, services or extension of credit from Christen. The fact that the Debtor obtained credit from Manna is without significance and certainly this could not make out a viable claim under § 523(a)(2)(A). Concerning the contention that Christen was prevented by the Defendant from cancelling his guaranty of the future accounts of the restaurants operated by the corporations controlled by the Debtor, it totally lacks any evidentiary support. Certainly nothing prevented Christen from writing a simple letter to Manna as he was advised to do by the Defendant to cancel his guaranty. Lastly, the contention of Christen is equally without merit that this Court erred in concluding the settlement by Christen of the claim of Manna was voluntary. In this connection, it is important to point out the following: First, it is without dispute that Christen requested the Debtor to represent him in the lawsuit and contrary to the allega*615tion in the original Complaint, he never told Christen he was just a witness and all pleadings or answers filed on behalf of Christen was by his consent. The fact of the matter is after the entry of a judgment in favor of Manna, the Debtor informed Christen he was going to challenge the judgment and asked him what he was going to do about it and Christen declined to follow the same course of action and decided voluntarily to settle the lawsuit rather than proceed with litigation with Manna, in spite of the fact that the Debtor pointed out to him that he believed as an attorney he had excellent grounds to vacate and set aside the judgment of the Circuit Court in Jacksonville in favor of Manna.
Thus, viewing only the points raised in the Motion, it is clear that none of them has any merit and would warrant changing the ultimate conclusion of this Court that none of the claims asserted by Christen in his Amended Complaint and, as further amended to conform to the pleadings, have been established with the requisite degree of proof.
Notwithstanding, this Court in considering the Motion granting same agreed to consider the alternative theory advanced by Christen and specified in the Order that the Court would also consider two additional points, both of which have been intimated earlier, but not very well articulated which are as follows: Whether or not there is sufficient evidence in this record that at the time the Debtor promised to obtain the release of the guaranty of Christen of any further debts which might be owed to Manna by Brewmaster, Inc., and its affiliates, he still acted in a fiduciary capacity or that he was no longer acting as Christen’s attorney, but the Debtor and Christen were already in an adversary position of a buyer and a seller of a stock interest in the corporations in which both Christen and the Debtor were the only stockholders.
In support of the points raised on oral argument on the Motion for Rehearing, counsel for Christen urges that under well-established principles, the relationship of an attorney and a client, once it has been established, continues until the attorney affirmatively informs the client that he no longer represents him, citing Rice v. Forestier, 415 S.W.2d 711 (Tex.App.1967), which stands for the proposition that once an attorney-client relationship exists, the attorney has the affirmative duty to notify the client of the termination of the relationship. In addition, it is contended by counsel for Christen that in determining whether an attorney-client relationship has been created and still continues to exist, the determining factor is the subjective belief of the client that he is consulting a lawyer in his professional capacity and for the purpose of obtaining legal advice, citing Dalrymple v. Nat. Bank & Trust Co. of Traverse City, 615 F.Supp. 979, 982 (W.D.Mich.1985).
In the present instance there is no question that the Debtor as an attorney represented Christen for over a decade, in addition to having been involved with Christen in the operation of Brewmasters Restaurants. The crucial question is whether or not when they severed their business relationship in June 1982 and drew up the Memorandum of Agreement, did the Debt- or act only as the purchaser of the corporate stock and Christen as the seller of the corporate stock, or, in addition, the Debtor still acted as attorney for Christen concerning the problem of obtaining a rescission of Christen’s guaranty of the obligation owed to Manna by the restaurants.
There is nothing in this record which indicates that the Debtor ever notified Christen that their relationship as client and attorney had been terminated. While there is evidence in this record that Christen, after they severed their business relationship, did consult another law firm and the fact of the matter is not only in connection with estate planning, but also in connection with an attempt to formalize the very buy-out agreement entered into between Christen and the Debtor in June 1982, this fact does not necessarily compel the conclusion that Christen no longer considered the Debtor to be his attorney and he no longer entertained a reasonable subjective belief that the Debtor is still his attorney, see Dalrymple v. Nat. Bank & *616Trust Co. of Traverse City, supra, and will take care of the matter of obtaining a recision of Christen’s guaranty. This is so because the presence or absence of his subjective belief that the Debtor was still his attorney must determine with reference to the time they discussed the recision of the guaranty and not what occurred thereafter. In viewing the totality of the circumstances, the conclusion is inescapable that the Debtor had a continuing duty either to notify Manna that Christen is no longer involved with the operation of the Brewmaster Restaurants, and, therefore, he does not guarantee any future debts of the Brewmaster Restaurants, or at least to alert Christen that he was still liable on his original guaranty when he negotiated with Manna to obtain merchandise on credit for the Brewmaster Restaurants, and when Manna agreed to resume selling on credit to the Restaurants.
Based on the foregoing, this Court is constrained to conclude that the Debtor did, in fact, breach his duty of a fiduciary, thus, the resulting liability shall be declared to be nondischargeable pursuant to § 523(a)(4) of the Bankruptcy Code.
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/8490755/ | OPINION
THOMAS M. TWARDOWSKI, Bankruptcy Judge.
Presently before the court is a motion filed by movant, Francisco J. Ortiz, a/k/a Francis J. Ortiz (“movant”), requesting that we abstain from hearing a lawsuit commenced by movant, prior to this chapter 11 proceeding, against debtor, Reading Tube Corporation (“debtor”), and two other defendants in the United States District Court of Puerto Rico. For the reasons *714outlined hereafter, we deny movant’s motion.1 A brief recitation of the facts follows.
On June 23, 1986, movant filed a complaint in the United States District Court of Puerto Rico against debtor and two other defendants (hereinafter collectively referred to as the “defendants”). (This lawsuit will hereinafter be referred to as the “Puerto Rico lawsuit”). Jurisdiction was based upon diversity of citizenship. The complaint alleges that defendants’ termination of movant’s contract violated a Puerto Rican statute shown as Act 75,2 which prohibits a principal from terminating a dealer’s contract without just cause. The complaint also contains paragraphs which allege unjust enrichment and tor-tious deprivation of profits. Movant requests damages in the amount of $916,-251.17.
On January 29, 1987, debtor filed its chaptér 11 petition. Thereafter, movant filed his motion requesting that we exercise our discretion under 28’U.S.C. § 1334(c)(1)3 and abstain from hearing the Puerto Rican lawsuit. Movant maintains that abstention is warranted because Act 75 represents important Puerto Rican public policy4 and the United States District Court of Puerto Rico has expertise in dealing with Puerto Rican law. While we acknowledge that movant’s concerns are not totally devoid of merit, we conclude, after balancing the competing interests, that abstention is not warranted in this case.
It is well established that abstention is appropriate under 28 U.S.C. § 1334(c)(1) if the state law issue before the federal court involves a matter of important state public policy and if no state law precedent exists on the issue to guide the federal court when deciding the case. As was stated by the District Court of Georgia in Scroggins v. Powell, Goldstein, Frazer and Murphy (In re Kaleidoscope, Inc.), 25 B.R. 729, 742 (N.D.Ga.1982):
It is now a settled rule that bankruptcy abstention [under 28 U.S.C. § 1334(c)(1) ] is required only if resolution of the state law question will involve the bankruptcy court in matters of substantial public import and only if there exists no state law precedent that either answers the precise question presented or enables the bankruptcy court to predict with reasonable certainty the conclusion that the state courts will reach when ultimately presented with the question.
See also, Harley Hotels, Inc. v. Rain’s International, Ltd. (In re Rain’s International, Ltd.), 57 B.R. 773 (M.D.Pa.1985); Earle Industries, Inc. v. Circuit Engineering, Inc. (In re Earle Industries, Inc.), 72 B.R. 131 (Bankr.E.D.Pa.1987); Krupke v. Lindemann (In re Krupke), 57 B.R. 523, 13 B.C.D. 1361, B.L.D. ¶ 79,991 (Bankr.W.D.Wisc.1986). Furthermore, the discretionary abstention doctrine is the exception to the duty of federal courts to adjudicate controversies properly before them and must be narrowly construed. In re Earle Industries, Inc., supra; Cotton *715v. Shirah (In re All American of Ashburn, Inc.), 49 B.R. 926, 13 B.C.D. 93 (Bankr.N.D.Ga.1985); Allard v. Benjamin (In re DeLorean Motor Company), 49 B.R. 900, 13 C.B.C.2d 339 (Bankr.E.D.Mich 1985).
At the outset, we agree that Act 75 was enacted by the Puerto Rican legislature to protect Puerto Rican distributors from unilateral attempts by their principals to terminate the distributorship contract without just cause and that Act 75 represents important Puerto Rican public policy. However, abstention is not warranted merely because a case involves a state law issue which impacts upon important state public policy. To the contrary, abstention is warranted only if the state law issue involved impacts upon important state public policy and only if the state law issue is unresolved. In re Rain’s International, Ltd., supra; Freudenmann v. Drainage District # 2 (In re Freudenmann), 76 B.R. 600 (Bankr.S.D.Tx.1987). Having reviewed all of the cases cited by the parties which interpret Act 75, we conclude that Act 75 is not an “unresolved” area of the law. Rather, our review of the cases reveals that the case law interpreting Act 75 is well developed and that standards exist under Act 75 and the case law which will enable us to predict with reasonable certainty the conclusion that a Puerto Rican court would reach if presented with the same issues.
Finally, we note that several courts have considered the extent to which abstention would affect the outcome of the bankruptcy case when deciding abstention motions. In re Rain’s International, Ltd., supra; B.U. Acquisition Company, Inc. v. Utica Mutual Insurance Company (In re Baldwin-United Corporation), 52 B.R. 541, 13 C.B.C.2d 538 (Bankr.S.D.Oh.1985). In fact, some courts have considered abstention inappropriate if the state law case will affect the bankruptcy estate. Macon Prestressed Concrete Company v. Duke, 46 B.R. 727, 12 B.C.D. 1284 (M.D.Ga.1985); In re Freudenmann, supra; Allegheny, Inc. v. Laneido Wholesale Company (In re Allegheny, Inc.), 68 B.R. 183, (Bankr.W.D.Pa.1986); ILC v. Ebrights Refrigeration Equipment, Inc. (In re Ebrights Refrigeration Equipment, Inc.), 13 B.R. 546, 4 C.B.C.2d 1543 (Bankr.S.D.Oh.1981). Instantly, movant’s alleged claim against debtor is substantial. Therefore, the outcome of the Puerto Rican lawsuit will have a significant effect upon the bankruptcy estate. Given this fact, and considering that Congress intended to broaden bankruptcy jurisdiction to bring all matters “related” to a bankruptcy case into one forum, see In re Freudenmann, supra; In re Earle Industries, Inc., supra, we conclude that the interests of justice require that we refrain from abstaining in this case.
. One paragraph of movant’s motion is devoted to 11 U.S.C. § 362(d) and requests relief from the automatic stay. However, no hearing was held on this case and, therefore, no evidence was presented on the § 362(d) issue. As the parties do not address the § 362(d) issue in their briefs, we assume that this issue is not being pressed. Accordingly, consistent with our decision to deny movant’s abstention motion, we deny movant's § 362(d) motion, finding that movant failed to meet his initial burden of evidence production. In re Ronald Perlstein Enterprises, Inc., 70 B.R. 1005 (Bankr.E.D.Pa.1987); In re Stranahan Gear Company, Inc., 67 B.R. 834 (Bankr.E.D.Pa.1986).
. Act No. 75 of June 24, 1964, as amended, 10 L.P.R.A. § 278 et seq. This statute is also known as the “Dealers Act.”
. 28 U.S.C. § 1334(c)(1) provides as follows:
Nothing in this section prevents a district court in the interest of justice, or in the interest of comity with the State courts or respect for State law, from abstaining from hearing a particular proceeding arising under Title 11 or arising in or related to a case under Title 11.
The bankruptcy courts are vested with abstention power by virtue of 28 U.S.C. § 157 and the district court’s order of general reference.
. Movant does not argue that abstention is required based upon his unjust enrichment or tortious deprivation of profits causes of action. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490756/ | OPINION
THOMAS M. TWARDOWSKI, Bankruptcy Judge.
Debtor, David W. Snyder (“debtor”), has filed a motion requesting that we reopen his bankruptcy case so that a complaint may be filed under 11 U.S.C. § 523(a)(1)(C) to determine the dischargeability of a debt allegedly owed to the I.R.S. The I.R.S. opposes this motion arguing that debtor must show “cause” under 11 U.S.C. § 350(b) to obtain a reopening. We disagree.
Motions to reopen are governed by 11 U.S.C. § 350(b), which provides, contrary to the position espoused by the *718I.R.S.,1 that “[a] case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause.” As we explained in our recent decision in In re Capuano, 91 B.R. 715 (Bankr.E.D.Pa.1988), the bankruptcy courts in this district have taken a liberal approach to reopening cases and apply the rule that a motion to reopen should be granted so long as the debtor is not guilty of fraud or intentional design and no prejudice will be suffered by the creditor.
Instantly, we find that debtor’s failure to challenge the dischargeability of the I.R.S.’s alleged debt prior to the closing of his case was not the product of fraud or intentional design and that the I.R.S. will not be prejudiced by the reopening of this case. Hence, we will grant debtor’s motion and afford the parties thirty days to file a dischargeability complaint.
An appropriate order will follow.
. In fact, N.B.R. 4007(b) specifically provides for the reopening of a case for the purpose of obtaining a determination as to the discharge-ability of a debt. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490757/ | MEMORANDUM OF OPINION AND ORDER
RANDOLPH BAXTER, Bankruptcy Judge.
Huntington National Bank (The Bank), a party defendant to the above-styled adversary proceeding, seeks a dismissal of Count IV of the Trustee’s Complaint to recover postpetition and preferential transfers, for claim subordination, and other relief. Upon a pretrial hearing and an examination of the submitted pleadings, the following constitutes the Court’s findings and conclusions pursuant to Rule 7052, Bankr.R.:
Jurisdiction is conferred under 28 U.S.C. §§ 157, 1334, and General Order No. 84 of this District. Herein, Richard A. Baum-gart (Trustee) filed a multiple-count Complaint to recover postpetition and preferential transfers, for subordination of a claim, and for other relief. Herein, The Bank seeks the dismissal of Count IV, which concerns the Trustee’s prayer for subordination of the Bank’s claim. Therein, the Trustee alleges, inter alia, that The Bank, "after having verbally agreed and committed to certain financial arrangements, including continued or additional lines of credit for working capital, refused to extend or continue such credit at a crucial time immediately prior to the Debtor’s obtaining public funds of approximately $8,000,000.00." The Trustee further alleged that those refusals occurred at a critical point in time regarding the Debtor’s public offering and constituted inequitable and bad faith conduct. As a result of The Bank’s alleged misconduct, the Trustee alleges that both the Debtor and its creditors were damaged in amounts to be later ascertained. As redress, the Trustee seeks a subordination of The Bank’s claims against the Debtor and a return of any funds which have benefitted The Bank.
In its motion to dismiss Count IV, The Bank avers that the Trustee has failed to state a claim upon which relief can be granted. Specifically, The Bank states that the Complaint fails to state a basis for equitable subordination. It further contends that the Trustee is without the requisite standing to pursue a recovery against it for damages allegedly suffered by unsecured creditors.
The present ruling is limited to the propriety of Count IV. In view of the aforementioned contentions, a review of Rule 7008, Bankr.R. and Rule 8, Fed.R.Civ.P., reveals the following:
Rule 8. General Rules of Pleading
(a) Claims for Relief. A pleading which sets forth a claim for relief ... shall contain ... (2) a short and plain *777statement of the claim showing that the pleader is entitled to relief.... Rule 8(a)(2), Fed.R.Civ.P.
(e) Pleading To Be Concise and Direct; Consistency.
(1) Each averment of a pleading shall be simple, concise, and direct. No technical forms of pleadings or motions are required. Rule 8(e), Fed.R. Civ.P.
Applying the above requirements of Rule 8 to the present situation, the language of Count IV of the Complaint fully comports with the provisions of Rule 8. Any further development of Count IV’s allegations can be properly addressed in subsequent pleadings or at further hearings or a trial upon the general Complaint. Within the context of the Complaint allegation (Count IV), it is not necessary for the complainant to establish elements of equitable subordination. Otherwise, The Bank has cited no persuasive authority to support its contention that a substantial factual basis must be pled within the context of a complaint allegation. (See, Motion To Dismiss, p. 4.) Further, The Bank has made no request for a more definite statement, if warranted, as is allowed under Rule 12(e), Fed.R.Civ.P. (See, Cottman Transmission Systems, Inc. v. Dubinsky, 95 F.R.D. 351, 352 (E.D.Penn.1982).
The Bank characterizes the language of Count IV as an action grounded on fraud which must be particularly pled pursuant to Rule 7009, Bankr.R. and Rule 9, Fed.R. Civ.P. Literally, the language of Count IV is silent regarding any allegation of fraud. The Trustee’s brief in opposition to The Bank’s motion for dismissal specifically denies that its claim of inequitable conduct in Count IV is premised on fraud. (See, Trustee’s Brief, p. 10). The Court will not infer allegations which are not specifically pled and contained in the complaint allegations. Thusly, The Bank’s contention that the requirements of Rule 7009(b); Rule 9(b), Fed.R.Civ.P. are applicable is without merit.
The Bank further contends that the Plaintiff Trustee lacks the requisite standing to pursue a recovery for damages under Count IV. In Complaint Para. No. 26, Count IV, the Trustee alleges that as a result of The Bank’s conduct, “both the Debtor and its creditors have been damaged .... ” To the extent that the Trustee seeks a recovery on behalf of the Debtor’s estate, he is certainly entitled to do so under provisions of § 704 of the Bankruptcy Code, and dismissal on that basis is unwarranted. The Code is silent, however, to indicate any authorization for the Trustee to represent the interests of other entities, except as is allowed under his avoidance powers enunciated under the Code. There exists no independent authority for the Trustee to seek a recovery of damages for parties other than the Debtor’s estate.
CONCLUSION
The Bank has failed to demonstrate a sufficient basis for dismissal of Count IV.
Accordingly, the motion to dismiss is hereby denied.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490758/ | MEMORANDUM OF OPINION AND ORDER
RANDOLPH BAXTER, Bankruptcy Judge.
The Plaintiff, Elmira Prusinski, .loaned her former son-in-law, Phillip W. Harper (Debtor) and her daughter, Carole A. Harper (Carole), $25,000.00 to pay off their existing debts and start an accounting business which was to be operated by the Debt- or during their marriage. After the loan was made, the Debtor and Carole were later divorced and repayments on the loan ceased. Following a state court action by the Plaintiff against the Debtor and Carole, wherein judgment was rendered favorable to the Plaintiff, the Debtor was held solely liable for repayment of the loan. Subsequently, the Debtor sought relief in this Court by filing his petition under Chapter 7 to obtain a discharge of his debts, including the judgment rendered by the state court. Herein the Plaintiff seeks a determination of dischargeability of the loan balance. A trial was conducted with due notice having been made upon all parties entitled thereto. Upon an examination of the evidence admitted, trial briefs, testimony and other relevant portions of the record, the following constitutes the Court’s findings and conclusions pursuant to Rule 7052, Bankr.R.:
This is a core proceeding under provisions of 28 U.S.C. 157(b)(2), with jurisdiction further conferred under 28 U.S.C. 1334 and General Order No. 84 of this District. The parties hereto entered into a written agreement dated July 11,1983, wherein the widowed Plaintiff agreed to loan the Debt- or and her daughter $25,000.00 from her *788life savings. (Plaintiff’s Ex. # 5). Specifically, the loan proceeds were to be used in the following manner:
Proceeds of this loan are to be used for the pay off of all existing debts of Phillip and Carole Harper and balance of funds to be used for the start up of an accounting business to be operated by Phillip Harper. (Ex. # 5).
The agreement containing the above-quoted language, dated July 11, 1983, was drafted by the Debtor and was signed by the Debtor, Carole, and the Plaintiff. As consideration for the loan, the Debtor and Carole agreed to repay the loan at $595.00 per month over a sixty-month period at fifteen (15) percent interest per annum. As further consideration, Phillip and Carole granted the Plaintiff a second mortgage lien on their personal residence.1 The last paragraph of the agreement provided that the Debtor would remain liable for the loan repayment in the event that his marriage to Carole was dissolved or was terminated by reason of divorce. Carole and the Debtor were divorced on October 15, 1985, following a brief period of separation.
II.
The dispositive issue for the Court’s determination is whether the Debtor’s conduct respecting the $25,000.00 loan from his former mother-in-law (Plaintiff) renders the debt created thereon nondischargeable under the Bankruptcy Code. In her Complaint, the Plaintiff contends that the “Debtor incurred the debt through false pretenses, false representations, and/or actual fraud, in that [he] misrepresented to Plaintiff the reasons for which he required the loan.” She further alleges that, by reason of the misrepresentations, she was induced to make the loan of $25,000.00. Contrary to those allegations, the Debtor contends that he fully satisfied the purpose of the loan and that he is entitled to a discharge of that indebtedness.
The discharge of debts under Chapter 7 is addressed in § 727. Exceptions to a discharge under Chapter 7 are found under provisions of § 523. In pertinent part, § 523 provides:
(a) A discharge under section 727 ... of this title does not discharge an individual from any debt
(2) for money ... to the extent obtained by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition. [11 U.S.C. 523(a)(2)(A)].
The establishment of five elements have generally been required to satisfy the provisions of § 523(a)(2)(A). They are as follows: 1) The Debtor made the representation; 2) at the time he knew they were false; 3) that the misrepresentation was made with an intention and purpose of deceiving the creditor; 4) the creditor relied on the misrepresentation; and 5) the creditor sustained a loss as a proximate result of the misrepresentation. See, In re Phillips, 804 F.2d 930 (6th Cir.1986); In re Gans, 75 B.R. 474 (Bankr.S.D.N.Y.1987).
Testimony and Exhibits:
In order to apply the provisions of § 523(a)(2)(A), an examination of the evidence and the record, generally, is necessary. Upon examination, the Debtor’s testimony revealed that he and his former wife received the $25,000.00 loan from the Plaintiff and that he deposited same in his personal checking account. The Debtor’s equivocal testimony showed him first stating that the deposit account for the $25,-000.00 was Carole’s checking account, but he later testified on direct examination that the account was a joint checking account shared by him and Carole. Although both names appear on the account, the Debtor issued most of the checks in Exhibit No. 6, which were issued between July 11, 1983 (the date of the loan) and December 19, 1984. Of remarkable interest, tax returns set forth in Exhibits Nos. 2 and 3 for tax years 1983 and 1984 indicate that the Debt- or’s occupation was listed as “Real Estate Consultant,” not as an accountant although *789his cross-examination testimony indicated that in 1983 he solicited clients and held himself out as an accountant. Those tax returns further revealed that his former wife, Carole, had earned wages of $24,-004.52 in 1983, while he had no reported income. His 1983 Schedule C reflects a business loss of $5,417.77. The 1984 tax return (Ex. No. 3) reveals that Carole reported earned wages totalling $29,252.11, while the Debtor reported a business income of $2,674.41. Exhibit No. 3 included a 1984 W-2 statement showing the Debtor had nonemployee wages of $1,257.56. Plaintiffs Exhibit No. 4 contains copies of the Debtor’s W-2 statements for 1985 and 1986. In 1985, one W-2 form revealed wages of $458.98, while another W-2 for the same year revealed nonemployee compensation of $7,000.00. For 1986, the exhibited W-2 statement for the Debtor revealed wages of $6,016.65. Neither tax return identified the Debtor as an accountant or having an accounting practice.
The Debtor directed the Court’s attention to several copies of cancelled checks contained in Plaintiff’s Ex. No. 6 and his Exhibit A in support of his contention that he established an accounting business pursuant to his loan agreement with the Plaintiff. Specifically, he addressed thirty-four checks issued by him on the joint checking account revealing payments for newspaper subscriptions, a trade journal subscription, purchase of a briefcase, stationery, unspecified credit card charges, gasoline credit card expense, miscellaneous labor expenses, car payment, user’s manual, etc. He testified that he established his accounting business in July of 1983, although none of the checks exhibited by either the Debt- or or the Plaintiff reflect office rental payments. Testimony revealed that he initially worked out of his home, but later in 1983 assumed office space with Trademark Realty where he received free rent from August through December of 1983. Beyond that period, his testimony revealed his office rent ranged between $75.00 per month to $150.00 per month with Trademark Realty. None of the checks exhibited by the Debtor or the Plaintiff reflected any office rental payments to Trademark Realty or to any other landlord.
The Debtor offered additional testimony in support of his contention that he complied with the subject loan agreement by paying some $16,000.00 in debts which existed at the time of the loan. As indicated above, the $25,000.00 loaned to the Debtor and Carole was to be used to pay off all existing debts. An examination of the can-celled checks exhibited in Exhibit No. 6 reveals that not all of the existing debts were paid in full even though the Debtor’s unrefuted testimony indicated he paid $16,-000.00 on debts existing as of the loan agreement date (July 11, 1983). On July 11, 1983, the Debtor testified that he wrote approximately thirty-four checks as payment for personal debts existing as of that date. It is noted that one of the checks, # 2594, was made payable by the Debtor to Ameritrust Company (Acct. # 4447-140-050-500) in an amount of $2,300.00. That particular debt was in existence on July 11, 1983, and was not paid in full with the payment made on July 11, 1983, per the Debtor’s testimony (See check #2658.). The same is true respecting a debt owed to Ameritrust (Acct. #4447-170-494-859), as indicated by payments made on July 25, 1983 (Check # 2622) and on August 29, 1983 (Check # 2668).
Plaintiff’s Exhibit No. 1 and the Debtor’s testimony indicate that the $25,000.00 loan was deposited in Debtor’s and Carole’s joint checking account on July 11, 1983, the same date of the loan agreement. Where the Debtor wrote checks to pay the full amount of existing debts, the check memo indicated “paid in full,” “Balance as/statement,” etc. (See, Checks Nos. 2571, 2570, 2569, 2568, 2567, 2577, 2575, 2589, 2586, et al.). As indicated above, it is clear from a review of the checks exhibited and the testimony that not only did the Debtor not pay off all existing debts, he and his former wife created new debts. See, Checks Nos. 2809, 2950, 2951). The Plaintiff’s and Debtor’s testimony revealed that the Debt- or and Carole purchased one new car and leased another after their receipt of the $25,000.00. This testimony is unrefuted. *790(See Check No. 2720, Ex. No. 6; Cross-exam. of Debtor). Carole leased a new car and made payments thereon to her employer, Ford Motor Credit Corporation, while the Debtor purchased a new car, with his payments being deducted from his wife’s payroll check. (Cross-exam., Debtor).
Plaintiffs Exhibit No. 6 also included the amounts repaid on the loan. A total of eleven payments were made by checks issued by the Debtor. Of that number, only six checks were issued for the full amount of the monthly payment, and one of those was returned “N.S.F.” None of the remaining five payments were made in the full amount of the monthly payment due. The last payment was made to the Plaintiff on December 19, 1984, in an amount of $50.00.
The Plaintiffs testimony revealed that she received a total of $4,340.00 as repayment on the loan. She cared for the Debt- or, and her daughter’s child daily and testified that there was no indication that the Debtor ever started an accounting business. Rather, they used her funds for daily living expenses. She further testified that within four months of the loan, both her daughter and the Debtor were driving new automobiles. Although she was not aware of the Debtor’s checking account balance at the time she loaned the $25,-000.00, unrefuted testimony revealed that her daughter informed her that they had no money when the loan was made. The Debtor testified, however, there might have been $200.00 in their checking account on July 11, 1983. During the five-month period between July 11, 1983 and December 12, 1983, a total of $29,688.73 in checks were drawn on the Debtor’s joint checking account. The Debtor testified that he had funds in no checking account other than the one joint checking account. His joint debts, per his testimony, totalled $16,000.00 which existed prior to July 11, 1983 were paid off by him. He further testified that approximately $9,700.00 in checks drawn related to his business debts.
Notwithstanding the conflicting testimony regarding the nature of work activity engaged by the Debtor in 1983, the minutes of the Debtor’s § 341 meeting are relevant. Therein, it is significantly noted that the Debtor responded that he had never been engaged in business. That response was made under oath and was recorded on the Trustee’s Record of Examination whieh the Debtor certified by his signature on February 17, 1988. A review of the Debtor’s Schedule A-3 further reveals account balances owed by the Debtor on debts that were in existence at the time of the subject loan. This further refutes his testimony that he paid off all debts in existence at the time of the loan.
III.
In resolving a § 523(a)(2)(A) issue, the burden Of proof is upon the party seeking nondischargeability. That burden must be met by a standard of clear and convincing evidence. Knoxville Teachers Credit Union v. Parkay, 790 F.2d 490, 491 (6th Cir.1986); In re Gans, 75 B.R. 474 (Bankr.S.D.N.Y.1987). Exceptions to dischargeability are to be construed narrowly and in favor of the debtor where reasonable to do so. Id.; In re Black, 787 F.2d 503, 505 (10th Cir.1986).
In construing the aforementioned elements of § 523(a)(2)(A) to the findings made herein, the following conclusions are hereby reached:
As noted above, the loan agreement entered into by the Plaintiff and the Debtor was drafted by the Debtor. The representations made by the Debtor were willfully made. In view of the testimony received, an examination of the exhibits and the Debtor’s petition schedules, the Debtor’s respresentations were made with an intent to deceive the Plaintiff who relied thereon. The Plaintiff reasonably relied upon the Debtor’s representations and loaned the Debtor and her daughter $25,000.00 from her life savings. This determination of reasonableness is reached after an evaluation of all the facts and circumstances of the case. See, In re Phillips, supra. Having received only $4,340.00 as repayment on the loan, the Plaintiff sustained a loss as a proximate result of the Debtor’s representations. Thusly, the totality of (1) sched*791ules and exhibits showing outstanding balances on debts existing at the time of the loan; (2) the Debtor’s § 341 meeting certification that he had never been engaged in business; and (3) controverted testimony clearly reveal that the Debtor’s conduct fully meets the proscriptions of § 523(a)(2)(A) rendering his debt to the Plaintiff nondischargeable.
Accordingly, the subject debt is nondis-chargeable, and judgment is hereby rendered favorable to the Plaintiff. Costs and attorney’s fees are awarded to the Plaintiff.
IT IS SO ORDERED.
. As part of Carole’s and the Debtor’s divorce proceeding, the property was sold at a loss. The Plaintiff received no proceeds from the sale respecting the subject loan. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490761/ | AMENDED MEMORANDUM DECISION
JOHN J. HARGROVE, Bankruptcy Judge.
I.
At issue is whether the- Official Creditors’ Committee (“OCC”) may maintain a cause of action against the Federal Deposit Insurance Corporation (“FDIC”) under Cal. Civ.Code § 3439 (West 1970) for an alleged fraudulent transfer made to Capistrano National Bank (“CNB”) prior to the FDIC’s appointment as receiver for CNB.
The FDIC argues that pursuant to 12 U.S.C. § 1819, federal law applies to the OCC complaint, thereby precluding a cause of action under state law.
The OCC contends that 12 U.S.C. § 1819 confers the jurisdiction under which the FDIC can be sued, that the choice of law is a federal question, and that except in unusual circumstances, deference should be granted to state law in actions concerning the FDIC.
This court has jurisdiction to hear this matter pursuant to 28 U.S.C. § 1334 and § 157(b)(1) and General Order No. 312-D of the United States District Court, Southern District of California. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(H).
II.
FACTS
On November 27, 1978, Herman and Jeanne Saleen formed Hescon Developers, Inc. (“the debtor”). In June of 1979, the debtor purchased five acres of land in Vista, California (“the Vista property”) for approximately $485,500.
In 1980 the debtor obtained an unsecured loan of approximately $118,000 from CNB (the “CNB loan”). Repayment of the loan was guaranteed by Herman Saleen, individually. On January 20, 1982, Herman and Jeanne Saleen purchased the Vista property from the debtor, by assuming existing liabilities of $381,147.39, paying a $50,000 cash down payment and giving the debtor a note in the amount of $518,000, payable in *918full on April 15, 1982. On February 2, 1982, a deed of trust and assignment of rents and request for special notice was recorded with the San Diego County Recorder, encumbering the Vista property, naming the Saleens as trustor and the debt- or as beneficiary.
On April 15, 1982, Herman Saleen, as president of the debtor, reconveyed the trust deed on the Vista property to himself, individually, based on an alleged offset of antecedent debts which he claimed the debtor owed him. The $518,000 note was subsequently cancelled.
On July 6, 1982, the debtor filed a petition under Chapter 11 of the Bankruptcy Code.
On November 2, 1983, a grant deed was recorded with the San Diego County Recorder, executed by Herman and Jeanne Saleen, transferring the Vista property to S & S Investors (“S & S”), a California corporation. At approximately the same time, S & S purchased the Vista property from Herman and Jeanne Saleen for $712,575.45. In November of 1983, the debtor’s CNB loan was in default (there is no evidence before the court regarding when the debtor defaulted on the CNB loan). Thereafter, sometime in November of 1983, Herman Saleen repaid all monies due CNB pursuant to his personal guarantee (“the subject transfer”) from the proceeds of the sale of the Vista property.
On April 5, 1985, the Comptroller of Currency declared CNB insolvent, appointed the FDIC as receiver and took possession of the business and property of CNB. Herman Saleen has testified that he was a founding shareholder of CNB.
On May 18, 1987, the OCC moved this court for standing to sue the FDIC in connection with the transactions discussed above. The motion was opposed by the FDIC. Prior to the resolution of the motion for standing, the OCC moved the court for leave to amend its complaint to include a cause of action based on Cal. Civ. Code § 3439 (West 1970). The FDIC opposed this request on the basis that federal law applies in controversies arising from the liquidation of a national bank.
At the hearing on September 24, 1987, the court granted the OCC’s motion for standing to bring a cause of action under 11 U.S.C. § 549 against the FDIC. The court also granted the OCC’s motion for standing to bring a cause of action under § 550, but granted it conditionally and dismissed that cause of action as premature.
In addition, the court elected to treat the FDIC’s objection to the Cal.Civ.Code § 3439 (West 1970) claim as a Fed.R.Civ.P. 12(b)(6) motion to dismiss for failure to state a claim and took the matter under submission, requesting additional briefing on the matter.
III.
DISCUSSION
The following background discussion regarding the FDIC is particularly helpful:
The FDIC is a federal agency which insures bank deposits. As insurer, one of the primary duties of the FDIC is to pay the depositors of a failed bank. The FDIC has two methods of accomplishing this duty. The [first] method is to liquidate the assets of the bank and then pay the depositors their insured amounts, covering any shortfall with FDIC funds....
*****>)<
To avoid the significant problems with liquidation, the FDIC whenever feasible employs a “purchase and assumption” transaction in which the FDIC attempts to arrange for another bank to “purchase” the failed bank and reopen it without interrupting banking operations and with no loss to the depositors. A purchase and assumption involves three entities: The receiver of the failed bank, the purchasing bank, and the FDIC as insurer. In most cases, the FDIC is appointed receiver by the appropriate banking authority and thus acts in two separate capacities: As receiver and as an insurer. See, FDIC v. Ashley, 585 F.2d 157 (6th Cir.1978).
As soon as the receiver is appointed the FDIC solicits bids from other, banks *919for the purchase of the failed bank and the assumption of its liabilities. The bids represent the “going concern value” of the failed bank. After receiving the bids, the FDIC Board of Directors determines whether the purchase and assumption is feasible according to the statutory requirements of 12 U.S.C. § 1823(e). If a bid is accepted, the purchasing bank agrees with the receiver to buy the assets and assume the liabilities of the failed bank.
While the purchase of a failed bank is an attractive way for other banks to expand their operations, a purchase and assumption must be consummated with great speed, usually overnight, in order to preserve the going concern value of the failed bank and avoid an interruption in banking services. Because the time constraints often prohibit a purchasing bank from fully evaluating its risks as well as to make a purchase and assumption an attractive business deal, the purchase and assumption agreement provides that the purchasing bank need purchase only those assets which are of the highest banking quality. Those assets not of the highest quality are returned to the receiver, resulting in the assumed liabilities exceeding the purchased assets. To equalize the difference, the FDIC as insurer purchases the returned assets from the receiver which in turn transfers the FDIC payments to the purchasing bank. The FDIC then attempts to collect on the returned assets to minimize the loss to the insurance fund. In an appropriate case, therefore, the purchase and assumption benefits all parties. The FDIC minimizes its loss, the purchasing bank receives a new investment and expansion opportunity at low risk, and the depositors of the failed bank are protected from the vagaries of the closing and liquidation procedure.
Gunter v. Hutcheson, 674 F.2d 862 (11th Cir.1982).
In the case at bar, the FDIC entered into a purchase and assumption transaction with Farmers & Merchants Bank of Long Beach, pursuant to its powers as receiver for CNB.
When the FDIC acts as receiver of an insolvent national bank it stands in the shoes of the insolvent bank and is required to marshal the assets of the bank for its shareholders and creditors. On the other hand, the FDIC in its usual corporate capacity functions as an insurer and overseer of the subject national bank. FDIC v. Glickman, 450 F.2d 416, 418 (9th Cir.1971); British Columbia Investment Company v. FDIC, 420 F.Supp. 1217 (S.D.Cal.1976).
Where the FDIC acts as a receiver of a national bank, suit against it should be brought in the same manner and in the same jurisdiction as if it were the national bank. Freeling v. Sebring, 296 F.2d 244 (10th Cir.1961); DeLorenzo v. FDIC, 259 F.Supp. 193, 197 (S.D.N.Y.1966). 12 U.S.C, § 1819 states in pertinent part that “all suits of a civil nature at common law or in equity to which the [FDIC] shall be a party shall be deemed to arise under the laws of the United States and the United States District Court shall have original jurisdiction .... ” It is well established that this provision is not merely jurisdictional. D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 455-56, 467-68, 62 S.Ct. 676, 678-79, 683-84, 86 L.Ed. 956 (Jackson concurring) (1942). Where, as here, the FDIC is proceeding in its corporate capacity, federal law applies. FDIC v. Bank of America, 701 F.2d 831, 834 (9th Cir.1983). The decision of Congress to apply federal law under § 1819 is not unique. The allowance of claims against the assets of an insolvent national bank is also a matter of federal law under 12 U.S.C. § 194. FDIC v. Mademoiselle of California, 379 F.2d 660, 662 (9th Cir.1967) (section relating to the right to ratable distribution of bank’s assets to creditors during liquidation).
The OCC asserts that Bank of America held that federal law merely governs the choice of law question. However, this contention runs against the analysis used by the court in Bank of America. In deciding to apply Puerto Rico law, the Bank of America court first pointed out that there was no federal case law or federal statute dealing with the issue at bar. Only when *920no federal case law or statute applied was the court “free to apply the traditional common law technique of decision and draw upon all sources of the common law.” 1 FDIC v. Bank of America, 701 F.2d at 834; FDIC v. Meo, 505 F.2d 790, 793, n. 4 (9th Cir.1974); D’Oench, Duhme & Co. v. FDIC, 315 U.S. at 472, 62 S.Ct. at 686.
In support of its argument, the OCC cites the case of In re Anjopa Paper & Board Manufacturing Co., 269 F.Supp. 241 (S.D.N.Y.1967). However, the analysis in Anjopa Paper clearly does not support the position for which the OCC asserts it. Anjopa Paper involved a claim made against the FDIC by a bankruptcy trustee that transfers made to the FDIC by the debtor were preferential under § 60 and § 70(e) of the Bankruptcy Act. Section 70(e) specifically incorporated state law for the purpose of avoiding or recovering transfers made by a debtor. By contrast, the OCC seeks to apply § 548 of the Bankruptcy Code to avoid the subject transfers as fraudulent conveyances. Section 548 does not contain a provision making state law applicable under the Code.
IV.
CONCLUSION
When the FDIC is sued while acting in its capacity as receiver of an insolvent National Bank, federal law applies.
While § 544(b) may, in the appropriate cases, incorporate § 3439 of the California Civil Code into the definition of the “Applicable Law” which may be asserted against FDIC, the court notes’ that the transfer that the OCC presently seeks to avoid was the transfer from the Saleens to CNB, as opposed to a transfer from the debtor, Hescon, to CNB.
Accordingly, the OCC’s third cause of action fails to state a claim against the FDIC in its corporate or receiver capacities.
This Memorandum Decision constitutes findings of fact and conclusions of law pursuant to Bankr.R. 7052. Counsel for FDIC is directed to file with this court an Order in conformance with this Memorandum Decision within ten (10) days from the date of entry hereof.
. More to the point, the court in Bank of America rhetorically states in the next paragraph “[wlhat, then, should we look to as federal law?” FDIC v. Bank of America, 701 F.2d 834 (9th Cir.1983). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490762/ | MEMORANDUM OPINION
ALBERT E. RADCLIFFE, Bankruptcy Consultant.
This matter comes before the court upon the court’s order to show cause why this case should not be dismissed for lack of subject matter jurisdiction.
BACKGROUND
Earl L. Grassman and his wife, Carol L. Grassman, were debtors in a Chapter 13 proceeding which was pending when Earl L. Grassman died on July 28, 1985. The Chapter 13 proceeding was subsequently dismissed on March 24, 1987.
On February 9, 1988, the Estate of Earl L. Grassman filed its petition for relief herein under Chapter 12 of the Bankruptcy Code. The petition shows Carol L. Grass-man, David L. Grassman, Lawrence J. Grassman and Carol M. Brown as heirs. Carol L. Grassman is the spouse of Earl L. Grassman (the decedent). The other named heirs are the decedent’s children. The petition was signed by David L. Grass-man as personal representative.
This court, sua sponte, issued its order to show cause why this case should not be dismissed for lack of subject matter jurisdiction on February 26, 1988.
A hearing was held concerning the order to show cause on April 5, 1988. At the hearing, the court established a post-hearing briefing schedule and granted the debt- or an extension of time in which to file a Chapter 12 plan.
In response, the debtor has submitted a memorandum supporting jurisdiction. The trustee, the Oregon Department of Veterans Affairs (ODVA) and DeKalb Equipment Leasing Corporation (DeKalb) have submitted opposing memoranda contending that there is a lack of subject matter jurisdiction. (DeKalb has also formally moved to dismiss this ease due to lack of jurisdiction, which has been treated by the court as a memorandum in response to the court’s order to show cause).
The heirs have continued the former farming operation of the decedent. They claim to have equal ownership rights in the farming operation. They further claim that Lawrence Grassman and his family reside on the farm property and that David Grassman helps with the farm business and with parts of the crop raising and harvesting. All four heirs share equally by agreement in losses, profits and in decision making and plan to do so in the future.
ISSUE
Is the debtor, as a probate estate, eligible to be a debtor under the Bankruptcy Code? If not, may the debtor be considered a partnership in order to be eligible for relief under Chapter 12 of the Bankruptcy Code?
DISCUSSION
All statutory references are to the Bankruptcy Code, Title 11 U.S.C., unless otherwise indicated.
Section 109 provides in pertinent part as follows:
(a) Notwithstanding any other provision of this section, only a 'person that resides or has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor under this title.
(f) Only a family farmer with a regular annual income may be debtor under Chapter 12 of this title, (emphasis added.)
“Person” is defined by § 101(35) to include” ... individual, partnership, and corporation, ...”
“Family farmer” is defined by § 101(17) as:
“(A) individual or individual and spouse ...; or
(B) corporation or partnership in which more than 50 percent of the outstanding stock or equity is held by one family, or by one family and the relatives of the members of such family, and such family or such relatives conduct the farming operation, and ...”
*930Section 101(14) contains the following definition: “entity” includes person, estate, trust, governmental unit, and United States Trustee ... (emphasis added.)
It has been held that a probate estate may not be a debtor under the Bankruptcy Code. In re Estate of Whiteside by Whiteside, 64 B.R. 99 (Bankr.E.D.Cal.1986); In re Goerg, 64 B.R. 321 (Bankr.N.D.Ga1986); In re Estate of Patterson, 64 B.R. 807 (Bankr.W.D.Tex.1986). These courts based their decision upon the reasoning that a probate estate is not a “person” as defined by the statutes set forth above.
... that an estate is not meant to be included in the definition of person is demonstrated by examination of Section 101(14) which defines “entity” to include “person, estate, trust, and governmental unit.” 11 U.S.C. 101(14). If estate had already been included in the definition of person, Congress would have seen no need to include it separately in its definition of entity. In re Estate of Whiteside by Whiteside, 64 B.R. 99, 100.
This conclusion is supported by the legislative history of § 101(35).
The definition does not include an estate or a trust, which are included only in the definition of “entity” in proposed 11 USC 101(14). (HR Rep No. 95-595, 95th Cong, 1st Sess 312-13 (1977; S Rep No. 95-989, 95th Cong, 2d Sess 25 (1978).
Debtor relies upon the fact that none of the cases cited above were cases decided under Chapter 12 of the Bankruptcy Code. There is, however, no valid distinction. It is clear that the debtor must be a person in order to be a family farmer since a family farmer can only be an individual, individual and spouse, corporation or partnership, all of which are included within the definition of “person” which does not include a probate estate.
Finally, the debtor urges this court to treat the debtor as a partnership since the heirs are operating the decedent’s farm as a family and they would otherwise satisfy the definition of partnership under § 101(17). The debtor admits, however, that: “It is true that the assets and debts are involved in an estate proceeding at this time.” Debtors Memorandum Regarding’ Jurisdiction, lines 6 and 7, page 5.
Creditors ODVA and DeKalb point out that a probate estate is administered by the Oregon state courts pursuant to Oregon law, O.R.S. Chapters 111-119. They contend that the estate cannot be subjected to dual administration by the bankruptcy court and by the state courts. They further contend that this court may not contravene the jurisdiction of the state courts and administer a probate estate. The creditors’ argument is persuasive.
This court takes no position as to whether or not the “heirs” would be eligible to file their own Chapter 12 petition as a partnership. It is clear, however, for the reasons set forth above, that the Estate of Earl L. Grassman may not be a debtor under any chapter of the Bankruptcy Code. Accordingly, as this court lacks subject matter jurisdiction, this case must be dismissed, an order consistent herewith shall be entered.
This opinion shall constitute this court’s findings of fact and conclusions of law; they shall not be separately stated. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490765/ | MEMORANDUM OF OPINION AND ORDER
RANDOLPH BAXTER, Bankruptcy Judge.
This matter came on for trial upon the Complaint of Alside, Inc. (Alside) seeking a determination of dischargeability of its judgment claim against Myles R. Creed (Defendant-Debtor). Upon an examination of the pleadings, argument of counsel and the evidence adduced, the following constitutes the Court’s findings and conclusions as required under Rule 7052 of the Bankruptcy Rules:
I.
This is a core proceeding under provisions of 28 U.S.C. 157(b)(2)(I), with jurisdiction further conferred under 28 U.S.C. 1334 and General Order No. 84 of this District. The Plaintiff, Alside, extended credit to the Debtor on or about August 10, 1984. (See, Ex. 1). Entitled “Credit application and Representations” and date-stamped “Aug. 15, 1984,” the Debtor provided the requested information, inclusive of business identity, location, references, and a financial statement. In furtherance of that application, Alside extended credit for the Debtor to make purchases for his business known as Home Services. In December of 1984, Alside terminated the Debtor’s credit and commenced an action in the State court to recover on its account. That matter was resolved by a consent judgment against the Debtor in an amount of $12,207.24, plus costs and interest at a rate of ten percent (10%), accruing as of January 10, 1985.1
On February 23,1987, the Debtor and his spouse filed their joint petition seeking an order of relief under Chapter 13. Subsequently, on February 12, 1988, their case *241was converted for liquidation under Chapter 7. Among the debts scheduled by the Debtors on their Chapter 13 schedules was the debt owed to Alside in the disputed amount of $13,000.00, and designated as an obligation of the co-debtor, Myles Creed. Alside’s claim was filed in an amount of $18,000.00.2 To preclude a discharge of its claim, Alside instituted this adversary proceeding.
II.
Alleging that it extended credit to the Debtor as a result of fraudulent inducement, the Plaintiff seeks to enjoin a discharge of its claim pursuant to provisions of § 523(a)(2)(A) and (B) of the Code [11 U.S.C. 523(a)(2)(A) and (B)]. The disposi-tive issue for a resolution of this matter is whether the Plaintiffs reliance upon the Debtor’s representations was reasonable to warrant a denial of discharge. Alside’s Complaint, as amended, indicates that it extended credit to the Debtor based upon the Debtor’s knowing and willful misrepresentations regarding his business relationship with a third party and his trade relations with his trade references. Alside further contended that it relied on those representations, extended credit to the Debtor, and was damaged as a result of that reliance in an amount of $15,707.43, rendering such debt nondischargeable. In response thereto, the Debtor admitted owing Alside $13,000.00, admitted that one Tom Vespucci was incorrectly listed as his business partner, but specifically denied all other Complaint allegations, except for the jurisdictional provisions.
III.
Except as provided under § 523 of the Code, a discharge under § 727(b) discharges the debtor from all debts which arose prior to the date of the order for relief.3 The exceptions to discharge relevant to this matter are found under provisions of § 523(a)(2)(A) and (B). In pertinent part, it is noted that—
(a) A discharge under 727 ... of this title does not discharge an individual debtor from any debt—
... (2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.
(B) Use of a statement in writing—
(i) that is materially false;
(ii) respecting the debtor’s or an insider’s financial condition;
(iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive.... 11 U.S.C. 523(a)(2)(A) and (B).
A review of the testimony and other admitted evidence reveals the Debtor, Myles R. Creed, applied to the Plaintiff for an extension of credit on or about August 10, 1984. In furtherance of that effort, he filled out a credit application form and signed it. (See Ex. # 1; Debtor’s Cross-Exam. Testimony.) On the credit application, he listed his business name as being “Home Services — Tom’s Roofing,” with a business address of 4381 Hudson Drive, Stow, Ohio 44224. He also stated on the application that the form of his business entity was a partnership, with himself and one Tom Vespucci being the co-partners and principals. Upon cross-examination and inquiry of the Court, he admitted that the true name of his business was “Home Services,” and not “Home Services — Tom’s Roofing.” He further admitted that the form of his business entity was a sole *242proprietorship and not a partnership, as indicated on the credit application form he filed with Alside. He further acknowledged that Tom Vespucci was his wife’s nephew and never had been his business partner (Debtor, Cross-Exam.). He further testified that Tom Vespucci was a business person who owned and operated Tom’s Roofing which was located at 4381 Hudson Drive in Stow, Ohio. On direct examination, he testified that his (Debtor’s) business was located at the Hudson Drive address at the time of his application and remained there for a period of six months.
The Debtor testified that the Plaintiff, Alside, extended credit to him following the submission of his credit application. (Debt- or, Cross-Exam.). His testimony further reveals that he had never dealt with Alside on a cash basis, and that he conducted business with Alside prior to August of 1983, but terminated his business dealings with Alside during late 1984. He stated that he knew what was meant by a partnership when he filled out Alside’s credit application (Debtor; Direct Exam.).
Upon Court inquiry, the Debtor testified that his former business was an unincorporated sole proprietorship wherein he discontinued business operations in late 1985. He further testified that he used Tom’s Roofing as part of his credit application with Alside to strengthen his application prospects, and the business addresses used on the application were his business’ addresses. His testimony also revealed that he listed Tom Vespucci’s name as his co-partner and principal on the credit application to assist him in obtaining the credit extension. He knew that those representations were false.
An examination of the Debtor’s petition and schedules was also made. Therein, it is noted that pre-conversion, he stated on his Chapter 13 Statement (Para. 2(e)) that he operated a business known as Home Services which was located at 665 Broadway Street in Bedford, Ohio from January, 1984 until October of 1985. Of particular significance, both the business name and address are different from that used by the Debtor on his credit application made with Alside. He also stated on the Chapter 13 Statement that his business terminated in the Spring of 1986. Again, the date is different from his testimony which indicates he discontinued his business in late 1985. Further, a review of the Trustee’s Record of Examination, signed by the Debtor under oath, was revealing. Therein, he stated that the name of his former home remodeling business was “Home Services” — not “Home Services — Tom’s Roofing.” At that time, he stated that the form of his business was a ¿ole proprietorship, and not a partnership ap was represented on his credit application with Alside.
Applying the statutory prerequisites of § 523 to the particulars of this matter, it is clear that the debt owed by the Debtor to Alside is nondischargeable. Except where the Debtor admitted misrepresentations on the credit application, his testimony was otherwise incredible. Unquestionably, the subject debt relates to an extension of credit. The Debtor testified that his representations on the application concerning the business name, address, structure, and ownership relations were false. The Debtor’s conduct respecting the subject application was fraudulent. Such false representations were intended and deliberately made to assist him in obtaining a credit extension from Alside. Further, the representations heretofore described by Debtor in his petition and on the Trustee Record of Examination reveal inconsistent representations made to the Court and to Alside. Thusly, the Debtor’s conduct fully comports with that which is proscribed by 523(a)(2)(A), rendering the subject debt nondischargeable.
The Complaint alleges that the subject debt is also nondischargeable under provisions of § 523(a)(2)(B). Although the Plaintiff has satisfactorily proved nondis-chargeability under § 523(a)(2)(A), the Court will examine the Debtor’s conduct under § 523(a)(2)(B), which is mutually exclusive from § 523(a)(2)(A). Herein, the Debtor sought an extension of credit by use of a written instrument. As stated above, certain representations made by the Debtor on the credit application, inclusive *243of business name, address, business structure, and ownership relations, were false representations. The representations were materially false as they ultimately caused Alside to rely thereon and extend credit to the Debtor. (See, Direct Exam., D. Replo-gle.) Alside did not conduct a credit check on the Debtor but did conduct a credit check on the business entity represented to it by the Debtor. A credit check on the Debtor personally was unnecessary since the Debtor was making certain purchases for and on behalf of his purported business. Alside’s reliance on the Debtor’s false representations was reasonable, even though it ran a credit check on an entity known as “Tom’s Roofing dba Home Service,” located at 4381 Hudson Drive, Stow, Ohio 44234, as opposed to represented by the Debtor on the credit application. Such an error is trivial and inconsequential on Alside’s part, particularly when the credit search names used were simply in reverse order. The business address searched, however, was virtually the same as that provided by the Debtor on the credit application. (See, Ex. # 3.) Alside did not passively extend credit to the Debtor. It reasonably sought to verify the information given it by Debtor through a credit check of the name the Debtor provided (Direct Exam., Replogle). Any errors by Alside in the credit check process were a direct result of the false representations initially given by the Debtor. During his testimony, the Debtor admitted that certain entries on the application were false. A debtor’s acknowledgement of earlier false or fraudulent representations made at the time of a dischargeability hearing is untimely and does not serve to remove such improper conduct from the proscriptions of § 523. Notwithstanding those concerns, the written statement provided by the Debtor pertained to the financial condition of Homes Services and not of the Debtor. Section 523(a)(2)(B) (ii) requires that the writing respect the financial condition of the debtor or of an insider. Since the elements of § 523(a)(2)(B) are in the conjunctive, requiring each to be affirmatively proved, Al-side’s allegations respecting § 523(a)(2)(B) have not been proved. The burden of proof concerning a denial of discharge is upon the party alleging nondischargeability. Respecting § 523(a)(2)(A), the Plaintiff has met its burden by clear and convincing evidence. Alside’s burden of proof under § 523(a)(2)(B) has not been met.
Accordingly, the subject debt is nondis-chargeable under provisions of § 523(a)(2)(A).
IT IS SO ORDERED.
. Alside, Inc. v. Myles Creed, Judgment Entry, Case No. 94383, Cuy.Co.Ct. of Comm.Pleas, March 12, 1986. (See, Ex. A.)
. The Chapter 13 Trustee’s Final Report reflects a secured debt owed to Alside in an amount of $15,707.43.
. "11 U.S.C. § 727. Discharge: Except as provided in section 523 of this title, a discharge under subsection (a) of this section discharges the debtor from all debts that arose before the date of the order for relief .. .whether or not a proof of claim ... is filed ... or ... al-lowed_” | 01-04-2023 | 11-22-2022 |
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