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https://www.courtlistener.com/api/rest/v3/opinions/8490766/ | MEMORANDUM OPINION
JOHN C. MINAHAN, Jr., Judge.
On the eve of bankruptcy, the debtor, Robert Craig, granted a mortgage to the defendant, the Minden Exchange Bank & Trust Company (the “Bank”). In partial consideration for the mortgage, the Bank loaned funds to the debtor, which were immediately used by the debtor to make a payment to the Bank on an obligation of a third party to the Bank which the debtor had guaranteed. The Official Creditors’ Committee, after having been granted authority to do so, brought this action to avoid the payment or, alternatively the mortgage, as a preference under 11 U.S.C. § 547, a fraudulent conveyance under § 548, or under applicable state law pursuant to § 544. The Bank argues that the transaction did not involve a preference or a fraudulent conveyance. The Bank moved for directed verdict on the preference issue, in which.it argued that the plaintiff did not meet its burden of establishing preferential effect under 11 U.S.C. § 547(b)(5).
For the reasons stated below, the court will avoid the mortgage in property of the estate.
FINDINGS OF FACT
The debtor is in a Chapter 11 proceeding filed on October 22, 1985. The plaintiff is the Official Creditors’ Committee and has been granted authority to bring this action. The defendant Bank is a corporation doing *395business in the State of Nebraska. Prior to July 30, 1985, a corporation known as “Minden D & J, Inc.” was indebted to the Bank in the approximate amount of $454,-997.00. This amount was reduced to $399,-997.00 by a $55,000.00 payment upon the liquidation of Minden D & J, Inc. The obligations of Minden D & J, Inc. to the Bank were unsecured, but they were personally guaranteed by the debtor and his wife. The guaranty was unsecured. The debtor’s wife is not a party in this proceeding.
On July 30, 1985, eighty-three (83) days prior to the filing of bankruptcy by the debtor, the transaction giving rise to the present lawsuit occurred between the debt- or and the Bank. In this transaction:
1. The debtor and his wife, who is not a debtor in bankruptcy, signed a promissory note in the amount of $250,000.00 payable to the Bank;
2. In order to secure the $250,000.00 note, the debtor and his wife gave a mortgage to the Bank on 880 acres of land, of which 560 acres is owned by the debtor, and 320 acres is owned by his wife;
3. The Bank opened a separate loan folder at the Bank indicating that the debt- or and his wife had become directly obligated to the Bank on the note and related mortgage;
4. The Bank cancelled the obligation of debtor and his wife on their guaranty of the indebtedness of Minden D & J, Inc.;
5. The Bank disbursed the $250,000.00 loan proceeds by means of a bookkeeping entry which indicated that the obligations of Minden D & J, Inc., had been reduced by $250,000.00;
6. The Bank would not have made the $250,000.00 loan unless the Bank was permitted to retain the loan proceeds and apply them as a payment on the guaranty of the obligation of Minden D & J, Inc.;
7. The 880 acres mortgaged to the Bank had a value of between $250,000.00 and $270,000.00 at the time the transfer was made. I base this finding upon the deposition of Mr. Armstrong, executive vice-president of the Bank, where he stated that the Bank had obtained an estimate of the value of the land from a customer of the Bank who is in the real estate business. The estimate was $250,000.00 to $270,000.00. This conclusion as to value is supported by the inference that the Bank acted in its own best economic interest. Given the fact that the Bank was owed $399,997.00, it is unreasonable to conclude that the Bank permitted the debtor to retain equity in the 880 acres. Of course, it did not. The Bank was determined to secure up its position by obtaining a lien on everything of significant value owned by the debtor. Mr. Armstrong testified that had there been other assets, the Bank would have taken them. The Bank set the amount of the mortgage note at the approximate value of the mortgaged 880 acres; and
8.In addition to the Bank, other creditors hold unsecured claims against the debtor. First National Bank of Minden is owned $133,678.00.
DISCUSSION
The plaintiff claims, first,, that the grant of $250,000.00 note and mortgage and the credit of $250,000.00 on the debt guaranteed by the debtor constituted a fraudulent conveyance to the Bank. Secondly, the plaintiff claims that the $250,000.00 credit was a payment on an antecedent debt, and a preference. The plaintiff argues that the amount to be set aside as a preference is $159,090.89. This amount is calculated by plaintiff as the proportion of the $250,-000.00 loan which is attributable to the 560 acres of land mortgaged by the debtor. As to the issue of preferential effect, the plaintiff claims that it has shown that the land has a value of approximately $250,000.00. The plaintiff argues that if the transaction in question had not occurred, the Bank would not have received the entire value of the land in a Chapter 7 liquidation, but would have shared the value with the other creditors. Thus, argues the plaintiff, it has shown that the Bank will receive more by the transaction than it would have in a case under Chapter 7 if the transaction had not occurred.
*396The Bank, on the other hand, argues that there is no § 547 preference because the plaintiff failed to establish preferential effect under § 547(b)(5). The Bank argues that plaintiff has failed to present competent evidence as to the land’s value. Thirdly, the Bank argues that even if the plaintiff has met its burden of proof under § 547(b)(5), the mortgage transaction is excepted under § 547(c)(1) from the avoidance powers of the debtor in possession. The Bank alleges that the release of the debtor from liability on the Minden D & J, Inc. guaranty constitutes new value contemporaneously exchanged for the July 30, 1985 note and mortgage from the debtor. Finally, the Bank argues that the granting of a mortgage to secure an antecedent debt is not a fraudulent conveyance pursuant to § 548.
Preference Analysis
In relevant part, 11 U.S.C. § 547(b) provides:
(b) Except as provided in subsection (c) of this section, the trustee may avoid any transfer of an interest of the debtor in property—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A)on or within 90 days before the date of the filing of the petition;
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(5) that enables such creditor to receive more than such creditor would receive if—
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided hy the provisions of this title.
Two transfers of property of the debtor were made. A transfer of an interest in debtor’s 560 acres of real estate took place under the mortgage given by the debtor to the Bank. The second transfer took place when the $250,000.00 proceeds of the loan were retained by the Bank and applied to the guaranty obligation of the debtor. The debtor had an interest in the $250,000.00, but there is a dispute as to the amount of debtor’s interest in these funds.
Counsel for the plaintiff argues that the court can make a finding of fact as to the dollar amount of the preferential payment by allocating the loan proceeds to the debt- or and his wife pro rata based on the number of acres each mortgaged to the Bank to secure the $250,000.00 loan. Under this approach, one could conclude that since the Bank loaned $250,000.00 secured by a total of 880 acres, 560/880 X $250,-000.00 or $159,090.89 represents the loan proceeds attributable to the debtor’s 560 acres and that 320/880 X $250,000.00, or $90,090.11 represents the loan proceeds attributable to the wife’s 320 acres. Thus, the plaintiff argues, the debtor made an avoidable payment of $159,090.89 to the Bank and that the rest of the $250,000.00 represents a payment made to the Bank by the debtor’s wife. Counsel for the Bank strenuously objected to this methodology on the theory that there is no evidence of record as to the value of debtor’s 560 acres and the wife’s 320 acres. The debtor’s counsel is correct in his assertion that there is no evidence of record that would permit the court to make a finding as to the relative value of the 560 acre and 320 acre tracts. There is no evidence as to the current use of the properties, or whether both are crop land, pasture land or whether either tract is irrigated or whether there are improvements on the tracts and so forth. The methodology proposed by plaintiff for determining the value of debtor’s 560 acres assumes that the 560 acre and 320 acre tracts have the same value per acre. This fact is not established by the evidence. Therefore, plaintiff’s proposed method for determining the amount of debtor’s interest in the $250,000.00 is not adopted.
Under § 547(b), the debtor may avoid a transfer “of an interest of the debtor” in property. The record before me does not *397provide a factual basis for me to exactly quantify the interest of the debtor in the $250,000.00. It is certainly clear, however, that the debtor had an interest in the funds. The $250,000.00 were proceeds of a loan on which the debtor was jointly and severally liable. Debtor and his wife each had an undivided interest in the $250,-000.00. Whatever the amount of the debt- or’s interest, his interest in the $250,000.00 was, in fact, transferred to the Bank.
The first element of § 547(b) is thus satisfied. The debtor made a transfer of the mortgage on 560 acres and a transfer of debtor’s interest in $250,000.00 to the Bank. Both transfers by the debtor were to a creditor. The Bank was a creditor of the debtor under the debtor’s guaranty of the obligations of Minden D & J, Inc. to. the Bank.
Under § 547(f), the debtor is presumed insolvent during the 90 days immediately preceding the filing of the petition and both transfers were made within the 90 day period. Thus, the third and fourth elements of a preference are satisfied under § 547(b)(3) and (b)(4).
The difficult issues are whether the requirements of § 547(b)(2) and (b)(5) have been satisfied.
The transfer of the debtor’s interest in the $250,000.00 to the Bank was on account of the pre-existing guaranty obligation and was therefore on account of an antecedent debt under § 547(b)(2).
The Bank argues that the transfer of the mortgage was in consideration for a new loan in the amount of $250,000.00 and a release of debtor and his wife from their guaranty obligations to the Bank. Thus, argues the Bank, the mortgage was not given for antecedent debt, but was given for new value. If the loan transaction between the Bank and the debtor are viewed in isolation as separate and distinct from the transaction involving the payment on the guaranty obligation, the Bank’s argument would have validity. The Bank loaned $250,000.00 in exchange for a mortgage — that alone does not constitute a preference. However, the form or structure of the transaction does not control the substantive results under the Bankruptcy Code. These were not isolated transactions. First, the new loan from the Bank to the debtor does not constitute new value. The Bank would not have made the $250,000.00 loan unless the debtor agreed to permit the Bank to apply the proceeds of the loan to the guaranty agreement. The transfer of the $250,000.00 proceeds onto the antecedent debt brought no new value to the debtor’s estate. See 11 U.S.C. § 547(a)(2). Second, the Bank’s release of unpaid amounts on its guaranteed obligations is not new value under § 547. See In re Energy Cooperative, Inc., 832 F.2d 997, 16 B.C.D. 1156 (7th Cir.1987). Likewise, forebearance from collection efforts are not considered new value under § 547. See In re Air Conditioning, Inc. of Stuart, 845 F.2d 293, 17 B.C.D. 1385 (11th Cir.1988); Drahkin v. A.I. Credit Corp., 800 F.2d 1153, 15 B.C.D. 335 (D.C.Cir.1986). I thus conclude, that the granting of the mortgage was, in fact, for or on account of an antecedent debt.
In substance, the Bank converted an unsecured unliquidated contingent guaranty claim against the debtor to a claim secured by a mortgage. Had there been no antecedent guaranty obligation, this transaction would never have taken place. Under these circumstances, I conclude that the transfer of the mortgage was in consideration for antecedent debt.
The final issue is whether § 547(b)(5) is satisfied. Here the question is whether the evidence before the court will support a finding that the transfers had a preferential effect allowing the Bank to receive more than it would have received had the transfers not been made and the debtor filed a Chapter 7 liquidation case under the Bankruptcy Code.
In determining whether or not the transfers had a preferential effect, the court cannot consider the bankruptcy schedules and statement of affairs since they were admitted in evidence for limited purposes after an objection to their admissibility had been made by the Bank. Even if the court takes judicial notice of the bankruptcy schedules and statement of affairs, it is not *398appropriate for the court to conclude that the facts stated in the schedules and statement of affairs are true and accurate. The objection made by the Bank went to the reliability and accuracy of the information set forth on the schedules. The objection was withdrawn and the schedules and statement of affairs were then admitted by stipulation of the parties for the limited purpose of showing that the debtor owned the real estate. The Bank contends that the court may properly consider the information set forth on the bankruptcy schedules and statement of affairs because they are before the court as part of other exhibits. I will not predicate findings of fact thereon because the reliability and accuracy of the information set forth therein was questioned by the Bank’s counsel, who was deprived of the opportunity to elaborate on his objection because the schedules and statement of affairs were offered for limited purposes upon stipulation of the parties.
Without the schedules, the court cannot perform a detailed hypothetical liquidation analysis to determine what dividend would be received by the Bank if the preference were set aside and the debtor filed a Chapter 7 liquidation. In other words, I cannot quantify the amount of preferential effect under § 547(b)(5).
However, prior to the transaction, the Bank was an unsecured creditor with a contingent claim against debtor in the amount of $399,997.00. After the transaction took place, the Bank held a $250,000.00 note of the debtor secured by 560 acres of debtor’s land. The land is the only substantial asset in the bankruptcy estate. There are other unsecured creditors in the case. The First National Bank of Minden is owed approximately $133,000.00. Although I cannot calculate the dollar amount of preferential effect of the transactions between the Bank and the debtor, I can and do, however, conclude that the requirements of § 547(b)(5) are met. The Bank would clearly receive more on its $250,000.00 secured claim than it would have received on its unsecured guaranty claim in a Chapter 7 case.
I reach this result notwithstanding the fact that the plaintiffs had not adduced sufficient evidence to permit the court to construct a hypothetical Chapter 7 liquidation analysis. See In re Tenna Corporation, 801 F.2d 819 (6th Cir.1986). I find no Eighth Circuit Court of Appeals decision on point and conclude that it is not necessary to quantify the amount of preferential effect under § 547(b)(5) with actuarial certainty. It is sufficient under § 547(b)(5) for the court to determine that the effect of the transfer was to pay more to the Bank than it would have received in a Chapter 7 case.
In its brief, the Bank argues that the granting of the mortgage and payment of the $250,000.00 did not result in the Bank being paid more than it would receive in a hypothetical Chapter 7 liquidation. The Bank argues that if the mortgage transaction is set aside, the debtor’s guaranty would be revived and the Bank would have a claim in the Chapter 7 case for $399,-997.00 (i.e., its total claim of $454,997.00, less $55,000.00 it received upon the liquidation of Minden D & J, Inc.). Unsecured claims in the Chapter 7 would consist of the $399,997.00 claim of the defendant, Minden Exchange Bank, the $133,678.00 claim of the First National Bank of Minden, and the claims of other unsecured creditors. The total unsecured Chapter 7 claims would be at least $533,675.00, with the defendant Bank’s claim comprising 74.95 percent, or less, of the unsecured class. In its liquidation analysis, the Bank assumes that the mortgaged property has a net liquidation value of $346,897.00. The Bank then argues that its 74.95 percent of this value would entitle it to a Chapter 7 distribution of $260,000.00, an amount greater than debtor’s obligation to the Bank under the $250,000.00 note and mortgage. Thus, the Bank concludes there is no preferential effect because the Bank is not receiving an amount greater under the mortgage transaction than it would in a hypothetical Chapter 7 liquidation.
The Bank’s analysis is premissed upon an erroneous assumption as to the value of the mortgaged property. My hypothetical Chapter 7 liquidation analysis is as follows:
*3991. Under § 547(f), there is a presumption that the debtor was insolvent during the ninety (90) days preceding bankruptcy. I therefore presume that the debtor was insolvent during this period and insolvent for purposes of the hypothetical Chapter 7 liquidation analysis. I also find that debt- or’s obligation exceeded his assets today and on the date the transfer was made.
2. The Bank’s unsecured guaranty claim is $399,997.00.
3. Unsecured claims would exceed $533,675.00, consisting of the Bank’s claim of $399,997.00, First National Bank’s claim of $133,678.00, and the claims of other creditors.
4. The subject 560 acres of real estate mortgaged by the debtor, Robert Craig to the Bank has a fair market value of less than $270,000.00. The entire 880 tract has a value of $250,000.00 to $270,000.00. For purposes of illustrative analysis, I hereafter use $250,000.00 as the value of the 560 acres owned by the debtor.
5. The 560 acres is the only asset of debtor that is of significant value.
Given these findings of fact, I conclude that in a Chapter 7 liquidation the maximum amount that the defendant Bank would receive would be 74.95 percent of the value of the 560 acres — or $187,375.00 (i.e. $250,000.00 X 74.95 percent). The amount that the Bank would actually receive in a Chapter 7 liquidation would be even less than $187,375.00 for three reasons. First, Chapter 7 administrative expenses and the trustee’s fee would be paid prior to distribution to unsecured creditors, including the Bank. Second, the presence of additional unsecured creditors would reduce the percentage of the Bank’s dividend. Third, the court based its finding that the debtor’s 560 acres was worth less than $270,000.00 on a finding that the entire 880 acres belonging to the debtor and his wife is worth between $250,000.00 and $270,000.00. The actual value of the debtor’s 560 acre portion is obviously much less than $270,-000.00 and this would further reduce the funds available for distribution to unsecured creditors in a Chapter 7 liquidation. In a Chapter 7, the Bank would be forced to share the proceeds of the 560 acres with other unsecured creditors and it would receive a maximum of only 74.95 percent of funds distributed to unsecured creditors. If, on the other hand, the preferential transfer of $250,000.00 and the mortgage are permitted to stand, the Bank will retain the $250,000.00 payment, and realize 100 percent of the proceeds of the debtor’s 560 acres, as limited by the amount of the note. Based on these facts, I conclude that the requirement of § 547(b)(5) is met. The Bank will receive more under its mortgage transaction than it would receive in a hypothetical Chapter 7 liquidation.
It would not be equitable to both set aside the mortgage held by the Bank and to recover from the Bank the payment made. of debtor’s interest in the $250,-000.00. The appropriate remedy, I conclude, is to set aside and avoid the mortgage in the 560 acres.
The Sixth Circuit Court of Appeals, in a case under the Bankruptcy Act, made the following statement which is appropriate in this case:
From time in memorial, Courts of law have refused to sanction acts done by indirection, which, if performed directly, would be barred by law. Courts of bankruptcy have from the beginning placed emphasis upon the purpose and effect of a given transfer irrespective of the manner in which it was accomplished — that is, regardless of whether such transfer was a direct or indirect transaction. The principle has been firmly established that a transfer which indirectly evades the provisions of the Bankruptcy [Code] by effecting an undue preference to a creditor is voidable.
Steel Structures, Inc. v. Star Manufacturing, 466 F.2d 207 (6th Cir.1972).
The result on the facts of this case should be the same as if the Bank had simply obtained a mortgage on the eve of bankruptcy to secure the debtor’s guaranty obligation. Such a transaction would have been avoidable as a preference. In substance, that is what has occurred in this case, and the mortgage should be avoided.
*400The mortgage should be preserved for the benefit of the estate under § 551 of the Bankruptcy Code.
Fraudulent Conveyance Analysis
I conclude that the mortgage on the 560 acres may also be avoided under 11 U.S.C. § 548(a)(1), which provides that the debtor may—
(a) ... avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor voluntarily or involuntarily—
(1) made such transfer or incurred such obligation with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation was incurred, indebted; or....
The requisite element of intent under this statute is established by the existence of various “badges of fraud” which are marks, signs or indicia from which fraudulent intent may be inferred or presumed. There are several badges of fraud present in this mortgage transaction.
First, a transaction in anticipation of litigation is a sign of fraud, especially when the transfer greatly reduces the debtor’s assets. See Arnold v. Dirrim, 398 N.E.2d 442 (Ind.App.1979); Bank of Sun Prairie v. Hovig, 218 F.Supp. 769 (W.D.Ark.1963). Second, a transaction outside one’s usual course or mode of doing business is a badge of fraud. See Sun Prairie, 218 F.Supp. at 716. Third, the mortgage transaction occurred while the debtor was insolvent. See Sun Prairie, 218 F.Supp. at 776; Springfield Ins. Co. v. Fry, 267 F.Supp. 693 (N.D.Okla.1967). The amount of debt- or’s obligation on the guaranty exceeded the value of his assets. Lastly, the mortgage transaction resulted in a transfer of all debtor’s property of substantial value, which is a sign of fraud. See Duncan v. First Nat’l Bank of Cartersville, 597 F.2d 51 (5th Cir.1979). Where there is a concurrence of several such badges, an inference of fraudulent intent may be warranted. Based on the presence of these badges of fraud, I find as a question of fact that the debtor, Robert L. Craig, granted a mortgage to the Bank with the intent to hinder, defraud or delay creditors other than the Bank.
Based on the principles and rules articulated by the Supreme Court in Dean v. Davis, 242 U.S. 438, 444, 37 S.Ct. 130, 131, 61 L.Ed. 419 (1917), I also conclude that the mortgage transaction was made with the requisite intent to defraud creditors. The Supreme Court stated:
[a] transfer, the intent (or obviously necessary effect) of which is to deprive creditors of the benefits sought to be secured by the Bankruptcy Act: hinders, delays or defrauds creditors within the meaning of § 67e.... Where the advance is made to enable the debtor to make a preferential payment with bankruptcy in contemplation, the transaction presents an element upon which fraud can be predicated.
Thus, when a bank loans funds to a customer to enable the customer to make a preferential payment of the loan proceeds back to the bank on a separate unsecured loan and further to enable the bank to obtain a mortgage and to thereby convert its unsecured claim to a secured claim, the transaction is avoidable under § 548(a)(1). See Dean v. Davis; Bankruptcy Act § 67d(3). I conclude that the principles embodied in Dean v. Davis have survived the Bankruptcy Reform Act and that they supplement 11 U.S.C. § 548. See generally, In re American Properties, 14 B.R. 637 (Bkrtcy.D.Kan.1981). My reliance on Dean v. Davis is limited to conveyances occurring within ninety (90) days of bankruptcy. I do not address the question of whether conveyances outside the ninety (90) day period would be subject to the same reasoning.
The rule that certain transfers made in contemplation of bankruptcy with the intent of enabling the debtor to make a preference are avoidable as fraudulent, as enunciated in Dean v. Davis, was generally codified is § 67d(3) of the Bankruptcy Act. Section 67d(3) was not incorporated into the Bankruptcy Reform Act because of con*401-405cern that the rule discouraged lenders from making consolidation loans availing debtors an opportunity to avoid bankruptcy. See Report of the Commission on Bankruptcy Laws, H.R.Doc. No. 93-137, 93rd Cong. 1st Sess., pt. 2, at 177 (1973). The omission of § 67d(3) from the Bankruptcy Code does not negate the continuing applicability of the doctrine in this case, however. My holding does not act as an impediment to consolidated loans.
It is important to note two facts in this case which will limit the applicability of my holding. First, this case involves a two party transaction. The Bank made a secured loan to enable the debtor to make a preferential payment back to the Bank. Second, this case involves a transaction that took place in the ninety (90) day period preceding bankruptcy. Thus, the holding in this case should not discourage lenders from entering into consolidation loans when the loan proceeds are used by the debtor to make payments to third parties.
I therefore conclude that the granting of the mortgage on the 560 acres is avoidable as a preference under § 547 and as a fraudulent conveyance under § 548. Since the mortgage is avoidable under § 548, it is not necessary to determine whether the mortgage may also be avoided under Nebraska law pursuant to § 544.
A separate order will be entered consistent herewith. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490768/ | OPINION
HENRY L. HESS, Jr., Chief Judge.
The plaintiff seeks to enjoin the State of Oregon from revoking the plaintiffs probation for failure to make restitution payments. The plaintiff was represented by Eric Olsen of Salem, Oregon. The defendants appeared through Mary Lou Calvin, Assistant Attorney General.
The plaintiff was convicted of four counts of passing bad checks. The court sentenced the plaintiff to a term of probation, conditioned upon plaintiff’s making restitution payments to the payees of the bad checks.
Plaintiff subsequently filed a Petition for Relief under Chapter 13. The confirmed plan called for a distribution of 100% upon general unsecured claims. Neither the State nor the recipients of the bad checks filed claims, and no distribution was made upon the restitution obligation by the trustee.
The plaintiff completed the payments called for in her plan, and a discharge was entered under 11 U.S.C. 1328(a). The plaintiff contends that the State nevertheless has threatened to revoke her probation be*479cause of her failure to pay the full amount of the restitution obligation.
The issue is whether the restitution obligation was discharged under 11 U.S.C. § 1328(a). The court previously announced that it adopted the reasoning of the majority of the Bankruptcy Appellate Panel in In re Heincy, 78 B.R. 246 (9th Cir. BAP 1987). Accordingly, on September 27, 1988 the court orally ruled that the restitution obligation was discharged and that an injunction should issue. Three days later, the BAP opinion in Heincy was reversed by the Ninth Circuit. In re Heincy, 858 F.2d 548, 549 (9th Cir.1988). The State has requested that this court reconsider its rulings in light of the Ninth Circuit opinion.
In reversing the BAP, the Ninth Circuit did not determine whether the restitution obligation is dischargeable under § 1328(a). Instead, the court relied upon the rule that federal courts should not “restrain a [state] criminal prosecution, when the moving party has an adequate remedy at law and will not suffer irreparable injury if denied equitable relief.” In re Heincy, 858 F.2d 548, 549 (9th Cir.1988) (quoting Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed. 2d 669 (1971)). The Ninth Circuit found that the plaintiff did have adequate remedies at law.
The various remedies suggested by the Ninth Circuit all involved payment in full of the restitution obligation. However, that conclusion may be the result of the unique facts of the case. In Heincy, the plan did not purport to deal with the restitution debt, and the debtor (and Ninth Circuit) therefore treated the debt as if it were unaffected by the plan. The court did not discuss whether there could be an adequate remedy at law where, as in the instant case, the plan dealt with the restitution obligation, and an Order of Discharge was entered, but the State nevertheless continued with proceedings designed to imprison the debtor for failure to make the full payments called for by the restitution order.
Therefore, the Ninth Circuit’s opinion does not undermine the logic of the BAP in reaching the conclusion that the restitution obligation is a debt which was subject to discharge under § 1328(a). I find that the restitution obligation was discharged for the reasons stated by the BAP in Heincy. The debtor has no adequate remedy at law, as absent an injunction the debtor will be subject to imprisonment for nonpayment of a discharged obligation. An appropriate order will be entered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490770/ | 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 a Counterclaim and Affirmative Defenses to the Complaint filed by Paul W. Pattie, the Debtor involved in this Chapter 7 case. The Counterclaim under attack is asserted by Thelma A. Pattie who is the named Defendant in the Complaint filed by the Debtor who seeks a determination that certain obligations represented by the final judgment is not in the nature of alimony or support and, therefore, dischargeable. The undisputed facts relevant to the resolution of this Motion as appear from the record are as follows:
On March 17,1988, Paul W. Pattie (Debt- or) filed a Voluntary Petition for Relief under Chapter 7 of the Bankruptcy Code. On March 28, 1988, the United States Trustee scheduled a meeting of creditors to be held on April 19,1988 and the notice for the meeting stated that the filing deadline for complaints seeking a determination of dischargeability pursuant to § 523(c) shall be filed on or before June 20, 1988. On April 26, 1988, the Debtor filed his Complaint and sought a determination that the judgment in the amount of $250,000 entered by the Circuit Court for the Sixth Judicial Circuit in and for Pasco County in favor of Thelma A. Pattie, the Defendant, was in the nature of a property settlement, therefore would not be within the exceptive provision of § 523(a)(5) of the Bankruptcy Code. On June 8, 1988, the Defendant filed her answer which basically consisted of a general denial. However, in addition to the answer, the Defendant also filed a pleading entitled First Affirmative Defense which is basically a denial of the allegations of the Debtor and contends that the obligation of the Debtor represented by the final judgment mentioned did, in fact, represent an obligation for support and, therefore, is a non-dischargeable debt. In addition, the Defendant also filed a Second Affirmative Defense in which the Defendant stated that the Debtor “comes before the Court with unclean hands, in that he has perpetrated a fraud on Thelma A. Pat-tie by virtue of his acts and conduct, transferring for lessor (sic) consideration, the property and assets”. On June 3,1988, the Honorable Thomas E. Baynes, Jr. entered an Order and scheduled a pre-trial conference to be held on August 21, 1988. Although the record fails to reflect what actually transpired at the pre-trial conference, it is clear that contrary to the contention of counsel for the Defendant, there was no Motion filed by the Plaintiff to strike the affirmative defenses and there was no order entered by the Honorable Thomas E. Baynes, Jr. denying same.
On August 23, 1988, the Defendant filed a pleading entitled Counterclaim and Affirmative Defenses. In Count I of the Counterclaim, the Defendant alleges that the Plaintiff violated Fla.Stat. §§ 812.014 and 772.11 (1986). It is impossible to tell precisely what relief the Counter-Plaintiff/Defendant seeks in Count I and although it charges that the Plaintiff/Counter-Defendant was guilty of fraud, collusion and guile and “rendered said judgment uncollectible and unable to be satisfied” (sic) without specifying the type of relief sought based on the claim set forth in this Count.
In Count II of the Counterclaim, the Defendant alleges that a debt owed in an unspecified amount to the Defendant should be declared to be non-dischargeable pursuant to § 523(a)(2) of the Bankruptcy Code.
In Count III, the Defendant attempts to assert a claim of non-dischargeability under *523§ 528(a)(4) alleging that the Debtor committed “larceny, including civil theft, all contrary to Florida law”.
Count IV is a claim which is basically not a claim at all but a denial of the Plaintiffs claim that a debt owed by the Debtor to the Plaintiff is a dischargeable debt. While this Count refers to § 523(a)(6) of the Bankruptcy Code, there is nothing in this Count which evenly remotely reaches any of the operating elements of a viable claim of non-dischargeability under this Section.
The Motion to Dismiss filed by the Debt- or seeks a dismissal of the Counterclaim on the basis that the same fails to state a cause of action pursuant to § 523(a)(2), (4), (5) and (6). In addition, the Debtor contends that the Counterclaim was not timely filed pursuant to Bankruptcy Rule 7012 and Fed.R.Civ.P. 12(a) and (b) and was not timely filed pursuant to Bankruptcy Rule 4007(c).
It should be pointed out at the outset that this record leaves no doubt that the Counterclaim under attack filed August 23, 1988 was not filed within the sixty (60) days from the first date set for the meeting of creditors as required by Bankruptcy Rule 4007(c). Thus, there is hardly any question that the claims which the Defendant seeks to assert in the Counterclaim pursuant to § 523(a)(2), (4) and (6) are time barred. In addition, none of the claims asserted in the five counts of the Counterclaim states a viable claim which could possibly be an appropriate counterclaim to a complaint seeking a determination of dis-chargeability of an obligation sought by a plaintiff pursuant to § 523(c) of the Bankruptcy Code. Although contrary to the contention of counsel for the Defendant that the Debtor filed a Motion to Strike the Affirmative Defenses, no such Motion was ever filed as noted earlier. Notwithstanding, this Court is satisfied that neither of the defenses set forth and denoted as affirmative defenses are in fact affirmative defenses and, therefore, it is appropriate to strike same and schedule this matter for trial by separate order which shall be limited to consider then narrow issue posited by the Complaint, that is the dischargeability, vel non, of the obligation of the Debtor represented by the final judgment in the amount of $250,000.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion to Dismiss Counterclaim be, and the same is hereby, granted. It is further
ORDERED, ADJUDGED AND DECREED that the Counterclaim be, and the same is hereby, dismissed with prejudice. It is further
ORDERED, ADJUDGED AND DECREED that the Affirmative Defenses be, and the same are hereby, stricken.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490771/ | MEMORANDUM DECISION
THOMAS C.. BRITTON, Chief Judge.
The plaintiff bank seeks exception from discharge under 11 U.S.C. § 523(a)(2)(B) for its claim in the amount of $85,000. The debtor has answered and the matter was tried on August 25.
A promissory note dated January 6, 1986 in the amount of $60,000 and a second note dated January 17, 1986 in the amount of $25,000 were executed by the debtor for the extension of credit from the plaintiff bank. Prior to the loan approval, plaintiff required and received the debtor’s financial statement as of December 20, 1985. The additional documentation given to the bank by the debtor was his 1983 tax return and a memorandum prepared by him stating that his [last yearly] allocation as a partner in an accounting firm was $245,000 and that his 1985 allocation was expected to be $302,000.
The exception from discharge relied upon in the complaint and referred to in plaintiff's trial memorandum (CP 12) is § 523(a)(2)(B).1 This exception from discharge requires proof that the debtor obtained credit by use of a written statement respecting the debtor’s financial condition upon which the creditor reasonably relied, but which was materially false and was furnished with an actual intent to deceive the lender.
Plaintiff argues that there are false, misleading and omitted items which constitute “material falsity”. Plaintiff seeks to establish intent to deceive from circumstances which it argues show that “the Defendant was utilizing his financial statements simply to tell the financial institution what he thought it needed to know to approve the loan.”
The issues of whether the written statement was materially false and furnished with an actual intent to deceive are disputed by the debtor. The debtor is a CPA who has practiced with a financial management company and major national accounting firms since 1966. He offered an explanation of how he derived the *539amounts of the value of his assets including his Florida residence and several automobiles and why a portion of his indebtedness was either characterized as “real estate loans” or omitted.
This aspect of the dispute is a close question, taking into consideration the debtor’s professional background. Factually, it must be decided whether the debtor either knew quite well how to construct a financial statement overstated in his favor and did so deliberately or recklessly, or whether he unintentionally applied accounting techniques used for his developer clients which were inappropriate to convey to the bank the true state of his financial affairs with respect to unsecured debt. The debt- or’s notion that based on his prior business relationship with the bank officer and the solicitation of his business that the financial statement was a mere formality has also been considered.
It is plaintiff’s burden to prove exception from discharge “by clear and convincing evidence.” In re Hunter, 780 F.2d 1577, 1579 (11th Cir.1986). The conflicting evidence of falsity and intent to deceive does not convince me under this standard of proof that plaintiff has shown clear culpability of the defendant.
On the issue of reliance, the evidence before me is that the information contained in the financial statement was not the factor relied upon by the bank in extending credit to the debtor. A bank vice-president, Ms. Traba, solicited the debtor to move his accounts and establish a relationship with this bank. She had recently left her job at a different bank where the debtor was her customer for one-and-a-half years in a target group of professionals in the “upscale banking department.” Her business relationship with the debtor made her aware of his employment with a well-known accounting firm where his current income was between $250,000 and $300,000.2
In arguing that its reliance on the financial statement was reasonable, plaintiff points to the fact that the defendant “was an accountant and a long-standing customer.” (CP 12 at p. 14). It is these very factors which in a sense caused plaintiff to not rely on the financial statement. The debtor’s business was solicited and credit extended because Ms. Traba was extremely impressed with his substantial earning capacity and his employment status. This evidence convinces me that plaintiff relied on previous knowledge and familiarity with the debtor and has failed to prove that it relied on the financial statement.
This conclusion is based on Ms. Traba’s own testimony. In response to this question:
Q “The size of the credit obligations on the CBI report were not analyzed in any fashion in December of 1985; is that correct?”
her response was:
A “I looked at it in a cursory manner to verify his payment history.” [Ex. N. p. 85].
Plaintiff’s real interest in “evaluating” Mr. Lawrence’s credit history in this cursory manner is typified by this response:
“it is not just the financial statement, but because of course I relied on Mr. Lawrence’s indication of income based on his prior tax returns and his note indicating he would be making approximately $300,000 in the coming year.”3 [Ex. N. p. 89].
When questioned about the condition understood by plaintiff that Mr. Lawrence would extinguish his bridge loan at Southeast Bank and responding to why Northern Trust [plaintiff] did not make the proceeds payable to Southeast Bank and control where they went, Ms. Traba testified:
“Because we trusted Mr. Lawrence.” (Ex. N. p. 98].
There is cumulative evidence of this attitude of cursory treatment of the financial *540documentation and actual reliance on personal evaluations regarding defendant’s earning capacity and desirability of obtaining his business.
I have not overlooked the testimony of Ms. Traba that she “would not have loaned Mr. Lawrence the amount of money loaned him had I known of the other borrowings.” [Ex. N. p. 84]. However, this is overridden by cumulative contradictory testimony of the actual considerations for making the $85,000 loan. Therefore, I find that the financial statement was a necessary formality, but an irrelevant factor in determining whether to extend credit to the debtor.
I find no use of a materially false written statement on which the lender reasonably relied that the debtor caused to be made or published with intent to deceive.
Plaintiff has failed to carry its burden of establishing a basis for the exception of its claim from discharge under § 523(a)(2)(B).
As is required by B.R. 9021(a), a separate judgment will be entered dismissing this complaint with prejudice.
DONE and ORDERED.
. I am assuming the reference in the complaint to § 523(a)(2)(i4) [CP 1 ¶ 21] was an oversight by plaintiff. The pleading and proof of the elements of § 523(a)(2)(B) has not been objected to by the defendant. The evidentiary and written submissions by defendant respond as though by consent the disputed issues are under § 523(a)(2)(B).
. The fact of the debtor’s change in employment and resulting months without employment starting in January, 1986 has not been overlooked, but is not within the time relevant to this decision.
. The $302,000 relates to a year-end determination relating back to 1985 earnings. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490775/ | MEMORANDUM OPINION
R. GLEN AYERS, Jr., Chief Judge.
This Court has jurisdiction over this matter as a core proceding pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157.
This case comes before the Court on the Trustee’s Objection to Debtor’s Claim of Exempt Property. The sole issue that this Court will consider is whether insurance renewal commissions are current wages and thus exempt personal property or whether these commissions are continuing payments for services rendered by an independent contractor and therefore not exempt.
In 1976 and 1985 Rocco Perciavalle entered into two contracts with The Northwestern Mutual Life Insurance Company (“Northwestern”). He became a General Agent and later a District Agent for the company. See Exhibits “A” & “B”. These contracts governed Mr. Perciavalle’s conduct during the entire time he sold policies underwritten by Northwestern. Mr. Perci-avelle ceased to be an agent (and ceased to sell policies) for Northwestern at a time prior to his filing for relief under Chapter 7 of the Bankruptcy Code. On the date Mr. Perciavalle ceased to be an agent for Northwestern, the two contracts terminated by their own design. The contracts provided for the subsequent payment of commissions for policies sold by Mr. Percia-valle upon which Northwestern continued to receive renewal premiums on. See Exhibit “A” at 1128 and “B” at ¶ 21. These insurance renewal commissions are the subject of this dispute.
The Bankruptcy Code allows an individual Chapter 7 Debtor to select state or federal exemptions when claiming exempt property. See 11 U.S.C. § 522(b)(2)(A). Under the Texas statute the debtor has numerous exemptions which he may claim, one being current wages for personal services. See Tex.Prop.Code Ann. § 42.002(8) (Vernon 1984). In the case at hand, the Perciavalles have chosen the Texas exemptions. They claim the insurance renewal commissions from Northwestern as current wages for personal services and, therefore, exempt personal property. Naturally, the Trustee of the estate claims that this money is compensation paid to Mr. Perciavalle in his capacity as an independent contractor and thus, not exempt property.
In order to categorize these payments as exempt or not exempt, it must first be determined whether Mr. Perciavalle’s affiliation with Northwestern was that of an employee or independent contractor.
Since the Perciavalles, as Debtors, elected to claim the exemptions available under Texas statute this Court must follow Texas state law in resolving this issue. See Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1978). The Texas Courts define “current wages”, as used in section 42.002(8) of the Property Code, to be compensation due to an employee in a master-servant relationship. The definition expressly excludes money received by an independent contractor. See, e.g., Hennigan v. Hennigan, 666 S.W.2d 322, 324 (Tex.Civ.App.—Houston [14th Dist.] 1984, writ ref’d n.r.e.); Pitts v. Dallas Nurseries Garden Center Inc., 545 S.W.2d 34, 36 (Tex.Civ.App.— Texarkana 1976, no writ); Brasher v. Carnation Co., 92 S.W.2d 573, 574-75 (Tex.Civ.App.—Austin 1936, writ dism’d). Therefore, if this Court determines that Mr. Perciavalle was an employee of Northwestern, the insurance renewal commissions will become cur*690rent wages and will be exempt property. However, if it is ascertained that he was an independent contractor, these payments will become non-exempt receivables and part of the bankruptcy estate.
In determining the status of Mr. Percia-valle during his tenure with Northwestern, this court must apply the test originally set forth in Cunningham v. International RR. Co., 51 Tex. 503, which has been followed and expanded by the Texas courts. In its basic form, the test states:
“Whether the employer exercises, or reserves the right to exercise, control and direction not merely of the end sought to be obtained but also the details of its accomplishment; not only what shall be done but how it shall be done, if he does, then the relationship of employer and employee exist. If on the other hand, the employer or contractor is interested only in the results, and there is left to the party performing such service complete control control of the details as to the method and manner of such performance, then the relationship of independent contractor exists.”
First National Bank of Fort Worth v. Bullock, 584 S.W.2d 548, 551-52 (Tex.Civ. App.—Austin 1979, no writ); see also Davidson Texas, Inc. v. Garcia, 664 S.W.2d 791, 794 (Tex.App.— Austin 1984, writ ref’d n.r.e.). Shahan v. Biggs, 123 S.W.2d 686, 688 (Tex.Civ.App.—Fort Worth 1938, no writ); Brasser 92 S.W.2d at 575.
An insurance agent is generally left to his own devices in soliciting potential in-surees. Mr. Perciavalle was given a territory by Northwestern and left to exercise his own independent judgment as to the manner he used in generating business. There was no evidence to show that Northwestern ever attempted to alter Mr. Percia-valle’s behavior. Under certain conditions, Northwestern even allowed Mr. Perciavalle to sell insurance underwritten by another company. See Exhibit “A” at it 6 & “B” at ¶ 6. In the contracts and in a subsequent letter Northwestern asserted that its General Agents and District Agents are independent contractors. Northwestern went on to say “nothing herein shall be construed to make the District Agent an employee of the Company or General Agent”. Exhibit “A” at 114 and “B” at 114. Paragraph 4 clearly stated that Mr. Percia-valle’s professional relationship with Northwestern would be that of an independent contractor. Also in paragraph 4, Northwestern reserved the right to adopt regulations regarding the conduct of its agents, but stated that it would not interfere with their freedom of action. See Exhibit “A” at 114 and “B” at 114.
Such a restraint, however can not defeat the independent contactor status. In Carruth v. Valley Ready-Mix Concrete Co., 221 S.W.2d 584, 593 (Tex.Civ.App.—East-land 1949, writ ref d), the court stated that where part of the contract points to an independent contractor relationship and part implies an employee relationship, the essence of the contract must be considered. The reservation contained in paragraph 4 merely ensured an agent’s adherence to current and future broad company regulations. Looking at the contract as a whole, this court finds Northwestern never intended for Mr. Perciavalle to be anything other than an independent contractor.1
*691In conclusion, the contract expressly stated that Mr. Perciavalle was an independent contractor engaged by Northwestern to sell insurance policies. The restrictions placed on him, territorial boundaries and certain company policy considerations, were minimal. The time, place, and basic manner for selling the policies were left entirely up to Mr. Perciavalle. In addition, Northwestern never exercised any control over Mr. Perciavalle’s day to day activities.
Por the reasons set forth in the above opinion, this Court rules in favor of the Trustee and finds that Mr. Perciavalle was an independent contractor. Therefore, his insurance renewal commissions are not wages for current services and are not exempt under section 42.002(8) of the Texas Property Code.
EXHIBIT A
[Page 1]
GENERAL AGENT'S CONTRACT THE NORTHWESTERN MUTUAL LIFE • INSURANCE COMPANY • MILWAUKEE NML 720 fist Wisconsin Avenue, Milwaukee, Wisconsin S3202 The Northwestern Mutual Life Insurance Company (the "Company") and Rocco V. Perciavalle (the "General Agent") agrge as follows:
1.Effective Date —This agreement shall take effect on _September 1, 1976_.
AUTHORITY OF GENERAL AGENT 2.Territory — General Agent is hereby appointed a general agent of the Company within_—
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(the "Territory"). The Company reserves the right to withdraw at any time the whole or any part of the Territory, or to appoint additional general agents in the Territory.
3. Open Territory Solicitation — (a) General Agent agrees that all other general agents and all persons holding currently effective Agency contracts under them may solicit Applications for policies and contracts anywhere in his Territory and submit such Applications through their respective general agents. General Agent and all persons holding currently effective Agency contracts under him shall have the same rights in all other territories. Such solicitation shall be in accordance with regulations issued by the Company from time to time.
(b) Whenever General Agent wishes to solicit an Application in an area outside the Territory he must secure through the Company an agent's license from the proper state authority.
4. Relationship — General Agent shall be an independent contractor and nothing herein shall be construed to create the relation of employer and employee between the Company and General Agent. General Agent shall be free to exercise his own judgment as to the persons from whom he will solicit Applications and the time, place and manner of solicitation, but the Company from time to time may adopt.regulations respecting the conduct of the general agency, not interfering with such freedom of action of General Agent.
5. Alteration of Policies — General Agent shall have no power, personally or on behalf of the Company, to waive any forfeiture or to alter or discharge or waive any of the terms and conditions of any policy or contract.
6* Exclusive Dealing — (a) General Agent shall do no business for any other company which issues annuity contracts, or life insurance or disability income insurance policies, except in connection with Applications with respect to persons who are then insured by the Company to the limit which it will issue on them, or who are otherwise not acceptable for insurance by the Company, or .who have been found by the Company to be insurable only at higher than standard premium rates which are unacceptable to the applicants.
(b) The requirement of 6(a) is waived for Applications for life insurance policies personally solicited by General Agent if he commenced his present term of Continuous Service prior to January 1, 1956, and is also waived- for Applications personally solicited by any Agent under contract with General Agent if such Agent commenced his present term of Continuous Service prior to January 1, 1956, provided such Application is for insurance acceptable by the Company only at rates higher than the standard rates.
7. Contracts with Agents — General Agent, subject to the approval of the Company, is authorized to appoint and contract with Agents to carry out the purposes of this agreement.
8. Surplus Business — General Agent may accept surplus business from a duly accredited agent of another company, where the applicant has the limit of insurance which such other company will issue and retain on his life and pay the commissions on such surplus business in accordance with arrangements made for its acceptance.
9. No Brokerage — Except as provided in Paragraph 8, General Agent shall pay no commission to any person unless an Agency contract has been entered into with him, the necessary agent's license has been secured, and his name has been properly entered as Solicitor or "District Agent" or "Field Director" on the Agent's Certificate of the Application.
DUTIES OF GENERAL AGENT
10. General Duties — General Agent personally and through Agents shall thoroughly develop all the Territory and shall procuro the issuance of insurance policies and annuity contracts in an amount and on a number of lives satisfactory to the Company. He shall not engage in any business other than that covered by this agreement except with the consent of the Company.
11. Office —General Agent shall equip and maintain a suitable office in the city of, . ....... Oklahoma City, Oklahoma for the transaction of the business of the general agency created by this agreement. *692interest on non-contingent settlement option balances as certified by the Actuary of the Company, and shall be credited by the Company to the Account at least annually. Amounts standing to the credit of the Account shall be carried as an indebtedness of the Company payable In accordance with (b) of this provision. General Agent shall have no interest in the Account, which is established merely as an accounting convenience and shall not operate to segregate any balance therein from (he general .assets of the Company.
(b) The Company shall, subject to the provision for setoff in Paragraph 30, make payments from the Account to General Agent, in monthly installments in the amount, and for the number of years, elected by General Agent prior to the aforesaid termination. The elected number of years shall be 15 or 20 or such other number of years as may be permitted by the Company at the time of election. Installments shall commence within 60 days after the aforesaid termination and shall be payable monthly thereafter, but no such Installment shall exceed the balance in the Account at the time such installment is payable. In the event this agreement is terminated by General Agent's death or his death occurs thereafter, payments pursuant to the terms of .this provision shall be made in like manner in accordance with Paragraph 26. All payments pursuant to (b) of this provision shall be charged against the Account.
(c) General Agent shall have no power to assign, encumber, commute or anticipate his interest In any amounts standing to the credit of the Account or in any payment pursuant to (b) of this provision.
(d) Commissions accrued upon termination of this agreement and thereafter accruing, shall be valued by application of the Evan's Commission Valuation Table elected by General Agent, without interest.
26. Beneficiaries — (a) General Agent shall have the right to designate beneficiaries to receive commissions, fees and other remuneration accrued at his death and thereafter accruing. Any such designation of beneficiaries shall be subject to the following provisions:
(i) CLASSES — Beneficiaries shall be of the same classes as provided in life insurance policies of the series issued by the Company on the date of this agreement.
(it) SUCCESSION — The succession in interest of the beneficiaries shall be as staled in the Settlement Option Provisions of life insurance policies of said series. If no beneficiary is designated or if no beneficiary survives General Agent, amounts accrued at General Agent's death and thereafter accruing shall be paid to his executor or administrator or to the persons entitled thereto under applicable law.
(iii)WHEN EFFECTIVE — All designations, revocations ■ and changes in beneficiaries shall be duly made in writing and shall be effective upon receipt at the Home Office of the Company.
(Iv) ASSIGNMENT — No assignment by General Agent of his rights hereunder shall require the consent of any beneficiary, and the interest of any beneficiary shall be subject to any such assignment.
(b) General Agent shall accord to each Agent appointed by him pursuant to Paragraph 7 a privilege equivalent to that set forth in Paragraph 26(a), as to any commissions, fees or other remuneration due from General Agent to such Agent after the Agent's death.
TERMINATION
27. Term of Agreement — This agreement shall terminate upon the date of the death of General Agent, or at the end of the month in which General Agent has attained age 65, whichever shall first occur. It may be terminated:
(a) by General Agent at any time, and by the Company after the first three Contract Years, without cause, in either case upon not less than thirty day's written notice. (b) by the Company at any time upon written notice to General Agent, by reason of:
(i) Legislation, court decision or insurance department or other governmental ruling or requirement which in the opinion of the Company either contravenes any provisions of this agreement or renders it expedient for the Company to withdraw from the whole or any part of the Territory; or
(ii) Failure of General Agent to comply with any of the terms hereof; or
(iii) General Agent's becoming, in the opinion ef the Company (of which it shall be the sole judge) incapacitated for any reason so that he cannot fully perform this agreement.
Termination by the Company shall be effected only by action of the Executive Committee of its Board of Trustees. Termination shall not operate to discharge or satisfy any claim of the Company against General Agent. See ' of ’.his19 ^ agreement shall not affect commissions subsequently pay- ^ able to General Agent, except that: . - - _ #
(a) If this agreement is terminated by the Company for ‘ General Agent's failure to comply with any of the-terms hereof, the commissions payable to him on all renewal premiums collected after termination shall be reduced by 1% of such premiums; and
(b) If on termination of this agreement General Agent has less than 15 years of Continuous Service, the renewal ’ commissions which he would otherwise receive and retain after this termination by reason of his name appearing as Solicitor on the Agent's Certificate shall be payable as follows:
Complete Years Policy Years For Which Of Continuous Renewal Commissions Service Are Payable
2nd thru 4th 2nd thru 5th 2nd thru 6th 2nd thru 7th 2nd thru 8th 2nd thru 9th £u>ro£o§
provided, however, that
(i)If this agreement is terminated by General Agent's death or by the Company because they have deemed him incapacitated, or if it is terminated after the General Agent attains the age of 60, the number of policy years for which renewal commissions are payable shall not be reduced, and
(ii)If General Agent continues under full-time Agency
[Page 5]
TERRITORY
The Counties of Alfalfa, Beckham, Blaine, Caddo, Canadian, Carter, Cleveland, Comanche, Cotton, Custer, Dewey, Ellis, Garfield, Garvin, Grady, Grant, Greer, Harmon, Harper, Jackson, Jefferson, Kay, Kingfisher, Kiowa, Lincoln, Logan, Love, McClain, Major, Murray, Noble, Oklahoma, Payne, Pontotoc, Pottawatomie, Roger Mills, Stephens, Tillman, Washita, Woods, and Woodward, in the State of Oklahoma.
*693EXHIBIT B
[Page 1]
DISTRICT AGENT'S CONTRACT NoflfowmttmMuiutlllfeloiwwKtCofl'pMr • Onnn 0. Stoia , a general agent of The Northwestern Mutual Life Insurance Company, hereinafter called "General Agent," and. Rcccc V. Psrcievelle . of. Oklahoma City , In the County of Oklahoma . and State of. OK , hereinafter called "District Agent," agree as follows:
1.Effective Date — This agreement shall take effect on May 1, rj¿o
AUTHORITY OF DISTRICT AGENT
2. Territory — District Agent, personally and through agents appointed by him, shall solicit Applications for insurance policies and annuity contracts issued by The Northwestern Mutual Life Insurance Company (the "Com* pany") within_:_ _The Counties of Canadian, Cleveland _McClain» Oklahoma and Pottawatomie _in the State of OK__ _Also Counties of Kingfisher, Logan» _Garfield and Major In the State of Oklahoma _(the "Territory").
3. Open Territory Solicitation — (a) District Agent agrees that all persons holding currently effective Agency contracts may solicit Applications for policies and contracts anywhere in his Territory and submit such Applications through their respective general agents. District Agent and all persons holding currently effective Agency contracts under him shall have the same rights in ail other territories. Such solicitation shall be in accordance with Regulations issued by the Company from time to time.
(b) Whenever District Agent wishes to solicit an Application in an area outside the Territory he must secure through the Company an agent's license from the proper state authority.
4. ¿elatiónsnif^-^DiltactAgftnUtiiill [jc an independent'^ "ÍSñlridor ana nSífilnjT fiiSln sfftltfci construed to mak# '‘District Agent .an employe?*^! IHÍTCómpany or Cenerifl “Agent. DistrictJ^gent shall be free,to exercise his owfij 'judgment as to,the persons from whom he will solicit' r Applications and the time, place and manner of solicita* tion, but the Company from time to time may adopts regulations respecting the conduct of the business covered hereby, not interfering with such freedom of action' of District Agent.
5. Alteration of Policies — District Agent shall have no power, personally or on behalf of the Company or General Agent, to waive any forfeiture or to alter or discharge or waive any of the terms and conditions of any policy or contract.
6. Exclusive Dealing — (a) District Agent shall do no business for any other company which issues annuity contracts, or life insurance or disability income insurance policies, except in connection with Applications with .respect to persons who are then insured by the Company to the limit which it will issue on them, or who are otherwise not acceptable for insurance by the Company, or who have been found by the Company to be insurable only at higher than standard premium rates which are unacceptable to the applicants.
(b) The requirement of 6(a) is waived for Applications for life insurance policies personally solicited by District Agent if he commenced his present term of Continuous Service prior to January 1, 1956, .and is also waived for Applications personally solicited by any Agent under contract with District Agent if such Agent commenced his present term of Continuous Service prior to January 1, 1956, provided such Application is for insurance acceptable by the Company only at rates higher than the standard rates.
7. Contracts with Agents— District Agent, subject to the approval of General Agent and the Company, is authorized to appoint and contract with Agents to carry out the purposes of this agreement.
8. No Brokerage —District Agent shall pay no commission to any person unless an Agency contract has been entered into with him, the necessary agent's license has been secured, and his name has been properly entered as Solicitor or "Field Director" on the Agent's Certificate of the Application.
DUTIES OF DISTRICT AGENT
9. General Duties — District Agent personally and through Agents shall thoroughly develop all the Territory and shall procure the issuance of insurance policies and annuity contracts in an amount and on a number of fives satisfactory to General Agent and at least equal to the minimum requirements established by the Company for licensure. He shall collect the initial premiums on such policies and contracts. He shall not engage in any business other than that covered by this agreement except with the consent of General Agent.
10. Responsibility — District Agent shall be responsible to General Agent and the Company for all business done by or entrusted to the persons appointed or employed by him. He shall indemnify and save General Agent and the Company harmless from any and all expenses, costs, causes of action and damages resulting from or growing out of acts or transactions by himself, his employees, his agents or persons appointed by him.
11. Remittances — District Agent shall be responsible to General Agent and the Company for all amounts received
*694. i (iv[ ASSIGNMENT — No assignment by Olstrict Agent of his rights, hereunder shall require the consent of any beneficiary, and the interest of any benefici* ary shall be subject to any such assignment.
(b)District Agent shall accord to each Agent appointed by him pursuant to Paragraph 7 a privilege equivalent to that set forth in Paragraph 19(a), as to any commissions, fees or other remuneration due from District Agent to such Agent after the Agent’s death.
TERMINATION
20. Term of Agreement — This agreement shall terminate upon the first to occur of the following:
(a) The death of District Agent;
(b) Termination of the present contract between General . Agent and the Company (except as such contract may be extended through an Endorsement by the Company, in which case this agreement shall terminate upon expiration of the extension); or
(c) The end of the month in which District Agent attains age 65.
It may be terminated by General Agent upon written notice to District Agent, by reason of
(i) Legislation, court decision or insurance department or other governmental ruling or requirement which in the opinion of the Company either contravenes any provision of this agreement or renders it expedient for the Company to withdraw from the whole or any part of the Territory; or
(ii) Failure of District Agent to comply with any of the terms hereof; or
(iii) District Agent's becoming, in the opinion of General Agent and the Company (of which they shall be the sole judges) incapacitated for any reason so that he cannot fully perform this agreement.
It may be terminated by either party at any time, without cause, upon 30 days' written notice.
21. Commissions After Termination — Termination of this agreement shall not affect commissions subsequently payable to District Agent, except that:
(a)If on termination of this agreement District Agent has less than 15 years of Continuous Service, the renewal commissions which he would otherwise receive and retain after this termination by reason of his name appearing as Solicitor on the Agent's Certificate shall be payable as follows:
Complete Years Of Continuous Service Less Than 2 2-9 10 11 12 13 14 Pollcy Years For Which Renewal Commissions Are Payable None 2nd thru 4th 2nd thru 5th 2nd thru 6th 2nd thru 7th 2nd thru 8th 2nd thru 9th
provided, however, that:
fi) If termination was caused by District Agent's death or by his becoming incapacitated, in the opinion of Ceneral Agent and the Company (of which they shall be the sole judges), or if District Agent had at least 2 years of Continuous Service and termination occurred after attainment of age 60, the number of policy years for which renewal commissions are payable shall not be reduced; and
(ii) if District Agent continues under a full-time Agency contract or becomes an employee of the Company, the number of such renewals shall not be reduced so long as such status continues.
(b) If renewals are not payable to District Agent because of his termination with less than 2 years of Continuous Service, such renewals arising from second, third and fourth policy year premiums shall be retained by Ceneral Agent and those arising from fifth and subsequent policy years shall be retained by the Company.
(c) If termination of this agreement was for violation of Paragraphs 6, 8, 11 or 15, then in addition to any reductions set forth in other portions of this Paragraph 21 there shall be deducted from all commissions otherwise payable on renewal premiums collected after such termination 1% of such premiums.
(d) Except as set forth in Subparagraphs (a), (b) and (c) above, District Agent's right to commissions shall not be affected by termination of this agreement.
GENERAL
22. Setoff — General Agent or the Company ma/'at any time set off against any commissions or other remuneration due or to become due under this or any prior agreement to District Agent, or anyone claiming through or under him, any debt or debts due from District Agent to General Agent or the Company.
23. No Waiver — No forbearance or neglect on the part of Ceneral Agent or the Company to enforce any of the provisions of this agreement shall be construed as a waiver of any of his or its rights or privileges hereunder ‘or affect his or its rights arising from any default or failure of performance by District Agent.
24. Notice — Any notice required by this agreement shall be in writing, and shall be delivered in person or by mail to the party at his last known post office address.
25. No Assignment — This agreement is not transferable. Except for the designation of beneficiaries, as provided in Paragraph 19 and subject to the limitations of Paragraph 18(c), no rights or interests arising hereunder shall be assignable without the Company's prior written consent.
26. Definitions — The following terms shall have the indicated meanings:
(a) APPLICATION — an application to the Company for an annuity contract, life insurance policy, or disability income insurance policy.
(b) CONTRACT YEAR — a period of one year commencing on the effective date of this agreement or any anniversary thereof.
(c) CONTINUOUS SERVICE — the total continuous time served in the employ of the Company, under leave of absence in the armed forces of the United States and under any Agency contract. Any intervals of not more than 2 months, and any interval of not more than 6 months Immediately following such military leave of absence, shall be included. Service as a part-time agent shall be included only if it is immediately followed by entering into a full-time Agency contract or employment by the Company.
. By having all of its agents operating as independent contractors, Northwestern does not have to concern itself with those burdens normally associated with being an employer. The Court suspects the basic reason that Northwestern and other insurance companies establish their agents as independent contractors and not as employees is to insulate themselves from as mtich potential tort and contract liability as possible (although there may be certain tax and other benefits.) To illustrate, when a tort claim arises from actions taken by an employee, the employer may be held liable under the theory of respondent superior. See Knutson v. Morton Foods, 580 S.W.2d 876, 877 (Tex.Civ.App.—Texarkana 1979), aff’d 603 S.W.2d 805. However, when the relationship between the parties is that of an independent contractor, the company is shielded from most the of the liability arising out of the independent contractors actions. See id. at 877.
The point of this elementary lesson is to show that the status "employee” and the status "independent contractor" are each created to satisfy real or perceived legal needs of the employer and should have nothing to do whether or not sums due from the employer to employee/contractor are exempt. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490776/ | ORDER SUSTAINING MOTION FOR PARTIAL SUMMARY JUDGMENT
BARBARA J. SELLERS, Bankruptcy Judge.
Plaintiff Thomas C. Scott, the trustee in bankruptcy (“Trustee”) for the Chapter 7 case of Ronnie D. Williams, has filed a motion seeking partial summary judgment in this adversary proceeding. The Trustee’s motion, which seeks judgment on Count I of the complaint, was opposed by defendant Fifth Third Bank (“Bank”). Following a reply to the Bank’s opposition, the matter is before the Court for decision.
The Court has jurisdiction in this proceeding under 28 U.S.C. § 1334(b) and the General Order of Reference entered in this district. This matter is either a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(E), (K), and (0) or is a non-core matter for which the parties have consented to entry of a final order by this bankruptcy judge.
The facts in this matter are basically undisputed. On July 26, 1986, Ronnie D. Williams (“Debtor”) purchased a 1987 Dodge Charger automobile from Trader Bud’s Westside Dodge (“Trader Bud’s”). To finance that purchase the Debtor entered into a Variable Rate Installment Contract and Security Agreement (the “Agreement”) with the Bank. The Agreement obligated the Debtor to repay the loan with interest and granted the Bank a security interest in the vehicle.
On April 3,1987 the Debtor filed a voluntary petition under Chapter 7 of the Bankruptcy Code. Approximately one month later the automobile was repossessed by the Bank. On July 10, 1987, this Court entered an order abandoning the vehicle from the bankruptcy estate and granting the Bank relief from the automatic stay imposed by 11 U.S.C. § 362(a) to pursue its rights under state law with regard to the vehicle.
At the time the Debtor purchased the vehicle, he elected also to purchase through Trader Bud’s certain credit life and disability insurance relating to that obligation. That coverage was effectuated by payment from the Debtor, financed as part of his obligation to the Bank, of one-time premium payments of $432.43 and $838.88. The insurance coverage was through a group life insurance policy with a credit disability supplemental agreement issued to Trader Bud’s by The Credit Life Insurance Company (“Credit Life”). Under that arrangement the Debtor was issued an individual certificate of insurance by Credit Life.
It is uncontested that, under the terms of the insurance agreement between Credit Life and Trader Bud’s, repossession of the automobile terminated the insurance coverage and gave rise to a right of refund for unearned premiums. Those unearned premiums were to be remitted by Credit Life to Trader Bud’s for the benefit of the Debt- or. Trader Bud’s was then obligated to pay or credit the refunds to the Debtor. The certificate of insurance issued to the Debtor further provided that he was to be given a refund or a credit on his account of any unearned premiums if the insurance coverage terminated before its term had expired. Accordingly, when the Bank repossessed the vehicle, Credit Life refunded the unearned premiums to Trader Bud’s. Trader Bud’s, however, paid those refunds over to the Bank as the holder of a lien against the vehicle.
The Trustee asserts that the refunds were part of the bankruptcy estate, were not subject to any interest of the Bank and, therefore, should be paid over to the trustee as the representative of the bankruptcy estate. The Bank, on the other hand, maintains that it has an interest in those refunded premiums and may apply them to reduce *763the balance of its obligation from the Debt- or. After application of proceeds from the sale of the vehicle, that remaining obligation was $7,017.74 as of July 26, 1987.
The Agreement, under which the Debtor is the “Borrower”, contains several provisions relevant to the dispute before the Court. The granting portion of the Agreement states:
“As collateral for the payment of this loan, Borrower grant(s) to Bank a security interest in the following property together with all equipment now installed or later to be installed or replaced on the collateral and insurance or other proceeds thereon, all in accordance with the terms of the Installment Contract and Security Agreement ...”
In the Truth in Lending disclosure portion of the Agreement, the following statement appears:
“You are giving a security interest in: |x]The goods or property being purchased.
H] Deposits or other monies owned by you and held by Bank.”
Paragraph 2 of the reverse of the Agreement defines the “security interest” granted as:
“Borrower grants Bank a security interest in the property described on the reverse side hereof (said property and all such replacements, attachments, accessories and equipment hereafter referred to as the “Property”), together with all replacements thereof and all attachments, accessories and equipment now or hereafter attached, added or affixed thereto.”
To establish its interest, which the Bank characterizes as “either a security interest or something else”, the Bank relies upon the language in the granting clause quoted above and argues that the phrase “insurance or other proceeds thereon” refers to the credit life and disability insurance purchased by the Debtor. That reference, according to the Bank, makes the insurance premiums part of the collateral for the loan. The Bank also relies upon part 7 of the reverse of the Agreement which states that:
“Credit life insurance and credit disability insurance coverage, if purchased, are provided in accordance with the separate certificate and policy being issued herewith ...”
Upon examination, the Court finds that the phrase “insurance or other proceeds thereon” in the granting portion of the Agreement refers only to property damage or collision insurance covering the vehicle. That phrase does not bring within the security interest granted to the Bank any credit life or disability insurance premiums purchased by a debtor and unrelated to protection for the vehicle. Further, the statement relied upon by the Bank in part 7 of the reverse of the Agreement appears to have no specific relevance to the creation of an interest in the Bank in the insurance premiums paid by the Debtor, but financed by the Bank. In the Court’s opinion, the thrust of the quoted statement is to make it clear that the Bank, by the Agreement, is not providing such insurance.
The Bank also asserts that language in both the insurance policy and the Debtor’s certificate of insurance, providing for refund or credit of unearned premiums to the Debtor by the insured dealer, creates a right in such refunded premiums in favor of the Bank. The Court finds that this provision in the insurance policy does not and cannot create an interest in the Bank, however, if such interest has not been created by the terms of the Agreement between the Bank and the Debtor. Credit Life is not determining the appropriateness of refund or credit to the Debtor’s account. That decision depends upon the specific terms of any agreement between the Debt- or and Trader Bud’s, or as in this case, between the Bank, as the lender financing the purchase of the vehicle, and the Debt- or, as the borrower. The group policy does not increase, augment or establish rights between the Debtor and the Bank which are not created by the contract between those two parties. That finding also extends to language in the certificate of insurance which indicates that the Debtor either will be given a refund or a credit on his account for the unearned premium, if *764the insurance coverage terminates before its term has expired. Again, by refunding the sums to Trader Bud’s, Credit Life is not attempting to determine various parties’ rights in those refunds except to indicate that the right to retain those funds no longer remains with Credit Life.
Finally, the Bank argues that creation and perfection of its interest are not governed by Chapter 1309 of the Ohio Revised Code (Article 9 of the Uniform Commercial Code), but rather are a matter of contract between the parties. This argument is premature, however, because the issue of the applicability of Chapter 1309 does not arise unless or until it has been determined that an interest in the premiums has been created by the terms of the Agreement.
The Court finds that no interest in the insurance premiums was created in favor of the Bank under the terms of the Agreement. Therefore, rights to any potential refund of unearned premiums for the terminated credit life and disability insurance were property of the Debtor as of the commencement of the bankruptcy case. Such rights vested in the Trustee by operation of law and are property of the bankruptcy estate pursuant to 11 U.S.C. § 541(a). By such finding the Trustee is entitled to summary judgment on Count I of his Complaint and to a turnover of the $786.09 refunded on the Debtor’s account by Credit Life.
Although the Bank raised arguments relating to defenses based upon statutes of limitations and service of process deficiencies, such arguments were not supported and are found by the Court to be without merit.
Judgment shall be entered consistent with the terms of this Order.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490778/ | MEMORANDUM OPINION INCORPORATING FINDINGS OF FACT AND CONCLUSIONS OF LAW
ERWIN I. KATZ, Bankruptcy Judge.
This matter comes before the court on the Motion of Plaintiff, Nellie Hunt (“Plaintiff”) for Summary Judgment against Defendant-Debtor, Oscar Cobb (“Defendant”). Plaintiff’s action is one to have Defendant’s debt to her declared nondis-chargeable under Bankruptcy Code Section 523(a)(5). This memorandum opinion incorporates Findings of Fact and Conclusions of Law pursuant to Federal Rule of Civil Procedure 52, made applicable herein by Bankruptcy Rule 7052.
FINDINGS OF FACT
1. Plaintiff and Defendant were married on May 9, 1954, in Chicago, Illinois, and divorced pursuant to the authority of the Circuit Court of Cook County, Illinois, on September 24, 1973.
2. The Judgment for Dissolution of Marriage provided that Defendant is obligated to pay to Plaintiff alimony and child support totaling $6,650.00 per year, in weekly installments of $128.00. Those payments were allocated 20 percent to alimony and 20 percent to each minor child of the marriage. During the first year following the judgment, Defendant was obligated to pay to the Plaintiff alimony and child support totaling $5,850.00, in weekly payments of $112.50.
3. On July 7, 1982, the Circuit Court of Cook County, Illinois, entered an order of judgment in the amount of $19,154.80 in favor of Plaintiff and against Defendant for arrearages in child support and alimony. That amount consisted of arrearages in child support of $12,319.60, arrearages in alimony of $6,732.80, and approximately $102.00 in costs for a total of $19,154.80. Defendant was represented by Attorney William S. Wood, now an Illinois Circuit Court Judge, in the proceedings leading to the entry of that order.
4. Defendant brought a Motion to vacate the judgment of arrearages which Motion was denied on July 1, 1985. Defendant appealed this denial to the Illinois Appellate Court which dismissed Defendant’s appeal on July 7, 1986. In this Motion to vacate and appeal, Defendant made the same allegations concerning the impropriety of the amount of the July 7, 1982, judgment as Defendant makes in opposition to Plaintiff’s Motion for Summary Judgment.
CONCLUSIONS OF LAW
1. Defendant is collaterally estopped from making the allegations he makes in opposition to the Motion for Summary Judgment. This collateral estoppel results from the litigation of this issue before the courts of the State of Illinois.
2. Defendant’s debt to Plaintiff in the amount of $19,154.80 is nondischargeable under Bankruptcy Code Section 523(a)(5).
DISCUSSION
Bankruptcy Code Section 523(a)(5) makes a debtor’s debt nondischargeable if it is 1) to a spouse or child of the debtor, 2) for alimony or support, 3) in connection with an order of a court of record, 4) to the extent the debt is actually in the nature of alimony or support. Defendant does not contest that his obligation under the July 7, 1982, judgment is in the nature of alimony and support. Defendant, instead, contests the amount of his liability under that judg*782ment. In support of his position, he makes the same arguments he made before the Illinois courts on a Motion to vacate and an appeal of the denial of that Motion.
Defendant is thus attempting to reliti-gate issues he has lost before the Illinois courts. The parties recognize that the doctrine of res judicata does not apply to the Illinois courts’ determinations. See Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979). However, that does not preclude the application of the doctrine of collateral estoppel to the determination of factual issues made by the Illinois courts.
The Seventh Circuit, in a nondischarge-ability context, has held that state courts’ determinations of factual issues may be given collateral estoppel effect by bankruptcy courts. Klingman v. Levinson, 831 F.2d 1292 (7th Cir.1987). The Seventh Circuit set down the four requirements for such collateral estoppel: “1) the issue sought-to be precluded must be the same as that involved in the prior action, 2) 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.” Id. at 1295.
Applying these requirements to the instant case, first, the issue involved in this Motion for Summary Judgment is the propriety of the amount of the alimony and child support order of July 7,1982. That is the same issue that was presented to the Illinois courts and determined by them, first, when the judgment itself was entered, then, in the Order of July 1, 1985, denying Defendant’s Motion to vacate, and, finally, in the Appellate Court’s dismissal of Defendant’s appeal on July 7, 1986.
Next, for collateral estoppel under Klingman, this issue must have been actually litigated. Defendant actually litigated the issue of the propriety of the amounts ordered on July 7, 1982, before the Illinois trial courts and the Appellate Court. The next requirement is that the Illinois courts’ determination of this issue of propriety must have been essential to the final judgment. The propriety of the amount is essential to the judgment of the Illinois court of July 7, 1982, which ordered that the amount be paid. It is also essential to the actions of the Illinois court in denying Defendant’s Motion to vacate and the Appellate Court in dismissing Defendant’s appeal.
The last requirement for collateral estop-pel is that Defendant must have been fully represented in the Illinois proceedings. Defendant was represented by competent counsel when the July 7, 1982, order was entered. Defendant makes no claim of inadequate representation by such counsel.
In conclusion, therefore, all of the Seventh Circuit requirements have been satisfied to give collateral estoppel effect in this adversary proceeding to the Illinois courts’ determinations regarding the propriety of the amount of the July 7,1982, order. This Court, therefore, finds that the $19,154.80 amount ordered on July 7, 1982, to be paid by Defendant to Plaintiff is entirely proper in amount, in accordance with the determinations of the Illinois courts. Since there is no contest regarding the nature of that amount, this Court finds that it is actually in the nature of alimony and support and that it is nondischargeable under Bankruptcy Code Section 523(a)(5).
Accordingly, Plaintiff’s Motion for Summary Judgment is granted. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490779/ | MEMORANDUM OPINION AND ORDER
ERWIN I. KATZ, Bankruptcy Judge.
This matter comes before this Court on the Motion for Summary Judgment of Plaintiff, Virtual Network Services Corporation (“VNS”) in its action against Thomas Derpack (“Derpack”) to recover a preferential payment. The facts are not in dispute. Derpack was employed by VNS from May 3, 1985 to March 7, 1986. The written terms of employment included a specified annual salary, a guaranteed $10,-000 annual bonus and a $250 monthly auto allowance. On April 6,1986, Derpack filed a wage claim application under the Illinois Wage Payment and Collection Act (Wage Act), Ill.Rev.Stat. Ch. 48, Para. 39m-l et seq. Derpack sought an unpaid annual bonus, unpaid car allowance and severance pay. After a hearing before the Department on July 7, 1986, Derpack was awarded a car allowance of $2,000 and $2,500 of the annual bonus.
On July 16, 1986, the Hearings Division of the Department sent a letter to VNS, making a formal demand that the company mail a check for $4,500, payable to Der-pack, to the Department. The letter stated “Unless you do so within 15 days from receipt of this notice, criminal charges will be filed and prosecuted against you, in accordance with the (Wage Act) ... This decision is based solely on the labor statute cited above.” VNS mailed the check to the Department on July 31, 1986.
On September 23, 1986, VNS filed a petition under Chapter 11 of the Bankruptcy Code. VNS has since then acted as debtor-in-possession; no trustee has been appointed. On October 19,1987, VNS commenced an adversary proceeding to recover alleged preferential payments made to Derpack and others. Both Derpack and VNS have filed motions for summary judgment and submitted briefs.
DISCUSSION
The issue is whether the payment made to Derpack is a preference as defined by 11 U.S.C. Sec. 547(b) and whether the payment falls within one of the exceptions to the avoidance powers of the trustee listed in subsection (c) (debtors-in-possession as well as trustees have standing to avoid preferences); In re Levine, 6 B.R. 54 (Bankr.S.D.Fla.1980), aff'd, 16 B.R. 873, aff'd, 721 F.2d 750.
The payment to Derpack clearly meets the first four requirements of subsection (b). It was a transfer of property of the debtor (1) for the benefit of a creditor; (2) on account of an antecedent debt; (3) made while the debtor was insolvent; and (4) made within 90 days before the date of the filing of the petition. 11 U.S.C.A. Sec. 547(b) (1979 and Supp.1988). To satisfy the fifth requirement, the debtor must show that the payment to Derpack enabled him to receive more than he would have if the case were under Chapter 7, the transfer had not been made and he received payment of the debt to the extent provided by the Bankruptcy Code. Barash v. Public Finance Corporation, 658 F.2d 504 (7th Cir.1981). In a Chapter 11 case, a hypothetical liquidation of the debtor’s estate *786must be done to determine whether a payment is preferential. Neuger v. United States (In re Tenna Corporation, 801 F.2d 819 (6th Cir.1986). As long as the distribution of the estate is less than one hundred percent, any payment to an unsecured creditor during the preference period will enable that creditor to receive more than he would have received in liquidation had the payment not been made. Barash at 508-09. Here, the debtor’s liquidation plan provides that holders of allowed unsecured claims not entitled to priority under Sections 503(b) and 507 of the Code are entitled to a pro rata share of all remaining funds of the VNS estate after payment in full of all allowed priority claims. Because Derpack’s wage claim is not for wages earned within 90 days before the filing of the bankruptcy petition, it is not entitled to priority under Section 507(a). Therefore, Derpack would receive less than one hundred percent of his wage claim under a hypothetical Chapter 7 liquidation, and the fifth requirement has been established.
The payment does not fall under one of the exceptions listed in subsection (c), such as contemporaneous exchange for new value given to the debtor or the fixing of a statutory lien. See 11 U.S.C.A. Sec. 547(c) (1979 and Supp.1988).
Derpack contends that the wage proceeding commenced by him took on the form of a criminal proceeding when the Department issued its July 16 letter to VNS. Therefore, he argues, the payment made by VNS was essentially one of restitution made pursuant to an order of a governmental unit.
He therefore argues that he received no more than he would have received under a Chapter 7 distribution, i.e., 100%, since his actions would not be barred by the automatic stay under Section 362(b)(4). Derpack cites In re Dervos, 37 B.R. 731 (Bankr.N.D.Ill.1984), in support of his argument. In Dervos, the owner of a school was prosecuted by the State of Illinois on behalf of four of his teachers for violations of the Wage Act. Dervos, the owner, entered a plea of guilty. In a judgment order dated July 1, 1982, the judgment of conviction was deferred and Dervos was placed on supervision until December 9,1982, with the supervision being conditioned on his payment of back wages to the four teachers. Dervos filed a Chapter 13 petition on September 3, 1982 and failed to make any payments to the teachers. The teachers then filed a complaint to lift the operation of the automatic stay.
The Bankruptcy Court held that the provisions of the judgment order were excepted from the operation of the automatic stay. Because the order of the court directing Dervos to pay his teachers was part of a proceeding which was criminal in nature, its enforcement was excepted from the operation of the automatic stay under 11 U.S.C. Sec. 362(b)(1). It was also excepted under subsection (b)(4) because the proceeding by the State of Illinois was an enforcement of its police or regulatory powers which was not aimed at gaining a pecuniary advantage but designed to protect a broad public interest. Dervos at 734.
Because criminal proceedings have not yet been commenced against VNS Corporation or its officers, Dervos lends no support to Derpack’s argument. The July 7, 1986 wage proceeding before the Department was no more than an “adjust[ment of] controversy]” between Derpack and his employer under Illinois Revised Statutes, Ch. 48, Para. 39m-ll(a). It was essentially an enforcement of Derpack’s private right of action under the Wage Act, with the same result as if he had pursued it himself. See In re Faber, 52 B.R. 563 (Bankr.N.D.Ill.1985). The July 16 letter to VNS stated that “criminal charges will be filed....” [Emphasis added]. After the check was mailed to the Department, the Wage Act proceeding ended. There was no pending proceeding to be stayed by the corporation’s bankruptcy petition. The only issue before this court is whether the payment to Derpack was preferential. Because the payment meets the requirements set forth in Section 547(b) and does not fall under any of the exceptions in Section 547(c) or Section 546, the payment is preferential regardless of the fact that it was made under threat of criminal prosecution.
*787This court need not now determine whether a continuation of the Wage Act proceeding might fall within the exceptions to the automatic stay contemplated under Section 362(b)(4). The state’s public interest could be pursued under the Illinois Wage Act against the corporate officers or other individuals who caused Derpack not to receive his wages. Indeed, the imposition of criminal sanctions is more aptly applied against those individuals rather than against a reorganizing corporate debt- or. The penal effect would be meaningless to a corporate debtor-in-possession since its end result would impact mainly upon creditors totally unrelated to the prohibited acts. Indeed, it may be as valid an assumption that Derpack would have proceeded directly against the individuals rather than against the corporate debtor. See Illinois Revised Statutes, Ch. 48, Para. 39m-13: “Any officers of a corporation or agents of an employer who knowingly permit such employer to violate the provisions of this [Wage] Act shall be deemed to be the employers of the employees of the corporation.”
Although the payment to Derpack was made under the threat of criminal prosecution, it cannot be said that it was in the form of restitution or for the benefit of a governmental unit. There is no evidence that the Code was written to exempt payments such as the one made to Derpack from being returned to the debtor’s estate for distribution to creditors.
Accordingly, Plaintiff’s Motion for Summary Judgment is granted. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490780/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
MARK B. McFEELEY, Bankruptcy Judge.
This matter came before the Court for final hearing on Trustee’s Report of Sale and Motion to Confirm Sale and the Response and Objection to Report of Sale and Motion to Confirm Sale filed by Jane Black Roehl (“Roehl”). Roehl objects to the acceptance or approval of the bid of ABQ Development Company to purchase certain real property described hereafter as “Lot 1”.
FACTS
On November 18,1987 this Court entered an Order Approving Settlement Agreement executed by the three partners in Seven Bar Land & Cattle Company, in both their individual and general partner capacities, and their spouses. In summary, the agreement released all prior claims by and between the parties to that date, dismissed pending state court proceedings, agreed to an order of relief under chapter 11 of Title 11 and agreed to the appointment of a trustee.
Paragraph 6 of that agreement stated in relevant part:
Within six months after the entry of the order for relief, unless the parties and the trustee agree that additional time is needed, the trustee will liquidate all assets of Seven Bar (including Seven Bar’s partnership interests in all Second Tier Partnerships) as a single package, at a “live” auction, in a manner which the trustee determines to be appropriate to realize the maximum value to the parties. The trustee will accept the highest bid for cash, payable on the day.
Paragraph 7 provides, in part:
The trustee will have all of the powers of a chapter 11 trustee under the Bankruptcy Code, plus the power to sell the property of Seven Bar as set forth herein. The trustee will employ a firm of national stature and prominence to liquidate the assets of Seven Bar in accordance with the provisions of the Settlement Agreement. The fees of such firm will be negotiated by the trustee, and will be subject to Bankruptcy Court approval.
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Although this agreement reflects the agreement of the paries with respect to the matters herein, and the parties agree not to take a position in the chapter 11 case contrary to the terms of this Settlement Agreement, all parties recognize that the trustee has the discretion to take such actions as he finds to be in the best interest of the estate.
The trustee filed a Motion to Extend Sale Date and Modify Conditions of Sale on May 13, 1988, seeking to extend the sale date to September 15,1988 and asking authority to bid the property in parcels as opposed to a single unit. Roehl filed two memoranda in support of the trustee’s motion. In these memoranda she repeatedly stated that the major premise of the settlement agreement was an auction. See Memorandum of May 26, 1988 at 2-4 (“The parties determined that a public sale of Seven Bar’s assets, arranged and conducted by an independent third party, was required.” “By providing for a live public sale conducted by an independent party, the Settlement Agreement *929resolved the major point of contention among the partners.” “The major premise ... was that Seven Bar should be liquidated through a fair sale ... This involved providing for a marketing effort designed to, by drawing national attention to the assets, bring sophisticated developers to the auction.”), and 8 (“the main thrust ... is a fair, professionally prepared for and conducted, fully noticed public sale.”). See also Memorandum of June 6, 1988 at 11 (“The fundamental principle ... is that the property be sold at a nationally-advertised public auction.”). Thereafter the Court ordered that the auction date be extended to September 15, 1988 and also granted the trustee the authority to sell the assets in various parcels (Lots 1, 2 and 3) to maximize return to the estate.
The trustee conducted an auction on September 15, 1988, offering for sale the assets in seven different combinations. On September 23, 1988 the trustee filed his “Report of Sale and Motion to Confirm Sale” in which he reported his decision to accept the $7.5 million bid of ABQ Development Company on Lot 1 and the $10.5 million bids of John and Rolfe Black on Lots 2 and 3. The trustee recommended that the bids on Lots 2 and 3 be accepted by the Court. He made no recommendation with respect to the Court accepting the bid for Lot 1, but submitted it for approval as the best bid obtained. Roehl objects to the offer for Lot 1 only. No parties with standing objected to the sale of Lots 2 and 3.On October 6, 1988 the Court entered an order approving sale of Lots 2 and 3.
The Court held hearings on October 25 and November 4,1988 on Roehl’s objection. The trustee testified, as did two employees of Morgan Stanley (the “national stature” marketing firm agreed to by the parties and trustee), a local real estate developer, Dr. Hahn, the director of real estate consulting for the firm of Leventhal & Company, an appraiser, the president of ABQ Development Company, and an engineer that participated in the development of the master plan for the land subject to the offer. At the conclusion of the other testimony the trustee resumed the stand and testified that based upon the testimony presented he was now affirmatively recommending that the Court accept the bid and approve the sale.
Based on the testimony of the parties, the documents in evidence, and the pleadings on file the Court makes the following findings:
1. Lot 1 is approximately 513 acres in size. Of the 513 acres, the sector plan sets aside in excess of 60 acres for roads, drainage rights of way, and other non-income producing space.
2. The parties to the settlement agreement agreed that all assets would be liquidated at a “‘live’ auction, in a manner which the trustee determined to be appropriate to realize the maximum value”, and that the “trustee will accept the highest bid”.
3. The trustee has recommended acceptance of the $7.5 million bid. That bid was the highest received.
4. The notice and advertisement gave reasonable notice on a national scale to the majority of developers who were likely to be interested in this property. Even if the auction were rescheduled it is not likely that any substantial additional interest would be shown or that additional bids would be presented.
5. The parties to the settlement agreement agreed to sell at auction.
6. The testimony was uncontroverted that the trustee is not likely to get more from another auction held in a short period of time.
7. Board minutes in evidence indicate that the $7.5 million offer was the maximum offer authorized by the board of directors of ABQ Development Company.
8. John and A. Rolfe Black are intimately familiar with the subject property due to their affiliation with the debtor. They bid on this parcel at the auction but did not outbid ABQ Development.
9. There was no testimony that convinced the Court that Lot 1 would sell at auction for more than $7.5 million.
10. If this offer is accepted all creditors can be paid in full and a dividend can be *930paid to the partners. The issue before the Court is, substantially, only a dispute between parties to the settlement agreement.
11. The trustee has complied in all respects with the terms of the settlement agreement.
12. The value of Lot 1 is not in excess of $10 million.
CONCLUSIONS OF LAW
1. The trustee, after notice and hearing, may sell, other than in the ordinary course of business, property of the estate. 11 U.S.C. § 363(b)(1).
2. Reasonable and adequate notice was given to all interested parties.
3. The proposed sale is economically reasonable and commercially justified.
4. The offered price is reasonable and fair.
5. All creditors can be paid in full upon sale. The partners can be paid their claims in full upon sale.
6. Had this sale been proposed as a plan of reorganization, no class or claim would be impaired, see 11 U.S.C. § 1124(3)(A), and the plan would be confirmable over Roehl’s objection, see 11 U.S.C. § 1129(a)(8)(B).
7. The trustee’s motion is well taken and should be granted. Roehl’s objection is not well taken and should be denied.
An appropriate order shall enter. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490782/ | ORDER ON MOTION TO SHOW CAUSE
R. GLEN AYERS, Jr., Chief Judge.
Because this Chapter XI case has been pending for twelve years, the court issued an order to show cause as to why the case should not be converted or dismissed. In response, the debtor cited the court to In re Gary Aircraft Cory., 698 F.2d 775 (1983), cert. denied, 464 U.S. 820, 104 S.Ct. 82, 78 L.Ed.2d 92 (1983), in which the Fifth Circuit ordered this bankruptcy court to stay further action on the central issues in this case “pending proceedings before the Armed Services Board of Contract Appeals”. Id. at 785.
The Fifth Circuit believed that this bankruptcy court should be forced to defer because of the expertise of the Board, and that such “would not impair the primary goal of bankruptcy — requiring satisfaction of all claims ... in a central forum ... Id. at 783.
Well, this all may be fine, but those issues were initially resolved by this court after an eight month trial conducted in 1978 and 1979. Following the trial, the appeals process took nearly four years.
At that point the matter went to the Board where the issues are still pending after five years. The case cannot be closed nor assets distributed until the Board acts. All of this means that, for example, employees with claims over twelve years old have yet to be paid.
It is, therefore, ORDERED that the court’s order to show cause be withdrawn. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490783/ | MEMORANDUM AND ORDER
LETITIA Z. CLARK, Bankruptcy Judge.
Came on for hearing, United Crane & Rigging, Inc., Emergency Motion for Authority to Use Cash Collateral, and after considering the evidence and testimony presented, the court enters the following Order. To the extent any findings of fact herein are deemed to be conclusions of law, they are hereby adopted as such. To the extent any conclusions of law herein are considered to be findings of fact, they are hereby adopted as such.
Facts
United Crane & Rigging, Inc. (“United Crane”), the Debtor, operates a manned and maintained crane and rig rental operation. United Crane filed Chapter 11 May 3, 1988.
On July 1, 1987 United Crane executed a promissory note in favor of First Republic-*114Bank (“Bank”) in the amount of $545,-006.76. The note matured on April 1, 1988 and the entire amount of the note plus interest is presently due and owing. The Bank perfected its security interest in the goods, fixtures, equipment, inventory, accounts and the like on December 21, 1987 by filing of a UCC-1. The security agreement contained an after-acquired property clause. On March 16, 1988 the Internal Revenue Service (“I.R.S.”) filed its notice of federal tax lien pursuant to 26 U.S.C. §§ 6321, 6322 and 6323, in the amount of $252,281.04.
On May 3,1988, the date on which it filed bankruptcy, United Crane also filed its Emergency Motion for Authority to Use Cash Collateral and at the hearing held May 19, 1988 this court permitted the limited use of cash collateral by the Debtor subject to certain specified conditions. United Crane and the I.R.S. have stipulated to limited use of cash collateral by the Debtor for the remainder of May, 1988, in accordance with a detailed schedule of expenditures. (See, “Stipulations and Agreement” filed May 23, 1988) In these stipulations I.R.S. agreed to retain its pre-petition lien status through the month of May, 1988. These stipulations, however, are phrased in terms of pre-petition status, not pre-May 3, 1988 status.
The Debtor has requested the authority to use the cash proceeds of its pre-petition accounts receivable to pay its required operating expenses. The Debtor proposes to provide the Bank adequate protection of its interest in the collateral pursuant to 11 U.S.C. § 361 by fully reporting to the Bank, providing the Bank with a right to review its bank statements and by granting the Bank a replacement lien in the post-petition accounts receivable to the extent of the Bank’s interest in pre-petition accounts receivable plus pre-petition cash on hand.
The Bank argues that it will not be adequately protected if the Debtor is permitted to use the cash collateral under the above conditions, on grounds, inter alia, that, pursuant to 26 U.S.C. § 6323, the I.R.S. has a lien in excess of $500,000.00 which is arguably prior to the Bank’s lien beginning 12:00 o’clock midnight following the forty-fifth day after March 16, 1988. Debtor’s bankruptcy filing was at 1:37 p.m. on the forty-sixth day. The Bank urges that the Motion for Authority to Use Cash Collateral should be denied.
Conclusions of Law
The primary issue for consideration is whether the Bank interests are adequately protected by the granting of a replacement lien in the post-petition accounts receivable of United Crane. The Bank argues that the duly perfected I.R.S. lien will prime the replacement lien if provided by the Debtor, in the post-petition accounts receivable. The result, the Bank argues, is insufficient adequate protection of the Bank’s interest in the collateral.
United Crane argues that the tax lien does not attach to property acquired by the Debtor post-petition. The Debtor also argues that 11 U.S.C. § 362 precludes the attachment of a tax lien to post-petition property of the estate.
The governing provision regarding attachment of the tax lien in this case is 26 U.S.C. § 6323(c) & (d). The tax lien attaches to all property of and all rights to property of the taxpayer. 26 U.S.C. § 6321. Some transactions are given priority status over the tax lien for a certain period of time including commercial transactions entered into before the tax lien filing. 26 U.S.C. § 6323(c) & (d). The effect of this provision is to give the lender on a transaction coming within this section priority over the recorded tax lien equal to the amount of money disbursed during the forty-five days after the date of the tax lien filing. 26 U.S.C. § 6323(c) & (d).
The petition in bankruptcy was filed by the Debtor on May 3, 1988 at 1:37 p.m. Although May 3, 1988 was the forty-sixth day, application of 26 U.S.C. § 6323 indicates that the tax lien attached, to the property of the Debtor on the forty-sixth day by operation of law after the grace period of forty-five days had expired under the statute. As the bankruptcy was filed at 1:37 p.m. that day, the tax lien had attached prior to the filing of the petition *115by the Debtor. Since the automatic stay was not invoked until 1:37 p.m. on May 3, 1988, it will not operate to preclude attachment of the tax lien as the lien had already attached by operation of law upon the start of the forty-sixth day.
The result of the application of 26 U.S.C. § 6323 to the case at bar is that the Bank has priority as to disbursements made to the Debtor during the forty-five day grace period provided by the statute. Texas Oil & Gas Corp. v. United States, 466 F.2d 1040 (5th Cir.1972), cert. denied, 410 U.S. 929, 93 S.Ct. 1367, 35 L.Ed.2d 591 (1973). However, after the forty-fifth day after the filing of the I.R.S. tax notice, the post-petition accounts receivable are subject to the I.R.S. lien; and the I.R.S. lien will be superior to that of the secured creditor. In re Schons, 54 B.R. 665 (Bankr.W.D.Wash.1985), In re All Tool Rentals, 40 B.R. 580 (Bankr.S.D.Fla.1984).
The I.R.S. stipulated to retain its “pre-pe-tition” status through the month of May, 1988. However, the I.R.S. lien attached between 12:01 a.m. and 1:37 p.m. on May 3, 1988. 'Thus the wording “pre-petition” does not adequately protect the Bank. It is therefore,
ORDERED that the Debtor’s Emergency Motion for Authority to Use Cash Collateral is denied following preliminary hearing. A final hearing on Debtor’s Emergency Motion for Authority to Use Cash Collateral is set for June 9,1988, at 10:30 a.m., 9th Floor, Courtroom # 10, 515 Rusk Avenue, Houston, Texas. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490784/ | ORDER DENYING CONFIRMATION
DONALD E. CALHOUN, Jr., Bankruptcy Judge.
This matter is before the court on the debtors’ amendment to their Chapter 13 *136plan filed October 5, 1988 in response to this Court’s order entered September 22, 1988 denying confirmation of the debtors’ first proposed plan of reorganization. The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this district. This is a core proceeding arising under 28 U.S.C. § 157(b)(2)(L).
This Court, by opinion and order entered September 22, 1988, denied the debtors’ first proposed plan of reorganization on the basis that 81% of the debtors’ unsecured debt was comprised of student loans, and yet the debtors proposed to pay to its unsecured creditors a dividend of only 10.5%. In light of the decision of the Sixth Circuit Court of -Appeals in the case of In re Doersam, 849 F.2d 237 (6th Cir.1988), this Court found that the debtors’ plan was not filed in good faith, and denied confirmation. The debtors were granted leave of twenty days in which to amend their plan of reorganization in conformance with applicable law.
On October 5, 1988, the debtors filed an amendment to their Chapter 13 plan of reorganization by which they propose to pay $76.36 per month for distribution to creditors. By amendment, they have increased the length of the term of their Chapter 13 plan from 36 months to 58 months, which in turn has increased the dividend to be paid to unsecured creditors from 10.5% to 20%.
If the Court were to confirm the debtors’ amended Chapter 13 plan of reorganization, it would be acting contrary to the 6th Circuit Court of Appeals’ holding in the Doersam case. This Court’s interpretation of the court’s holding in Doersam is that a Chapter 13 plan of reorganization that has the effect of discharging debts that would not be dischargeable under Chapter 7 violates the good faith requirement under 11 U.S.C. § 1325(a)(3).
Prior to Doersam, this Court in previous rulings on student loans has not required that debtors fully pay those loans within their plans of reorganization, and within the parameters of 11 U.S.C. § 1322(c). Rather, this Court has approved the debtor’s plan when it proposed to treat the student loan as a long-term debt, with any arrearage to be cured within the plan, and regular payments to continue through the plan, as well as after plan completion pursuant to 11 U.S.C. § 1322(b)(5).
This provides the debtors with an alternative when it is not feasible to pay the student loan within the sixty-month limitation of a plan. It is the opinion of this Court that its prior ruling is still viable as to that alternative and is not in conflict with the Doersam decision.
The debtor’s amended plan of reorganization does not propose to pay the student loan obligations to the State of Ohio, Ohio Student Loan Commission in accordance with either of these precedents.
The Court’s requirements having been fully restated, and since the debtors’ amended plan of reorganization does not comply with those requirements, their amended plan is denied, and the debtors are granted twenty (20) days from the date of entry of this order to propose a third amended plan of reorganization. If no such plan is proposed within that twenty (20) days period, this matter will be dismissed without further notice.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490785/ | MEMORANDUM OPINION
JOHN C. MIN AH AN, Jr., Bankruptcy Judge.
This adversary proceeding came before this court for trial upon an Objection to Discharge (Fil. # 1) under 11 U.S.C. §§ 523 and 727, filed by the First National Bank & Trust Co. of Beatrice, Nebraska (the “Bank”) against the debtors, John David Claassen and his wife Carol Ann Claassen. The Bank and the debtors entered into a stipulation of facts which was received in evidence. The stipulation of facts and the exhibits thereto are incorporated herein. The facts set forth in the stipulation are supplemented by the findings of fact set forth herein.
FINDINGS OF FACT
The Bank sold 34 Holstein cows for $25,-000.00 to John Claassen, Robert Claassen and Claassen’s Line-Side Farms, a Nebraska partnership. The Bank financed the purchase price of the cows and retained a duly perfected security interest in the 34 cows. The Bank obtained a subordination agreement respecting the security interest held by Beatrice National Bank in the cows and the Bank held a first priority security interest.
Between August, 1983 and August, 1986, two of the cows died and 32 were sold for a total of $15,279.05. Only $2,200.00 was paid to the Bank. The balance of these proceeds were deposited in a Line-Side Farms account at Beatrice National Bank with the exception of one check that was cashed and used for living expenses and one check which was deposited in an escrow account at the Bank. The funds deposited with Beatrice National Bank were applied to the payment of debt due Beatrice National Bank, or withdrawn for the payment of living expenses and repairs or for the payment of expenses of Line-Side Farms. The Bank did not consent to the sale of any of the cows and it did not discover that the cows had been sold until September, 1986, which was after their disposition. The sales were in violation of the terms of the Bank’s security agreement.
The debtor, John Claassen and his brother Robert Claassen, are the only partners of Line-Side Farms. The debtor and his brother have no farming operation other than the partnership.
There is no evidence that the sale of the subject cows was concealed or conducted in a manner other than in the ordinary course of the farming operations of Line-Side Farms. Books and records were maintained concerning the subject cows. Milk production records were kept and records were made and maintained concerning the sale of the cows and the disposition of proceeds. Debtors have met their burden of accounting for property of the estate and the disposition of the cows and the proceeds thereof. There is no credible evidence that the proceeds from the cows were diverted for any purpose other than living and operating expenses and payments to Beatrice National Bank.
The debtor, John Claassen had an interest in $65,000.00 to $70,000.00 proceeds of a government dairy program. Under this program, the United States paid funds to dairy farmers for the termination of their dairy operation and the sale of their dairy herd. The debtor, John Claassen explained what happened to these funds. They were used to pay current debt of Line-Side Farms, and for repairs and rent, including the remodeling of debtors’ kitchen.
The record is completely devoid of any evidence as to the role or participation of debtor, Carol Claassen in any of these transactions. She was not a party to the agreement by which the Bank sold the subject cows to John Claassen, Robert Claas-*195sen and Line-Side Farms, nor was she a' partner in Line-Side Farms.
CONCLUSIONS OF LAW
The legal issues in this case are:
1. Whether the obligation of John and Carol Claassen to the Bank are barred from discharge under 11 U.S.C. § 523(a)(4) or (6).
2. Whether the debtors, John and Carol Claassen are barred from a discharge on all debts under 11 U.S.C. § 727(a)(2), (3) or (5).
I conclude that debtors are not barred from discharge under §§ 523 or 727. EXCEPTIONS TO DISCHARGE UNDER § 523
Under § 523(a)(4), a discharge in bankruptcy does not include the discharge of a debt “for fraud or defalcation while acting in a fiduciary capacity....” It has long been established, however, that the Code’s reference to “fiduciary” applies only to trustees of express trusts. In re Long, 774 F.2d 875, 878 (8th Cir.1985). See Davis v. Aetna Acceptance Co., 293 U.S. 328, 333, 55 S.Ct. 151, 153, 79 L.Ed. 393 (1934). To bar discharge of a debt under § 523(a)(4), the debtor must be a trustee in the “strict and narrow sense.” Davis, 293 U.S. at 333, 55 S.Ct. at 153. Debtors herein were not express fiduciaries. It is not proper, therefore, to bar discharge under § 523(a)(4).
Under § 523(a)(6), a discharge under § 727 does not discharge an individual debtor from a debt “for willful and malicious injury by the debtor to another entity or property of another entity.”
On the facts of this case, the debtor, John Claassen intentionally violated and breached the terms of a security agreement by selling collateral. The sale of collateral under some circumstances constitutes a Class IV Felony under Nebraska law. See Neb.Rev.Stat. § 69-109 (Reissue 1986). The conduct of John Claassen was thus wrongful, in breach of contract and possibly criminal. Yet, this conduct does not preclude discharge unless the court finds that the debtor’s acts were “willful and malicious”.
Willfulness and malice are separate and distinct elements of § 523(a)(6), which are to be analyzed separately in determining whether a debt is dischargeable. There is a consensus of opinion that “willful means intentional or deliberate.” See e.g., In re Long, 774 F.2d at 880; In the Matter of Morgan, 22 B.R. 38, 39 (Bkrtcy.D.Neb. 1982). The element of “malice,” however, is more troublesome. Some courts have held that the sale of collateral without the consent of the secured creditor constitutes a willful and malicious injury under § 523(a)(6). See e.g., United Bank of Southgate v. Nelson, 35 B.R. 766, 776 (Bkrtcy.N.D.Ill.1983); In re Ries, 22 B.R. 343, 346-47 (Bkrtcy.W.D.Wis.1982); In re DeRosa, 20 B.R. 307, 313 (Bkrtcy.S.D.N.Y. 1982). These courts interpret § 523(a)(6) as barring discharge through implied or constructive malice. If willful or reckless action results in harm to a creditor, these courts would deem the debtor’s conduct malicious without a finding specific intent to cause harm.
Other cases, included the eighth circuit, have reasoned that the concept of malice entails more than mere willfulness or reckless disregard of creditor’s economic interests. In the eighth circuit, when the sale of collateral in violation of the terms of a security agreement is at issue, discharge-ability depends on whether the debtor’s conduct was “(1) headstrong and knowing (“willful”) and (2) targeted at the creditor (“malicious”), at least in the sense that the conduct is certain or almost certain to cause financial harm.” In re Long, 774 F.2d at 881 (citing Davis 293 U.S. at 332-33, 55 S.Ct. at 153-54).
A heightened degree of culpability must be present, going beyond recklessness or an intentional violation of a security agreement. Upon this analysis and emphasis upon “malice,” a debt resulting from the criminal conversion of collateral may not bar discharge because conversion under federal law requires only proof of willfulness and not malice. See In re Vandrovec, 61 B.R. 191, 14 B.C.D. 567 (Bkrtcy.D.N.D. 1986). Malice therefore involves more than *196willful, reckless, or perhaps even criminal behavior.
On the facts of this case, there has been no showing that debtor’s conduct in selling the collateral was targeted at the creditor or was certain or almost certain to cause financial harm. The sale of the collateral occurred over an extended period of time. The proceeds of sale were accounted for and the proceeds were not converted into exempt property. There is no evidence that the sale of the 32 cows was other than in the ordinary course of debtors’ business. Although there was a willful conversion of the Bank’s collateral, “a willful and malicious injury does not follow as of course from every act of conversion.” Davis, 293 U.S. at 332, 55 S.Ct. at 153. Debtor’s obligation to the Bank is not barred from discharge under § 523(a)(6).
BAR TO DISCHARGE UNDER § 727
Section 727(a)(2) bars discharge of all debts where the debtor, with intent to hinder, delay, or defraud a creditor, has transferred his property within one year of filing bankruptcy. On the facts of this case, however, I do not find that the debt- or’s transfer of the 32 cows was with the intent to hinder, delay or defraud the Bank. There is no evidence that the cows were sold other than in the ordinary course or at less than fair market value. There is no evidence that the debtor diverted the proceeds of sale or placed the proceeds into exempt property. The cows were sold over an extended period of time between August, 1983 and August, 1986. The debtors filed a Chapter 11 bankruptcy petition on November 6, 1986, and converted the case to Chapter 7 on January 11, 1987. Although there has been a sale of collateral without the consent of the secured party, I do not find that the debtors intended to. thereby defraud the Bank.
Although the debtor knowingly and willfully sold the cows, there has been no showing of an actual intent to defraud on the part of the debtor. Further, because of the well developed decisional law under § 523 relating to the sale of collateral, I conclude that a bankruptcy court cannot infer fraudulent intent based solely on a debtor’s action in selling collateral in violation of the security agreement. This necessarily follows from the decisional law under § 523(a)(6). If “malice” is required as a condition to barring discharge on an individual debt under § 523(a)(6) and malice cannot be inferred from the sale of collateral out of trust, it follows that the court cannot bar the debtors entire discharge under § 727(a)(2) by predicating its finding of intent to hinder and delay creditors solely on the fact that collateral was sold out of trust. Thus, I conclude that the sale of collateral in violation of the terms of a security agreement is not a “badge of fraud” under § 727(a)(2).
Under § 727(a)(3), a debtor may be barred from discharge if he has failed to maintain records from which his financial condition might be ascertained. Such a failure is not present in this case. Mr. Claassen maintained books and records relating to the subject cows. Records concerning milk production, the sale of the cows, and the distribution of proceeds, were all made and maintained by the debtors. There is no evidence that the debtors concealed the sale of the cows or conducted the sale in a manner other than in the ordinary course. Barring discharge under § 727(a)(3) is not appropriate in this case.
A discharge may be barred under § 727(a)(5), if the debtor fails to explain satisfactory any loss or deficiency of assets. Debtors in this case have met their burden of accounting for their assets. I find on the record that debtors’ have accounted for the property of the estate, the sale of the cows, and the disposition of their proceeds. Although there was no detailed accounting, debtor’s testimony as to the use and disposition of proceeds was not impeached. The debtors’ discharge should not be barred under § 727(a)(5).
Finally, on the issue of differentiating between John and Carol Claassen, there is no evidence from which to infer that Carol Claassen was in any way culpably responsible for the sale of the cows out of trust. In fact, the record will not support any finding of fact as to Carol Claas-*197sen’s participation or involvement in any of the transactions or occurrences in this case. Therefore, she is not barred from discharge under either § 523 or § 727. See generally, In re Lansford, 822 F.2d 902, 904 (9th Cir.1987).
Based on the foregoing, the court finds that neither John Claassen nor Carol Claas-sen are to be barred from discharge under either § 523 or § 727.
A separate order will be entered consistent herewith. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490786/ | ORDER ON OBJECTION TO CLAIM
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 case and the matter under consideration is the second phase of an ongoing controversy between Robert 0. Fischl (Fischl) and Corkscrew Golf Property Land Trust (Trust). The controversy centers around a claim of Fischl who seeks an allowance of a claim in the amount of $225,000.00 based on a claim for compensation for his services allegedly rendered by him to Trust. At the initial phase, the matter was tried, and this Court by an order entered on March 18, 1988, determined and held that the agreement between Fischl and the Trustee for the Trust (Exhibit No. 1) was a non-exclusive service agreement and Fischl will only be entitled to recover compensation if, in fact, he procured the loan or, in the alternative, a letter of commitment. Based on the foregoing, this court ruled that Fischl is not entitled to any recovery under the Agreement, but should be given the opportunity to show how much, if any, did his work produced benefit the Trustees in their efforts to obtain the necessary financing for the development of the project, particularly to what extent his labor and services assisted the Trustee to ultimately obtain a construction loan from the Barnett Bank of Miami in the amount of $10,500,000.00. Based on this, it was ordered that the matter shall be rescheduled for trial to enable Fischl to present evidence in support of his claim limited to the issue. In due course, the matter was set for trial at which time the facts which are relevant to the resolution of these issues have been established and which are as follows:
In late December of 1982, Thomas Wright, who was the marketing director for the project owned by the Trust, known as Wildcat Run, introduced Fischl to the Trustees and suggested to the Trustees that Fischl would be able to assist them in obtaining the financing necessary for the ultimate development of the project. The parties discussed this proposition and ultimately agreed and entered into a contract mentioned earlier. The contract was executed on January 13 (Debtor’s Exhibit No. 2).
It appears that shortly thereafter, Fischl was furnished a space in the office maintained by the Trust and also furnished some pertinent data and materials relating the history of this development from which Fischl prepared a brochure. The brochure does not contain any financial data of the project but merely consists of compilation *278of certain facts in the history of the project and indicates on its face that the project was intended to be a golf resort operation in which Arnold Palmer may be involved. It appears that the Trustees, having unsuccessfully pursued a construction loan, contacted several mortgage brokers who all worked toward obtaining the necessary financing for the completion of the project. It is without dispute that Mr. Fischl worked from January 13 through January 19 on this brochure. Fischl also contacted the office of Citicorp located in St. Peters-burg, the office of Federal Savings & Loan Association in Tampa, and the office of Great Financial Corporation located in Orlando. None of these contacts produced any result, and none of these conferences even reached a serious negotiating stage although representatives of Citicorp expressed some interest and did actually visit the project. Although the Trustees obtained a commitment for financing from Great Financial prior to Fischl’s arrival on the scene, this commitment never came to fruition and was ultimately cancelled.
It further appears that Fischl, who lives in Chicago, after the initial contact with the Trustees, made several trips up north and apparently contacted or attempted to contact Mellon Financial Institute in Pittsburgh, but again without any success.
The initial attempt to obtain financing was based on a so-called “equity kicker” concept, which contemplated to grant equity interest to any lender in exchange for an agreement to lend the funds necessary to complete the development of the project. It appears that the president of a golf course construction company of Arnold Palmer suggested that it might be a good idea to offer an “equity kicker” to Arnold Palmer for his guarantee of a loan which would make the project more attractive, which in turn would lead to a favorable consideration by lenders of any loan request.
There is no question that approval never materialized and the fact of the matter is that the proposition was not even presented to Arnold Palmer. Be that as it may, the idea was completely abandoned, but not because of any suggestion by Fischl, but because of the Trustee’s inability to obtain an agreement by Arnold Palmer to participate in the project. The idea to abandon the equity kicker concept, even if it came from Fischl, played no meaningful role whatsoever in the loan ultimately obtained and was dropped because of the Trustee’s inability to get a favorable response from Arnold Palmer. At one time the Trustees in their pursuit to obtain a loan projected a construction cost of $15,465,494.00 (Creditors’ Exhibit No. 18). Fischl suggested that the reason for the Trustees’ inability to get the loan was that they were asking too much and $6,000,000.00 would be more than sufficient to develop the project. It also appears that at one point there was a discussion of pursuing a $1,000,000.00 letter of credit for the purpose to “sweeten the pot.” It developed, however, that this idea came about because one of the beneficiaries of the Trust, Mr. Miller, refused to agree to subordinate his mortgage encumbering the project to the mortgage to be granted to the prospective lender. For this reason, it was suggested that since the prospective lender would not receive a first mortgage encumbering the entire tract of land, including the tract on which Miller already held a mortgage, the difference should be made up by granting a letter of credit in favor of the lender.
Concerning the idea of utilizing the letter of credit, even if that idea came from Fischl, again it did not play any role in the loan ultimately obtained by the Trustees and the idea was abandoned because the lender did not request it as a condition precedent to grant the loan.
It appears that one of the beneficiaries of the Trust was an officer of Barnett Bank of Lee County who asked the Trustees in November of 1982, or before Fischl arrived on the scene, to give him some financial data on the project. Because of his position with the Bank, it was obvious that he could not present the same to the Bank he worked for. For this reason, he forwarded the financial information to the Barnett Bank of Miami. It further appears that the Trustees contacted the Barnett Bank of Miami and suggested a meeting to *279discuss this prospective loan. On January 26, 1983, the Trustees met with Barnett of Miami and thereafter seriously commenced the negotiations for a construction loan for $10,500,000.00. The Trustees continued to provide Barnett with financial data of the project. There is no evidence in this record to indicate that the brochure prepared by Fischl was ever presented to Barnett; that Fischl had any contact whatsoever with Barnett of Miami at any time and played any role of any sort in the ultimate conclusion of this construction loan.
Based on the foregoing, Fischl now contends that in spite of Barnett of Miami, his labor benefited the Trust by coaching the Trustees and advising them how to make presentations to prospective lenders; by suggesting to them to abandon the equity kicker type of financing; by suggesting to them to reduce the loan request from $15,-000,000.00 to $6,000,000.00, or by utilization by them of the material prepared by him.
Considering this record even in the most favorable light to Fischl, it is clear that the idea of commercial financing vs. equity kicker financing played no part whatsoever in the ultimate success in obtaining the loan. The equity kicker approach was not dropped because of his advice, but simply because it soon became evident that Arnold Palmer had no intention to become involved with this development project.
Considering the alleged benefit of his advice to the Trustees that they should request only $6,000,000.00 it equally fails to rise to the level of a benefit for obvious reasons that the loan obtained was first of all $10,500,000.00 and Barnett of Miami would not have even considered a $6,000,-000.00 loan inasmuch as it would have been woefully inadequate to complete such a project of this type and size. There is no evidence in this record to show that a picture that Fischl had taken was ever used as part of a presentation of Barnett Bank, neither was the brochure prepared by him. (Exhibit. No. 14)
Based on the foregoing, there is hardly any doubt that Fischl was just one of several brokers who attempted to obtain the financing. Under his contract he certainly would have gotten a very hefty commission if he had succeeded, $225,000.00 conceivably within a few days after the contract was signed. First, it was an independent contractor and not an employee of the Trust. His time was his own at all times. The fact that the Trustees gave him a space in the office maintained by the Trust is without significance. In sum, it is clear that whatever services he performed, his services played no meaningful role whatsoever in the ultimate success of the Trustees in pursuing the construction loan from Barnett of Miami. Based on the foregoing, this Court is satisfied that Fischl is not entitled to have his claim allowed on a quantum meruit basis, and the objection to claim of Robert Fischl should be sustained.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Trustee’s Objection to the claim of Robert Fischl be, and the same is hereby, sustained and the claim by Fischl is disallowed in toto.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490787/ | ORDER DISMISSING COMPLAINT WITH PREJUDICE
GEORGE L. PROCTOR, Bankruptcy Judge.
This cause having been heard upon the Motion to Dismiss Complaint with Prejudice filed by the defendant, Stockton, Whatley, Davin & Company, now known as BancBoston Mortgage Corporation, a Florida corporation (“BBMC”) and the Court having heard arguments of Ruben L.R. El-Amin, the plaintiff herein appearing before this Court pro se, and arguments of counsel for BBMC, and being otherwise fully advised in the premises, the Court hereby finds and determines that:
1. On July 27, 1987, the plaintiff voluntarily filed for relief under Chapter 7 of Title 11 of the United States Code. Plaintiff listed as an asset on his Schedule B the “House at 2439 Horne Street, Jacksonville, Florida 32209” (hereinafter “Property”). The Property is also listed as exempt property on the Statement of Intention and on Schedule B-4. BBMC is listed on debtor’s Schedule A-2 as a creditor holding a security interest in the Property.
2. BBMC was the holder of a properly perfected mortgage on the Property (“Mortgage”) prior to the commencement of the captioned bankruptcy proceedings as shown by the Summary Final Judgment of Foreclosure (the “Judgment”) attached as “Exhibit B” to the plaintiffs complaint.
3. Plaintiff obtained a discharge from the bankruptcy proceeding on November 16, 1987. Four months later, on March 1, 1988, BBMC obtained the Judgment in the Circuit Court in and for Duval County, Florida, in Civil Action No. 87-4218-CA, wherein the Mortgage was foreclosed and BBMC took title to the Property.
4. Plaintiff commenced adversarial proceeding number 88-126 on June 9, 1988. Plaintiff insists that because the property in question was listed as exempt property on the debtor’s schedules, BBMC was required to contest the exemption in order to retain its lien on the mortgaged property. BBMC did not contest the exemption and, according to the plaintiff, the Mortgage lien was extinguished when the debtor received his discharge. Thus, plaintiff argues it was improper for BBMC to foreclose the Mortgage and take title to the Property.
5. Pursuant to 11 U.S.C. § 506(d)(2), a secured claim passes unaffected through bankruptcy proceedings brought under Chapter 7 of Title 11 of the United States Code. Therefore, a secured creditor with a perfected lien in property need not object to the exemption claimed by a debtor in order to protect its lien. One of the options of a secured creditor in Chapter 7 proceedings is to wait until the proceedings are complete and enforce it lien in state court solely against the collateral. See Lindsey v. Federal Land Bank of St. Louis, 823 F.2d 189 (7th Cir.1987); Tarnow v. Commodity Credit Corporation, 749 F.2d 464 (7th Cir.1984).
6. BBMC has the option to participate in the bankruptcy case, including objecting to the exemption of the Property. However, there is no legal requirement mandating BBMC to participate as a prerequisite to continuing to maintain its contractual rights in the Property, including its lien. This Court does not find that BBMC improperly pursued its remedies in the state court by foreclosing the lien of the Mort*281gage or taking title to the Property after the debtor had received a discharge. The discharge covered only the personal liability of the plaintiff, and the debt was extinguished at the time of discharge. However, pursuant to 11 U.S.C. § 506, and as supported by the authorities mentioned in this Order, the lien of the Mortgage survived the bankruptcy case. Accordingly, it is
ORDERED as follows:
1. Motion to Dismiss Complaint with Prejudice is GRANTED;
2. The complaint of the plaintiff is dismissed with prejudice with each party assuming its costs. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490788/ | MEMORANDUM
McGLYNN, District Judge.
On December 28, 1984, M. Mark Mendel, Ltd. filed a Petition for Involuntary Bankruptcy against Marshall-Silver Construction Company, Inc. in the United States Bankruptcy Court for the Eastern District of Pennsylvania. Since an Involuntary Petition requires three creditors, defendant included on the petition Nester Brothers and R.J. Skelding Company. The Bankruptcy Court ordered each of the petitioning creditors to post a bond. They failed to post the required bond, and the Court dismissed the Bankruptcy Petition in 1985.
On December 5, 1986, plaintiff filed this action along with a related action captioned Marshall-Silver Construction Company, Inc. and Silver Construction, Inc. v. M. Mark Mendel, Ltd.
In response to the two complaints, defendants filed a consolidated motion to dismiss both actions. On March 25, 1987, the court entered an Order dismissing all of the claims of the Marshall-Silver action and dismissing all but Count III of this action. The complaint in the Marshall-Silver action alleged only federal question jurisdiction, so after dismissing the federal RICO claim on the merits, the court dismissed the state law claims on jurisdictional grounds. Following the court’s ruling, plaintiffs in the Marshall-Silver action filed a Notice of Appeal. The United States Court of Appeals for the Third Circuit affirmed the judgment of the district court dismissing plaintiffs’ claims.
*347In the present action, plaintiffs complaint was comprised of the following six counts:
Count I: Interference with Existing Contractual Relations
Count II: Interference with Prospective Contractual Relations
Count III: Wrongful Use of Civil Proceedings
Count IV: Racketeering Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961-1968 (1984 & Supp. 1987)
Count V: Intentional Infliction of Emotional Distress
Count VI: Negligence
The complaint in this action alleged both federal question jurisdiction and diversity jurisdiction. By order dated March 19, 1987, the District Court dismissed the federal RICO claim and four out of five state law claims on the merits.
Presently before the court in this action is the motion presented by defendants M. Mark Mendel, Daniel E. Murray and M. Mark Mendel, Ltd., asking this court to enter an Order for judgment on the pleading dismissing the Complaint of Mark I. Silver. Plaintiff filed a response in opposition to defendants’ motion for judgment on the pleadings and a cross-motion to reinstate Counts I and II of the Complaint. Plaintiff’s cross-motion to reinstate Counts I and II will be denied.
Plaintiff’s remaining claim is one for wrongful use of civil proceedings based upon defendants’ filing of a Petition for Involuntary Bankruptcy against Marshall-•Silver Construction Company, Inc. of which plaintiff was the sole shareholder. Because the petition was filed against plaintiff’s company and not against plaintiff, plaintiff lacks standing to bring a claim for wrongful use of civil proceedings.
Pennsylvania’s codification of the tort of wrongful use of civil proceedings (42 Pa. Const.Stat.Ann. § 8351 (Purdon 1982) (commonly referred to as the Dragonetti Act) provides in pertinent part:
(a) Elements of Action. — A person who takes part in the procurement, initiation, or continuation of civil proceedings against another is subject to liability to the other for wrongful use of civil proceedings:
(1) He acts in a grossly negligent manner or without probable cause and primarily for a purpose other than that of securing the proper discovery, joinder of parties or adjudication of the claim in which the proceedings are based; and
(2) The proceedings have terminated in favor of the person against whom they are brought.
42 Pa.Cons.Stat.Ann. ¶ 8351 (Purdon 1982) (emphasis added).
By its express terms, “a person who takes part in the procedure, initiation or continuation of civil proceedings' against another is subject to liability to the other for wrongful use of civil proceedings.” 42 Pa.C.S.A. § 8351(a) (emphasis added). Thus, only a defendant to the prior proceeding can bring a Dragonetti claim. See Lessard v. Jersey Shore State Bank, 702 F.Supp. 96, 97-98 (M.D.Pa. 1988) (Kosik, J.) (because plaintiff was not a party to the underlying action, she lacks the requisite standing to bring a cause of action under 42 Pa.C.S.A. § 8351). See also, Mintz v. Bur, 6 Pa. D. & C.3d 779 (Montgomery Cty.1977), aff'd per curiam, 257 Pa.Super. 641, 390 A.2d 311 (1978). In Mintz, the court determined that “[wjhile the cases cited by plaintiffs may be authority for the proposition that a person who is not a party of record in a prior lawsuit can still be held liable for malicious use of process or abuse of process where that person is shown to have been the instigator of the original suit, these cases do not support plaintiffs’ contention that it is not necessary that they have been named as a defendant in the original action in order to maintain the instant cause of action.” Id. at 785.
Since the Petition for Involuntary Bankruptcy was not filed against the plaintiff, plaintiff does not have standing to bring a claim against defendants for wrongful use of civil proceedings. Consequently, this *348court will grant defendants’ motion for judgment on the pleadings.
An appropriate order follows. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490789/ | MEMORANDUM OPINION AND ORDER
WEINER, District Judge.
The above-captioned matter is before this court on appeal from the United States Bankruptcy Court for the Eastern District of Pennsylvania. Appellants, Robert P. Quigley and Samuel L. Laskin held a second position mortgage on debtor’s principal asset, a one acre parcel of land in Montgomery County. The appellants seek to have the sale of this asset to the Port Henley Corporation, set aside.
On November 20, 1979, the debtor, East Redley Corporation, filed a petition in bankruptcy pursuant to Chapter 11. A liquidation plan1 was confirmed on April 28, 1982. Appellants, along with the other creditors, voted for the implementation of this plan. Pursuant to the plan, an auction of the debtor’s realty was conducted on April 7, 1983. The high bidder at the sale was the defendant, Port Henley Corporation. One of the appellants attended this sale.
An agreement of sale between the Trustee in Bankruptcy, Louis W. Fryman, Esq. and the defendant was executed after the auction. The consideration was $142,-500.00 with a $10,000.00 deposit. Settlement was to take place within 60 days. The agreement of sale stated that “time is to be of the essence of this agreement.” A default clause stated that the trustee could retain the deposit as part of the purchase money or as compensation for damages in the event of default. Further, if the buyer defaulted on the settlement agreement the sale would be void. The parties agreed to two extensions to the settlement date. Defendant paid $10,000.00 to the trustee for each of these extension dates.
The trustee then filed an adversary proceeding against the defendant, seeking to declare the agreement of sale in default. The bankruptcy court entered a stipulated order granting judgment for the trustee, but allowing the defendant to salvage the transaction by allowing it to make settlement on or before April 6, 1987. On April 3, 1987, a stipulation was entered extending the right to make settlement to defendant’s nominees, David K. Maklefresh and William C. Roberts. A further corrected order of April 10, 1987, extended time of settlement for defendant or its nominees to April 10, 1987. The Chapter 11 action and the adversary proceeding were then closed.
On April 4, 1988, appellants filed a motion to set aside the April 10,1987 order, on the grounds that it effected a disposition of the debtor’s property under 11 U.S.C. § 363(b) without notice to creditors including the appellants. The motion was denied by the bankruptcy court which held that the sale was a private sale pursuant to the plan and that the adversary proceeding to determine the rights of the parties to the agreement did not require notice to the appellants. The question presented on appeal is whether notice to creditors of a final disposition was required under 11 U.S.C. § 363(b).
I. STANDARD OF APPELLATE REVIEW
In reviewing a bankruptcy judge’s order, the district court shall not set side findings of fact unless they are clearly erroneous. However, the district court has the power of plenary review of the bankruptcy judge’s conclusions of law. 11 U.S.C. Rule 8013; In Re Abbotts Dairies, 788 F.2d 143, 147 (3d Cir.1986).
II. Violation of 11 U.S.C. § 363(b)
Appellants’ first argument is that they were deprived of their right to notice under § 363(b). Appellants claim that they were not informed of the final disposition of the property when settlement occurred *350between the trustee and defendant’s nominees in April, 1987. As a result the appellants argue, the property was sold without their receiving any notice as required under § 363(b) of the Code. We reject this argument as it rests on a incorrect premise.
The crux of appellants’ argument is that they were not given notice of the sale of the property in April, 1987. If the property had indeed been sold on that date, appellants’ argument would be sound. However, the bankruptcy court determined from the facts before it that the disposition of the property took place at the auction on April 7, 1983, although settlement was delayed until April, 1987. Appellants clearly received notice prior to the sale on April 7, 1983, as they attended the sale. Hence, appellants have no due process claim or claim arising under § 363(b).
As stated, to overturn a factual finding of the bankruptcy court, we must conclude that a finding of fact was “clearly erroneous.” The bankruptcy court’s order of April 19, 1987 reflected that the agreement settling the adversary proceeding, brought by the trustee against Port Henley Corporation, was entered to effectuate the results of the 1983 auction. The order states, “First Port Henley Corporation or its nominee shall be privileged to make settlement under the terms of the aforesaid Agreement of Sale on or before April 10, 1987.... ” (emphasis supplied) The bankruptcy court’s reference is clearly to the agreement of sale entered into on April 7, 1983.
Hence, there was no sale made in April, 1987 as appellants contend. There was merely a restructuring of the terms of the agreement of sale entered into on April 7, 1983 and notice to creditors was not required for this resolution of the adversary proceeding between the trustee and defendant.
III. Violations of 11 U.S.C. § 363(f)
Appellants’ second argument is also without merit, given the factual determination that the sale occurred on April 7, 1983.
Appellants argue that the requirement of 11 U.S.C. § 363(f), that consent of any entity having an interest in the property being sold must be obtained prior to the sale, has not been met. Appellants’ argument once again rests on the assumption that the sale took place on April 7, 1983. As stated above, the bankruptcy court’s factual finding that the sale took place on April 7, 1983, was not clearly erroneous and hence, it will not be disturbed. The requirements of 11 U.S.C. § 363(f), therefore, need not have been met for the settlement to occur.
CONCLUSION
In conclusion, we find the bankruptcy court was correct in its findings of fact and application of the law. The decision of the bankruptcy judge will, therefore, be affirmed.2
. Although the plan approved by the bankruptcy court was a plan of liquidation, there is nothing in the record to indicate that the case was ever transferred from Chapter 11 to Chapter 7.
. We note that John S. Trinsey, Jr. acting pro se, has filed a "counterclaim” against the appellants and has sought to join additional parties. Trins-ley is not a party to this appeal; he alleges no basis for intervening or for jurisdiction. His motion is improper and will, therefore, be dismissed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490790/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court on Plaintiff’s Complaint to Determine Dis-chargeability of Debt. At the Trial, the parties had the opportunity to present the evidence and arguments they wished the Court to consider in reaching its decision. The Court has reviewed the testimony and the arguments of counsel, as well as the entire record in this case. Based on that review, and for the following reasons, the Court finds that the damages resulting from the Debtors’ dog biting Jennifer Stewart should be Dischargeable.
FACTS
The parties had previously filed Cross Motions for Summary Judgment in this matter. While the litigants had stipulated to most of the relevant facts, there remained genuine issues of material fact concerning the dog’s vicious propensities, and the Debtors’ knowledge of the dog’s viciousness. See, In re Gargac, 88 B.R. 129 (Bankr.N.D.Ohio 1988).
The testimony of the witnesses called at Trial recounted one event in which the white german shepherd, named “Yeti”, barked and growled at Mike Stewart, Jennifer’s father, and prevented him from leaving his truck. At that time, Mr. Stewart requested that the dog be kept chained when Mr. Gargac was not home. The Gar-gac’s complied with Mr. Stewart’s request, and generally chained the dog. There was testimony presented showing that Yeti obeyed voice commands from Mr. Gargac, and had not previously bitten anyone. There was also testimony that the dog had barked and growled in a “vicious and menacing” manner in the past.
The events surrounding the biting incident remain unclear. The only witness to the actual attack was Jennifer Stewart, who was Four (4) years old at the time she was bitten. Jennifer Stewart, now Seven (7), was allowed to testify at the Trial.
LAW
The Complaint seeks to have the Court find the damages from the dog bite to be nondischargeable under § 523(a)(6), which states:
§ 523. Exceptions to discharge
(а) 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—
(б) for willful and malicious injury by the debtor to another entity or to the property of another entity;
As noted in the Memorandum Opinion and Order denying Summary Judgment, *551the terms willful and malicious” were defined in the recent Sixth Circuit decision Perkins v. Scharffe, 817 F.2d 392 (6th Cir. 1987), cert. denied, — U.S.-, 108 S.Ct. 156, 98 L.Ed.2d 112. The Perkins decision held that “willful” means the deliberate and intentional doing of an act that necessarily leads to injury. Perkins, supra at 394. The Court of Appeals cited the definition of “malicious” found in 3 Collier on Bankruptcy 11523.16 at 523-111 (15th ed. 1986):
An injury to an entity or property may be a malicious injury within this provision if it was wrongful and without just cause or excessive, even in the absence of personal hatred, spite, or ill-will.
Perkins, at 394.
Creditors seeking an exception to a debtors’ discharge under § 523(a)(6) must sustain their burden of proof by clear and convincing evidence. Chrysler Credit Corp. v. Rebhan, 842 F.2d 1257, 1262 (11th Cir.1988); In re Clemens, 83 B.R. 945, 947 (Bankr.N.D.Ohio 1988); In re Weitzel, 72 B.R. 253, 257 (Bankr.N.D.Ohio 1987).
In order to hold that the Debtors’ actions were “willful” under § 523(a)(6), the Court must conclude that leaving the dog unchained, while Mr. Gargac was home, necessarily led to the dog’s attack. While this definition provides some guidance, the standard is somewhat amorphous. When viewed with the benefits of hindsight, causation is easily seen, and “necessity” may be attributed to actions which were not clearly injurious when they were done. Thus, it appears that Congress intended the Court to view the Debtors conduct as it appeared at the time the allegedly “willful and malicious” action took place.
Viewing the Debtors’ actions as they appeared at the time of the incident, the circumstances do not reflect the presence of warning factors which would lead the Court to conclude that Debtors acted willfully under § 523(a)(6). An action for negligence requires only that an injury be foreseeable. However, for an action to be willful, it appears that the injury must be virtually certain to follow from the wrongful act. The actions of the Debtors do not rise to that level. As the testimony introduced by the Plaintiff reflects, Jennifer Stewart’s parents did not view the dog as an imminent threat when Mr. Gargac was home. There was no warning to the Gar-gac’s from a previous bite. The dog was trained, at least to the point where it would obey Mr. Gargac’s commands. Based on these factors, the Court must conclude that the attack was not a result of a willful act by the Debtors in leaving the dog unchained. The standard is higher than mere recklessness, and the Plaintiff in the course of this trial, has failed to prove by clear and convincing evidence that the actions of the Gargac’s were willful. Consequently, there is no need to address the issue of maliciousness under the two part test for nondischargeability under § 523(a)(6).
In reaching these conclusions, the Court has considered all the evidence and arguments of counsel, regardless of whether or not they are specifically referred to in this Opinion.
Accordingly, the Court finding that Debtors’ actions were not willful, it is
ORDERED that the obligation arising from the Debtors’ dog biting Jennifer Gar-gac be, and is hereby, Dischargeable.
It is FURTHER ORDERED that the Plaintiff’s Complaint be, and is hereby, Dismissed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490791/ | ORDER
GEORGE C. PAINE, II, Chief Judge.
Third party defendant Donna Vraden-burg has made a motion for summary judgment on the third party claim. For the reasons stated, this motion for summary judgment is denied as to the legal theory presented by third party plaintiff Third National Bank and granted as to the equitable theory raised by Third National Bank.
Vradenburg was the president and sole shareholder of Quality Takes Time (“QTT”) prior to it being placed into involuntary bankruptcy on July 31, 1987. Vradenburg had given Third National Bank a guaranty for the debts of QTT. Most of those debts were paid by Vradenburg out of her personal assets. However, on May 18, 1987 $23,000 of the debt was paid by QTT to Third National Bank. That $23,000 is the subject of the underlying preference action.
After Third National Bank had received all of the payments for the obligation owed to it by QTT, it returned additional personal assets to Vradenburg that Vradenburg had given Third National Bank to secure the loans. After the involuntary petition was filed and before the order for relief was issued, Vradenburg asked for the return of the guaranty. On August 20, 1988 Third National Bank returned the guaranty to Vradenburg with a letter signed by Kathy Rolfe, assistant vice president in which Ms. Rolfe said, “I believe this now completely closes are collateral account.”
The guaranty document states that the guarantor will provide an unconditional and continuing guaranty of all debts of the borrower QTT. The guaranty also indicates that the guaranty will only be released in writing by the bank.
Vradenburg argues that the guaranty was released or abandoned by the letter signed by Ms. Rolfe. Therefore the bank can no longer rely on the guaranty as a basis for recovery from Vradenburg.
Third National argues that if the $23,000 payment is determined to be a preference that may be avoided by the trustee then the guarantor should still be liable on the guaranty. Third National cites as authority for this proposition Second National Bank v. Prewett, 117 Tenn. 1, 96 S.W. 334 (1906). In that case the bank had accepted a payment from an insolvent debtor which was recovered as a preference in bankruptcy. The bank then sought to recover from the accommodation maker on the note.
The court held that the bank could recover from the accommodation maker because it accepted the payment in good faith and was legally obligated to accept the payment or lose its right to claim against the accommodation maker. The court said that this ruling should apply to accommodation makers, indorsers, and sureties. Prewett, 117 Tenn. at 10, 96 S.W. at 336.
Defendant Vradenburg admits that she had given a guaranty for QTT’s debts and that the guaranty was still in effect *605when Third National accepted the payment at issue in the principal action. In accordance with Prewett she will be liable on the guaranty should the Trustee recover the payment from Third National if (1) Third National accepted the payment in good faith, and (2) Third National would have lost the guaranty if it failed to accept the payment. These two questions are material issues of fact which remain unanswered. Thus, the motion for summary judgment is denied as to this theory.
Third National also asserts an equitable theory which would require Vraden-burg to be liable for the possible preferential transfer. First, Yradenburg was liable to Third National Bank for the obligations of the debtor QTT and as such was a creditor of QTT. She was also the sole shareholder and president of the debtor and as such was an insider of the debtor within the meaning of 11 U.S.C. § 101. She, the insider, decided to use QTT funds to pay the debt which she had guaranteed. She used the funds available to pay the debts that she had guaranteed thereby using the funds to benefit herself. Because she benefited from the transfer, she was under 11 U.S.C. § 550 a mediate transferee of the preferential transfer.
According to Third National Bank, equity may require that she be the one to return the preferential transfer since she was an insider, she controlled the decisions which created the preferential transfer, and she directly benefited from the transfer.
Third National’s equitable argument has only been accepted in those circumstances where the payment was made more than 90 days but within one year of the filing of bankruptcy. See Seeley v. Church Building and Interiors, Inc. (In re Church Building and Interiors, Inc.), 14 B.R. 128 (Bankr.W.D.Okla.1981); 4 Collier on Bankruptcy, para. 550.02 (15th ed. 1988). Courts have limited liability to insider guarantors in such circumstances because such remote payments to lenders are preferences only because they benefit insider guarantors.
In this case the payment was within 90 days of the filing and could thus be a preference regardless of the guaranty. Without deciding whether this court would adopt this theory under different circumstances, the court finds that the theory does not apply to this case.
The motion for summary judgment is granted as to Third National’s equitable theory.
IT IS, THEREFORE, SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490792/ | MEMORANDUM AND ORDER ON MOTION FOR PARTIAL SUMMARY JUDGMENT
CLIVE W. BARE, Bankruptcy Judge.
In this adversary proceeding plaintiff seeks summary judgment on an alleged voidable preference. 11 U.S.C.A. § 547 (West 1979). Plaintiff has heretofore established all the elements of § 547(b). At issue, however, is whether the “45-day ordinary course of business” exception created by § 547(c)(2) in the 1978 Code is applicable to this proceeding. That section, as of March 10, 1983, when this chapter 11 case was filed, provided as follows:
(c) The trustee may not avoid under this section a transfer—
(2) to the extent that such transfer was—
(A)in payment of a debt incurred in the ordinary course of business or financial affairs of the debtor and the transferee;
(B) made not later than %5 days after such debt was incurred;
(C) made in the ordinary course of business or financial affairs of the debtor and the transferee; and
(D) made according to ordinary business terms.
11 U.S.C.A. § 547(c)(2) (West 1979) (emphasis added).
In 1983 Congress amended this provision to delete the 45-day requirement. The provision was deleted by § 462(c) of the Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353, 98 Stat. 333 (1984) (the “1984 Act”).
Section 553 of Title III of the 1984 Act, the implementing section fixing the effective dates of the amendments made to § 547, among others, provides in pertinent part as follows:
(a) Except as otherwise provided in this section the amendments made by this title shall become effective to cases filed 90 days after the date of the enactment of this Act. (Emphasis added.)
The date of enactment of the 1984 Act was July 10, 1984. The effective date for amendments made by Title III of the 1984 Act, as fixed by § 553(a), was October 8, 1984.
The controversy in this proceeding arises over the word “cases” as used in § 553(a), i.e., whether the date the chapter 11 petition was filed (March 10,1983) or the date the adversary proceeding was filed (March 15, 1985) controls. If the date of the filing of the chapter 11 case controls, the former 45-day rule will apply; if the date of the filing of the adversary proceeding controls, then the 1984 Act will apply, with no resulting 45-day limitation.
The defendant holds fast to the proposition that the term “cases” as used in § 553 should be broadly defined to encompass not only the title 11 bankruptcy case itself but also all “cases” arising under or related to title 11. In support of this position, defendant cites Judge Votolato’s statement in In re Brenton’s Cove Development Co., 52 B.R. 287 (Bankr.R.I.1985). In that case the debtor filed a bankruptcy petition on Au*607gust 14, 1984. The reported opinion involves an objection to claim, a contested matter. The claimant asserted that payment to it from a fund escrowed four days prior to the petition filing would not constitute an avoidable preference because the payment arose in the ordinary course of business. In a footnote the court noted that the case was to be governed by § 547(c)(2) as amended by the 1984 Act.1 Further, defendant points out that “case” is defined as “a general term for an action, cause, suit or controversy, at law or in equity....” Black’s Law Dictionary 271 (4th ed. 1951). Finally, defendant insists that Congress’ intent in selecting the word “case” in § 553(a) of the 1984 Act was not to limit its meaning to one arising under title 11. “When Congress means a case under Title 11 of the United States Code, it clearly expresses that meaning by terms such as ‘cases under Title 11’.... It is obvious from this that when Congress desired to limit the term ‘case’ only to the ‘bankruptcy case,’ it knew how to do so.” Defendant’s Response to Plaintiff’s Motion for Summary Judgment, filed April 16, 1987, at 10.
However, all this ignores the fact that the term “case” is a precise term in the bankruptcy context. In Nordberg v. Wilcafe, Inc. (In re Chase and Sanborn Corp.), 51 B.R. 736 (Bankr.S.D.Fla.1985), defendants argued that the effective date provision of § 553(a) should be applied as though Congress had specified that the amendment is applicable to “adversary proceedings” filed on and after October 8, 1984, rather than bankruptcy “cases” filed after that date. Judge Britton disagreed.
This argument presupposes that Congress was unaware of the distinct meaning each of these terms has acquired in the bankruptcy law since the 1973 adoption of the bankruptcy rules, which first introduced adversary proceedings. I reject this contention.
It is apparent from a review of the 1984 Act that the two terms are used with precision in many other provisions where the context makes it clear that the terms were intended to have their customary meaning. A similar effective date provision was contained in the Bankruptcy Reform Act of 1978, Pub.L. 95-598 § 403(a), which also employed the word “case” and provided that all matters and proceedings in or relating to any such “case” would be determined under the former Act as if the 1978 amendment had not been enacted. Without dissent, that provision has been applied literally, giving the customary bankruptcy meaning to the term “case.” Nicholson v. First Investment Co., 705 F.2d 410, 411 n. 1 (11th Cir.1983). There is no reason to assume less precision in the selection of the same term for the same purpose by Congress six years later....
In re Chase & Sanborn Corp., 51 B.R. at 738.2 Accord, Langenkamp v. Saied (In re Republic Financial Corp.), (Bankr.N.D. Okla.1987) (to interpret § 523(a) of the 1984 amendment as urged by defendant could result in different legal standards being applied in same bankruptcy case because of a trustee’s decision to file the complaints on separate dates); W.L. Mead, Inc. v. Central States Pension Fund (In re W.L. Mead, Inc.), 70 B.R. 651, 654 (Bankr.N.D. Ohio 1986) (former 45-day limitation of § 547(c)(2) applies to adversary proceeding inasmuch as chapter 11 case was filed prior to effective date of the 1984 Act); Bonapfel v. Venture Mfg. Co. (In re All American of Ashburn, Inc.), 65 B.R. 303 (Bankr. N.D.Ga.1986) (45-day pre-amendment subsection applies to cases filed prior to the amendment); Calhoun v. Tom Hutton Co., Inc. (In re Gordons Transports, Inc.), Adv. No. 85-0137 (Bankr.W.D.Tenn. Jan. 6, 1986) (former Section 547(c)(2) controlling in adversary proceeding filed in 1985 when case was filed in 1983); Chaitman v. Chicago Boiler Co. (In the Matter of Almarc Mfg., Inc.), 52 B.R. 582 (Bankr.N.D.Ill.1985) (1978 version of § 547(c)(2) applicable to a *608preference proceeding filed in 1985 because the “chapter 11 case” was filed in 1983). Contra Estate of Roger Lellock v. Prudential Ins. Co., 811 F.2d 186, 188 (3rd Cir. 1987) (court applied § 506(d) as amended by the 1984 Act in post-amendment contested matter in a case commenced in 1983); Charisma Inv. Co. v. Air Florida System, Inc., 68 B.R. 596, 600 (S.D.Fla.1986) (court applied 1984 amended version of § 547(c)(2) in action filed after effective date of the amendment even though the bankruptcy case was commenced prior to the effective date of the amendment).
This court is persuaded by Judge Brit-ton’s reasoning and conclusion in In re Chase and Sanborn, supra. To follow defendant’s position, the court would effectively be required to apply two different and separate acts to the same bankruptcy case; one act for the title 11 case itself, and one act for proceedings and cases arising thereunder. This is simply unacceptable. Parties should be able to reasonably rely upon one statute or the other. Jumping from one to the other for various aspects of the determination of the case would cause more confusion than already abounds.3
Therefore, for purposes of plaintiff’s Motion for Summary Judgment, the court GRANTS the Motion for Partial Summary Judgment with regard to the application of the 45-day rule under the pre-amendment version of § 547(c)(2). All other issues raised in plaintiff’s motion will be either set for trial or ruled upon at a later date.
IT IS SO ORDERED.
. This statement is dictum because the court concluded that § 547(c)(2) was not applicable.
. In Nordberg v. Sanchez (In re Chase and Sanborn Corporation), 813 F.2d 1177 (11th Cir. 1987), the court applied the amended version of § 548 in a case filed prior to the 1984 amendment in an adversary proceeding filed post-amendment. The court, however, did not address the applicability of the amendment.
. Citing Bradley v. Richmond School Board, 416 U.S. 696, 94 S.Ct. 2006, 40 L.Ed.2d 476 (1974), defendant insists the court should apply the law in effect (the amended version of § 547(c)(2)) at the time of decision "unless doing so would result in manifest injustice or there is statutory direction or legislative history to the contrary.” Bradley, 416 U.S. at 711, 94 S.Ct. at 2016. This court declines to apply § 547(c)(2) as amended by the 1984 Act because Congress has expressly stated that "the amendments ... shall become effective to cases filed 90 days after the date of enactment of the Act.” Pub.L. No. 98-353, 98 Stat. 333 (1984). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490793/ | MEMORANDUM AND ORDER
WILLIAM A. HILL, Bankruptcy Judge.
This case arises by complaint filed April 4, 1988, by which the trustee, pursuant to sections 544 and 547 of the United States Bankruptcy Code, seeks to avoid the liens of defendants Emanuel Mack, Joe Mack, Donald Alexander, and Velva Community Credit Union (Credit Union). Only the Credit Union interposed an answer and has agreed with the trustee that the case may be decided upon stipulated facts. A Stipulation of Facts and Waiver of Trial was jointly filed by the trustee and the Credit Union on August 12, 1988. The non-answering defendants are not a party to this stipulation. The facts as gleaned from the stipulated facts and documents submitted are as follows:
Findings of Fact
At all times material the Debtor, Gregory L. Mack, was a farmer maintaining his *696residence in Pierce County, North Dakota. In 1986 he grew crops upon land situated in Pierce County. These crops have now been sold with $33,064.48 in proceeds turned over to the trustee who, by virtue of his status, seeks to avoid the security interest claimed by the Credit Union.
On December 23, 1985, the Debtor, in consequence of a $41,450.00 loan, signed a security agreement extending to the Credit Union a security interest in “all crops now growing or to be grown”. Beyond this quoted statement, the security agreement is completely devoid of any other property description. Thereafter, a financing statement was prepared to cover the security interest taken in the 1986 crops and proceeds. The financing statement provides a much more complete land description including section, range and township. The financing statement on the line provided for denoting place of filing, has the box, “Register of Deeds _ County” checked but then contains, in the space intended for writing in the county name, the word “McHenry” crossed out and the word “Pierce” written in. The financing statement was filed in McHenry County on March 31, 1986. On May 11, 1987, the same financing statement was filed in Pierce County, the county of the Debtor’s residence.
The Debtor filed for relief under Chapter 7 on July 23, 1987, some 73 days after the filing in Pierce County.
Conclusions of Law
The trustee, armed with section 544 avoidance powers, first of all asserts that the Credit Union’s security interest is legally insufficient because it fails to contain a land description as required by N.D.Cent. Code § 41-09-16(l)(a) (U.C.C. § 9-203(l)(a)). As a second cause of action he charges that the original financing statement although filed outside the ninety-day preference period was filed in the wrong county necessitating a second corrective filing in McHenry County which occurred within ninety days of the bankruptcy filing and thus constituted a preferential transfer within the meaning of section 547.
Two provisions of the North Dakota Century Code specifically provide that when a security interest is intended to cover crops growing or to be grown the documents must include a description of the real estate. N.D.CentCode § 41-09-16(l)(a) (U.C. C. § 9-203(l)(a)) provides that a security interest does not attach and is not enforceable against a debtor or a third party unless:
(a) [T]he debtor has signed a security agreement that contains a description of the collateral and, in addition, if the security interest covers crops growing or to be grown or timber to be cut, a description of the land concerned.
Likewise, N.D.Cent.Code § 41-09-41(1) (U.C.C. § 9-402(1)) setting forth the formal requirements of a financing statement provides:
When the financing statement covers crops growing or to be grown, the statement must also contain a description of the real estate concerned.
The description required by these two sections need not be a legal description so long as it reasonably identifies the land involved. See N.D.Cent.Code § 41-09-10 (U.C.C. § 9-110). U.S. v. First National Bank in Ogallala, 470 F.2d 944 (8th Cir. 1973); Farmers Nat. Bank of Danville, Kentucky v. Bank of Danville, 29 U.C.C. Rep. 1020 (Ky.1980); In re Lovelady, 21 B.R. 182 (Bankr.Or.1982). The court has no trouble concluding that the Credit Union’s financing statement contains a description sufficient to meet the requirement of N.D.CentCode § 41-09-41(1). Just as plainly, however, the court has no trouble concluding that the security agreement itself is completely deficient and when taken by itself does not meet the description requirement of N.D.Cent.Code § 41-09-16(l)(a). The question then becomes whether a security agreement lacking in the formal requisites for enforceability may be salvaged by reference to a financing statement that does contain a land description meeting the requirements of N.D.Cent.Code § 41-09-41(1).
*697At this juncture it must be remembered that a financing statement is merely evidence of the security agreement and that it is the security agreement itself which creates or provides for the security interest. See N.D.Cent.Code § 41-09-05(l)(Z) (U.C.C. § 9-105(l)(Z)); Thorp Commercial Credit Corp. v. Northgate Industries, Inc., 654 F.2d 1245 (8th Cir.1981); In re Nelson, 45 B.R. 443 (Bankr.N.D.1984). If the security agreement fails in the first place to contain those statutory elements prerequisite to attachment it is unenforceable.
This court has in the past noted that courts generally are reluctant to allow imprecise language on a security agreement to create a valid security interest. In In re Wolsky, 68 B.R. 526, 528 (Bankr.D.N.D. 1986), it was said:
Although a general collateral description in a financing statement may be sufficient to put a third party on notice, and thus perfect a security interest, greater particularity is required for a description of collateral in a security agreement, (citations omitted). The issue of perfection does not even arise until one first establishes that a valid security interest has attached. 68 B.R. at 528.
The requirement for a real estate description is regarded by the great majority of courts as mandatory under both U.C.C. § 9-203 and § 9-402. Annotation, Sufficiency of Description of Crops, Under U.C.C. § 9-203(l)(d) and § 9-402(1), 67 A.L.R.3rd 308. The Fourth Circuit in a recent case held that when the collateral consists of growing crops both the security agreement and the financing statement must comply with the plain requirements of these two U.C.C. sections. United States v. Smith, 832 F.2d 774 (2nd Cir. 1987). Regarding the plain requirements of the U.C.C. sections, our own Circuit in Shelton v. Erwin, 472 F.2d 1118 (8th Cir. 1973) in discussing U.S.C. § 9-203, said that the Code is not ambiguous on the requirements necessary to the creation of a security interest and there is no reason to relax the requirements. In this posture, courts have decided that a deficient land description in a security agreement cannot be corrected by a statutorily sufficient financing statement. An existing statutory deficiency in a security agreement cannot be corrected by a financing statement because the financing statement does not create the security interest but, rather is merely evidence of it. Smith, supra; Centerre Bank National Ass’n. v. Missouri Farmers Ass’n., Inc., 716 S.W.2d 336 (Mo. Ct.App.1986); In re Coody, 59 B.R. 164 (Bankr.M.D.Ga.1986).
The only case supporting a contrary result is W.F.J., Inc. v. Bank of Tioga, 605 F.Supp. 39 (D.C.N.D.1984) where the court, without citing to any authority, said that a security agreement deficient in collateral description can be examined together with the financing statement to determine the sufficiency of description. This position does not stand up against the weight of case law and suggests what N.D.Cent.Code § 41-09-16(l)(a) does not — that a financing statement may supplant the prerequisite requirements necessary for a security agreement to attach and become enforceable. The Eighth Circuit in Shelton plainly said that the requirements necessary to the creation of a security interest are unambiguous. A financing statement does not create a security interest. Only the security agreement can do that and when the security agreement is statutorily deficient it is ineffective. This is not to say that a deficient description borne on the face of a security agreement cannot be clarified and the statutory requirement thereby satisfied by reference to documents or schedules attached to the security agreement. The attached document may even be the financing statement itself. In the case of In re Nickerson & Nickerson, Inc., 452 F.2d 56 (8th Cir.1971), it was held that the effect of attaching a more detailed financing statement as an exhibit to the otherwise description — defective security agreement operates to incorporate the clarifying language of the financing statement into the security agreement, thus satisfying the requirements of U.C.C. § 9-203. The security agreement presently before the court does not contain any land description whatsoever and for this reason the court holds it is unenforceable ab initio. The court does not *698believe in the face of the plain requirement of section 41-09-16(l)(a), that the land description requirement can be met by reference to a later financing statement.
By section 544(a) of the Bankruptcy Code, commonly called the “strong arm” provision, a trustee assumes the status of a lien creditor as of the time of filing. Under this section, his avoidance power as a hypothetical lien creditor comes into existence as of the date of filing and as such operates to avoid any transfer that was incomplete or unperfected as of that date. Because the Credit Union’s security interest is unenforceable and did not attach due to the omission of a land description, it was at the time of the Chapter 7 petition subject to being avoided by the trustee. Its claimed security interest in the 1986 crop proceeds is inferior to that of the trustee.
Having reached a decision based upon section 544(a), it is unnecessary to resolve the question of whether the subsequent financing statement constituted a preferential transfer.
For the reasons stated, IT IS ORDERED that the plaintiff, Phillip D. Armstrong, trustee of the estate of Gregory L. Mack, be awarded judgment against the defendant Velva Community Credit Union as follows:
The security interest of the Velva Community Credit Union is unenforceable as against the trustee and the trustee is entitled to the proceeds of the 1986 crop free of any claim of the Credit Union.
JUDGMENT MAY BE ENTERED ACCORDINGLY.
JUDGMENT
IT IS ORDERED AND ADJUDGED: that the plaintiff, Phillip D. Armstrong, trustee of the estate of Gregory L. Mack, be awarded judgment against the defendant, Velva Community Credit Union as follows: The security interest of the Velva Community Credit Union is unenforceable as against the trustee and the trustee is entitled to the proceeds of the 1986 crop free of any claim of the Credit Union. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490795/ | ORDER ALLOWING SET-OFF
JON J. CHINEN, Bankruptcy Judge.
E.E. BLACK, LTD.’s (“Black”) Motion for Determination of the Status of Property came on for hearing on July 28, 1987, at 2:00 p.m., and August 4, 1987, at 1:30 p.m., before the Honorable Jon J. Chinen, Bankruptcy Judge, in the above-entitled Court. Having duly considered the affidavits and memoranda submitted by the respective counsel for Black, Aloha State Sales Co., Inc., and Rodney Kim, having heard arguments by the respective counsel for said parties and the respective counsel for the Debtor above-named, Trustee Wyman W.C. Lai, Trustees of PECA-IBEW, and Industrial Indemnity Co., and having reviewed the files and recórds herein, the Court makes the following findings of fact:
1. The subject contract retention monies in the amount of $34,569.04 held by Black pursuant to Black’s May 6, 1985 subcontract (“subcontract”) with Debtor is property of the estate pursuant to 11 U.S. C. Section 541(a).
2. As of the date of the filing of Debt- or’s Petition, May 13,1987, Debtor failed to complete said subcontract, and the Trustee subsequently rejected this executory subcontract pursuant to .11 U.S.C. Section 365(d)(1) by not assuming the same within 60 days after issuance of the order for relief.
3. Consequently, Debtor breached and rejected its subcontract with Black, thereby entitling Black a prepetition claim and right to complete said subcontract.
4. The obligations of Debtor and Black arising from said subcontract were mutual pursuant to 11 U.S.C. Section 553, and In Re LaFollette Sheet Metal, 35 B.R. 634 (1983).
IT IS HEREBY ORDERED, ADJUDGED AND DECREED that Black may and shall have a right of setoff pursuant to 11 U.S.C. Section 553 regarding disposition of the aforesaid retention monies by Black to complete the subcontract, including payment of claims arising from material and labor related to the subcontract. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490796/ | ORDER
GORDON B. KAHN, Chief Judge.
This matter having come on for hearing upon the motion of The Federal Land Bank of Jackson, In Receivership, for Reconsideration of this Court’s orders converting the debtors’ Chapter 11 cases to cases under Chapter 12, or in the alternative, to Dismiss the debtors’ Chapter 12 Proceedings; due notice of said hearing having been given; and the motions in these cases having been consolidated by consent of the parties; and the Debtors and their attorneys, E.E. Ball and Richard M. Kemmer, Jr., having appeared; and E. Elliott Barker having appeared for The Federal Land Bank of Jackson; and arguments and evidence having been presented; now, therefore, the Court finds, concludes, and orders as follows:
FINDINGS OF FACT
1. On August 28, 1987, the Feelys filed petitions for relief under Chapter 11 of the Bankruptcy Code. Thomas and Kay Feely listed a total aggregate indebtedness of $1,743,972.91; James and Joan Feely listed aggregate indebtedness of $1,760,838.91.
2. James and Thomas Feely are partners in a farming operation known as Feely Brothers Farm; their bankruptcy cases are interrelated as they own property jointly and are jointly liable on certain debts incurred in their farming operations.
*7453. During the pendency of their Chapter 11 cases the debtors were successful in having the debt owed the Farmers Home Administration reduced from approximately $720,000.00 to $400,000.00. This reduced their respective aggregate indebtedness to less than $1,500,000.00.
4. On June 28, 1988, the debtors filed motions to convert their bankruptcy cases to cases under Chapter 12 of the Bankruptcy Code. Thomas and Kay Feely filed proposed Chapter 12 schedules indicating a total aggregate indebtedness of $1,417,-394.49; James and Joan Feely filed proposed Chapter 12 schedules indicating a total aggregate indebtedness of $1,423,-394.49. FLB filed objections to the motions to convert.
5. On July 20, 1988, this Court granted the debtors’ motions to convert to Chapter 12 and overruled FLB’s objections to the motions to convert.
6. On August 22, 1988, FLB filed the instant motions for reconsideration of this Court’s July 20, 1988, orders.
CONCLUSIONS OF LAW
The Federal Land Bank of Jackson asks this Court to reconsider its order of July 20, 1988, wherein the debtors’ Chapter 11 cases were converted to cases under Chapter 12 of the Bankruptcy Code. FLB contends that since the debtors did not qualify for Chapter 12 at the time they filed their Chapter 11 petitions, they were ineligible to convert to Chapter 12 when they subsequently qualified as “family farmers” under 11 U.S.C. section 101(17). Section 101(17) limits family farmer to an “individual or individual and spouse engaged in a farming operation whose aggregate debts do not exceed $1,500,000.”
In support of their contention that the court must look to the date of the original petition to determine whether the debtors may convert to Chapter 12, FLB cites In re Labig, 74 B.R. 507 (Bkrtcy S.D.Ohio 1987), for the proposition that the debtors must qualify as “family farmers” as of the date of the filing of the bankruptcy petition. However, the Court finds the holding in Labig inapplicable to the instant case.
In Labig, the court dismissed the case after determining that the debtors’ aggregate indebtedness exceeded the $1,500,-000.00 limit at the time they filed their Chapter 12 petition. In reaching that conclusion, the Court noted that:
“Section 101(17) is silent regarding the appropriate date to determine the amount of debt for purposes of the $1,500,00 limitation, but this court believes it reasonable to use the date of the filing of the bankruptcy petition.”
Labig, supra, at 509.
In the instant case, the debtors filed under Chapter 11 because they were ineligible for Chapter 12 relief. After their aggregate indebtedness was reduced and they qualified as “family farmers” they filed motions to convert to Chapter 12.
Unlike the Labig case, the Feelys’ original petitions were proper and this Court obtained jurisdiction over their cases. In Labig, supra, the bankruptcy court never acquired jurisdiction over the case as the Labigs improperly filed under Chapter 12. When a debtor ineligible for Chapter 12 relief properly files a Chapter 11 petition and subsequently seeks to convert to Chapter 12, the court should determine the debt- or’s eligibility for Chapter 12 at the time of the motion to convert.
The Court notes .that even if the original date of the petition were used, the debtors could dismiss their Chapter 11 proceeding and refile Chapter 12. “Bankruptcy courts are inherently courts of equity with broad remedial powers.” In re Ranch House of Orange-Brevard, Inc., 773 F.2d 1166, 1169 (11th Cir.1985). “Equity does not require the doing of a foolish act.” Lavretta v. First National Bank, 235 Ala. 104, 178 So. 3, 11 (1938). The motions to reconsider and the motions to dismiss are due to be denied. Now, therefore, it is
ORDERED that the Motions of the Federal Land Bank of Jackson for Reconsideration of this Court’s order converting the debtors’ Chapter 11 cases to Chapter 12 cases or in the alternative to Dismiss the *746debtors’ Chapter 12 proceedings, be, and they hereby are, DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490797/ | 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 Complaint objecting to the Debtors’ discharge pursuant to § 727(a)(2) and (a)(5) of the Bankruptcy Code. In Count I of the two-count Complaint James R. Jessell (Trustee) seeks a determination that Leonard L. Sword and Patricia J. Sword’s (Debtors) discharge should be denied as they have concealed the transfer of property of the estate, specifically, a boat, within one year before the date of the filing of the Petition with the intent to hinder, delay or defraud creditors. In the alternative, in Count II the Trustee seeks a determination that the Debtors’ discharge should be denied based upon their failure to satisfactorily explain the loss of assets to meet their liabilities.
The facts relevant and germane to a resolution of claims under consideration, as established at the final evidentiary hearing, are as follows:
In February of 1986, the Debtors purchased a Sea Sprite boat, and on February 18, 1986, the State of Florida issued a vessel registration certificate in the name of the Debtors. In May of 1986, the Debtors apparently agreed to sell the boat to one Mr. Robert Luddy. Ón August 5, 1986, the Debtors received two checks in the total amount of $11,000.00 which appear to be the purchase price of the boat paid by Mr. Luddy. (Plaintiff’s Exh. No. 4) On September 16, 1986, the State of Florida issued a vessel registration certificate in the name of Robert Luddy. (Plaintiff’s Exh. No. 3)
On July 17, 1987, the Debtors filed their voluntary Petition under Chapter 7 of the Bankruptcy Code. It is undisputed that the Debtors failed to disclose the sale of the boat on their Statement of Financial Affairs. The Debtors have explained this omission by stating that although the sale in fact actually occurred in May of 1986, over one year before the filing of the Petition, they did not receive the proceeds from the sale until August. It is the Debtors’ explanation that the proceeds from this sale were used for living expenses.
In addition to receiving the proceeds from the sale of the boat, the Debtors also received $4,000.00 from the sale of a van in September of 1986, and $3,500.00 from the sale of a 1955 Chrysler automobile in March of 1987. The proceeds from both sales were used, according to their explanation, for living expenses, with the exception of $2,100.00 obtained from the sale of the Chrysler which was used for the purchase of a spa.
At the time relevant, the Debtors also withdrew large sums of cash from several bank accounts maintained by them. Specifically, on May 12, 1986, the Debtors withdrew $41,000.00 from their Dean Witter account (Plaintiff’s Exh. No. 5). Of this amount, $32,000.00 was deposited into the Debtors’ checking account at Barnett Bank. The remainder of $9,000.00 was retained in cash by the Debtors. (Plaintiff’s Exh. No. 6) In addition, from May 15, 1986 through May 27, 1986, the Debtors withdrew the previously deposited $32,000.00 by writing several checks on the Barnett Bank account made payable either to( cash or Mrs. Sword. (Plaintiff’s Exh. No. 7) These funds, according to the Debtors, were used for a trip throughout the United States which spanned ten weeks. The Debtors failed to furnish any documentary evidence such as hotel bills, restaurant bills, gasoline bills, or other receipts to prove the expenses of this trip, and the only documentation of the trip is a list prepared by Mrs. Sword which indicates that the trip cost approximately $200.00 per day which included $80.00 a day for gas driving a 1985 pick-up truck and $120.00 a *759day for food and lodging. (Plaintiffs Exh. No. 8). Based on Mrs. Sword’s calculations, the ten-week vacation cost approximately $14,000.00, leaving a balance of $27,000.00. It should be noted that the Debtors’ contention that their reason for taking $41,000.00 in cash on their trip, carrying same in a pick-up truck hoping that they might run across a business they could buy is expressly rejected as absurd and defies credibility.
It further appears that from October 4, 1986, through January 21, 1987, Mrs. Sword wrote checks to herself as payee from the Debtors’ banking account at First Florida Bank in the total amount of $7,609.00. (Plaintiff’s Exh. Nos. 10, 11, 12, 13 and 14) Again, according to the Debtors, these funds were used for living expenses with the exception of $1,600.00 which was used for paying for tuition in a truck-driving school for Mr. Sword (Debtor’s Exh. No. 4). During the time relevant, Mrs. Sword also wrote numerous checks total-ling $1,630.00 for household expenses.
The only evidence produced by the Debtors at the hearing to explain the disposition of the proceeds from the sale of the boat and two cars and the additional funds at their disposal consists of 1) a bill dated May 3, 1987, from Performance Exhaust, Inc., in the amount of $1,999.24; 2) a second bill from Performance Exhaust, Inc., dated May 20, 1987, in the amount of $11,-270.35 and 3) various receipts relating mainly to the Debtors’ trucking business totaling $5,672.97. It should also be noted that Mr. Sword had no regular income from January of 1986 to January of 1987, but that Mr. Sword earned $24,275.00 from January 1987 through May 1987. During the time relevant, the Debtors had two children, ages 10 and 20, respectively.
Based on the foregoing, it is the contention of the Trustee that the Debtors’ discharge should be denied pursuant to § 727(a)(2)(A) and, in the alternative, pursuant to (a)(5) which provide in pertinent part as follows:
§ 727. DISCHARGE
(a) The court shall grant the debtor a discharge, unless—
(2) the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutiliated, or concealed, or has permitted to be transferred, removed, destroyed, muti-liated, or concealed—
(A) property of the debtor within one year before the date of the filing of the petition ...
(5) the debtor has failed to explain satisfactorily, before determination of denial of discharge under this paragraph, any loss of assets or deficiency of assets to meet the debtor’s liabilities ....
Considering first the claim set forth in Count I of the Complaint based on the sale of the Sea Sprite, this Court is satisfied that the Trustee has failed to meet his burden of proving that the Debtors concealed property and acted with the requisite intent to hinder, delay or defraud creditors by not recording the transfer of the boat on their Statement of Financial Affairs. For this reason, the claim of the Trustee based on § 727(a)(2) set forth in Count I cannot be sustained.
However, the claim set forth in Count II of the Complaint is a different story and this Court is satisfied that based on the evidence, the Debtors’ discharge should be denied for the following reasons:
First, it cannot be gainsaid that the ultimate burden of persuasion rests with the Debtors when their right to a discharge is challenged under § 727(a)(5). Thus, once the objecting party establishes that the Debtors had a legal or equitable interest in a property of some substance not too far removed in time the burden is on the Debtors to explain to the satisfaction of the Court the loss of the particular assets. See In re Chalik, 748 F.2d 616 (11th Cir.1984). According to the standard of proof required, a vague and indefinite explanation of losses of assets that are based upon estimates uncorroborated by documentation are generally unsatisfactory. Id.
Considering the evidence presented in light of these principles, this Court is satis*760fied that the Debtors have failed to satisfactorily explain the loss of their assets. Even accepting the Debtors’ accounting of the disposition of $36,642.56, which is supported by scant documentation, the Debtors have failed to satisfactorily explain the loss of the balance of $54,741.44, which sums were at their disposal during the fourteen-month period prior to their filing of the Chapter 7 Petition. This amount of cash, which the Debtors claim they used for living expenses, expenses totally undocumented, is not insignificant in the total scheme of events, especially considering that during the same time period, the Debtors wrote checks for living expenses. During the fourteen months preceding the filing of the Petition in this case, the Debtors had at their disposal from the sale of the boat and vehicles, Mr. Sword’s salary and withdrawals from their accounts the total of $91,384.00. Therefore, this Court is satisfied that the Debtors failed to carry their burden to furnish a satisfactory explanation of the loss of their assets. Therefore, based on § 727(a)(5) of the Bankruptcy Code, they are not entitled to discharge.
A separate Final Judgment shall be entered in accordance with the foregoing.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490799/ | THOMAS F. WALDRON, Bankruptcy Judge.
This proceeding, which arises under 28 U.S.C. § 1334(b) in a case referred to this court by the standing Order of Reference entered in this district on July 30, 1984, is determined to be a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B, C, K, M, O). The plaintiff, the Chapter 13 Trustee, seeks a determination that the agreements in these five (5) cases, all of which involve similar, but not the same, legal and factual issues, are secured sales agreements disguised as leases. This issue is before the court on the plaintiffs Motions For Summary Judgment (Doc. 13 in this Adversary No. 3-87-0173, Doc. 14 in Adversary No. 3-87-0174, Doc. 13 in Adversary No. 3-87-0175, Doc. 12 in Adversary 3-87-0169, Doc. 9 in Adversary 3-87-0203) and the defendant’s Memoranda In Response To Motion *104For Summary Judgment (Doc. 21 in this Adversary 3-87-0173, Doc. 22 in Adversary 3-87-0174, Doc. 21 in Adversary 3-87-0175, Doc. 21 in Adversary 3-87-0169, Doc. 17 in Adversary 3-87-0203).
The debtors in each case entered into what the defendants characterize as a rental agreement. See Appendix A, for a copy of the agreements in this Adversary 3-87-0173, and Adversaries 3-87-0174, 3-87-0203, 3-87-0169, and Appendix B for a copy of the agreement in Adversary No. 3-87-0175.
All of these agreements share similar provisions in that the customer agrees to a weekly payment for the use of the property with an option to renew the agreement for pre-determined period of time (App. A at par. 1 and 8(a); App. B at par. 1.); and, if the customer continues the payments pursuant to the agreement for the pre-deter-mined period, the ownership of the property is transferred to the customer upon completion of the payments for no additional consideration from the customer and the agreement terminates.
Additionally, in the Shastar agreements (App. A), the customer is given the option to purchase the property prior to completion of the pre-determined period by paying 60% of the remaining balance. App. A at 8(b). The Rent-Rite agreement (App. B) does not contain such a provision.
In these five (5) cases, prior to completion of the payments required for ownership, the debtors filed Chapter 13 petitions and listed the defendant companies as unsecured creditors. The defendants all filed proofs of claim as lessors. See Doc. 1, Exhibits A, B, C.. In this adversary the Chapter 13 Trustee filed a Complaint And Counterclaim To Proof Of Claim (Doc. 1) which asks the court to “[f]ind that the claim of defendant is an installment sales contract; disallow the claim of defendant as filed; and authorize the defendant to file an amended unsecured proof of claim.” The Chapter 13 Trustee, subsequently stated that for purposes of these motions for summary judgment only, if the court found these agreements were not true leases, the trustee would not dispute that the defendants have a purchase money security interest in the property.
In this adversary the defendant filed an Answer (Doc. 3). The trustee and the defendants filed similar Complaints and Answers in each of the other adversaries (3-87-0174, 3-87-0175, 3-87-169 and 3-87-0203). In addition to reviewing the trustee’s Complaints, the defendants’ Answers, the trustee’s Motions For Summary Judgment and the defendants’ Memoranda In Response To The Motions For Summary Judgment, the court also considered the oral arguments of counsel for the defendants and the Chapter 13 Trustee.
The trustee argues that these agreements were actually intended by the parties to act as secured installment sales contracts. Doc. 13 at 2. He supports this conclusion by noting that none of the agreements require additional consideration before ownership is transferred at the end of the pre-determined period. Doc. 13 at 2, 3.
The defendant argues that the agreements only require a one week rental period and at the end of any weekly rental period the customer may return the property without ownership and without any further obligation. Accordingly, he concludes these agreements are true leases (Doc. 21 at 7, 8).
The issue presented in these five (5) adversaries is familiar in bankruptcy proceedings. See Sight and Sound of Ohio v. Wright, 36 B.R. 885 (D.S.D.Ohio 1983); Consumer Lease Network v. Puckett, In re Puckett, 60 B.R. 223, cases collected at footnotes 25 and 26 (Bankr.M.D.Tenn.1986); aff'g per curiam sub nom Consumer Lease Network, Inc. v. Nancy Sue Puckett et al., 838 F.2d 470 (6th Cir.1988); American Way Rentals v. Fogelsong, (In re Fogelsong), 88 B.R. 194 (Bankr.C.D.Ill.1988).
Although this court shares the view that the determination of this issue involves analyzing all relevant factors surrounding the agreement and the relationships created therein, the resolution of this issue is controlled by state law. Sight and *105Sound, supra at 885; See also, In re Puckett, supra, at 234. The relevant Ohio Revised Code provision which governed these agreements at the time they were executed provided:
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 the owner of the property for no additional consideration or for nominal consideration does make the lease one intended for security. Ohio Rev.C. § 1301(KK) (Anderson Supp.1987) (See also U.C.C. 1-201(37))
This provision of the Ohio Revised Code (§ 1301.01(KK)) was considered in Sight and Sound, supra, by District Judge Walter H. Rice, in an appeal from a decision issued by former Bankruptcy Judge Charles A. Anderson of this court. In his decision, Judge Rice noted,
This broad based inquiry [analyzing all relevant factors surrounding the agreement and the relationships created therein], however, must be cut short whenever it is determined that the purported lease provides that upon compliance with the terms of the lease, the leasee shall become, or has the option to become, the owner of the property for no additional consideration or for nominal consideration. ORC § 1301(KK) (U.C.C. § 1-201(37)). In such instances, the applicable statutory provision, compels the legal conclusion that the lease was one intended for security, (citation omitted) Sight and Sound at 890 (emphasis added).
It must be recalled that this issue is before the court in all five adversary proceedings on a motion for summary judgment filed by the Chapter 13 Trustee. As this court noted in Matter of Warner, 65 B.R. 512, 516 (Bankr.S.D.Ohio 1986),
The cases interpreting the various provisions of Rule 56 have produced an evolving body of law that has continued to emphasize standards which require both a moving and a nonmoving party to give careful attention to the presentation and defense of a motion for summary judgment. The two recent decisions from the United States Supreme Court reflect the careful attention required by all parties involved in a motion for summary judgment.
In Anderson, the Court held that “in ruling on a motion for summary judgment, the judge must view the evidence presented through the prism of the substantive evidentiary burden,” Id., 477 U.S. at 254, 106 S.Ct. at 2513, i.e., “whether a jury [fact finder] could reasonably find either that the plaintiff proved his case by the quality and quantity of evidence required by the governing law or that he did not.” Id. (emphasis in original).
In Celotex [Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)], the Court established the standard under which a trial court should rule on a motion for summary judgment:
Under Rule 56(c), summary judgment is proper “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 our view, the plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party’s case, and on which that party will bear burden of proof at trial. In such a situation, there can be “no genuine issue as to any material fact,” since a complete failure of proof concerning an essential element of the nonmoving party’s case necessarily renders all other facts immaterial. The moving party is “entitled to judgment as a matter of law” because the nonmoving party has failed to make a sufficient showing on an essential element of her case with respect to which she has the burden of *106proof. “[T]h[e] standard [for granting summary judgment] mirrors the standard for a directed verdict under Federal Rule of Civil Procedure 50(a).... ” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986).
Id., 477 U.S. at 322-23, 106 S.Ct. at 2552-53.
This statement from the Court resolved the question of whether the party who does not bear the ultimate burden of proof at the trial of an issue must, as the movant in a motion for summary judgment, through the presentation of specific evidence negate the nonmovant’s case in order to establish that there is no “genuine issue of material fact,” thereby entitling the movant to summary judgment. A moving party in motion for summary judgment meets its burden by affirmatively demonstrating from the record that is before the court that there is no evidence to support an essential element of the nonmoving party’s case.
In this adversary proceeding, the Shastar lease, (App. A), permits the lessee to exercise an absolute option to purchase the property at any time prior to the final 90 days of the lease, (App. A, pg. 2, par. 8(b)) and permits a transfer of ownership at the end of the lease term without additional consideration. Additionally, the operation of the purchase option price formula appears to provide the lessee with equity in the property by allowing the payments made by the debtor to be credited toward the purchase of the property. Id. Although the agreement contains language and elements consistent with a true lease, when the total language and elements of the contract are considered, including the specific language in the agreement providing for an “amount paid to own item,” (App. A pg. 1 at numeral 1) and the absolute option to purchase, it follows that the parties intended the debtor to obtain ownership of the property and the agreement is one intended for security. With regard to these leases (App. A-this adversary 3-87-0173, and adversaries 3-82-0174, 3-87-0203 and 3-87-0169), upon the facts presented, the conclusion that they are not true leases, but rather disguised installment purchases, is completely consistent with, if not compelled by, the relevant provision of the Uniform Commercial Code as adopted in Ohio Revised Code Section 1301.01(KK).
The Rent-Rite lease (App. B), does not provide for a purchase option during the pendency of the lease; however, it does provide for a pre-determined amount to be paid for a pre-determined period which, when completed, will result in ownership of the property for no additional consideration. The agreement also places all risk of loss or damage on the lessee, and, as noted, the transfer of ownership at the end of the agreement does not require the payment of any additional consideration. Again, upon review the facts presented, the Rent-Rite, Inc. agreement (App. B, Adversary 3-87-0175) is also determined not to be a true lease as contemplated by the provisions of Ohio Revised Code § 1301.01(KK).
In these five adversaries, when the evidence that has been presented in connection with the various motions for summary judgment, (App. A, App. B, Doc. 1, Exhibits A, B, C), is “viewed through the substantive evidentiary burden”, it is clear that there has been a complete failure of proof on an essential element of the nonmoving parties’ case, specifically, any evidence that would remove these agreements from the provisions of Ohio Revised Code § 1301.01(KK) as interpreted in this district in Sight and Sound, supra. Accordingly, the Chapter 13 Trustee, the moving party, has met the burden of affirmatively demonstrating from the record before the court that there is no evidence to support an essential element of the nonmoving party’s (the defendant’s) case.
The court recognizes that this decision may be without prospective effect. The Ohio General Assembly has recently enacted legislation which defines lease purchase agreements [Ohio Revised Code § 1351.01(F) effective June 29, 1988] and amends Ohio Revised Code § 1301.01(KK) to provide in part,
A LEASE-PURCHASE AGREEMENT AS DEFINED IN DIVISION (F) OF SECTION 1351.01 OF THE REVISED *107CODE SHALL NEVER BE INTENDED AS SECURITY.
For the above reasons, the Motion Of The Trustee For Summary Judgment is HEREBY GRANTED. A copy of this decision and an order in accordance with this decision is contemporaneously entered in each of the five related adversaries.
SO ORDERED.
APPENDIX A
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*108KtNIAL AOKttMfcNI
1 This ogreement is mode by NRM, Inc. dbo/$HA$lAR (Owner) ond the (Renter) nomed in Exhibit A oltoched to this ogreement.
Owner ogrees to rent the Items identified in the Description of Rented Items in Exhibit A to Renter on o periodic bosis. ond to mointoin the Items for Renter; ond Renter ogrees to poy Owner in odvonce the Rent Poyment shown in Exhibit A for each rentol period ond olso ogrees to comply with all the other terms contained in this Agreement.
The terms of this Agreement or*:
1. Rent. The Renter will poy Owner, os a rentol ond maintenance fee for the Items, the Rent Poyment shown in Exhibit A, plus ony applicable soles tax.
2. Rent Due Date. Rent will be paid occording to the schedule shown in Exhibit A.
3. lot* Payment, if Rent is not paid on the day it is due. Renter will poy Owner an additional late Poyment Charge of S2.00 for every day thot ony of the Rent payment remains unpaid.
4. Renter's Use of Items.
(a) The Renter will keep the Items in good condition, will use the Items in a normol way, ond will be coreful to ovoid domoging or losing the Items.
(b) The Renter will olwoys keep the llems ot the Renter's oddress slated in Exhibit A, and will not allow the Items to be moved or used by other people without the Owner’s permission.
(c) The Renter won't tomper with the Items, try to repair them himself or osk onyone other than the Owner to repair them.
(d) Renter will call Owner immediately if the Items are lost, stolen, domoged or need repoir.
5. Maintenance by Owner. The Owner wilt keep the Items in good working order ot no odditionol cost to Renter except when the Renter has domoged the hem by improper use or obuse or when the hem is domoged by couses beyond the control of the Owner such os floods or electrical storms. Owner moy repoir the hems or reptoce them either temporarily or permanently with onother similor one which will be covered by the Agreement under the some terms. If the Items ore not restored to good working order within 24 hours after the customer hos notified the Owner of o non-working Item, the Owner will poy one week's rent on the Item for the Renter.
6. Return of Items by Renter. Renter moy end this Agreement ot any time by returning the hems to Owner in some condition they were in when Renter received them, except for normol ond reosonoble weor ond tear, ond by poying Owner oil Rent due through the dote of the
7. Owner Moy End Agreement. If Renter does not poy the Rent when due or does not obide by every other term of this Agreement, then the Owner con end the Agreement and require the Renter to return the hem immediately. If the Agreement is conceited by Owner ond Renter does not immediately return the hems, then Owner moy enter the RenterTproperty and take them back, and Renter will have to poy Owner for the costs of repossession.
S. Renter's Option to Purchose Items. Renter may purchose the Items listed on Exhibit A by doing either of the following:
'(o) Making the total number of consecutive Rent Poyments shown in Exhibit A.
(b)Poying Owner on omount equol to the total omount paid for ownership for ony hem, minus the tolol Rent Poyments already paid to Owner for such Item, multiplied by 60%, provided oil Rent Poyments due ore pold in full ond the option is taken ot leost 90 days prior to the last rent poyment due date.
9. Domoges ond Insuronce. The Renter will pay Owner for its toss ¡f the Items are domoged, lost, stolen or returned in bod condition. The Renter, ot his own expense, moy corry Tire, cosuolty ond theft insuronce covering the Items (Renter should check with his insuronce ogent to moke sure the Items are covered by his homeowner's or renter's insuronce policy). Renter will immediately notify both his insuronce company ond Owner if the Items ore lost, stolen or domoged.
10. Signing This Agreement. By signing this Agreement below. Renter promises ond stotes the following:
(o) When received, Renter will examine the hems corefully ond will notify Owner immediately if the hems ore not in good operating condition or if Renter is not satisfied with them for ony reoson.
(b) Renter soys he or she hos carefully exomined any products listed in Exhibit A os previously rented, ond is satisfied with their condition.
(c) Renter will pay the Rent on time ond obey oil the other terms of this Agreement.
(d) Renter hos reod this Agreement ond understands it.
(e) Renter soys thot the Owner hos not mode ony promises to him or ogreements with him other thon those which are contained in this written Rental Agreement and the Description of Rented Items (Exhibit A).
(f) Renter hos been given an exact copy of this Agreement.
(g) Renter will ollow Owner to add product identification numbers (Owner ID ond serio!) to the Agreement if they are not known ot time of signing Agreement.
If onyone in addition to the nomed Renter signs this Agreement below under the title "Renter", he or she ogrees to be responsible for everything the nomed Renter must do under this Agreement.
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*109APPENDIX B
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*110[[Image here]] | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490800/ | ORDER DENYING MOTION
R. GUY COLE, Jr., Bankruptcy Judge.
This matter is before the Court upon the motion filed by debtors, Walter and Carol Gilmore, which seeks an order of this Court revoking the Discharge of Debtors entered on June 23, 1988. Debtors’ motion states that an order revoking the discharge is sought because “Debtors prior ... [to the discharge’s issuance were not] able to reaffirm two (2) real estate loans with the Savings Bank of Circleville and Debtors now desiring [sic] to do so.” Debtors’ Motion at 1. 'Presumably, debtors intend to move for reinstatement of the discharge subsequent to their execution and filing of the reaffirmation agreements.
The Court finds that debtors’ motion is defective due to noneompliance with L.B.R. 5.4(a).
LBR 5.4(a) provides as follows:
(a) All motions and applications tendered for filing shall be accompanied by a memorandum in support and, except in the case of (1) an ex parte motion or application, or (2) a motion or application, notice of which is issued to all parties in interest, a certificate of service in accordance with LBR 5.0(d).
The motion filed by debtors was not accompanied by a supporting memorandum and, hence, fails to comply with LBR 5.4(a).
As the parties asserting the affirmative, debtors clearly bore the burden of setting forth authority to persuade the Court that the relief requested is appropriate. See, Lilienthal’s Tobacco v. United States, 97 U.S. 237, 24 L.Ed. 901 (1877); Joseph A. Bass Co. v. United States, 340 F.2d 842, 844 (8th Cir.1965) (“It is fundamental that the burden of ... [persuasion] ... rests upon the party who, as determined by the pleadings or the nature of the case, asserts the affirmative of an issue ... ”). Supporting authority is of particular importance in this case inasmuch as debtors request extraordinary relief — i.e., revocation and subsequent reinstatement of a discharge. No statutory or case law support was offered to establish that the Court has the authority to vacate the discharge and reinstate the same at a later date. While all parties in interest have been served with debtors’ motion and no objection has been lodged, that fact alone is not so compelling to convince the Court to follow the irregular procedure recommended by the debtors. A host of legal and practical difficulties could arise from revocation and subsequent reinstatement of a previously-issued discharge. For instance, pursuant to 11 U.S.C. § 362(c), the automatic stay imposed by § 362(a) continues in effect until the time a discharge is granted or denied. Thus, retroactive vacation and subsequent reinstatement of a discharge, could expose creditors, who have taken action with respect to property of the estate (which would otherwise not be protected by the automatic stay postdis-charge), to sanctions under 11 U.S.C. § 362(h). Such creditors’ actions would violate the automatic stay which, theoretically, would become effective upon revocation of the discharge. In addition, parties that have extended credit to the debtors in reliance upon the effective date of the discharge could well find that their debts have been discharged by the reinstatement of the discharge at a date subsequent to the date the debts were incurred. Hence, a procedure whereby a previously-issued discharge is vacated and later reinstated bears the potential of causing great prejudice to creditors who have relied upon the previous issuance of a discharge, and importantly, the date of its issuance. Moreover, even if creditors in a particular case *120would not actually be prejudiced, the confusion engendered by such a procedure for the-creditor body would not be insignificant. Finally, if the Court were to permit such relief on a routine basis, the administrative burden created for the Bankruptcy Clerk would be substantial.
For all of the above reasons, the Court declines to enter an order vacating the discharge previously issued in this case and later reinstating the discharge after debtors have an opportunity to reaffirm two (2) debts with the Savings Bank of Circleville. If additional time was required to enter such reaffirmation agreements, then debtors should have sought, either by motion or by letter, a deferral of the entry of the discharge until such reaffirmation agreements were executed and filed. This procedure is routinely followed by debtors and their counsel in this district.
Based upon the foregoing, the Court finds that the debtors’ motion is not well-taken and shall be DENIED.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490803/ | MEMORANDUM OPINION
MARK B. McFEELEY, Bankruptcy Judge.
This matter came before the Court for trial on the merits of trustee’s complaint to avoid post-petition transfer. Defendant is debtor’s daughter. In his complaint trustee sought the return of some $55,000 paid to the defendant or for her benefit after the bankruptcy petition was filed that he alleged was paid in violation of Title 11. For the reasons set forth in this memorandum opinion the Court will enter judgment in favor of plaintiff for $35,775.00. FACTS
Debtor filed a voluntary chapter 11 proceeding in 1983. At this time he owned 73 shares of JOMA Corporation.1 Sixty-six other shares were outstanding at all times material herein: defendant Barbara Byrd, 33 shares; defendant Barbara Byrd as *196trustee for her children, 32 shares; and debtor’s wife, 1 share. Debtor was president of JOMA. Its board of directors consisted of the debtor, his wife, and the defendant.
JOMA has a November fiscal year. In the year ending November 30, 1986 JOMA issued the following checks to or for the benefit of defendant:
Number Date Amount
Exhibit 2 1141 1-20-86 $ 300.00
1165 7-7-86 1,500.00
1175 7-17-86 1,000.00
1183 8-7-86 1,000.00
1193 8-20-86 500.00
1194 8-20-86 300.00
Exhibit 3 1147 3-7-86 200.00
Exhibit 4 1205 9-16-86 125.00
1213 10-16-86 125.00
1221 11-10-86 125.00
1155 6-27-86 600.00
$5,775.00
During the fiscal year ending November 30, 1987 JOMA issued the following cheeks to or for the benefit of defendant:
Number Date Amount
Exhibit 1 Cashier’s Check 12-31-86 $30,000.002
Exhibit 2 1340 3-25-87 200.00
Exhibit 3 1245 1-7-87 200.00
1314 2-28-87 200.00
1356 5-1-87 200.00
1389 7-15-87 200.00
Exhibit 4 1248 1-22-87 125.00
1308 2-18-87 125.00
1319 3-11-87 125.00
1348 4-13-87 125.00
1347 6-11-87 125.00
1388 7-15-87 125.00
$31,875.00
JOMA’s accountant testified that throughout the period covered by these checks he was aware only of the $30,000.00 cashier’s check to defendant, and that all checks pre-dating the cashier’s check would have been included in the “due from Joe Priestley” account on the books. Therefore, in substance the debtor was borrowing funds from JOMA and directing JOMA to remit those funds to or for the benefit of his daughter.
The accountant next testified that the $30,000.00 check was intended to be a dividend to the defendant, to distribute JOMA’s corporate earnings to her. The Court does not believe this testimony.
First, no other shareholders participated in this alleged dividend. Second, the 1986 year end adjusting entries in evidence does not reflect that any dividends had been declared. Rather, adjustment 3, which deals with the sale of the corporate property that generated the funds from which defendant was paid, shows an increase in the “due from Joe Priestley” account of $50,564.42.3 Therefore the corporate books treated her payment as a loan to the debt- or.
Third, it is clear that there had been no directors meeting at which a dividend had been declared. Finally, although debtor attempted at trial to convince the Court that all payments were dividends, his prior deposition testimony indicates otherwise:
Q. Why did she receive $30,000?
A. Because I owed her money,
Q. How much money did you owe her?
A. A little over $50,000.
Q. You personally owed her that money?
A. My trust and myself did, yes.
Q. And JOMA Corporation paid it?
A. Yes, sir.
Deposition of September 29, 1987 at 119, and
Q. You owed her this money on the date that the petition was filed?
A. Yes, sir, it was filed in the Court.
Q. And since you had some money ... you decided that you would pay her?
A. Try to pay all my debtors, (sic)
*197Q. And Barbara Byrd came first because she was related to you?
A. Well not necessarily. It was a debt that I owed and I had the money to pay it, so I paid it.
Id. at 120.
Therefore, the Court finds that all payments during JOMA’s 1986 fiscal year, to-talling $5,775.00, and the subsequent $30,-000.00 payment were all loans to the debtor that he caused to be paid to or for the benefit of defendant.
While the record reflects that another $1,875.00 was paid to or for the defendant during JOMA’s 1987 fiscal year no testimony was presented on how these payments were treated. Therefore the Court cannot find that these payments represented further loans to the debtor.
DISCUSSION
Trustee seeks a judgment under 11 U.S.C. § 549 avoiding a post petition transfer of property of the estate that was unauthorized by Title 11 or the Court. He argued three theories for recovery: first, that the transfers were of “property of the estate”, which defendant contests; second, that if the payments were dividends they reduced the value of JOMA shares held by the estate and he should therefore recover for the diminution; third, that JOMA is only an alter ego of the debtor and that, therefore, the payments were of property of the estate. The Court agrees with trustee’s first argument and does not need to discuss the other two.4
The Court finds that the $35,775 transferred was property of the estate. JOMA loaned this money to the debtor. The fact that JOMA paid the funds directly to defendant or for her benefit is not relevant. The record is clear that JOMA treated the advances as loans to the debtor and would hold him liable for repayment. Under 11 U.S.C. § 541(a)(7) funds loaned to a debtor-in-possession become estate property.
Although not argued by defendant, the Court has considered the possible defense that the funds transferred represent post-petition earnings of the debtor. Under this theory § 541(a)(6) would operate to remove them from the estate. See e.g. In re Fitz-simmons, 725 F.2d 1208, 1211 (9th Cir.1984) (Post-petition personal services earnings of chapter 11 debtor are not estate property.) JOMA’s 1986 adjusting entries demonstrate that all amounts “due from Joe Priestley” were converted to management fees at year end. Management fees would, arguably, be personal service income and not estate property. The record is clear, however, that when the funds were advanced JOMA treated the advances as loans. When the debtor caused JOMA to make the advances he was borrowing from JOMA. Funds borrowed post-petition are estate property in chapter 11. Only later, by forgiving these loans, did JOMA cause income to be generated. Therefore, the income was the repayment of the loans, not the initial funding of those loans. Furthermore, the Court would be reluctant to be bound by JOMA’s characterization of the transfers as earned income. First, the accountant testified that the entire receivable was charged off as management fees to reduce corporate tax liability. Therefore the fees do not represent the fair value of services rendered, rather, they represent the amount that the debtor borrowed. This is especially true in light of testimony that the corporation had been mostly inactive for two years. Second, the debtor dominates JOMA. To allow him to characterize JOMA’s transactions would allow him to remove assets from the estate as he wished, to the detriment of creditors. Therefore, the Court finds that the *198§ 541(a)(6) exception for personal services earnings would not defeat trustee’s claims.
Finally, the Court finds that the transfers in question were not authorized by Title 11. Either they were post-petition gifts to an insider or were post-petition repayments of pre-petition unsecured debt. Neither is authorized by Title 11.
This memorandum opinion constitutes the Court’s findings of fact and conclusions of law. Bankruptcy Rule 7052. An appropriate order shall enter.
. Actually the shares were owned by the Joe W. and Mary Lee Priestley Revocable Trust; trust assets were later held to be estate property. See Orders entered February 16, 1984, April 3, 1984, and March 19, 1985. See also First Amended Schedule B-2 filed April 5, 1984, which includes Trust assets.
. Although paid to her during the 1987 fiscal year the check was part of a transaction accrued on JOMA’s books as of November 30, 1986.
. The Court has been unable to reconcile the exact components of this figure. The debtor did not receive the closing documents from the sale, see Deposition of September 29, 1987 at 109, but recalled that he received approximately $18,000. Id. The defendant received $30,000.00. Id. at 107. Adjustment 2 and 5 reflect that the receivable was reduced by $1,533 to reflect other items at closing. In any event, the record is clear that the $30,000 payment was treated as a loan to the debtor on JOMA’s books.
. The Court questions, however, whether the trustee would have standing to pursue his relief under his second theory. See In re Interpic-tures, Inc., 86 B.R. 24, 27-28 (Bankr.E.D.N.Y.1988) and cases cited therein. (Injury to the value of stock does not give stockholders a right to sue on own behalf.)
The Court also doubts whether it could pierce JOMA’s corporate veil when JOMA and all of its stockholders have not been named as parties. Compare Eisenberg v. Casale (In re Cósale), 72 B.R. 222 (E.D.N.Y.1987) (In a fact pattern similar to this case Court pierced corporate veil; defendants in case were debtor, the transferee, the corporation itself, and its 100% stockholder.) | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490804/ | ORDER STRIKING CLAIMS 60 AND 88 OF GARY SHURE AND DENYING COUNTERCLAIM
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE came on before the Court on the 3rd day of October, 1988, 10:00 o’clock a.m. upon the Amended Objection to Claim Nos. 60 and 88 of Gary Shure and Counterclaim of Debtor filed by Sure-Snap Corporation (the “Debtor”) objecting to the claims of Gary Shure pursuant to Bankruptcy Rules 3007 and 7001 and counterclaiming against Gary Shure for various monies paid to Mr. Shure prior to the filing of the petition in bankruptcy in this case, 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:
Gary Shure (“Shure”), the claimant in this case, is the son of Alfred Shure, former President and Chief Executive Officer of the Debtor, who died on March 1, 1987. On June 11, 1987, Shure filed Claim No. 60 in the total amount of Fourteen Thousand Four Hundred Dollars ($14,400.00) for “severance pay” based solely upon an alleged “Agreement” (the “Agreement”) dated September 23, 1985 bearing the alleged signatures of Shure and his father. (Plaintiff’s Exhibit 3).
In addition, Gary Shure filed Claim No. 88 with this Court. That claim was late filed, is time-barred, duplicates Claim No. 60 and is hereby STRICKEN.
The Debtor challenges the authenticity of Alfred Shure’s signature on the Agreement. The Agreement (Plaintiff’s Exhibit 3) was examined and analyzed by Linda Hart, a Certified Questioned Document Examiner, at the request of the Debtor. Tina Shure, Alfred Shure’s step-daughter, testified that she had provided Ms. Hart with checks containing the original signature of Alfred Shure for comparison with the alleged signature of Alfred Shure which appeared on the Agreement. Those cheeks were admitted into evidence (Plaintiff’s Exhibit 2). Gary Shure later testified that Plaintiff’s Exhibit 2 appeared to contain his father’s signature. Ms. Hart prepared a Report of Examination with respect to the signatures on the Agreement. The Court found Ms. Hart qualified as an expert in the area of questioned document examination and analysis, admitted her Report of Examination dated July 27, 1988 into evidence (Plaintiff’s Exhibit 4), and also permitted her expert testimony as to the method of analysis she employed, the basis for comparison of signatures, and her expert opinion as to the alleged signature of Alfred Shure which appeared on the Agreement. Ms. Hart concluded both in the Report of Examination and in her sworn testimony that the signature of Alfred Shure which appears on the Agreement was not the signature of Alfred Shure, but was a forgery.
*205The Agreement in question purports to bind the Debtor to pay Gary Shure the sum of $400.00 per week until September 25, 1986 as “severance pay,” although Shure was not fired or laid off by the Debtor, but voluntarily quit his employment in May, 1985. Shure testified that this “severance pay” was to be made in connection with his voluntary departure from his employment by the Debtor, that he negotiated the Agreement face to face with his father, and that the Debtor breached the Agreement by failing to pay the balance of $14,-400.00 which remains due and owing.
Gary Shure testified that he prepared the Agreement, that he took it to Alfred Shure, his father and president of Sure-Snap Corporation, on or about September 23, 1985, and that Alfred Shure signed the document in Gary Shure’s presence. Gary Shure testified that he witnessed his father sign the document, and that he was certain of this fact. He was unable to explain the obvious differences in signatures despite repeated questioning by the Court.
The Court finds that the signature of Alfred Shure on the Agreement dated September 23, 1985 (Plaintiffs Exhibit 3) is a forgery, that the Agreement was never signed by Alfred Shure, and that the Agreement is not a valid contract and is unenforceable as a matter of law. Claim No. 60 filed by Gary Shure is hereby STRICKEN.
In addition, the Debtor had counterclaimed against Gary Shure for breach of the Agreement which the Court finds to be null, void, and unenforceable. Because there was no enforceable contract, the Debtor is not entitled to counterclaim based upon that same Agreement. Accordingly, the counterclaim of the Debtor against Gary Shure is DENIED.
DONE and ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490805/ | Ruling on Request for Award of Expenses of Motion Pursuant to Fed.R.Civ.P. 37(a)(4)
ROBERT L. KRECHEYSKY, Chief Judge.
I.
This ruling concerns the appropriateness of awarding to the defendant-movants, Ronnie E. Shaw and Linda W. Shaw, reasonable expenses for attorney’s fees which they incurred in seeking a court order to compel the plaintiff, Hartford Municipal Employees Federal Credit Union, to file answers to interrogatories submitted by the movants under Rule 33 and to produce documents requested under Rule 34 of the Federal Rules of Civil Procedure. The parties have presented the issue to the court by way of submission of affidavits.
II.
The plaintiff, on August 9, 1988, commenced an adversary proceeding pursuant to Bankruptcy Code § 523(a)(2)(B) to except from the defendants’ discharges a debt for money allegedly obtained by the defendants through the issuance of a false financial statement in writing to the plaintiff. On September 9, 1988, the defendants served upon the plaintiff numerous interrogatories and requests for the production of documents. Maureen S. Caine, Esq., the attorney for the plaintiff, served the plaintiff’s responses to the defendants’ requests on October 19, 1988. By letter dated October 24, 1988, Richard M. Leibert, Esq., attorney for the defendants, wrote to Caine claiming that four of the responses were incomplete and requesting the plaintiff “to respond in a more direct manner.” He further stated in the letter that his request was “being made pursuant to Local Rule 9 before preparing and filing a Motion for Order Compelling Discovery, pursuant to Rule 37 of the Federal Rules of Civil Procedure.”
Caine wrote to Leibert on November 9, 1988 “that we are doing everything that we can to complete the discoveries pursuant to your request” and that she was “awaiting further reply from the credit union.” Lei-bert’s affidavit avers that he determined that this response, received on November 14, 1988, “was unacceptable as it did not contain any date by which Defendants’ [sic] could reasonably rely on for the responses.” On November 14, 1988, he drafted a “Motion For Order Compelling Discovery”. The motion was filed on November 15,1988 and scheduled by the clerk’s office for hearing on December 6, 1988. Leibert made no effort to contact Caine or anyone at her office to discuss his dissatisfaction with the November 9, 1988 letter.
Due to conditions relating to her pregnancy, Caine'stopped working at her law firm on November 10, 1988, approximately one month earlier than she had anticipated. The Shaw litigation file was turned over to an associate, Mary Ann Rush, Esq. Rush, on November 30, 1988, wrote to Leibert stating she would be meeting with the members of the plaintiff’s credit committee on December 5, 1988 to review the discovery requests. On December 6, 1988, prior to the scheduled hearing, Rush delivered to Leibert a document entitled, “Plaintiff’s Supplemental Answers To Defendants’ Request For Discovery.” At the *270hearing Leibert sought no order on the defendants’ motion but requested an award of attorney fees.
III.
Fed.R.Civ.P. 37(a)(4), made applicable to the bankruptcy court by Bankruptcy Rule 7037, authorizes the court to award to the party moving for an order compelling discovery “the reasonable expenses incurred in obtaining the order, including attorney’s fees, unless the court finds that the opposition to the motion was substantially justified or that other circumstances make an award of expenses unjust.” Fed.R.Civ.P. 37(a)(4). Leibert contends that he devoted 4.6 hours at $125.00 per hour in pursuing the defendants’ motion and seeks an award of $575.00.
Local R.Civ.P. 9(d)(4), made applicable to the bankruptcy court by Local R.Bankr.P. 1, provides:
4. No motion pursuant to Rules 26 through 37, Fed.R.Civ.P., shall be filed unless counsel making the motion has conferred with opposing counsel and discussed the discovery issues between them in detail in a good faith effort to eliminate or reduce the area of controversy, and to arrive at a mutually satisfactory resolution. In the event the consultations of counsel do not fully resolve the discovery issues, counsel making a discovery motion shall file with the Court as part of the motion papers, an affidavit certifying that he or she has conferred with counsel for the opposing party in an effort in good faith to resolve by agreement the issues raised by the motion without the intervention of the Court, and has been unable to reach such an agreement. If part of the issues raised by the motion have been resolved by agreement, the affidavit shall specify the issues so resolved and the issues remaining unresolved.
IY.
The parties’ affidavits reveal that Leibert did not meaningfully comply with the obligations imposed upon him by Rule 9. The day he drafted the motion to compel, November 14, 1988, was the same day he received Caine’s November 9, 1988 letter indicating reasonable efforts were being made to secure the additional responses requested by Leibert. He made no attempt to confer with her and discuss a date for receipt of the response in a good faith effort to resolve any problem caused by a delay.
The Rule 9 affidavit which Leibert filed with his motion states that his October 9, 1988 letter to Caine was his “good-faith effort to resolve the issues.” The statement in this letter concerning Rule 9 can only be described as peremptory. Leibert’s minimal actions were clearly at odds with Rule 9’s admonition that counsel, prior to filing a discovery motion, must “confer[] with opposing counsel and discuss[] the discovery issues between them in detail in a good faith effort to eliminate or reduce the area of controversy, and to arrive at a mutually satisfactory resolution.” The thrust of Rule 9 that counsel seek to resolve discovery issues “without the intervention of the Court” merits more observance than is apparent on this record.
V.
I conclude, upon the foregoing facts, that the plaintiff was proceeding reasonably to respond to the defendants’ request for discovery, that any delay occasioned by the change in plaintiff’s attorney due to Caine’s pregnancy was not excessive, that the provisions of Local Rule 9 were bypassed by defendants’ counsel, and that any award to the defendants would be unjust. Accordingly, the request of the defendants for an award of expenses is denied, and it is
SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490806/ | MEMORANDUM OPINION
DAVID F. SNOW, Bankruptcy Judge.
This case is again in this Court on remand from the judgment of the Sixth Circuit Court of Appeals filed March 27, 1985 and the opinion of that court entered on the same date, which is reported at 758 F.2d 162 (the “Opinion”). For reasons that are not altogether clear, this case has languished since the remand and came on for hearing on December 12,1988, nearly three years and nine months after the date of the Opinion. This will be the fourth decision in this case. The first was rendered by this Court on July 15, 1983. Its opinion and order were appealed to the District Court which entered an order affirming this Court’s decision with minor modifications *452on February 2, 1984. On appeal, the Court of Appeals affirmed the order of the District Court in part and reversed it in part.
In brief, the defendants, John Talmage and Barbara Talmage (collectively the “Tal-mages”), had through their corporation, John Talmage, Incorporated, entered into various agreements with the plaintiff, Comprehensive Accounting Corporation (“CAC”), relating to their conducting an accounting business (the “Agreements”). In accordance with the Agreements, the Talmages purchased from CAC the right to provide accounting and bookkeeping services to customers (“Accounts”) who had been solicited or provided to them by CAC. The Agreements granted to CAC various security interests in respect of the Accounts and included a covenant restricting the Talmag-es’ right to service the Accounts following the termination of the Talmages’ relationship with CAC (the “Covenant not to Compete”).
In 1982 the Talmages defaulted in the repayment of their obligations to CAC and the Agreements were subsequently terminated. On or about February 28, 1983, the Talmages filed a joint petition under Chapter 7 of the Bankruptcy Code. In April, 1983, CAC filed its complaint for a temporary restraining order, preliminary and permanent injunction and for relief from stay. The issues raised in the courts and finally decided by the Court of Appeals were:
(a) the nature and extent of CAC’s security interest in and relating to the Accounts; and
(b) the enforceability of the Covenant not to Compete.
The Covenant not to Compete continues to be at issue between the parties and is set forth in full below as it appears in the Opinion:
Agreement Not To Compete. During the time Licensee [Talmage] is associated, and for a period of one (1) year after its status as a Licensee is terminated, whether by reason of lapse of time, default in its performance, or any other case or contingency Licensee or Associate will not, in any capacity directly or indirectly engage in the following activities:
1. Perform bookkeeping services for any client then currently serviced or for one year after it has ceased to be serviced by COMPREHENSIVE or another Licensee.
2. Make use of any trade secrets of COMPREHENSIVE for the mass solicitation of accounts or use of mass media as opposed to personal contact.
The Court of Appeals held that the Covenant not to Compete was enforceable.and reversed the decision of the District Court to the contrary. Further, it held that CAC’s security interests were enforceable and in this respect affirmed the decision of the District Court. It also required that the Talmages turn over copies of certain books and records to CAC. Set forth below is the dispositive language from pages 166-67 of the Opinion:
We also conclude that the restraint here involved considering all the circumstances, including the posture of the parties, is not substantially greater than necessary to protect the legitimate interest of CAC in enforcement. We construe the covenant not to compete, as CAC itself argues that it should be construed, not for an indeterminate term but for a one year term only, and conclude that such time limitation is reasonable, as are the other constraints on Talmage for that period. The covenant was clearly ancillary to a license agreement and a sale, transfer or assignment of accounts, and is enforceable. In this respect, then, we reverse the decision of the district court that the covenant was not enforceable as to Talmage. We affirm the district court decision, however, that CAC has a valid and enforceable security interest in accounts receivable, contract rights and work papers of Talmage. In addition, we hold that Talmage should reasonably be called upon under the agreement with CAC to turn over copies of books and records pertaining to clients’ accounts that are in Talmage’s possession (or in the possession of Talmage, Inc.) The original books and records that may belong to clients, of course, would not be *453covered by the security interest, as conceded by CAC.
The Judgment of the Court of Appeals issued as mandate on April 26, 1985 ordered the case remanded to this Court for further proceedings consistent with the Opinion.
At the hearing held on this matter on December 12, 1988, the sole witness called by the plaintiff was Amos T. Finkle, an executive officer of CAC. No witnesses were called by the Talmages. Based upon the pretrial statements and trial briefs of the parties and the testimony of Mr. Finkle as well as the statements by counsel at the hearing, the only issue appears to be the appropriate remedy for the Talmages’ breach of the Covenant not to Compete.
Mr. Finkle testified that no request has been made by CAC to acquire any of the papers or other materials in which it has a security interest or which had been ordered to be turned over to it by the Court of Appeals. Counsel for the Talmages indicated that any such materials that existed would be made available to CAC at its request. Mr. Finkle testified, however, that the security and other materials were valueless to it without an order restraining the Talmages from servicing the Accounts. Moreover, CAC made no effort to prove damages for breach of the Covenant not to Compete and its counsel expressly disclaimed any intention to assert a claim for damages. Therefore, the sole issue presented for determination by CAC was whether an injunction was a proper remedy for the Talmages’ breach of the Covenant not to Compete. The parties apparently concur that this matter is governed by Illinois law, and it is that law under which the Opinion was decided by the Court of Appeals.
CAC’s position is that it is entitled now to an injunction restraining the Talmages from servicing the Accounts in accordance with the Covenant not to Compete and, in connection therewith, introduced into evidence a list of the Accounts at December 30,1982 comprising 57 Accounts in all. No testimony was presented, however, as to whether or not any or all of these Accounts continue to be serviced by the Talmages or in fact now exist at all. It is CAC’s contention that the Opinion mandates an order by this Court restraining the Talmages from servicing such Accounts for the period of one year. It is presumably also its view that such a remedy is appropriate under Illinois law, although it cited no authority from Illinois or any other jurisdiction in support of this proposition. The Talmages, on the other hand, assert that injunction does not now lie for the Talmages’ breach of the Covenant not to Compete, and that if there is any remedy at all it is for damages.
One thing at least seems clear. The matter at issue is fashioning a remedy for breach of contract and not enforcing the Covenant not to Compete in accordance with its terms. Although some uncertainty arose in the questioning of Mr. Finkle as to the exact date on which the Talmages were terminated by CAC, such date was no later than early 1983 or at least five and a half years ago. CAC’s brief in support of its motion for temporary restraining order and preliminary and permanent injunction filed on April 29, 1983 noted on page 6 that:
By letter dated July 19, 1982, and again on February 2, 1983, plaintiff terminated the aforesaid agreement, and by virtue of Defendants’ execution of the Sales Agreement, with the covenant not to compete, Defendants are barred from servicing any of the client accounts for one year thereafter.
Therefore, it is beyond the power of this or any other court to specifically enforce the Covenant not to Compete. By its terms it expired more than four years ago. The only course open to CAC at this point is to provide the Court the basis for a remedy appropriate to the Talmages’ breach. There is nothing in the Opinion which dictates the nature of that remedy. It simply finds that the Covenant not to Compete is valid and enforceable. This Court is necessarily remitted to the law of remedies which, notwithstanding CAC’s assertions to the contrary, the Court of Appeals did not pass upon let alone dictate in the Opinion. Consequently, this Court must determine whether an injunction is an appropriate *454remedy under the circumstances as they exist at this time. See McComb v. Goldblatt Bros., 166 F.2d 387, 391 (7th Cir.1948).
Ordinarily the law provides damages to the party injured by a breach of contract. In this case, however, CAC expressly declined to prove damages for the Talmages’ breach. It made no effort to determine or to show the revenues received by the Tal-mages from the Accounts during the one-year period following termination of the Agreements or to present any evidence of its losses occasioned by the Talmages’ failure to comply with their contractual obligation. Apart from its assertion that an injunction was mandated by the Court of Appeals, CAC appears to assume that damages would be inadequate or at least not as attractive a remedy as an injunction. However, Mr. Finkle’s testimony that CAC had not bothered to determine whether the Tal-mages continue to service any of the Accounts strongly suggests that CAC is more interested in establishing some sort of principle than in practical redress. This suggestion is strengthened by Mr. Finkle’s testimony that CAC has made no effort at any time to recapture the Accounts.
CAC reasons apparently that in view of the validity of the covenant not to compete, this Court and/or the District Court should have granted the injunctive relief prayed for by CAC in 1983. It may be correct in this contention since, as argued in its pleadings filed at the time, courts have generally granted injunctive relief in respect of such covenants on the finding that damages would not be an adequate remedy. Unfortunately, an appropriate remedy at that point geared to the very year during which the Covenant not to Compete was to operate cannot now be transposed to a subsequent period after the issue of the validity of the Covenant not to Compete has been finally determined in the CAC’s favor.
Injunctive relief is an exceptional remedy not the rule. It is granted only in special circumstances where its compulsory quality is appropriate.
An injunction is an equitable remedy frequently described as the strong arm of equity — an extraordinary remedy to be used sparingly with judicial restraint and due continence, and only in a clear and plain case.
Miollis v. Schneider, 77 Ill.App.2d 420, 222 N.E.2d 715, 718 (1966). The injunction has been specifically limited by Illinois law to prevent its use as a punishment. “[Ijnjunction process was designed to deter, not to punish.” McComb v. Goldblatt Bros., 166 F.2d at 390. “The appropriate function of injunction is to afford preventative relief and not to correct injuries already committed.” Goldblatt Bros. v. 63rd & Halsted Realty Co., 338 Ill-App. 543, 88 N.E.2d 100, 104 (1949).
CAC’s original filings with this Court were premised on the fact that it must have immediate relief and immediate enforcement of the Covenant not to Compete in order to protect its position. Inherent in that appeal was the recognition that the Covenant ran for a limited time and that CAC’s remedy of specific enforcement would be rendered moot if not enforced within that time. See Brook Forest Community Association v. DuPage County Board of Supervisors, 33 Ill.App.3d 694, 338 N.E.2d 455 (1975) and Shoal Creek Drainage District v. Gulf Interstate Engineering Co., 130 Ill.App.2d 906, 266 N.E.2d 165 (1971). In light of the decisions by the lower courts and the time for appeal, CAC’s right to specific performance became moot with the passage of that one-year period, since that ended the ability of this or any other court to specifically enforce that Covenant according to its terms. See American Sanitary Rag Co. v. Dry, 346 Ill.App. 459, 105 N.E.2d 133 (1952). In that case the trial court’s judgment granting an injunction was reversed by the appellate court where the restrictive covenant had expired by the time the issue reached the appellate court. But the fact that the case is moot insofar as enforcing the Covenant not to Compete by injunction is concerned does not necessarily deprive CAC of a remedy. But where specific enforcement is impossible the remedy for breach of contract must be restorative not punitive.
CAC presented no evidence to suggest that a present restraint on the Talmages *455would bear any relation to the injury done it some five years ago. Of necessity then, the injunction imposing such restraint could only be punitive. In this case CAC chose not to seek damages for reasons satisfactory to it, but there is nothing in the record to show that its losses might not have been compensated by a money award. In this case no other remedy appears available. Restitution is not possible, even if it were otherwise available, since CAC made no effort to show that any moneys or other' properties are retained by the Talmages which properly belong to it. But the fact that its litigation strategy precludes a money award does not provide this Court a basis for issuing the injunction requested.
Accordingly the Court finds that enjoining the Talmages not to service the Accounts would not be an appropriate remedy for breach of the Covenant not to Compete. Lacking any other basis on which to provide a remedy, the Court awards CAC nominal damages of $1.00 in respect of the Talmages’ breach of that Covenant.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490807/ | MEMORANDUM OF OPINION AND DECISION
WILLIAM J. O’NEILL, Bankruptcy Judge.
This matter is before the Court on complaints to determine dischargeability under Section 523(a)(4) of the United States Bankruptcy Code filed by Sines and Sons, Inc. and Defendant-Debtors’ answers thereto. The parties submitted the matter for decision on stipulations and briefs.
Stipulations are as follows:
“I. The within adversary proceedings have been previously consolidated for disposition.
II. The “Employment/Management Agreement” and “Lease Agreement”, attached to the respective complaints, and respectively designated as Exhibits A and B, are true copies of the original documents and may be accepted by the Court in lieu of filing originals, and without further proof of authenticity of the same.
III. At all times complained of, Plaintiff was the owner of the liquor license for the premises located at and known as 1808 North Ridge Road, Painesville, Lake County, Ohio (“BUSINESS”).
IV. On or about August 31, 1985, the Defendants-Debtors, JOHN C. MAUK and DENNIS P. MAUK, (collectively referred to as “DEBTOR”), entered into the agreements with Plaintiff which have been designated Exhibits A and B.
V. That Debtor operated the business under Plaintiff’s liquor license from September 1, 1985 until September 25, 1986.
VI. On July 25, 1988, the Tax Commissioner of the State of Ohio considered Plaintiff’s objections to assessments, and determined that unpaid sales taxes of $12,-563.04 plus $164.45 in statutory penalties, for a total of $12,727.49, is due from Plaintiff for the period during which the business was operated by Debtor.
VII. Under the terms of the instruments designated as Exhibits A and B, Debtor covenanted and agreed to be responsible for all sales taxes incurred in the operation of the business.
VIII. The Defendants admit that they failed to pay all sales taxes due and owing from the operation of the business to the State of Ohio.”
On examination of the bankruptcy files and exhibits herein the Court further finds:
IX. Pursuant to Exhibit B, Lease Agreement, Debtors agreed to be responsible for sales taxes from commencement of the lease until its termination. (Article III).
X. In Exhibit A, Employment/Management Agreement, Debtors agreed to operate the business in a lawful manner and to comply with the laws of the State of Ohio (Paragraph 1). They agreed to pay all operating expenses as they became due, including taxes (Paragraph 3). Further, they agreed to indemnify and hold Plaintiff harmless from any and all loss resulting from their management and operation of the business (Paragraph 5). Contained in this same agreement, Plaintiff had the right to inspect all books and records to ascertain that all bills and indebtedness were being paid in a prompt and businesslike manner (Paragraph 8). Debtors’ compensation for their services was the retention of sums from operations after payment of required bills and expenses (Paragraph 9). The business was operated under Plaintiff’s permits pending their transfer to Debtors (Paragraph 10).
XI. Debtors, John and Dennis Mauk, filed individual voluntary petitions under Chapter 7 of the United States Bankruptcy Code on October 23, 1987 and February 11, 1988, respectively.
*457Plaintiff challenges dischargeability of Debtors’ liability for payment of sales tax incurred during their operation of Plaintiffs business pursuant to their agreements. Relief is sought under Section 523(a)(4) which delineates non-discharge-ability of debts,
“for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny ...” 11 U.S.C. § 523(a)(4)
Specifically, Plaintiff asserts Debtors’ liability is predicated on defalcation while acting in a fiduciary capacity. Alternatively, liability is allegedly founded on embezzlement.
I. DEFALCATION WHILE ACTING IN A FIDUCIARY CAPACITY.
To establish non-dischargeability of a debt for defalcation while acting in a fiduciary capacity, there must be 1) a trust status to the property in issue; 2) fiduciary capacity;. 3) defalcation. Capitol Indemnity Corp. v. Interstate Agency, Inc., 760 F.2d 121 (6th Cir.1985). The issue of fiduciary status is one of federal law. Ordinary commercial relationships are not within the exception. Moreover, the exception only applies to technical or express trusts, a concept established under the prior Bankruptcy Act which continues in the present law. Davis v. Aetna Acceptance Co., 293 U.S. 328, 55 S.Ct. 151, 79 L.Ed. 393 (1934); Carlisle Cashway, Inc. v. Johnson, 691 F.2d 249 (6th Cir.1982); Lewis v. Short, 818 F.2d 693 (9th Cir.1987). State law controls determination of the legal interests involved and whether a trust relationship in fact exists. Capitol Indemnity Corp. v. Interstate Agency, Inc., 760 F.2d 121 (6th Cir.1985); Carlisle Cashway, Inc. v. Johnson, 691 F.2d 249 (6th • Cir.1982). Characteristics of an express trust are: 1) the imposition of a trust relationship; 2) a clearly defined res; 3) the trustee is charged with specific affirmative duties. Carlisle Cashway, Inc.
Plaintiff argues that Debtors were fiduciaries pursuant to their agreements and Ohio law. Examination of the agreements between the parties, however, reflects nothing more than a contractual relationship for responsibility of the sales tax payment. Clearly, the agreements do not, nor were they intended to establish a trust relationship with respect to Debtors’ leasing and management of the business. The attempt to establish non-dischargeability based on these agreements must, therefore, fail.
Ohio law provides that a vendor is responsible for collection of sales tax as follows:
“Except as provided in section 5739.05 of the Revised Code, the tax imposed by or pursuant to section 5739.02, 5739.021 [5739.02.1], 5739.023 [5739.02.3], or 5739.-026 [5739.02.6] of the Revised Code shall be paid by the consumer to the vendor, and each vendor shall collect from the consumer, as a trustee for the state of Ohio, the full and exact amount of the tax payable on each taxable sale, in the manner and at the times provided as follows ...” Ohio Revised Code Ann. § 5739.03 (Anderson, 1986)
In addition, Section 5739.33 of the Ohio Revised Code imposes personal liability for such taxes on a corporation’s “employees having control or supervision of or charged with the responsibility of filing returns and making payments ...” Ohio Rev.Code Ann. § 5739.33 (Anderson Supp.1987).
Plaintiff maintains Debtors are fiduciaries by virtue of Section 5739.03 which establishes a trust respecting vendor’s collection of sales tax. While that section arguably establishes a specific trust for purposes of non-dischargeability, Debtors are not the fiduciaries. Stipulations and exhibits indicate Debtors were operating Plaintiff’s business for the Plaintiff, under Plaintiff’s license and permits. Given these circumstances, Debtors were not vendors for purposes of Section 5739.03 of the Ohio Code and, therefore, were not subject to the fiduciary duties imposed thereby. Debtors clearly had a contractual duty to collect and pay the taxes. Any liability on their part for payment of the taxes under the Ohio Code is imposed by Section 5739.-33. This liability is personal and does not arise from imposition of a fiduciary relationship.
*458II. EMBEZZLEMENT
Plaintiff characterizes Debtors’ failure to pay sales tax as an embezzlement which, for purposes of Section 523(a)(4), is defined as:
“the fraudulent appropriation of property by a person to whom such property has been entrusted, or into whose hands it has lawfully come, and it requires fraud in fact, involving moral turpitude or intentional wrong, rather than implied or constructive fraud.” Driggs v. Black, 787 F.2d 503 (10th Cir.1986).
The stipulations do not establish a basis for finding Debtors’ failure to pay sales tax was fraudulent. Therefore, no evidence exists to determine the debt in question is an embezzlement.
CONCLUSION
Under the facts presented, Debtors’ liability for failure to pay sales tax is not a debt incurred while acting in a fiduciary capacity, nor is it based on embezzlement. Consequently, Debtors’ liability is not a debt within the parameters of Section. 523(a)(4) and is, therefore, dischargeable. Defendant, John Mauk’s request for costs and attorney fees is denied, however, since it is outside the scope of Section 523(d) which sets forth the basis for such awards. Under that section, judgment for costs and fees is appropriate only where the dispute concerns a consumer debt which is clearly not involved herein. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490810/ | MEMORANDUM IN SUPPORT OF ORDER GRANTING SUMMARY JUDGMENT TO DEFENDANT, DISMISSING ADVERSARY PROCEEDING
DONAL D. SULLIVAN, Bankruptcy Judge.
Plaintiffs filed a complaint seeking an injunction, attorneys’ fees and actual and punitive damages for violation of the automatic stay of 11 U.S.C. § 362(a)(1) arising from the State’s post-chapter 11 commencement of a workers’ compensation proceeding without first seeking modification of the statutory stay. Both parties filed motions for summary judgment. The motion of the State of Oregon for summary judgment should be granted and the complaint dismissed.
The issuance after chapter 11 of a proposed final order by the State declaring the debtors to be a non-complying employer was the commencement of a State administrative proceeding which is authorized under the police power provision of 11 U.S.C. § 362(b)(4), except to the extent that the order served a pecuniary purpose of the State rather than public health and safety. In re Poule, 91 B.R. 83 (9th Cir. BAP 1988); In re Thomassen, 15 B.R. 907 (9th Cir. BAP 1981); In re Charter First Mortgage, Inc., 42 B.R. 380 (Bankr.D.Or.1984). The order violated the stay if the State intended to go beyond processing the worker’s claim by using it to bind the debtors by default to a determination that ultimately would result in an obligation to reimburse the State.
The State did not violate the automatic stay of 11 U.S.C. § 362(a)(1) if the order is to be used to compel post-filing compliance with laws governing employers so long as its regulatory authority is not used to recover a pre-petition debt in violation of Perez v. Campbell, 402 U.S. 637, 91 S.Ct. 1704, 29 L.Ed.2d 233 (1971). See, In re Geffken, 43 B.R. 697 (Bankr.N.D.Ohio 1984) which interpreted In re Mansfield Tire & Rubber Co., 660 F.2d 1108 (6th Cir.1981) upon which the State relies. Clearly, chapter 11 debtors who are carrying on business must comply with applicable state law under 28 U.S.C. § 959(b) and the State may compel compliance under the police power exemption from the automatic stay.
In the present case, the State disclaimed any intention to bind the chapter 11 debtors by default to an administrative determination which could be used over the debtors’ objection for the following purposes: to liquidate a claim against the estate under 11 U.S.C. § 502(b), for a determination of tax liability and dischargeability under In re Beaman, 9 B.R. 539 (Bankr.D.Or.1980), *705and 11 U.S.C. §§ 505 or 523(a), to preclude a later determination of the debtors’ rights against third parties under 11 U.S.C. § 541(a), or to seek a state court judgment against the debtors based upon such a determination. Unless relief were first obtained, the State would use such a determination solely to process the worker’s claim for payment. This disclaimer of the State effectively neutralized any pecuniary interest purpose of the State and kept its activities within the confines of the police power exception to the statutory stay.
To the extent the proposed administrative order might be regarded as an implied threat to violate the automatic stay, the State did not act willfully under 11 U.S.C. § 362(h). There is no evidence that the general notice to the State actually filtered down to the agency prior to the proposed order or that the agency otherwise intended to use the order to coerce the debtors into waiving their rights under 11 U.S.C. § 362(a). In addition, the debtors contributed to the problem by asking for an administrative hearing instead of immediately notifying the agency of the identity of the insurance company and the filing of the chapter 11.
A separate order should enter granting summary judgment and dismissing the complaint on the merits. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490812/ | *761ORDER ON MOTION FOR SUMMARY JUDGMENT
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 case and the immediate matter under consideration involves a claim set forth in the Amended Complaint filed by Industrial Distribution Services, Inc. (IDS), the Debtor in the above-captioned Chapter 11 case. The Amended Complaint originally sounded in five counts and named as Defendants, Grinnell Corporation, Inc. (Grinnell) and Federal Insurance Company, Inc. (Federal Insurance). At the conclusion of the pretrial conference, this Court dismissed Counts III, IV and V of the Amended Complaint. As a result, there is no longer any claim pending against Federal Insurance. This Court, having heard argument in support of the Motion for Summary Judgment filed by Grinnell addressed only to the claims set forth in Counts I and II, finds and concludes as follows. The undisputed facts which are pertinent to a resolution of the Defendant’s Motion for Summary Judgment are derived from the record and are as follows:
Grinnell is a Florida corporation engaged in the business of manufacturing various industrial and mechanical valves and fittings. It appears that prior to the commencement of this Chapter 11 case, IDS entered into an agreement with Grinnell pursuant to which Grinnell agreed to manufacture and to sell to IDS certain mechanical pipes, valves and fittings. The purchase price under the agreement was $124,-555.65. The sale of the pipes was on open account. It is undisputed that IDS did not pay for the goods which were in fact manufactured and delivered by Grinnell and when Grinnell made demand for return of the goods, IDS refuse to comply. IDS equally resisted any peaceful repossession by Grinnell.
Prior to April 10, 1987, Grinnell filed a Petition for Writ of Replevin and obtained an Order of Prejudgment Replevin from the Circuit Court in and for Polk County, Florida. Pursuant to the command of the Writ, the Sheriff of Polk County promptly served the Writ on the officers of IDS and subsequently executed the Writ and took possession of the mechanical pipe valves manufactured by Grinnell and sold to IDS. Three days later, on April 13, 1987, IDS filed its Voluntary Petition for Relief under Chapter 11 of the Bankruptcy Code.
On June 4, 1987, IDS instituted this adversary proceeding naming Grinnell and its surety, Federal Insurance Company, as Defendants. In Count I of its Amended Complaint, IDS seeks to recover the goods from Grinnell pursuant to § 542 of the Bankruptcy Code. The claim set forth in Count II is pursuant to § 547(b) and is based on the contention that the seizure of the goods by the Sheriff was a preferential transfer, albeit involuntary, thus voidable by IDS pursuant to § 547(b) of the Code. It is the contention of Grinnell that there are no genuine issues of material fact and it is entitled to a resolution of the claims set forth in Count I and Count II as a matter of law.
It should be noted at the outset that there is nothing in this record which warrants the conclusion that Grinnell is entitled to a favorable ruling on the claim of IDS set forth in Count I of the Amended Complaint, in which IDS seeks , a recovery of the mechanical pipes pursuant to § 542 of the Bankruptcy Code. § 542 is entitled “Turnover of property to the estate” and provides in subsection (a), with some exceptions, that any entity must deliver to the trustee, and account for, properties of the estate which a trustee may use, sell or lease under § 363 of the Code. Therefore, it is evident that if on the date of the Petition, i.e. April 13, 1988, the mechanical pipes were properties of the estate. The fact that Grinnell might have, as it contends, a lien on the mechanical pipes by virtue of Sections 713.50, 713.61 and 713.74 of the Florida Statutes or by virtue of the Writ of Replevin served and executed by the Sheriff is of no consequence unless the goods were already sold by Grinnell or by the Sheriff prior to the commencement of the case. Clearly, the estate includes property of the debtor that has been seized by a secured creditor pre-petition albeit the cred*762itor may be entitled to adequate protection for its interest as a condition to turnover. United States v. Whiting Pools, 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983). Inasmuch as the record indicates that the Writ was a pre-judgment writ and was served only three days prior to the commencement of the case, it is clear and this Court is satisfied that the mechanical pip.es could not have been sold prior to the commencement of the Chapter 11 case. For this reason, the mechanical pipes were still properties of the estate, albeit possibly subject to the lien claims of Grinnell. For this reason, its Motion as directed to Count I of the Complaint cannot be granted and must be denied.
The resolution of the Motion under consideration as it relates to the claim set forth in Count II presents a problem not very easy for resolution primarily due to the posture of the issue presented. First, it should be noted what is and what is not involved directly to any issue relevant to the Defendant’s Motion. The claim in Count II is not an attack by a debtor-in-possession on the validity of a lien claimed by Grinnell by utilizing the special voiding powers of the trustee, § 544(a) or (b) of the Bankruptcy Code, which in turn also could be used by the debtor-in-possession by virtue of § 1107(a) of the Bankruptcy Code. What is involved in this count is simply nothing more than an attempt by IDS to set aside the transfer, i.e. the seizure by the Sheriff of the mechanical pipes as a voidable preference pursuant to § 547 of the Bankruptcy Code. There is no question and it is without dispute that all elements of a voidable preference with the exception of § 547(b)(5)(A), (B) and (C) are present. This is so because if Grinnell is in fact a secured creditor who merely recovered the property encumbered by its lien, it did not receive more than it would have received in a Chapter 7 liquidation case. This of course leads to the real issue which is whether or not Grinnell had a valid, enforceable lien on the properties seized by the Sheriff. While it is not very well articulated, Grinnell’s lien claim is based on Fla.Stat. §§ 713.50, 713.61 and 713.74. The Bankruptcy Code specifically deals with statutory liens in § 545 and provides that the trustee may avoid fixing a statutory lien on property of the Debtor under certain specified conditions. The closest relevance to the issue before this Court is the condition set forth in § 545(1)(D) which provides that a statutory lien can be avoided by the trustee which first becomes effective when a debtor becomes insolvent. Even a cursory reading of the statutes relied on by Grinnell leaves no doubt that the lien became effective only when the obligation to pay for the goods manufactured became due. This is so because while the lien may be in existence and valid, it is meaningless without an underlying obligation which is supported by the lien. For instance, if the buyer of manufactured goods is not yet required to pay for the goods, there is no enforceable lien and that only becomes enforceable after the obligation becomes past due. In this particular instance, there is nothing in this record to indicate when that event occurred and for this reason it is impossible to determine when did an enforceable statutory lien come into existence and, therefore, this issue cannot be resolved as a matter of law. In the alternative, if Grinnell’s secured position is based on the Writ of Re-plevin and execution of same, it would be clearly a voidable preference simply because judicial liens which become fixed on properties of the estate within ninety (90) days are without doubt subject to a preferential transfer attack by the trustee and must fail if all other operating elements of § 547(b) are present.
For the reasons stated, this Court is satisfied that the Motion of Grinnell as addressed to both § 542 and as to the claim in Count II, § 547 cannot be resolved as a matter of law and, therefore, should be denied.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Summary Judgment be, and the same is hereby, denied. It is further
ORDERED, ADJUDGED AND DECREED that a pre-trial conference be, and *763the same is hereby, scheduled for the 5 day. of January, 1989 at 10:15 a.m.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490813/ | ORDER ON OBJECTION TO CLAIM
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 reorganization case and this is the next chapter of the ongoing war between Captran Creditors Trust (Debtor) and Captran Resort International (CRI), one of the petitioning creditors who joined in their bankruptcy case filed by the original petitioning creditor. In the present instance, the controversy relates to the allowability of a claim filed by CRI in the amount of $58,000. Objection to the claim is filed by the Debtor, who contends that the claim cannot be allowed in any amount as a matter of law. The facts relevant to the resolution of the Debtor’s Objection as developed in the final eviden-tiary hearing are as follows:
CRI is a Florida corporation formed in 1972 and was engaged in several real estate development projects in southwest Florida primarily for the purpose of selling time-share units to the public at large in the facilities constructed or to be constructed. Keith Trowbridge was, at all times relevant, the president and the sole stockholder of CRI. On July 16, 1982, CRI, having run into financial difficulties, hav*770ing suffered a very substantial money judgment which awarded compensation and punitive damages in excess of $1 million dollars, filed a Voluntary Petition for Relief under Chapter 11 of the Bankruptcy Code. CRI's efforts to obtain rehabilitation under the aegis of the Bankruptcy Code never came to fruition because prior to proceeding to confirmation, it entered into a settlement with its largest creditors pursuant to which CRI agreed to transfer and convey the majority of its assets to a newly created trust for the benefit of the creditors and to liquidate the assets transferred and to distribute the proceeds of liquidation to the beneficiaries of this newly created Trust. (CRI Exhibit No. 1)
According to Paragraph 7 of the Contract to Purchase, (Exhibit E of the Trust Document) which was part of the Trust Agreement, CRI was to be responsible for marketing the assets transferred to the Trust under the Trust Agreement, primarily time-share units, and was entitled under Clause (B) of the Trust Agreement to a 38% commission to be paid by the Trust upon “closing of title” based in [sic] the actual sales price paid for the time-share unit week sold by CRI. The record reveals that pursuant to the Contract for Purchase, CRI in fact undertook marketing the timeshare units through promotion and advertisement, and by utilizing the staff of its wholly owned subsidiary, Interval Realty, Inc. (Interval), to procure sales from prospects obtained by Interval.
In the connection of sales actually made, CRI received commissions over a two-year period close to $3 million. The evidence is unclear whether or not these commissions were paid to CRI prior to the closing, but be that as it may, the commissions were in fact paid to CRI by the closing agent, North American Title Insurance Company (NATIA), an entity which was also controlled by Trowbridge. According to Trow-bridge, CRI in turn paid real estate commissions to the sales persons employed by Interval, who procured the sales of timeshare units. There is no question and it is without dispute that neither Trowbridge or CRI was ever a licensed real estate broker or a licensed real estate sales person. It is not disputed that the employees of Interval, which was the only licensed real estate firm, appear to have been licensed as real estate sales persons.
On January 9, 1985, NATIA, George E. Mills and Joan Smoak filed an involuntary petition for relief against the Debtor. The involuntary petition was vigorously contested by the Debtor, but it ultimately consented to the entry of an Order for Relief under Chapter 11 of the Code. In this connection, it should be noted that NATIA, one of the original petitioning creditors, voluntarily withdrew from the case and was replaced by CRI as a petitioning creditor, its Motion to join the petitioners having been granted.
The claim under consideration as noted earlier was filed on March 8, 1985, signed by Trowbridge as president of CRI and is asserted in the amount of $59,248. The stated basis for the claim is “marketing services provided to the Debtor.” On July 12, 1988, the Debtor filed an Objection to the claim filed by CRI in which it alleged, inter alia, that the Debtor is not indebted to CRI because 1) the claim is a claim for commissions for unclosed sales; 2) CRI already received commissions of $700,000 prematurely “toward the real estate closing of the units”; and 3) CRI is also a Defendant in an adversary proceeding in which the Debtor is asserting a counterclaim against CRI on several different theories, asserting a claim in excess of $1 million. There is nothing in the Objection of the Debtor which even intimates that the invalidity of the claim is based on the contention that the monies claimed by CRI are commissions earned for sale of real estate by CRI which was never licensed as a real estate broker and, therefore, under applicable law, Fla.Stat. 475.41, is not authorized to receive any commission. Notwithstanding, the evidence presented in support of the Objection of the Debtor was entirely premised on that proposition and in light of the fact that counsel for CRI did not object to any evidence relating to this issue, this Court will consider the applicability of this Statute to the claim under consideration. *771The relevant portions of the Statute involved are as follows:
CHAPTER 475
REAL ESTATE BROKERS, SALESMAN, AND SCHOOLS
475.01 DEFINITIONS
As used in this chapter:
[Subsection (3) effective January 1, 1982] (3) “Broker” means a person who, for another, and for a compensation or valuable consideration directly or indirectly paid or promised, expressly or impliedly, or with an intent to collect or receive a compensation or valuable consideration therefor ... sells ... or agrees to ... negotiate the sale ... or any real property or any interest in or concerning the same ... or who advertises or holds out to the public by any oral or printed solicitation or representation that he is engaged in the business of ... selling ... or who takes any part in the procuring of ... purchasers ... or interest therein, ... or assists in the procuring of prospects or in the negotiation or closing of ■any transaction which does, or is calculated to, result in a sale, ... thereof_ The term “broker” also includes any person who is a partner, officer, or director of a partnership or corporation which acts as a broker.
In support of the proposition urged by the Debtor that the claim cannot be allowed as a matter of law, the Debtor cites The Meadows of Beautiful Bronson, Inc. v. E.G.L. Investment Cory, and Eric Lifs-chutz, 353 So.2d 199 (Fla. 3d DCA), cert. denied, 360 So.2d 1248 (Fla.1978) decided by the Third District Court of Appeals on December 20, 1977. In this case the Court of Appeals held that a suit for real estate commission should have been dismissed for the failure to allege that the plaintiffs were licensed and registered brokers at the time the services .were rendered. In Meadows of Bronson, the plaintiffs were members of a group known as FISCO, who contracted to engage in the selling, marketing, advertising and servicing of the real property owned by the appellants. The agreement required by its terms the rendition of the real estate broker services with others who were neither licensed nor registered real estate brokers or salesmen.
In the present instance, the services rendered by CRI differs in no respect from the services involved in Meadows of Bronson. According to Trowbridge, CRI was to market the sale of time-share units through promotion, advertisement and the like. The fact that actual negotiations for signing the contract to purchase were done by sales persons of Interval, a wholly owned subsidiary of CRI is of no consequence. The claim under consideration is a claim for commissions for selling time-share units. It is well-established in Florida that absence of pleading and proof that the broker was duly registered as a real estate broker claims and commissions cannot be enforced and such contract is unenforceable. Moorings Development Company v. Porpoise Bay Co., Inc., 487 So.2d 60 (Fla.App. 4 Dist.1986); citing, Meadows of Bronson, supra; Geneva Investment, Ltd. v. Trafalgar Developers, Ltd., 274 So.2d 581 (Fla. 3d DCA), cert. dismissed, 285 So.2d 593 (Fla.1973); Florida Boca Raton Housing Ass’n v. Marqusee Associates, 177 So.2d 370 (Fla. 3d DCA 1965); Wegmann v. Man-nino, 253 F.2d 627 (5th Cir.), cert. denied, 358 U.S. 824, 79 S.Ct. 37, 3 L.Ed.2d 63, reh’g denied, 358 U.S. 896, 79 S.Ct. 151, 3 L.Ed.2d 123 (1958); Sigmund Schy v. Martin Z. Margulies, 407 So.2d 267 (Fla.App. 3rd Dist.1981).
While Trowbridge referred to the services as marketing, this Court is satisfied that the services for which commissions are claimed were the type of services covered by the Statute and since CRI was never licensed as a real estate broker, its claim cannot be recognized as a matter of law. In addition, this Court is also satisfied that under its contract, CRI was not entitled to any commission except upon closing and CRI offered no evidence whatsoever to show that the amount sought relates in any respect to time-share units actually sold, and on which deeds were actually delivered to the purchasers. This being the case, it is evident that even if one accepts the proposition that the claim is not bound by *772the statute cited earlier, the claim cannot be allowed absent proof, which is not present, that the amount claimed is fee actually earned on sales closed.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490814/ | ORDER ON AMENDED MOTION TO HOLD VIVIAN MUSCATELL IN CIVIL CONTEMPT
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 liquidation case, and the matter under consideration is presented in an adversary proceeding commenced by Barnett Bank of Tampa, N.A. (Barnett) against Brett C. Muscatell (Debtor). The matter under consideration is a Motion filed by Barnett, who seeks an order from this Court determining that Vivian Musca-tell (Ms. Muscatell) is in contempt of this Court. Barnett also seeks an order to cause the incarceration of Ms. Muscatell as punishment until she complies with the subpoena and the imposition of a fine to reimburse Barnett for the expenses incurred by Barnett, caused by her refusal to comply with the subpoena.
At the initial hearing scheduled on the Motion, originally filed on October 25,1988, this Court received testimony of Allen K. Stone (Stone), a professional process server, and Shirley Potter (Potter), his assistant. At the conclusion of the evidentiary hearing, this Court stated that inasmuch as the Motion sought a contempt citation, and the original notice did not comply with the notice requirements of Bankruptcy Rule 9020, this Court directed counsel for Barnett to renotice the matter by including in the amended notice the statements required by Bankruptcy Rule 9020.
On November 10, Barnett filed its Amended Motion and with due notice, the matter was rescheduled for hearing. In accordance with a ruling previously made in this matter, the Court informed the parties at the outset of the hearing that the testimony previously given by Stone and Potter would be part of the record and they would not be required to appear again and testify of the matters testified at the earlier hearing. Inasmuch as neither counsel for Barnett nor counsel for Ms. Muscatell offered any additional evidence, this Court is now prepared to rule on the Motion for Contempt by considering only the record as established at the original and the rescheduled hearing, which record reveals the following facts germane to the resolution of Barnett’s Motion for Contempt.
On September 26, 1988, pursuant to the request of Barnett, the Clerk of this Court issued a subpoena duces tecum which directed Ms. Muscatell to appear for deposition and bring with her the documents described in the subpoena on October 19, 1988 at 9:30 a.m. It appears that Barnett learned earlier, after some attempts had been made to serve her with the subpoena, that Ms. Muscatell, who resides at 8003 Lago Vista Drive, Tampa, leaves her residence during week days between 7:30 a.m. and 8:00 a.m. This is the time she brings her child to school. It further appears that on October 10, 1988, Stone, in the company of Potter, parked their van around the corner from the residence of Ms. Muscatell in a location where they were in a position to observe Ms. Muscatell’s residence. As soon as the garage door opened, Stone pulled the van around the corner toward the driveway of Ms. Muscatell’s residence in order to block her exit. Stone promptly exited from the van and walked up to the vehicle driven by Ms. Muscatell and attempted to serve the subpoena by announcing that she was subpoenaed to appear on October 19, 1988 at 9:45 a.m. for deposition. However, because Ms. Muscatell made a motion toward moving her car, Stone placed the subpoena, with the proper witness fee, under the windshield wiper of her vehicle. It appears that the window of her car was not open enough to place the subpoena inside the vehicle. Ms. Muscatell thereafter, by swerving around the van, drove away. There is some evidence in the record that Stone satisfied himself that the person in the automobile was in fact Ms. *776Muscatell. It is without dispute that Ms. Muscatell did not appear for the scheduled deposition. Further, there is no evidence in this record that she sought a protective order and obtained an excuse from this Court not to appear at the deposition. This is the basis for Barnett's request to find her in contempt pursuant to F.R.C.P. 45(f) as adopted by Bankruptcy Rule 9016.
In opposing Barnett’s Motion, counsel for Ms. Muscatell contends first that the subpoena was improperly issued because there is no evidence in this record to show that the party who requested the subpoena also filed at the same time with the Clerk, the notice of taking deposition; second, that Ms. Muscatell was never advised or informed of the service on her; third, that there is no proof in this record to show that the witness fee and mileage were tendered to her or it was tendered in the proper amount; fourth, there is no proof in this record to show whether or not the copy of the original subpoena was served on Ms. Muscatell. Considering the respective contentions of the parties, this Court is satisfied that the subpoena was properly issued and under these circumstances the service was proper and Ms. Muscatell had no legal justification to ignore same.
There is no question that in order to require a compliance with a mandate of a subpoena to appear for deposition all that is necessary to communicate to the witness service and to tender the fee required by the statute. A witness cannot evade service by ignoring what is communicated to the witness orally and with the delivery of the subpoena itself. There is no question that in order to escape the legal consequence of the failure of the witness to comply with the subpoena the burden is clearly on the witness to show and to come forward to establish that she was never validly served. The most telling feature of the factual scenario is her failure either to seek relief from the command of the subpoena by filing a Motion to quash the same for improper service or in the alternative appear at the contempt hearing to testify that she was never validly served with the subpoena. There is no question that she cannot discharge her burden to establish that the subpoena was not validly served by her total silence. Under the facts of this case, there is hardly any question that she did violate her duty to obey to the command of the subpoena and to appear at the deposition. From all these it follows that by virtue of F.R.C.P. 45(f) as adopted by Bankruptcy Rule 9016, she is clearly in contempt and subject to punishment. This leaves for consideration what would be the appropriate punishment to be imposed on her under the circumstances. Counsel for Barnett urges imprisonment as the only effective means to compel her attendance in the future. This Court is satisfied that incarceration at this time would not be appropriate and imposing a fine of $200 per day would be more appropriate. This fine shall accrue every day after the expiration of ten (10) days of the date of this Order and until she notifies counsel for Barnett, either personally or through her counsel, that she is willing to appear and in fact appears at a properly scheduled and noticed deposition.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that Vivian Muscatell be, and the same is hereby, adjudged of civil contempt and she is fined, unless she complies with the provisions of this Order, at the rate of $200 per day until she fully complies. It is further
ORDERED, ADJUDGED AND DECREED that the Clerk shall, upon entry of this Order, serve a copy of same on Vivian Muscatell and her counsel of record, and counsel of record for Barnett. It is further
ORDERED, ADJUDGED AND DECREED that the effectiveness of this Order is suspended for ten (10) days and shall not be final unless Ms. Muscatell files a written objection to the findings and conclusions within ten (10) days from the date of entry of this Order as provided for by Bankruptcy Rule 9020(c) and seeks a review pursuant to Bankruptcy Rule 9022(b). It is further
ORDERED, ADJUDGED AND DECREED that Barnett is awarded compensatory damages in the amount of $500 for *777Vivian Muscatell’s failure to appear at the deposition scheduled by Barnett.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491343/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
GEORGE L. PROCTOR, Bankruptcy Judge.
This adversary proceeding came before the Court upon Florida Farm Bureau Insurance Company’s Complaint seeking exception to discharge pursuant to 11 U.S.C. § 523 for the obligation owed by Defendant, Henry Clyde Nicks, based on a $68,-582.38 Judgment entered against him by the Circuit Court, Fourth Judicial Circuit in and for Nassau County, Florida, Case No. 87-281-CA.
A trial was held on June 4, 1991, and, upon the evidence presented, the Court makes the following Findings of Fact and Conclusions of Law:
Findings of Fact
Plaintiff issued a policy insuring against loss or damage to the dwelling and contents of a home owned by Wyatt and Josie Crawford.
On January 3, 1983, during the effective dates of the policy, the residence was destroyed by fire.
On January 9, 1984, Wyatt Crawford submitted a sworn statement and proof of loss claiming damage in excess of the policy limits.
On January 16, 1984, Plaintiff issued checks for its total policy limits of $45,-000.00 in payment of the claim submitted by Wyatt Crawford.
On January 30, 1986, Defendant pleaded guilty to first degree arson in connection with the burning of Wyatt Crawford’s residence.
In April, 1987, a lawsuit was filed by Florida Farm Bureau Insurance Company in the Nassau County, Florida, Circuit Court and served upon the Defendant, Henry Clyde Nicks, to recover monies paid by Florida Farm Bureau Insurance Company as a result of the Crawford claim.
Defendant, Henry Clyde Nicks, failed to plead in response to the Complaint and a Default and Final Judgment were entered against him on June 2, 1988, in the amount of $68,582.38. This judgment consists of $45,000.00 paid by Florida Farm Bureau under the policy, plus interest for $23,-400.00 and $182.38 in costs.
On February 13, 1990, the Circuit Court issued a continuing Writ of Garnishment as to the wages of Defendant.
On April 20,1990, the Defendant filed his Chapter 7 petition.
On August 6, 1990, Plaintiff filed its Complaint seeking exception to discharge pursuant to § 523 of the Bankruptcy Code.
In his answer Defendant admitted that a Default was entered against him in Civil Case No. 87-281-CA in the state court and that a Final Judgment was entered against him in the amount of $68,582.38. However, Defendant denied pleading guilty in the first degree to arson in connection with the intentional burning of the Crawford residence.
The issue raised in this adversary proceeding is whether the obligation imposed on the Defendant by virtue of the Judgment entered in the Circuit Court may be discharged through Defendant’s bankrupt cy case.
Conclusions of Law
The resolution of this adversary proceeding is covered by § 523(a)(6) of the Bankruptcy Code, which provides that:
(a) A discharge under § 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—
*220(6) for willful and malicious injury by the debtor to another entity or to the property of another entity.
The United States Court of Appeals for the Eleventh Circuit has held that under certain circumstances the doctrine of collateral estoppel applies in exception to discharge proceedings. See In re Latch, 820 F.2d 1163, 1166 (11th Cir.1987); In re Halpern, 810 F.2d 1061, 1064 (11th Cir.1987). In order to apply collateral estoppel, the following three elements must be satisfied:
(a) the issue at stake must be identical to the one involved in the prior litigation;
(b) the issue must have been actually litigated in the prior proceeding; and
(c) the determination of the issue in the prior litigation must have been a critical and necessary part of the judgment in that earlier decision.
In re Halpern, 810 F.2d 1061, 1064 (11th Cir.1987).
Florida Statute 806.01 states that “any person who willfully and unlawfully, by fire or explosion, damages or causes to be damaged: Any dwelling, whether occupied or not, or its contents ... is guilty of arson in the first degree.” Thus, the issue at stake in the state court proceeding was identical to the issue in this dischargeability action.
The defendant had a full opportunity to defend himself in state court and, consequently, the issue was actually litigated. See In re Wilson, 72 B.R. 956, 959 (Bankr.M.D.Fla.1987). Additionally, the determination of willful and malicious injury, an element of the crime of arson, was a critical and necessary part of the state judgment.
Accordingly, all the Halpem factors are satisfied and collateral estoppel is properly applied in this proceeding. Thus, Defendant’s obligation to pay and satisfy the Final Judgment in the amount of $68,-582.38 is excepted from his discharge pursuant to 11 U.S.C. § 523(a)(6).
A separate Final Judgment in favor of plaintiff will be entered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491344/ | ORDER DENYING TRUSTEE’S MOTION FOR INJUNCTION AND TURNOVER OF REGISTRY FUNDS
A. JAY CRISTOL, Bankruptcy Judge.
THIS CAUSE came on before the Court on March 18, 1991, upon the Trustee’s motion for injunctive relief against Robert E. Lockwood, Clerk of the Circuit Court in and for Broward County (Lockwood), and Golden Bagel Deli, Inc. (GBD), a Florida corporation.
FINDINGS OF FACT
Golden Bagel Deli is the sublessor of certain real property located at Store No. 37, Palm Springs Plaza, 10299 Royal Palm Boulevard, Coral Springs, Florida (Premises). GBD subleased the Premises to Mount Claire, Inc. (Debtor).
*232On July 6,' 1990, GBD filed a civil action in the County Court of Broward County, Case No. 90-10760, seeking to evict the Debtor for failure to pay rent and to recover past-due rent.
On August 3, 1990, Judge Leonard Stafford entered an order directing the Debtor to deposit with Robert Lockwood, the Clerk of the Court, the following funds (Registry Funds):
1. all past due rents, which amounted to $10,396.29, by August 9, 1990, and
2. future monthly rent, which amounted to $3,465.43, on the 25th day of each month.
In compliance with Judge Stafford’s August 3, 1990 order, the Debtor deposited all monthly rentals due through November 25, 1990. However, the Debtor did not deposit the rent due December 25, 1990. Thus, on December 26, 1990, Judge Stafford directed Lockwood to issue a Writ of Possession upon affidavit of GBD’s counsel that the Debtor failed to deposit the December 25, 1990 rental payment.
On December 27,1990, the Debtor filed a Chapter 11 petition, thereby staying all matters pending in GBD’s landlord/tenant action. The Debtor remained in possession of the Premises.
On January 24, 1991, this Court dismissed the Debtor’s petition with prejudice because the Debtor failed to file its schedules.
On February 5, 1991, Judge Spechler, who was now presiding over the landlord/tenant action, entered an order that:
1. granted a Final Judgment of Eviction in favor of GBD and against the Debtor, for possession of the Premises, and
2. directed Lockwood to issue a Writ of Possession commanding the Sheriff of Broward County to deliver the Premises to GBD.
On February 7, 1991, this Court reinstated the Debtor’s Chapter 11 petition. GBD was once again stayed from pursuing its right to receive the Registry Funds and pursuing execution on the Writ of Possession.
On February 13, 1991, this Court entered an order: (1) granting GBD relief from the automatic stay to pursue all matters pending in the landlord/tenant action in state court, except for obtaining execution on the Writ of Possession, and (2) directing the Debtor to deposit $6,930.86 (representing rental payments due December 25, 1990, and January 25, 1991) with Lockwood, pursuant to Judge Stafford’s August 3 order.
On February 14, 1991, after the Debtor failed to deposit the rental payments, this Court entered an order granting GBD stay relief to pursue the Writ of Possession, and GBD thereafter gained possession of the Premises. The Debtor also converted its Chapter 11 petition into a Chapter 7 petition, and Marika Tolz was accordingly appointed Trustee.
Notwithstanding the conversion and in accordance with previous orders of this Court, Judge Spechler entered an order on February 28, 1991 directing Lockwood to release the Registry Funds to GBD’s counsel.
On March 7, 1991, this Court granted Plaintiff Trustee’s Ex-Parte Emergency Motion for a Temporary Restraining Order enjoining Lockwood from releasing the Registry Funds. A hearing was held on March 18, 1991 to determine if Lockwood should be enjoined from releasing the Registry Funds to GBD, on the grounds that the funds are property of the estate and the Trustee is therefore entitled to turnover of the funds.
On April 22, 1991, this Court entered an order authorizing Lockwood to deposit the Registry Funds with the Clerk of the Bankruptcy Court, pursuant to Bankruptcy Rule 7067.
CONCLUSIONS OF LAW
The issue before the Court is whether the Registry Funds are property of the debtor and subject to turnover to the Trustee pursuant to 11 U.S.C. § 543. The Trustee argues the funds are property of the Debtor such that this Court may properly enjoin the release of the Registry Funds to GBD. This Court disagrees.
Section 543(b), of title 11, United States Code, requires a custodian to deliver “property of the debtor” to the trustee at the *233commencement of the case. At the commencement of this bankruptcy case, both GBD and the Debtor had a contingent interest in the Registry Funds. It was the contingent interest, and not the Registry Funds, that was the property of the Debtor when the Debtor filed its bankruptcy case. See In re Palm Beach Heights Development & Sales, 52 B.R. 181 (Bankr.S.D.Fla.1985).
In February of 1991, when this Court granted GBD relief from the stay to pursue all matters pending before Judge Spe-chler, Judge Spechler determined the Registry Funds to be GBD’s property solely and ordered Lockwood to release the Registry Funds to GBD. At that point, any interest that the Debtor had in the funds was extinguished.
The Trustee cites NLT Computer Serv. Corp. v. Capital Computer Systems, 755 F.2d 1253 (6th Cir.1985) in support of its position, urging the Court to order turnover of the Registry Funds to the Trustee. The Court does not believe this case supports the Trustee’s position. In NLT, NLT owed Capital $150,000 on a computer contract. Several creditors of Capital claimed a right to the $150,000. NLT filed an interpleader action and deposited the $150,-000 into the registry of the state court. Before the state court decided who was entitled to the $150,000, two of Capital’s creditors filed an involuntary bankruptcy petition against Capital. The United States Court of Appeals for the Sixth Circuit held that the automatic stay precluded the creditors from pursuing the state court action. The Sixth Circuit noted that the state court action was a dispute among the debtor’s creditors regarding their rights to the $150,000 sum that NLT owed the debtor. The Court reasoned that because the Bankruptcy Code is specifically designed to resolve such disputes, the Bankruptcy Code should control the issue and held that the trustee in bankruptcy was entitled to the turnover of that $150,000 sum.
The instant case is distinguishable from NLT in several respects. First, the underlying state court action was a landlord/tenant dispute which state law, and not the Bankruptcy Code, is designed to resolve. More importantly, this Court granted GBD stay relief to pursue its right to the Registry Funds in the state court. Accordingly, the state court had proper authority to order the release of the Registry Funds to GBD. At the time the state court ordered the funds released to GBD, the only party with an interest in the funds was GBD. Thus, unlike the Court in NLT, this Court is not confronted with the task of resolving a dispute among several creditors over their rights to the Registry Funds.
Upon consideration, it is hereby
ORDERED that:
1. The Trustee’s motion to enjoin Robert E. Lockwood from releasing the funds to GBD is DENIED.
2. The Clerk of this Court shall release to GBD the funds that the Clerk of the Broward County Circuit Court placed into this Court’s registry.
3. The remaining issue of whether the trustee is entitled to the turnover of property that was located on the Premises when GBD came into possession of the Premises shall be set for an evidentiary hearing.
DONE and ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491345/ | ORDER GRANTING DEFENDANTS’ LAURENT AND WILMA LAVEN-TURE MOTION TO DISMISS
A. JAY CRISTOL, Bankruptcy Judge.
THIS CAUSE came before the Court upon the Defendants’, Laurent R. Laven-ture and Wilma S. Laventure, Motion to Dismiss the Adversary Complaint. The Court having read and reviewed the Motion, the Memorandum of Law in Support of Defendant’s Motion to Dismiss for Lack of Jurisdiction based on Res Judicata and other grounds, having heard arguments of counsel, and being fully advised in the premises, finds as follows:
On or about September 6, 1990, the Defendants filed a Complaint to Foreclose Mortgage against the Debtor in the Circuit Court in and for Broward County, Florida. The complaint sought foreclosure and, if the proceeds of the sale were insufficient to pay the claim, a deficiency judgment. The Debtor answered the foreclosure complaint with a general denial and did not assert any affirmative defenses or counterclaims.
The state court entered Final Summary Judgment of Foreclosure against the Debt- or on February 11, 1991.
Subsequently, the Debtor filed a Chapter 13 petition and filed this adversary complaint alleging that the Defendants committed several tortious acts in procuring the mortgage. The Defendants argue that res judicata bars the Debtor’s claims.
The general rule in Florida is that a party defendant who fails to raise a counterclaim that arises out of the same transaction or occurrence that is the subject matter of the plaintiff’s claim is barred by the doctrine of res judicata from raising that claim in a subsequent action. Fla. R.Civ.P. 1.170(a). The claims raised by the Debtor in her adversary complaint specifically relate to the Mortgage Agreement that formed the basis of the foreclosure suit, so that typically, res judicata would appear to bar the Debtor’s claims.
However, the Florida Supreme Court, in Universal Constr. Co. v. City of Ft. Lauderdale, 68 So.2d 366 (Fla.1953), held that res judicata should not be applied where to do so would work an injustice on one of the parties. In Gladstone v. Kling, 182 So.2d 471 (1st DCA 1966), Florida’s First District Court of Appeals applied the Universal exception to avoid barring a claim of fraud by res judicata. In Gladstone, Kling won a default judgment against Gladstone in an action to foreclose a mortgage. Id. at 472. Gladstone filed a claim charging Kling with fraudulently procuring the mortgage and note, alleging facts which, “if proven by competent evidence to be true,” would support that claim. Id. at 475. Furthermore, Gladstone alleged that he failed to make an appearance in the original foreclosure action because he was ill and, living in a distant city, unable to communicate with his attorney. Id. Kling did not properly plead that Gladstone’s fraud claim was a compulsory counterclaim barred by res ju-dicata. Id. at 473.
The First District Court of Appeals held that Gladstone could raise the claim of fraud. The court held that Gladstone appeared to have a prima facie claim against Kling, the merits of which had not yet been decided, and that to bar Gladstone’s claim would result in the type of injustice contemplated by the Florida Supreme Court in Universal. Id. at 472. The court also held that Gladstone could raise the fraud claim because Kling waived her right to raise res judicata as a defense to the fraud claim. Id. at 473.
*241The instant case is different from Gladstone in several respects. First, the Defendants timely and properly pled that res judicata barred the Debtor’s claims. Second, the Debtor made an appearance at the initial foreclosure hearing. She was not ill or unable to communicate with her attorney, and thus precluded from raising fraud at the initial hearing. At the hearing on Defendants’ motion to dismiss, the Debtor contended that she was precluded from raising the claim of fraud in the initial foreclosure action because she did not discover the fraud until the state court judge entered the Final Judgment. However, this fact is not alleged within the four corners of Plaintiff’s adversary complaint, nor does it appear in any of the other pleadings and documents of record. Third, the Debtor does not allege facts in her complaint which, if proven, would support a cause of action for fraud. This is due, in large part, to the adversary complaint omitting paragraphs 25-36.
Given the limited allegations in the Debt- or’s adversary complaint, applying the doctrine of res judicata would not be unjust in these circumstances.
It is therefore:
ORDERED that the Plaintiff’s, BETTY HOLMES MCKENZIE’S, complaint against the Defendants, LAURENT R. LAVEN-TURE and WILMA S. LAVENTURE, individually, is DISMISSED. Plaintiff shall have 10 days within which to amend her complaint to state a cause of action in accordance with this Court’s decision.
DONE and ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491347/ | MEMORANDUM OPINION
MARK B. McFEELEY, Bankruptcy Judge.
This matter came before the Court for trial on the merits. Plaintiff seeks to have a debt owed to her by the defendant determined to be nondischargeable. Having considered the evidence, arguments of counsel, and the applicable law, the Court finds that the debt is nondischargeable.
FACTS
After 17 years of marriage, Mary Beth Goss (Mrs. Goss) and Earl Warren Goss (Mr. Goss) were divorced by Decree of Divorce entered August 6, 1980, in the 99th District Court of Lubbock, Texas. At the time of the divorce, Mrs. Goss had no income of her own. Mr. Goss was an attorney. The couple had an epileptic son who was 16 at the time of the divorce and needed daily medication. Mrs. Goss was appointed managing conservator of the child. On August 5, 1980, the parties entered into a Property Settlement Agreement, which was incorporated into the Decree. The Property Settlement Agreement contains a separate section called “Contractual Alimony” which provides:
A. The parties acknowledge that dividing the marital property does not discharge all obligations arising from the marital relationship and that of similar importance are the difference in earning power between Husband and Wife, the possible future needs for support of the parties, fault in breaking up the marriage, the benefits that might have accrued to a party from a continuation of the marriage, and the benefits that may accrue to a party from a dissolution of the marriage. Therefore, in order to discharge completely all obligations arising from the marriage, other than obligations concerning community property, Husband agrees to pay to Wife the following sums as contractual alimony on the terms and conditions stated:
$2,300.00 per month for 180 months ... until either all payments have been made or terminated pursuant to the terms hereof.
In case of Wife’s death during the performance of this Agreement, Husband’s obligations under this Section shall cease. In case of Husband’s death during the performance of this agreement, Husband’s obligations under this agreement shall not cease but shall be an obligation of his estate. B. All sums under this Section III are payable solely for Wife’s support and shall be reported by Wife in her federal, and state (if applicable) income tax returns for the years of receipt as periodic payments under Section 71 of the Internal Revenue Code of 1954 and under any comparable state law and shall be deducted from income in any federal and state returns of Husband for those years.
Mr. Goss paid a total of $190,300 pursuant to the agreement before he stopped making payments. On his income tax returns Mr. Goss deducted all amounts paid by him to Mrs. Goss. Mrs. Goss reported all amounts received from Mr. Goss as income on all her income tax returns for the years in which the income was received. The amount remaining unpaid pursuant to the agreement is $223,700.
Mr. Goss filed a bankruptcy petition on July 13, 1990. Shortly thereafter, Mrs. Goss filed this complaint to determine the debt nondischargeable under 11 U.S.C. § 523(a)(5). Mr. Goss requested that the Court conduct an evidentiary hearing to consider the changed circumstances of the parties. The Court declined to entertain evidence regarding changed circumstances, *731following Sylvester v. Sylvester, 865 F.2d 1164 (10th Cir.1989), which holds that absent a clear congressional mandate, federal courts should not be put in the position of modifying state matrimonial decrees. Id., at 1166.
DISCUSSION
The Bankruptcy Code provides that alimony, maintenance, or support is not dis-chargeable.1
The determination of whether an obligation arising out of a divorce settlement is in the nature of alimony, maintenance, or support is a matter of federal bankruptcy law. In re Goin, 808 F.2d 1391 (10th Cir.1987). To determine if the obligation is nondischargeable alimony or support or if it is merely designated as such in the document, the initial inquiry must be to determine the intent of the parties at the time they entered into their agreement. In re Yeates, 807 F.2d 874 (10th Cir.1986). This determination must be made by looking at the substance of the agreement “viewed in the crucible of surrounding circumstances.” In re Crist, 632 F.2d 1226 (5th Cir.1980), cert. denied, 451 U.S. 986, 101 S.Ct. 2321, 68 L.Ed.2d 844 (1981). The Court may admit extrinsic evidence to determine the intent of the parties. Melichar v. Ost, 661 F.2d 300 (4th Cir.1981), cert. denied, 456 U.S. 927, 102 S.Ct. 1974, 72 L.Ed.2d 442 (1982).
The first place to look for the parties’ intent is in the document itself. Section II of the Property Settlement Agreement is entitled “Division of Assets.” It lists the property that the Gosses owned at the time of the divorce and apportions it. Section III of the Property Settlement Agreement is entitled “Contractual Alimony” and deals only with the amount to be paid to Mrs. Goss.
Mr.' Goss argued that the contractual alimony was to serve a variety of purposes, all of which have been fulfilled. One was to provide Mrs. Goss with an income after the divorce so that she could acquire a vocation. Since the divorce, she has earned a nursing certificate. Another purpose was to provide support for the child until the child reached the age of majority. Mr. Goss points out that child support is not provided for in the Property Settlement Agreement and that a Texas court would have ordered him to pay a maximum of $1,000 per month for child support. Mr. Goss also argues that some of the $2,300 is attributable to child support and that his son is no longer a minor in need of support. A third purpose of characterizing the payments as alimony was to obtain mutually advantageous tax treatment. At trial, much was made of the fact that Mrs. Goss’ attorney, Elgin Conner, was not a divorce attorney but specialized in tax matters.
Mr. Goss’ first two arguments don’t go to the Court’s inquiry. The time frame relevant to the Court's determination of the parties’ intent is the time of the divorce. An inquiry as to whether the circumstances necessitating support have changed is specifically barred by the Tenth Circuit’s holding in Sylvester v. Sylvester, 865 F.2d 1164 (10th Cir.1989), and this Court has already ruled that it would not consider evidence regarding changed circumstances. The facts that Mrs. Goss now has a source of income and that the child has reached age 18 are not relevant to this Court’s inquiry regarding the need for support at the time of the divorce. These facts actually support the plaintiff’s argument that there was a need for support at the time of the divorce. As for Mr. Goss’ arguments regarding the mutual tax advantage, the deposition testimony of Elgin *732Conner was that the document was carefully drafted so that a mutual tax advantage would be obtained. The fact that the parties obtained of a mutual tax advantage does not change the reality that Mr. Goss “had the ability to earn substantially more money than [Mrs. Goss] did.” Deposition of Elgin Conner, 14. Elgin Conner further testified that
... this obligation of $2,300 a month for fifteen years, that was not for property. If you were going to negotiate and come up with a distinction between property and alimony, yes, there’s a tax advantage. Certainly if Warren had been obligated to and had paid Mary Beth $2,300 a month for fifteen years and got to deduct that off his income taxes that’s an advantage as opposed to having to pay that amount and getting no deduction at all. Vice versa for her. But I would stand on my original statement that this was not for a division of property, that these payments of $2,300 a month did not relate to property.
Id. at 15. Although the parties carefully drafted the Property Settlement Agreement so that they could obtain mutually advantageous tax treatment, the evidence showed that there was an underlying need for support.
The fact that relate to the need for support at the time of the divorce are all the Court need concern itself with. The case of In re Goin, 808 F.2d 1391 (10th Cir.1987), lists several factors which are pertinent to the bankruptcy court’s determination of whether the debt is support:
(1) if the agreement fails to provide explicitly for spousal support, the court may presume that the property settlement is intended for support if it appears under the circumstances that the spouse needs support; (2) when there are minor children and an imbalance of income, the payments are likely to be in the nature of support; (3) support or maintenance is indicated when the payments are made directly to the recipient and are paid in installments over a substantial period of time; and (4) an obligation that terminates on remarriage or death is indicative of support.
Id. at 1392-93. Under each of these factors, the obligation at issue here must be determined to be support. First, the Agreement explicitly acknowledged “the possible future needs for support.” Property Settlement Agreement, Section 111(A). Second, there was a minor child and an imbalance of income. Third, the payments were made directly to Mrs. Goss and were to be paid in installments over a substantial period of time. Fourth, the obligation was to terminate upon the death of Mrs. Goss. The Court concludes that the obligation is in the nature of support and is therefore nondischargeable.
This memorandum opinion constitutes the Court’s findings of fact and conclusions of law. Bankruptcy Rule 7052. An appropriate order shall enter.
. 11 U.S.C. § 523(a)(5)(B) provides:
(a) A discharge under section 727 ... does not discharge an individual debtor from any debt—
(5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with state or territorial law by a governmental unit, or property settlement agreement, but not to the extent that—
(B) such debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491348/ | 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 are claims set forth in a four-Count Complaint by Diane Jensen (Trustee) against the Defendants, Don C. Tudor, Jr. (Tudor) and Bonded Pools, Inc., (Bonded Pools). The claim in Count I of the Complaint, based on § 547 of the Bankruptcy Code, alleges that certain payments on a debt owed by the Debtor to Tudor in the amount of $32,316.17 were made within one year of the commencement of the Chapter 7 case while Tudor was an insider. In Count II of the Complaint, which is based on § 547 of the Bankruptcy Code, the Trustee seeks to avoid payments by the Debtor to Bonded Pools in the amount of $5,500.00 made within one year of the Debtor filing its Petition for Relief under Chapter 7 while Bonded Pools was an insider. The claim in Count III is based on § 544(b) of the Bankruptcy Code and Florida Statutes § 607.017(4), and the Trustee seeks to avoid the payment of $501.00 by the Debtor to Tudor, made to redeem Tudor’s stock of the Debtor. The claim in Count IV is based on § 544(b) of the Bankruptcy Code and Florida Statutes § 726, and the Trustee seeks to set aside fraudulent transfers by the Debtor to Bonded Pools in the amount of $21,500.00. The facts relevant to the matters under consideration, as established at the final eviden-tiary hearing, are as follows.
*891At the time relevant, the Debtor was in an aluminum fabricating business which was incorporated in March, 1988 with a loan in the amount of $30,000.00 by Tudor and a loan in the amount of $20,000.00 by Bonded Pools, of which Mr. Tudor is the president. It is undisputed that at all relevant times, the Debtor had other creditors in addition to Tudor and Bonded Pools, and that the Debtor’s liabilities always exceeded its assets, and the Debtor was insolvent.
It appears that Bonded Pools was in the business of constructing outdoor swimming pools for both retail customers and home builders. When Bonded Pools had a contract to build a pool, it subcontracted a portion of the job to the Debtor and the Debtor built the aluminum enclosure, called a cage, around the pool if the customer desired. Under the arrangement between the Debtor and Bonded Pools, Bonded Pools was paid for the entire contract but in turn, under the agreement it would pay the Debtor for the cost of constructing the cage. After the Debtor was paid for the construction, it would issue one check either to Tudor or to Bonded Pools as a partial payment on the initial start-up loan to the Debtor and also a commission payment to the sales representative who sold the cage to the customer. There is nothing in this record which would enable this Court to determine what amount was a loan repayment and what amount was a sales commission paid by the Debtor on any of the transactions involved.
Richard Murray (Murray), the former president of the Debtor, was responsible for the Debtor’s day-to-day operations. Tudor signed all of the Debtor’s checks and had input in the Debtor’s financial decisions; however, Tudor was not involved in the day-to-day operations of the Debtor’s business. Murray, Tudor, and the accountant for the Debtor discussed the Debtor’s finances on occasion; however, in late 1988 it appears that the relationship between Tudor and Murray soured, and Murray instructed his employees and the Debtor’s accountant to not show Tudor the Debtor’s books or to even discuss the Debtor with him. Thus, since early 1989, Tudor was effectively prevented from reviewing the Debtor’s books and learning the status of the Debtor’s finances.
In June, 1989, the Debtor and Tudor entered into a settlement and stock repurchase agreement whereby the Debtor paid Tudor $501.00 in order to redeem all of Tudor’s stock in the Debtor. (Plaintiff’s Exhibit #25). Pursuant to that agreement, the Debtor issued three checks to Tudor in the total amount of $32,316.17 in satisfaction of Tudor’s $30,000.00 loan to the Debtor. These are the facts relevant to the matter under consideration.
In order to sustain a claim under § 547 of the Bankruptcy Code, the Trustee must prove that the Debtor made transfers which meet several requirements.
11 U.S.C. § 547. Preferences.
(b) Except as provided in subsection (c) of this section, the trustee may avoid any transfer of an interest of the debtor in property—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the filing of the petition; or
(B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and
(5) that enables such creditor to receive more than such creditor would receive if—
(A) the case were under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
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Many of the elements of § 547(b) are undisputed. For example, there is no doubt that the Debtor transferred property to both Tudor and Bonded Pools and there *892is likewise no doubt that the Debtor was, at all times, insolvent. Further, Tudor owned more than 50% of the stock in the Debtor, he signed the Debtor’s checks and he had input into the Debtor’s financial decision. Clearly, Tudor exercised a certain amount of control over the Debtor to a significant extent, and Tudor is an insider as defined by § 101(30)(B)(iii) of the Bankruptcy Code. The fact that Tudor was the president of Bonded Pools at all relevant times leads this Court to conclude that Bonded Pools too was an insider of the Debtor.
In fact, it is clear that the checks issued by the Debtor to Tudor and Bonded Pools were for payments on loans and payments for commission to salesmen. This record is devoid of any credible evidence as to what amount was paid by the Debtor to Tudor or to Bonded Pools solely for loan payments. Of course, to the extent the payments to Tudor and Bonded Pools were for sales commissions, these payments were either transfers made as a contemporaneous exchange for new value or they were payments in the ordinary course of the Debtor’s business and thus are payments which cannot be avoided by the Trustee. 11 U.S.C. § 547(c)(1) and (2). Since the Trustee has failed to prove which payments to Tudor and Bonded Pools were on account of an antecedent debt, Counts I and II of the Trustee’s complaint cannot be sustained.
This leaves for consideration the claims set forth in Counts III and IV of the Trustee’s complaint. The claim set forth in Count III of the Trustee’s complaint is based on Florida Statutes § 607.017 and § 544(b) of the Bankruptcy Code. Florida Statutes § 607.017 provides in pertinent part as follows:
§ 607.017. Right of corporation to acquire and dispose of its own shares.
(1) A corporation shall have the right to purchase ... its own shares, whether direct or indirect, ...
(4)No purchase of, or payment for, its own shares shall be made by a corporation at a time when the corporation is insolvent or when such payment would make it insolvent.
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Section 544(b) of the Bankruptcy Code provides as follows:
Section 544. Trustee as lien creditor and as successor to certain creditors and purchasers.
(b) The trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502 of this title or that is not allowable only under section 502(e) of this title.
It is undisputed that the Debtor was, at all times, insolvent. Thus, when the Debt- or entered into a Settlement Agreement with Tudor (Plaintiff’s Exhibit # 25), whereby the Debtor purchased from Tudor his stock interest in the Debtor, the Debtor violated Florida Statutes § 607.017(4). Pursuant to § 544(b) of the Bankruptcy Code, the Trustee may avoid this transfer, and the Trustee therefore prevails on Count III of the Complaint.
Count IV of the Trustee’s complaint is based on Florida Statutes § 726.106, which defines fraudulent transfers to a creditor as follows:
726.106. Transfers fraudulent as to present creditors.
(1) ...
(2) A transfer made by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debt- or was insolvent.
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While there is no doubt that some of the elements of Florida Statutes § 726.106 are met, this record is replete with evidence that Tudor was kept in the dark and not informed about the Debtor’s financial status. The president of the Debtor left the office when Tudor arrived, employees of the Debtor were instructed to not show *893Tudor any books and records of the Debt- or, and the accountant of the Debtor was instructed to not discuss the Debtor with Tudor. When so many steps were taken to prevent Tudor from learning about the Debtor’s financial status, it cannot be successfully argued that Tudor had reasonable cause to believe the Debtor was insolvent and thus, the Trustee’s claim in Count IV of the complaint must fail.
In sum, this Court is satisfied that Counts I, II and IV of the Trustee’s complaint are unsupported and thus should be dismissed. This Court also finds that the Trustee has met the requisite burden of proof regarding Count III of the complaint and Tudor should be directed to turn over to the Trustee $501.00, the money he received from the Debtor to repurchase Tudor’s stock in the Debtor. A separate Final Judgment shall be entered in accordance with the foregoing.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491349/ | MEMORANDUM OPINION ON MOTION OF ENDOWMENT AND FOUNDATION REALTY, LTD. — JMB-IV FOR SUMMARY JUDGMENT ON COUNT I
JACK B. SCHMETTERER, Bankruptcy Judge.
The related bankruptcy case No. 89 B 08111 started as a voluntary filing by T.M. *986Sweeney & Sons LTL Services, Inc. (“Debt- or”) under Chapter 11 of the Bankruptcy Code. The case has since been converted to one under Chapter 7 and Trustee Sheldon L. Solow was appointed (“Trustee”). In Count I of its Second Amended Adversary Complaint, KS Investments (“KSI”) seeks Declaratory Judgment as to certain funds held by Trustee (the “Complaint”). Pursuant to Rule 56, F.R.Civ.P. (Rule 7056 F.R.Bankr.P.), Defendant Endowment and Foundation Realty, Ltd.-JMB-IV (“JMB”) has moved for summary judgment (the “Motion”). There is no triable issue of fact and JMB is entitled to judgment as a matter of law for reasons discussed hereinbe-low.
INTRODUCTION AND SUMMARY
KSI was not a pre-petition creditor. JMB was Debtor’s pre-petition landlord.
In Count I of the Complaint, KSI alleges an interest in certain funds (the “Funds”) held by the Trustee of the above-captioned Debtor based on an order (the “KSI Order”) entered by the Court on October 12, 1989 purporting to grant KSI a “valid, enforceable, perfected and senior” security interest in such Funds. Complaint, ¶ 1. Pursuant to a prior order (the “JMB Order”) of the Court entered on August 2, 1989, JMB was granted a lien and security interest on all assets of the Debtor, subject only to then-existing liens, to secure all post-petition rent and other obligations owed by the Debtor to JMB. Such obligations ultimately totalled $240,879.47 (the “JMB Claim”).
The JMB Order was prior in time to the KSI Order. When the KSI Order was entered with Debtor’s agreement, on notice to JMB and others, JMB was not offered “adequate protection” against the creation of a senior lien by KSI as required by 11 U.S.C. § 364(d)(1)(B). Therefore JMB has a superior lien in the Funds. The JMB Claim is far in excess of the amount of the Funds. Therefore, JMB is entitled to all of the Funds to the extent such Funds represent collateral or proceeds of collateral subject to JMB’s lien and security interest. The failure of JMB to object to the KSI Order on notice did not excuse the need for provision of adequate protection under § 364(d)(1)(B), and proof of such protection when the KSI Order was requested.
UNCONTESTED FACTS1
The following facts are uncontested:
1. On January 8, 1989, Debtor entered into a lease (the “Lease”) between the Debtor and RREEF USA Fund-II, Inc. (“RREEF”), as predecessor in interest to JMB, governing the Debtor’s use and occupancy of certain nonresidential real property and facilities located at 6700 South Old Harlem in Bedford Park, Illinois (the “Premises”). Affidavit, it 2.
2. On March 21, 1989, RREEF entered into a sale agreement whereby RREEF sold, among certain other properties, the Premises to JMB. Affidavit, ¶ 3.
3. On May 15, 1989, the Debtor filed its petition for relief under Chapter 11 of the 11 U.S.C. § 101 et seq. (the “Bankruptcy Code”).
4. At the time of the Debtor’s filing its petition for relief, the Debtor was in default under the Lease for its failure to pay rent and failure to perform certain other obligations under the Lease. Affidavit, 114.
5. The Debtor continued to fail to pay rent and perform certain other obligations under the Lease after the filing of its petition for relief and thereby continued to default under the Lease. Affidavit, If 5.
6. On July 14, 1989, JMB and the Debt- or entered into that certain Stipulation Granting T.M. Sweeney & Sons, LTL Ser*987vices, Inc. Thirty Days Additional Time in which to Assume or Reject JMB Lease (the “Stipulation”, a copy of which is attached hereto as Exhibit B) which provided, among other things, for (i) JMB’s agreement to grant the Debtor an additional thirty days in which to assume or reject the Lease (the “Extension Period”); (ii) payment by the Debtor to JMB of $7,500 in partial satisfaction of certain of its post-petition obligations under the Lease; (iii) the Debtor’s granting to JMB a lien and security interest (the “JMB Lien”) in all presently owned and thereafter acquired property, assets and rights, of any kind and nature, of the Debtor, wherever located (the “Assets”), to secure the aggregate amount of post-petition Lease obligations as of the date of the Stipulation and arising and unpaid during that, or any subsequent, Extension Period; (iv) the priority of such post-petition obligations as an administrative expense in accordance with section 364(c) of the Bankruptcy Code; and (v) the priority of such lien and security interest as a first and prior lien on the Assets, subject only to valid and enforceable existing liens. Affidavit, ¶ 6; Stipulation, 11114, 6, and 7.
7. The Stipulation was served on all creditors and parties in interest entitled thereto and after a hearing before the Bankruptcy Court, on August 2, 1989, the Court entered its Order Approving Stipulation Between T.M. Sweeney & Sons, LTL Services, Inc. and Endowment and Foundation Realty, Ltd. — JMB-IV (the “JMB Order”), Affidavit, 117.
8. The JMB Order approved the Stipulation in its entirety, providing, inter alia, for the granting of the JMB Lien. JMB Order, ¶ 2.
9. On July 28, 1989, the Debtor tendered a check for $2500 to JMB in partial satisfaction of its obligation to JMB under the Stipulation and Order. Despite the Debtor’s failure to pay the full amount as required under the Stipulation, JMB exercised its right under the Stipulation to allow the Debtor to remain at the Premises. Affidavit, 118; Stipulation, 11 6.
10. At the time the Debtor vacated the Premises in mid-December, 1989, the accrued and unpaid post-petition obligations under the Lease totalled $240,879.47. Affidavit, 11119, 10.
11. On October 12, 1989, the Bankruptcy Court entered an order (the “KSI Order”) granting authority for the Debtor to borrow money from KS Investments, Inc. (“KSI”). Complaint, 111.
12. The funds advanced by KSI (the “Borrowing”) to the Debtor pursuant to the KSI Order exceeded approximately $160,000. Complaint, ¶ 4.
13. The Borrowing was secured by certain accounts receivable of the Debtor pursuant to sections 364(c) and/or 364(d)(1) of the Bankruptcy Code, as more fully described in the KSI Order. KSI Order, 11111, 2.
14. The KSI Order did not provide for any adequate protection of JMB’s interest under the JMB Order, nor was any evidence offered at the time the KSI Order was offered to the Court showing adequate protection of JMB’s interest under the JMB Order.
15. The KSI Order was entered after the entry of the JMB Order. KSI Order, p. 5; JMB Order, p. 2.
16. JMB received notice of the proceedings which resulted in the Order of October 12, 1989. Complaint, 1120, not denied.
17. JMB filed no objection to the proposed lending to KSI. Complaint, ¶ 20, not denied.
18. The Order of October 12, 1989, resulted in additional funds to the Debtor which were used by the Debtor in continuing its business. Complaint, 116, not denied.
STANDARDS FOR SUMMARY JUDGMENTS
Under Rule 56(c) F.R.Civ.P., (Rule 7056 F.R.Bankr.P.) summary judgment is proper if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. *988Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 2509, 91 L.Ed.2d 202 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-86, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986); Howland v. Kilquist, 833 F.2d 639, 642 (7th Cir.1987); Farries v. Stanadyne/Chicago Div., 832 F.2d 374, 378 (7th Cir.1987); Valley Liquors, Inc. v. Renfield Importers, Ltd., 822 F.2d 656, 659 (7th Cir.), cert. denied, 484 U.S. 977, 108 S.Ct. 488, 98 L.Ed.2d 486 (1987); Roman v. United States Postal Serv., 821 F.2d 382, 385 (7th Cir.1987). The primary purpose for granting a summary judgment motion is to avoid unnecessary trials when there is no genuine issue of material fact in dispute. Farries, 832 F.2d at 379; Wainwright Bank & Trust Co. v. Railroadmens Fed. Sav. & Loan Ass’n of Indianapolis, 806 F.2d 146, 149 (7th Cir.1986).
On a summary judgment motion, the inferences to be drawn from the underlying facts must be viewed in the light most favorable to the party opposing the motion. Anderson, 477 U.S. at 255, 106 S.Ct. at 2513; Matsushita, 475 U.S. at 586, 106 S.Ct. at 1355; Howland, 833 F.2d at 642; Marine Bank Nat’l Ass’n v. Meat Counter, Inc., 826 F.2d 1577, 1579 (7th Cir.1987); Valley Liquors, 822 F.2d at 659; Roman, 821 F.2d at 385; DeValk Lincoln Mercury, Inc. v. Ford Motor Co., 811 F.2d 326, 329 (7th Cir.1987). However, the existence of a material factual dispute is sufficient only if the disputed fact is determinative of the outcome under applicable law. Anderson, 477 U.S. at 248, 106 S.Ct. at 2510; Howland, 833 F.2d at 642.
A party seeking summary judgment always bears the initial responsibility of informing the court of the basis for its motions, and must identify those portions of the “pleadings, depositions, answers to interrogatories, and affidavits, if any”, which it believes demonstrates the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323, 106 S.Ct. at 2552. However, once the motion for summary judgment is made and supported as described above, Rule 56(e) provides that a party opposing the motion may not rest upon the mere allegations or denials in his pleading, his response must set forth specific facts showing that there is a genuine issue for trial. Celotex, 477 U.S. at 324, 106 S.Ct. at 2553; Anderson, 477 U.S. at 248, 106 S.Ct. at 2510; Matsushita, 475 U.S. at 587, 106 S.Ct. at 1356; Howland, 833 F.2d at 642.
When the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial and summary judgment should be granted. Matsushita, 475 U.S. at 587, 106 S.Ct. at 1356.
Partial Summary Judgment
Rule 56(d), F.R.Civ.P., involves situations in which the motion does not lead to a judgment on the entire case but only terminates further contest on a portion of the litigation. Because Rule 56(d) is part of the rule entitled “Summary Judgment”, the order prescribed by this rule has been referred to as “partial summary judgment.” C. Wright, A. Miller & M. Kane, Federal Practice and Procedure § 2737 (2d ed.1983 & Supp.1987). Partial Summary Judgment is possible in federal pleading if it disposes entirely of one or more counts of the complaint. Biggins v. Oltmer Iron Works, 154 F.2d 214, 216 (7th Cir.1946); Capitol Records, Inc. v. Progress Record Distrib., 106 F.R.D. 25, 28 (N.D.Ill.1985) (Getzendanner, J.); Triangle Ink & Color Co., Inc. v. Sherwin-Williams Co., 64 F.R.D. 536, 537-38 (N.D.Ill.1974). Such is the case here.
DISCUSSION
The Plaintiff KSI seeks here a declaration that it is entitled to certain funds held by the Trustee of the above-captioned Debtor. The dispositive facts are not in dispute. JMB was granted a lien and security interest (the “JMB Lien”) on all of the presently owned and thereafter acquired assets and property (collectively, the “Assets”) of the Debtor, subject only to then-existing security interests, by order of this Court (the “JMB Order”) on August 2, *9891989. The JMB Lien secured certain post-petition indebtedness owed by the Debtor to JMB arising out of the Debtor’s occupancy of certain premises under a lease of nonresidential real property between the Debtor and JMB. Such indebtedness ultimately totalled $240,879.47.
On October 12, 1989, this Court entered an order (the “KSI Order”) granting authority for the Debtor to enter into certain post-petition financing, pursuant to which the Debtor borrowed money from KSI on a secured basis. Such borrowing was authorized by this Court on a secured basis pursuant to section 364(c) and/or section 364(d)(1) of 11 U.S.C. Pursuant to the KSI Order, the Debtor borrowed in excess of $160,000 from KSI, which borrowing purposed to be secured by a lien on certain accounts receivable of the Debtor (the “KSI Lien”).
The Trustee holds funds collected from administrating and liquidating the Debtor’s estate, including the subject Assets, assert-edly totalling in excess of $60,000.00 (the “Funds”). Both JMB and KSI now claim an interest in such Funds by virtue of the security interests granted pursuant to the JMB Order and the KSI Order, respectively. The question presented by the Complaint and the Motion is an issue of law, there being no genuine dispute as to any material facts: whether JMB’s interest in the Funds is superior to KSI’s. Because it is prior in time, the JMB Lien is superior to the KSI Lien, and because JMB was not granted adequate protection against the creation of any subsequent liens, the KSI Lien remains subject to the JMB Lien. As a result, JMB is entitled to all of the Funds involved in Count I of the Complaint for application to the Debtor’s outstanding post-petition obligations to JMB.
The KSI Lien was created pursuant to § 364(c) and (d)(1) of the Bankruptcy Code, which provides in part as follows:
(c) ... the court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt—
... (3) secured by a junior lien on property of the estate that is subject to a lien.
(d)(1) The court, after notice a hearing, may authorize the obtaining of credit or the incurring of debt secured by a senior or equal lien on property of the estate that is subject to a lien only if—
(A) the trustee is unable to obtain such credit otherwise; and
(B) there is adequate protection of the interest of the holder of the lien on the property of the estate on which such senior or equal lien is proposed to be granted.
11 U.S.C. § 364(c)(3), (d)(1) (emphasis added).
As the above-excerpted provisions of § 364 indicate, where a trustee or debtor in possession cannot otherwise obtain unsecured post-petition credit, such credit may be obtained under certain carefully proscribed conditions. Where there is a preexisting lien on property which the trustee or Debtor in possession seeks to encumber in order to obtain post-petition credit, such encumbrance must remain “junior” to the preexisting lien. 11 U.S.C. § 364(c)(3). Similarly, if the Debtor in possession seeks to “prime” an existing lien, such preexisting lienholder must have adequate protection. 11 U.S.C. § 364(d)(1)(B).
The facts here demonstrate that the JMB Lien (i) was prior in time to the KSI Lien and (ii) encumbered all of the Assets, subject only to then-existing liens. By operation of § 364(c)(3), the KSI Lien must be junior to the JMB Lien. Moreover, even if KSI sought and was granted a lien on the Assets equal or senior to the JMB Lien, the interests of JMB in the Assets would have to be adequately protected. “[Bjefore a senior lien can be granted, the Debtor must demonstrate that there is adequate protection for the secured party whose lien is being primed.” In re Au Natural Restaurant, Inc., 63 B.R. 575, 581 (Bankr.S.D.N.Y.1986).
Nowhere in the KSI Order is there any finding or demonstration of adequate protection of JMB’s interests, and no evidence of such protection was offered when that order was requested by agreement and entered. Under § 364(d)(2), the Debtor *990in possession has the burden of demonstrating such adequate protection. It didn’t. As a result, KSI is not entitled to a lien senior to the JMB Lien on any of the Assets under § 364(c)(3).
KSI does not contest the priority in time of the JMB Order over the KSI Order. Instead, KSI focuses its attention on JMB’s failure to object to the entry of the KSI Order. KSI Memorandum, p. 2.
The KSI order provided that KSI’s loans to the Debtor were made pursuant to sections 364(c) “and/or” 364(d)(1) of the Bankruptcy Code and were secured by a “valid, enforceable, perfected, and senior security interest in the Present Accounts [as defined in the KSI Order].” KSI Order ¶¶ 1 and 2. Because of the “and/or” formulation used in drafting the KSI order2 regarding the priority accorded KSI, the KSI Order is not clear that the lien granted KSI would prime that of a prior lienholder such as JMB without first granting such prior lienholder adequate protection for its interest. Under KSI’s interpretation of § 364(d) of the Bankruptcy Code, the parties seeking a priming lien under § 364(d) simply have no burden of providing and proving adequate protection where the primed party received notice but did not object.
This interpretation is at odds with the statute. Section 364(d)(1) of the Bankruptcy Code provides, inter alia, that the court can only grant a “superpriority” lien on property already subject to a lien if “there is adequate protection of the interest of the holder of the lien....” 11 U.S.C. § 364(d)(1)(B). However, there was no adequate protection provided to JMB pursuant to the KSI Order, and no evidence of adequate protection offered to the Court. Thus, by operation of § 364(d)(1)(B), KSI cannot have been granted a “superpriority” lien over the JMB Lien because JMB was never granted adequate protection for its prior lien. The Debtor in possession has the burden of proof with respect to demonstrating adequate protection, a burden not met here. 11 U.S.C. § 364(d)(2).
To escape the consequence of applying § 364(d)(1) to the facts here, KSI would have this Court impose the additional requirement that a prior lienholder, to preserve its secured position, must object on notice of motion to the imposition of the superior lien. KSI Memorandum, p. 3. This must be rejected as a matter of law. Such a reading of § 364(d)(1) would be contrary to principles of statutory interpretation as articulated and endorsed by the Supreme Court and the Seventh Circuit. See, e.g., Bread Political Action Comm. v. FEC, 455 U.S. 577, 580, 102 S.Ct. 1235, 1237, 71 L.Ed.2d 432 (1982) (“[a]bsent a clearly expressed legislative intention to the contrary, that language [of the statute] must ordinarily be regarded as conclusive”) (citation omitted); Meredith v. Bowen, 833 F.2d 650, 654 (7th Cir.1987) (“... a court need not look beyond the words to interpret a statute if the language is clear and unambiguous ... [i]ndeed, the plain language is the best evidence of the statute’s meaning”) (citations omitted); Jones v. Hanley Dawson Cadillac Co., 848 F.2d 803, 807 (7th Cir.1988) (“[w]ords in a statute are to be given their plain and ordinary meaning”) (citation omitted).
The language of § 364(d)(1)(B) of the Bankruptcy Code could not be any plainer: there can be no “superpriority” lien unless “there is adequate protection of the interest of the holder of the [prior] lien ...” 11 U.S.C. § 364(d)(1)(B). The legislative history for this section offers no elaboration or alternative interpretation of this clear and direct language.
In support of its argument, KSI cites Anchor Sav. Bank FSB v. Sky Valley, Inc., 99 B.R. 117 (N.D.Ga.1989) for the proposition that creditors whose liens are potentially subject to § 364(d) liens may “tacitly” consent to such “superpriority” liens by failing to object to their entry. Id. at 122. In Anchor, the objecting creditor was found to be adequately protected by an equity cushion, while other creditors withdrew their objections to a specific request *991for superpriority lien. On appeal to the District Court the latter creditors (who did not take the appeal) were argued by the objector to have been denied adequate protection. The court found that those creditors were entitled to look after their own interests and withdraw their objections. Such was the “tacit” consent.
The facts here are much different and Anchor does not apply to this case. First, the type of lien sought by KSI, i.e., a lien pursuant to § 364(c) “and/or” 364(d)(1), was unclear. JMB could have reasonably assumed from the notice and order that if KSI were to be granted a lien under § 364(d)(1) it would have to demonstrate that prior lienholders were adequately protected, but if it could not make such a showing, KSI would be granted a lien under § 364(c). In either event, as an existing lienholder JMB would be protected. JMB could have reasonably assumed here that § 364(d) could not be invoked against it to prime its prior lien without provision of adequate protection of its interest. Moreover, neither the notice to JMB and other creditors nor the KSI Order provided that a prior lienholder would or did waive its statutory rights to adequate protection if it failed to object to the entry of such order. JMB did not participate in the proceeding and neither filed nor withdrew an objection. As a result, JMB can hardly be said to have “tacitly” consent to the KSI Lien as provided in the KSI Order.
CONCLUSION
JMB is entitled to summary judgment because of its prior lien on the Assets, because KSI failed to offer JMB adequate protection, and Debtor failed to demonstrate such protection in seeking a superp-riority lien under § 364(d)(1) of the Bankruptcy Code.
By separate order, JMB counsel will be instructed to present a proposed judgment order on Count I.
. Movant JMB relied in part on a Stipulation filed herein between JMB and Debtor in the related bankruptcy case dated July 14, 1989 ("Stipulation”). It also relied on the JMB Order entered August 2, 1989, and filed an affidavit by one Thomas D. McCarthy ("affidavit") in support of its motion. It was in proper form under Rule 56 F.R.Civ.P., and the motion of KSI to strike it, for asserted irrelevancy and failure to explain why JMB did not object to the KSI Order was denied. Otherwise, KSI did not object under Local District Rule 12(m) to the JMB statements of uncontested facts properly filed under Local District Rule 12(/), and those facts are accordingly taken as uncontested for purposes of this motion.
. The lawyers drafted the KSI Order and presented it as an "agreed order." It is the lot of a trial judge to have counsel tender "our agreed order” one day and return another day to seek interpretation of “the court’s order.” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491351/ | DECISION
HAROLD L. MAI, Bankruptcy Judge.
THIS MATTER came before the court for hearing on the debtors’ Objection to the Claim of the IRS and Request for Determination of Tax Liability. The facts in this matter are undisputed.
Findings of Fact
1. On May 11, 1970, Clive and Ruth Stoelk sold the 4 Winds Motel in Douglas, Wyoming, to Sidney and JoAnn Ainslee by an Agreement for Warranty Deed. The First National Bank at Douglas acted as the escrow agent. On May 27, 1971, the Stoelks sold the 4 Winds Motel to Howard and Elenora Rice. On October 24, 1973, the Rices sold the 4 Winds Motel to Manley S. Raney and Minerva L. Raney, the debtors herein.
2. On March 1,1978, the Raneys signed an Agreement for Warranty Deed with Don and Beverly Lindberg. The First National Bank at Douglas again was escrow agent. The Agreement provided that the Lindbergs were to make their payments of $2,167 directly to the Bank. The Bank would then pay $783 of that payment directly to the Stoelk-Ainslee escrow.
3. On May 30, 1978, the escrow instructions were amended to provide that $850 of the Lindberg payment would be made to the Stoelk-Ainslee escrow.
4. On February 6, 1979, Mr. and Mrs. Raney filed 1040 returns for the 1974, 1975, and 1976 tax years. The IRS audited those returns.
5. On January 4, 1980, the IRS made assessments of income taxes, penalties, and interest against the Raneys in the total amount of $50,362.38 for the 1974, 1975, and 1976 tax years. On January 4, 1980, the IRS filed Notices of Federal Tax Lien against the Raneys in Converse County and Platte County, Wyoming.
6. In November of 1980, the IRS served a Notice of Levy of the Raneys’ interest upon the Bank.
7. Shortly thereafter, in December of 1980, Mrs. Raney notified the Bank that they were transferring their interest in the escrow account to an entity known as Silver Bend Company. On October 27, 1981, the IRS served upon the Bank a Notice of Levy of Mr. Raney’s interest in the escrow account.
*658. On May 11, 1982, the IRS served upon the Lindbergs, a Notice of Levies of the Raneys’ interest in the property.
9. On April 26, 1982, the First National Bank of Douglas filed an interpleader action. On July 30, 1982, the Lindbergs filed an interpleader action. Both interpleader actions were removed to the Federal District Court where they were consolidated.
10. On February 25, 1983, the District Court entered its Findings of Facts and Conclusions of Law and Judgment in the consolidated interpleader actions. The Judgment ordered that the Lindbergs’ monthly payments were to be paid directly to the Clerk of the United States District Court. From these future monthly payments to be made by the Lindbergs, the Clerk of Court was to pay $850 to the Stoelks until their claim was satisfied in full. The balance of the monthly payments were to be paid to the IRS until the Ra-neys’ tax liabilities for the years 1974, 1975, and 1976 were satisfied.
11. All of the money the IRS received pursuant to the February 25, 1983 Judgment was applied to the Raneys’ 1974, 1975, and 1976 tax liabilities.
12. In 1984, the Raneys filed their 1040 returns for the years 1980 through 1983. The IRS audited the Raneys’ 1980, 1981, 1982, and 1983 tax returns.
13. In early 1987, the Raneys attended a meeting in an IRS office located in Phoenix, Arizona. According to Mr. Raney, the purpose of the meeting was for the Raneys to learn how to file returns that were acceptable to the IRS. At that meeting, Mr. Raney discovered that the Stoelks had been overpaid. Mr. Raney informed the IRS officer about the overpayment. Apparently the Clerk of Court had continued to send an $850 per month payment to the Stoelks after they had been paid in full in approximately December of 1984. If not for the overpayment to the Stoelks, that money would have been applied to the Raneys’ tax debt.
14. On March 25, 1987, shortly after Mr. Raney brought the overpayment to the attention of the IRS, the District Court entered an Order directing the Stoelks, the Lindbergs, and the IRS to submit an accounting of payments pursuant to the February 23, 1983 Judgment. That order provided:
It appearing to the Court that payments on the accounts of Clive Stoelk and Ruth Stoelk and the United States Internal Revenue Service are nearing the end of the payment period, and in the interests of aiding the Court in its disbursement responsibilities;
NOW, THEREFORE, IT IS
ORDERED that the parties in this matter receiving disbursements from the Clerk of the United States District Court for the District of Wyoming, shall submit to the Court within thirty (30) days from the date of this Order, a recapitulation of their respective accounts; it is
FURTHER ORDERED that based on concerns of some parties, the Clerk be, and he is hereby directed to withhold any disbursement to Clive and Ruth Stoelk until said account is received by the Court and it is determined that the Stoelks are entitled to future disbursements; * * *
15. On April 6, 1987, the Lindbergs filed their accounting. On May 1,1987, the IRS filed its accounting showing that the Raneys’ 1974 and 1975 taxes were fully paid, but showing that they still owed $17,-389.45 on their 1976 tax liability. On June 24, 1987, the Stoelks filed their accounting showing they had been fully paid in December of 1984, but had nonetheless continued to receive payments. The amount of the overpayment to the Stoelks was $17,389.45.
16. In May of 1987, the Lindbergs were in default on the contract to purchase the motel and voluntarily surrendered the hotel to the Raneys. The Raneys moved to Douglas and took over the operation of the motel. They have been operating the motel ever since.
17. On June 1, 1987, after completion of an audit, the IRS assessed the Raneys a total of $17,461.62 for their tax years 1980 through 1983. This amount includes taxes, penalty, and interest for those years.
*6618. On May 15, 1990, the debtors filed this voluntary petition for relief under Chapter 13 of the Bankruptcy Code. On June 11, 1990, the IRS filed its Proof of Claim claiming the amount of $48,517.85 owing for the tax years 1976 and 1980 through 1983. On August 28, 1990, the debtors filed this Objection to the IRS’s Proof of Claim. On October 12, 1990, the IRS filed an Amended Proof of Claim which deleted the Raneys' tax liability for 1976. The remaining liability is $25,676.02, all due for the tax years 1980 through 1983.
19. Because the IRS did not obtain a Judgment for the Raneys 1974, 1975, and 1976 tax liabilities, the statute of limitations for collection of those liabilities expired on January 4, 1986. Accordingly, the amounts received on the 1974, 1975, and 1976 taxes after that time were over-payments. Pursuant to the February 25, 1983 Order, the IRS received a total of $19,855.07 after January 4, 1986, and applied it to the Raneys’ uncollectible tax liability.
20. On July 22, 1987, the United States District Court entered a Judgment against the Stoelks and in favor of the IRS in the amount of $17,389.49. The IRS has not collected anything on this judgment. The Raneys have also been unsuccessful in their attempt to locate the Stoelks.
21. The Raneys did not file a request for a refund of the $19,855.07 paid on their uncollectible liability after January 4, 1986.
DISCUSSION AND CONCLUSIONS
The IRS admits that the 1976 taxes are now uncollectible and had amended their Proof of Claim to delete any claim to the 1976 taxes. Under section 6511(a) of the Internal Revenue Code, the Raneys were entitled to recover the overpayment on their uncollectible taxes if they had filed a claim for a refund within two (2) years from the time the tax was paid or within three (3) years from the time the return was filed, whichever was later. 26 U.S.C. § 6511(a).
However, they did not file such a request for a refund. Despite this failure, they now argue that the March 25, 1987 Order of the District Court was an “informal request.”
It is true that an informal refund claim would have been sufficient. Missouri Pacific Railroad Co. v. United States, 558 F.2d 596, 214 Ct.Cl. 623 (1977). However, in order for an informal claim to be valid, it must be in writing and inform the Service with sufficient clarity that the taxpayer desires refund or credit for some specified reason indicating erroneous or illegal collection. Barenfeld v. United States, 442 F.2d 371, 194 Ct.Cl. 903 (1971). What constitutes a valid informal claim must be decided on the facts of each case. Newton v. United States, 163 F.Supp. 614, 143 Ct.Cl. 293 (1958). The debtors have the burden of establishing that they submitted a valid and sufficient informal claim for a refund of the amounts collected. A. David Co. v. Grissom, 64 F.2d 279 (4th Cir.1933).
The March 25, 1987 Order of the District Court is not a valid informal claim for several reasons. First, it was not submitted to the IRS by the debtors. Instead, it was a directive issued by a third party, the District Court, to all parties receiving disbursements under the previous Judgment. Second, nowhere on the document does it inform the IRS that the Raneys are seeking a refund of any amounts paid. Third, nowhere on the document does it inform the Service of the basis upon which the debtors assert they are entitled to a refund.
There is simply no way that the Service could have deduced from the March 25, 1987 Order that the debtors were claiming a refund of taxes paid after the expiration of the collectibility period. Therefore, the debtors have not met their burden of establishing a valid informal claim for a refund. See 26 U.S.C. § 7422(a).
The debtors next argue that under the theory of equitable recoupment, they should be allowed to offset the statute barred overpayment against their 1980, 1981, 1982, and 1983 tax deficiencies.
Unfortunately, the doctrine of equitable recoupment does not apply to this case *67because each of the taxable years, 1980 through 1983, are a separate event from the 1976 tax year. The case cited by debtors, Bull v. United States, involved an attempt to collect two (2) different types of taxes which both arose from the same transaction. 295 U.S. 247, 261, 55 S.Ct. 695, 700, 79 L.Ed. 1421 (1935). Thus, the doctrine of Bull v. United States is inapplicable to the facts of this case.
The debtors also argue that the IRS should be equitably estopped from asserting its Proof of Claim. Upon review of the entire record, this court concludes that the doctrine of equitable estoppel is not applicable on the facts as established after the hearing. There is nothing in the record in this case to establish fraud or unfair conduct on the part of the IRS. Similarly, there is no evidence of any reliance by the debtors on any statement or action of the IRS. It appears that both the IRS and the debtors relied upon the District Court’s February 25, 1983 Judgment. However, there is no basis whatsoever for imputing the mistake by the Clerk of Court to the IRS.
Similarly, the doctrine of equitable subordination under section 510(c) of the Bankruptcy Code does not apply to this case. The debtors argue that the claim of the IRS should be equitably subordinated to the claims of all other creditors. The court cannot not agree. The doctrine of equitable subordination adopted in section 510 is an extension of the common law doctrine of equitable subordination. Thus, a claim may be subordinated under section 510 only if its holder is guilty of some kind of misconduct. 3 COLLIER ON BANKRUPTCY ¶ 510.05 at 510-8 through 510-19 (15th ed.1991); Kham & Nate’s Shoes No. 2, Inc., v. First Bank, 908 F.2d 1351 (7th Cir.1990).
As noted above, the record in this case does not establish any misconduct or unfairness on the part of the IRS. These two (2) parties, the Raneys and the IRS, were on equal footing regarding the February 25, 1983 Judgment. Both were subject to the Judgment and their rights to the Lind-bergs’ payments were determined by the Judgment. Each was in a position to monitor the progress of the payments or to ask for an accounting of the payments. The Raneys were free at any time to inquire as to the status of payments on the IRS’s claims against them. They were free to direct such inquiry to either the Clerk of Court or to the IRS directly.
Where the Raneys had as much, or more, at stake in the matter than the IRS, there is absolutely no basis for imposing only on the IRS a duty to monitor the Clerk of Court’s payments. Although the debtors argue that the IRS was at fault in the matter of the overpayment to the Stoelks, that accusation is not supported by any evidence.
This is a difficult case, because the overpayment to the Stoelks was not the result of negligence or fault by either party before the court today. The overpayment resulted in injury to both the IRS and the Raneys. The debtors own testimony established that it was Mr. Raney himself who initially brought the IRS’ attention to the overpayment to the Stoelks. Despite the absence of fault, the debtors now ask this court to shift the entire injury resulting from the Stoelk overpayment to the IRS. There is no basis in law or equity for such a shift of harm to the other blameless party.
Section 6651(a)(2) of the Internal Revenue Code provides for assessment of a penalty for failure
* * * to pay the amount shown as tax on any return specified in paragraph (1) on or before the date prescribed for payment of such tax (determined with regard to any extension of time for payment), unless it is shown that such failure is due to reasonable cause and not due to willful neglect, * * *
26 U.S.C. § 6651(a)(2).
The debtors have not established that the overpayments to the Stoelks, which started in January of 1985, were the cause of their inability to pay their 1980, 1981, 1982, or 1983 income taxes when due.
The taxes in question were all “due” well before January of 1985. Therefore, the *68exception for the failure to pay for “reasonable cause” contained in section 6651(a)(2) is not applicable to the present case.
The court will enter an order denying the debtors’ Objection to the IRS’s Proof of Claim. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491352/ | ORDER ON OBJECTIONS TO CLAIMS
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 case and the matter under consideration is the Trustee’s objection to the several claims of Leslie W. Harvey, William L. Moran, Steven C. Owen, Kenneth C. Coston, Alice M. Moore, Scott and Debbie Campbell, Hugh and Kay Waychoff, Robert H. Hoskins, III, Robert J. Twitty, Joseph J. Rooney, Marion P. Brawley, III, Ed Causey, Roberta Brook, Ralph H. Forrest, James Hankin, 0. Frederick Hamilton, Katherine E. Ragsdale, John and Sara White, John T. Kimbell, Wines & Williams, Murphy Investments, J. Mason Wines, Richard L. Mclntire, Steven L. Mclntire, James T. Joiner, Palm I, Palm II, Palm III, Palm IV, Oak Investors I, Oak Investors II, Oak Investors III, Ltd., Oak Investors IV, Oak Investors V, Oak Investors VII, and James 0. Dowdy, Trustee of the James 0. Dowdy, Inc. and Defined Benefit-Pension Trust. A brief review of the pertinent facts will help to put the matters into proper focus.
For about 10 years, Stephen L. Smith (Debtor) operated a sole proprietorship, under the trade name of S H Oil & Gas Exploration, through which he sold to investors interests in a “production pool” of oil and gas properties and by “partial assignment- of leases,” which were interests in specific oil or gas wells. As in all similar schemes, the investors were promised a tremendous return on their investments. Several of the investors did, in fact, receive a return on their investments, a trademark of all “Ponzi” schemes. The scheme, as operated by the Debtor, eventually collapsed, and many of the investors did not receive all of their money. The Debtor was *74eventually convicted of operating a “Ponzi” scheme, and is currently incarcerated by the State of Florida.
There are two categories of creditors in this Chapter 7 case, all involved in the Debtor’s Ponzi scheme. The first group consists of investors who received their original investment back plus some profit, generally referred to as the “net winners.” The second group, the “net losers,” consists of investors who did not receive a complete return on their investment. Under the scheme of the Debtor, some investors invested in several “production pools” or in “partial assignments” of oil and gas wells of the Debtor. It is important to note that there were no actual gas and oil wells in which people invested.
Hundreds of investors have filed claims in this Debtor’s Chapter 7 case. The Trustee seeks to offset the profits an investor earned through the Debtor's Ponzi scheme against any money that the investor lost through the scheme, thereby reducing the amount of the investors’ claims. The investors, on the other hand, contend that each investment should be treated individually without offsetting the amount of any profit the claimant made on other investments against losses they suffered on their investments. The Chapter 7 trustee has filed an objection to the claims of the investors who failed to reduce the amount of their claims by profits earned in the Debt- or’s Ponzi scheme. These are the contentions of the Trustee and the investors whose claims are sought to be reduced by the Trustee.
A creditor’s claim is allowed unless a party in interest objects to the claim. 11 U.S.C. § 502(a). The grounds upon which a claim may be disallowed are outlined in § 502(b) of the Bankruptcy Code. The Trustee’s objection to the claims does not indicate under which portion of § 502(b) it falls. Instead, the trustee’s objection provides that it is based on the fact the claimants “received more from the Debtor’s operation than they paid in and accordingly, the Debtor does not owe the claimants the amount claimed.” The Trustee’s objection could only be considered under § 502(b)(1) which provides as follows:
§ 502. Allowance of claims or interests.
(b) Except as provided in subsections (e)(2), (f), (g), (h) and (i) of this section, if such objection to a claim is made, the court, after notice and a hearing shall determine the amount of such claim in lawful currency of the United States as of the date of the filing of the petition, and shall allow such claim in such amount, except to the extent that—
(1) such claim is unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured;
The Trustee is unable to point to any applicable law under which the investor’s claims should be disallowed. Instead, the Trustee presents what is essentially an equitable argument to support his objections. The Trustee argues that if each investor’s claim is not offset by profits the investor received, the Court would be giving the investors the benefit of their original bargain with the Debtor which would, in turn, serve to give effect to and enforce an illegal contract. The Trustee points out that the “net winners” profited at the expense of the unfortunate “net losers,” and the only equitable way to deal with this is to handle each investor on a net basis.
The Trustee’s argument is not well taken for several reasons. First, the Code treats each claim on an individual basis. The fact that the investors profited in some investments should not serve to dilute their claims. The Trustee’s proposition ignores the fact that investors made several individual investments rather than one lump investment. The trustee actually proposes a setoff of the investor’s claims. Section 553 of the Bankruptcy Code permits a creditor to offset a debt owed by the creditor to the Debtor which arose prepetition with a claim of the creditor against the Debtor which also arose prepetition. 11 U.S.C. § 553(a). See also In re Verco Industries, 704 F.2d 1134, 1139 (9th Cir.1983). However, setoff is not possible in this case in *75that there is no mutual debt between the trustee and the investors.
In sum, this Court is satisfied that the investor’s claims cannot be offset by any profits the investors earned; instead the claims must be treated on an individual basis and not subject to any offset.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Trustee’s objections to the claims of Leslie W. Harvey, William L. Moran, Steven C. Owen, Kenneth C. Co-stón, Alice M. Moore, Scott and Debbie Campbell, Hugh and Kay Waychoff, Robert H. Hoskins, III, Robert J. Twitty, Joseph J. Rooney, Marion P. Brawley, III, Ed Causey, Roberta Brook, Ralph H. Forrest, James Hankin, 0. Frederick Hamilton, Katherine E. Ragsdale, John and Sara White, John T. Kimbell, Wines & Williams, Murphy Investments, J. Mason Wines, Richard L. Mclntire, Steven L. Mclntire, James T. Joiner, Palm I, Palm II, Palm III, Palm IY, Oak Investors I, Oak Investors II, Oak Investors III, Ltd., Oak Investors IV, Oak Investors V, Oak Investors VII, and James 0. Dowdy, Trustee of the James 0. Dowdy, Inc. and Defined Benefit-Pension Trust are overruled and the claims are allowed as filed.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491353/ | MEMORANDUM ON MOTION FOR RELIEF FROM ORDER UNDER RULE 60(b) FED.R.CIV.P.
ALAN H.W. SHIFF, Bankruptcy Judge.
On September 3, 1991, the City of Bridgeport filed a notice of appeal from this court’s August 1, 1991 order sustaining the objection by the State of Connecticut and the Bridgeport Financial Review Board (together the “State”) to Bridgeport’s chapter 9 petition and dismissing Bridgeport’s petition. In re City of Bridgeport, 129 B.R. 332, 21 B.C.D. 1546 (Bankr.D.Conn.1991). Bridgeport now moves in this court under Rule 60(b) Fed.R.Civ.P., made applicable by Bankruptcy Rule 9024, for relief from that August 1 order. The issues presented are whether the State has changed its position on Bridgeport’s right to use cash from a bond fund and, if so, should the August 1 order be altered or amended. For the reasons that follow, I conclude that if I had jurisdiction to enter an order on the instant motion, it would be denied.1
BACKGROUND
A discussion of Bridgeport's financial dynamics and the State’s participation in providing a measure of relief to the City is useful to set the context in which the August 1 order entered.
1.
Prepetition
Bridgeport, Connecticut, with a population of over 140,000, is Connecticut’s largest city. Like many cities in the northeast, Bridgeport has been in financial decline for much of the past decade. Between January 1, 1986 and April 1, 1988, seven manufacturing firms which employed more than 1,700 people left the City. By July, 1989, between four and five million square feet of factory building space was empty. While a service-based economy has emerged and grown, the loss of manufacturing has resulted in a loss of tax revenue because manufacturing is generally more capital intensive than services. Thus, as manufacturing has declined Bridgeport has grown increasingly reliant on residential property taxes, which increased from 52.7% of its total tax base in 1981 to 59.9% in 1986. Bridgeport now has the highest effective tax rate in Connecticut. While Bridgeport’s ability to increase revenue declined so did aid from the federal government. At the same time, programs which serve an increasingly dependent population expanded. July 16 Hearing, Bridgeport Exs. F, TTT.
Bridgeport’s financial condition reached a crisis in its 1987-1988 fiscal year. The City was unable to pay bills as they became due, it had lost access to the bond markets, and in the previous two fiscal years it had accumulated a deficit of approximately $35,000,000.00. TV. July 19, at 44, 126. Bridgeport was “in the condition in which without outside intervention, it clearly could not continue to operate as a city.” TV. July 19, at 126 (testimony of David Carson).
The State of Connecticut responded to that crisis by enacting Special Act No. 88-80 on June 9, 1988. Section 1 of that Special Act, as amended 2 (Special Act No. 88-80 and its amendments are hereafter referred to as “the Special Act”), provides:
It is hereby found and declared that a financial emergency exists in the town and city of Bridgeport, that the continued existence of this financial emergency *87is detrimental to the general welfare of the city and the state, [and] that the town and city’s continued ability to borrow in the public credit markets and the resolution of this financial emergency is a matter of paramount public inter-est_
Section 9 of the Special Act created the Bridgeport Financial Review Board (“the FRB”) to “review the financial affairs of the town and city of Bridgeport ... in order to maintain access to the public credit markets, to fund the city’s accumulated deficits and to restore financial stability to the town and city of Bridgeport.” Special Act, § 1. Section 3 of the Special Act authorized Bridgeport to issue bonds for the purpose of funding approximately $35,-000,000.00 in budget deficits, incurred in the 1985-1986 and 1986-1987 fiscal years, and creating a reserve fund (hereinafter “the Bond Fund”). The Bond Fund was created to remedy Bridgeport’s chronic cash flow problems, which had required it to issue tax anticipation notes at high interest rates and pay vendors over extended periods of time. TV. July 19, at 39. Section 3 provides in part:
The net proceeds of such bonds shall be applied first to repay the principal of and interest on outstanding notes issued in anticipation thereof, second to repay any tax anticipation notes of the city issued and outstanding, third to fund capital account deficits arising from the use of such funds for operations and fourth to fund general fund deficits.
Special Act, § 3.
Provisions of sections 11, 12, and 13 of the Special Act mandate that Bridgeport have a balanced budget, i.e., that its revenues equal its expenditures in a given fiscal year. Section 11(b) provides that if the FRB rejects a budget proposed by Bridgeport or the City fails to submit a budget to the FRB for approval, the FRB shall formulate and adopt a budget to be effective until it approves a budget submitted by Bridgeport and the Bridgeport Common Council shall adopt the tax rate required to balance that interim budget. Section 11(b)(7) provides that the current fiscal year budget shall be regularly reexamined by the FRB and that the City shall make modifications to the budget during the fiscal year if the original revenue or expenditure projections prove inaccurate. Section 21(a) of the Special Act provides in part:
The board ... may apply for a writ of mandamus authorizing any official, employee or agent of the city to carry out or give effect to any order or request of the board authorized by this act.
In January, 1989, Bridgeport issued $58,-315,000.00 in bonds. Pursuant to the Special Act approximately $35,000,000.00 was used to eliminate Bridgeport’s accumulated deficit, and the remainder formed the Bond Fund. TV. July 19, at 39-40.
Bridgeport’s budgets for fiscal years 1988-1989 and 1989-1990 were in balance, and the City actually finished both years with a small audited surplus. The 1990-1991 fiscal year budget was projected to be balanced, but during that fiscal year the FRB found that an imbalance had developed and ordered Bridgeport to eliminate it. On March 18, 1991, after Bridgeport had failed to act, the FRB obtained a state court order to show cause why a temporary order of mandamus should not issue. Sept. 12 Hearing, Bridgeport Ex. 6. The FRB and Bridgeport subsequently compromised their dispute, and it is likely that the City ended the 1990-1991 fiscal year in balance.3
On June 3, 1991, Bridgeport's Common Council adopted a budget for the 1991-1992 fiscal year which projects expenditures of $320,225,926 and revenues of $304,180,156, yielding a budget deficit of $16,045,770. Revenues include $169,320,162 of non-tax revenues and property tax revenues of $134,859,994, based on a mill rate of 63.3. July 16 Hearing, Bridgeport Ex. R.
2.
Postpetition
On June 6, 1991, Bridgeport filed a petition under chapter 9 of the Bankruptcy *88Code. On June 7, the FRB passed a resolution, pursuant to § 11(b) of the Special Act, adopting an interim budget. The resolution specified that a mill rate of 71.2 was required to balance that interim budget. Sept. 12 Hearing, Bridgeport Ex. 1. On June 10, the Bridgeport Common Council adopted a mill rate of 63.3 which, as noted, was projected to yield a budget deficit of approximately $16,000,000.00 in fiscal year 1991-1992.
On June 12, the State filed an objection to the petition, see 11 U.S.C. § 921(c), asserting that Bridgeport was not generally authorized to be a debtor under chapter 9 by state law, that Bridgeport was not insolvent when it filed its petition, and that the petition was filed in bad faith. See 11 U.S.C. § 109(c).4 On June 13, the FRB passed a resolution ordering the Common Council to adopt a tax rate of 71.2 mills. On June 21, the State filed an amended objection, asserting that the mayor of Bridgeport was not properly authorized by the Common Council to file the petition.
On July 22, an order entered holding that “Bridgeport was generally authorized by state law to be a debtor prior to the passage of the Special Act; the Special Act did not eliminate that authority; and the Special Act did not empower the FRB to prohibit Bridgeport from filing a petition.” In re City of Bridgeport, 128 B.R. 688, 703 (Bankr.D.Conn.1991). Accordingly, I overruled the State’s objection under Code § 109(c)(2). See supra note 4. Familiarity with that order is assumed.
On August 1, an order entered, after a July 16-23 hearing, holding that the Code definition of municipal insolvency, see § 101(32)(C)(ii),5 requires a prospective analysis from the petition date; that municipal insolvency is determined by a cash flow, not a budget deficiency, analysis; and “that to be found insolvent a city must prove that it will be unable to pay its debts as they become due in its current fiscal year or, based on an adopted budget, in its next fiscal year.” In re City of Bridgeport, supra, 129 B.R. 332, 21 B.C.D. at 1548-49. Familiarity with that order is assumed. See also In re City of Bridgeport, 132 B.R. 81, 82 (Bankr.D.Conn., 1991) (“[‘Based on an adopted budget, in its next fiscal year’] was added to the definition to limit the time frame of the analysis, so that a determination of insolvency is not based upon a projection of what revenue and expenses might be included in unadopted budgets.”). Based on that standard, I found that Bridgeport was not insolvent because, although it had a projected fiscal year 1991-rl992 budget deficit of $16,000,000.00, it started the fiscal year with approximately $27,908,513.00 in cash, and it intended to and would be allowed by the State to use that cash to fund that deficit.6 Accordingly, I sustained the State’s objection and dismissed Bridgeport’s petition.
The conclusion that the State took the position that the City would be permitted to use the cash and would not be required to raise taxes or cut expenditures from the levels projected in the budget was based on the following;
*89(1)On July 19, Frank Borges, the Connecticut State Treasurer and a member of the FRB, testified as follows:
Q: (by Richard Blumenthal, Attorney General): Let me ask you, is the City permitted to use that $27 million to pay its debts as they come due?
A: (by Borges): Yes, it is, as a matter of fact. The City, I believe, in the past has.... [T]hat is cash that is available to the City....
[The City borrowed] roughly 58 and a half million, almost 60 million, to do two things. One, to erase the accumulated deficit. And secondly, to eliminate what had been a structural problem for the City. That’s giving it a cushion to allow it to be able to meet its obligations when due, absent having to do the variety of short term borrowings the City had traditionally done, all at a very high interest rate.
Q: And if a part of that 27 million is used during this fiscal year, when would it be refunded?
A: Well, the way it works is that you really wouldn’t know where you are until at the end of the fiscal year.... [A]t the end of the fiscal year it usually takes the City two to three months to close the books, and ultimately we’re looking at somewhere around November of ’92 getting an audit....
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Essentially, if the $25 million were used, [we] probably would know exactly what it is after we receive the audit, and the audit would not be received until November. The City at that time could make a decision that it wants to close it with some cuts or revenue enhancements at that period of time or it could fund it in the next fiscal year. So you really end up almost two years out.
Q: So, just to clarify that answer, we’re now in ’91-’92. If the city were to use any part of it in ’91-’92, it would close the books on ’92, then sometime in November of ’92 take some action to replenish it or in the following fiscal year, that is, ’93-’94 possibly replenish it. Is that a fair summary?
A: That’s correct.
TV. July 19, at 38-40, 42-43.
(2) On July 19, Philip Dearborn, the State’s expert witness, testified as follows:
Q (by Richard Blumenthal): Now, let me ask you, Mr. Dearborn, based on your past experience, your background, and based on the information that has been made available to you, were you able to formulate an opinion as to the solvency of the City of Bridgeport?
A (by Dearborn): Solvency, I consider to mean being able to meet current obligations as they come due. And on that basis, yes, I have.
Q: And what is your opinion, sir?
A: I have concluded that at the time bankruptcy was declared, the City was solvent and that it will remain solvent into the foreseeable future.
Q: And would you tell his Honor, if you would please, what the basis is for that opinion?
A: The basis for that opinion is the fact that the June 30th, Í990 financial statement had [a] little under $30 million dollars in cash in the general fund, plus some — substantial amount of cash and some other funds.
The fact that the City, I believe, finished this year with a balanced budget of maybe even a slight surplus so that the condition of the government should not be — change from what it was on June 30th, 1990. The City's cash flow projection for fiscal year 1992, I have reviewed, it appears to me to be professionally done. I saw no reason to think that there would be a great deal of variance from that projection, and it does project a positive cash flow on a month to month basis throughout fiscal year 1992. I believe that going into and my guess would be through 1993, that there should be continued cash, favorable cash position taking all of that into account.
TV. July 19, at 161-62.
(3) In his July 23, closing argument, Attorney General Richard Blumenthal stated:
*90[T]he City is not insolvent, was not insolvent on the day of the filing, is not insolvent now, will not be insolvent in the foreseeable future. It was, and is, and will pay its debts as they come due. It was, and is, and will for the foreseeable future, pay all of the wages and benefits of its employees, pay its vendors and trade creditors within 30 days, and will pay all its bondholders.... [TJhese facts are really pretty much uncontroverted.... [These facts are] part of the testimony of Mr. Reddy and Mr. Robinson, they’re part of Exhibit S.... Exhibit S shows that at the end of this fiscal year, the city will have a cash reserve of 12.5 million dollars.
So the City’s cash position is essentially healthy.... At the end of the fiscal year it had $27,000,000.... [According to its own projections, it will have money in the bank, more than enough in the bank at the end of this coming fiscal year. And this cash is available to pay debts as they come due. The fact that part of it may have been borrowed initially illustrates precisely the purpose of that cash reserve as Mr. Borges testified. It was to guarantee that the City would not have to do any short term borrowing, would not be threatened with bankruptcy as it was in 1988, and that money can be replenished at any point in the future as far in advance in the future as fiscal years ’93 and ’94....
TV. July 23, at 27-29.
(4) Exhibit S, which is attached here as Appendix A and was referred to by the quoted witnesses and relied upon by the State in its closing argument, is a cash flow projection for the 1991-1992 fiscal year. It shows that Bridgeport’s cash balance will drop from approximately $28,000,000.00 on the first day of the fiscal year, July 1,1991, to approximately $12,000,000.00 on June 30, 1992, the last day of the fiscal year.
(5) On July 31, the State filed a post-trial memorandum of law in which it stated that the “City’s own conservative ‘Projected Summary of Cash Flow’ ... shows a positive cash balance of more than $12.5 million at the end of FY 1991-92. Ex. S.”
See also Tr. July 17, at 275-77 (Testimony of Mahesh Reddy that Exhibit S contemplates that Bridgeport will use $16,000,-000.00 from the Bond Fund, thereby reducing its cash position from $28,000,000.00 to $12,000,000.00); TV. July 18, at 103-07 (Testimony of Richard Robinson that Exhibit S shows that Bridgeport's cash position will drop by $16,000,000.00 during the fiscal year).
3.
Post August 1 order
By a letter dated August 19, Bridgeport informed the State that “the City plans to balance the FY 1991-1992 Operating Budget by utilizing the cash assets which the City estimated to be $27,000,000.00 per our cash flow analysis.” Sept. 12 Hearing, Bridgeport Ex. 3. By a letter dated August 29, William Cibes, Chairman of the FRB and Director of the State Office of Policy and Management, responded to Bridgeport's August 19 letter, stating that
the plan you outline “to balance the FY 1991-1992 operating budget by utilizing the (City’s) cash assets” is not in conformance with the budget provisions of S.A. 88-80 (as amended) and is unresponsive to the Board’s order of July 11 (copy enclosed).
The Act requires that the City’s General Fund Budget be balanced; that is, revenues budgeted to be received during the year must be equal to appropriated expenditures. Cash assets are not revenues, and cannot be used to balance the budget. Cash and revenue are two wholly distinct financial concepts. The City’s “Cash Reserve” was counted as revenue in FY 1988-89. It cannot be counted again. Simply put, cash is used to pay bills; revenue is used to balance the budget.
Sept. 12 Hearing, Bridgeport Ex. 2.
At a September 12 hearing on Bridgeport’s motion for a stay pending appeal,7 *91Cibes testified that although Bridgeport could use the Bond Fund to meet its obligations as they become due, the City must balance its budget this fiscal year and cannot use the Bond Fund as revenue to balance the budget. At that hearing Richard Bodine, a member of the FRB, testified that in his opinion raising taxes and/or reducing expenditures was the only way to balance the budget absent a major increase in federal or state aid. On September 6, Bridgeport filed the instant motion for relief under subsections (1), (2), (3), (5), and (6) of Rule 60(b) Fed.R.Civ.P.
In support of its motion, Bridgeport argues that contrary to the position the State adopted during the July 16-23 trial, see supra at 88-90, the State now takes the position that Bridgeport must balance its budget this fiscal year and must replenish any money used from the Bond Fund this fiscal year. Bridgeport argues that the consequence of the State’s current position is that it does not have access to the Bond Fund this fiscal year and is therefore insolvent. The State responds that its position has been consistent throughout these proceedings and that Bridgeport is not insolvent.
DISCUSSION
1.
The appeal of the August 1 order deprived this court of jurisdiction to rule on Bridgeport’s motion under Rule 60(b). Contemporary Mission, Inc. v. U.S. Postal Service, 648 F.2d 97, 107 (2d Cir.1981). However, the Second Circuit has approved as “proper and calculated to be most economical of the efforts of courts and parties” a procedure under which this court may promptly consider the Rule 60(b) motion and determine whether it would be granted if it had jurisdiction. If the motion would be granted, the court may notify Bridgeport which may then seek remand of the case for the limited purpose of ruling on the motion. Litton Systems, Inc. v. American Telephone & Telegraph Co., 746 F.2d 168, 171 n. 4 (2d Cir.1984); Ryan v. United States Lines Co., 303 F.2d 430, 434 (2d Cir.1962); Corning Glass Works v. Sumitomo Electric U.S.A., Inc., 683 F.Supp. 979, 980 (S.D.N.Y.1988).
Rule 60(b) Fed.R.Civ.P., made applicable by Bankruptcy Rule 9024, provides in relevant part:
On motion and upon such 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) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; ... (5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (6) any other reason justifying relief from the operation of the judgment.
Rule 60(b) strikes a balance between preserving the finality of judgments, which should not be lightly reopened, and serving the ends of justice. Nemaizer v. Baker, 793 F.2d 58, 61 (2d Cir.1986). A showing of exceptional circumstances is required before relief is appropriately given under Rule 60(b), as the rule provides for extraordinary judicial relief. Id.
For relief under subsections (1), (2), (5), and (6), Bridgeport must prove that the State changed its position and that the new position warrants the conclusion that Bridgeport was insolvent when it filed its chapter 9 petition. E.g., Maguire v. Wilkinson, 405 F.Supp. 637, 641 (D.Conn.1975) (60(b)(1)); McKnight v. United States Steel Corp., 726 F.2d 333, 336 (7th Cir.1984) (60(b)(2)); DeFilippis v. United States, 567 F.2d 341, 344 (7th Cir.1977) (60(b)(5));8 De-*92Markey v. Greenwich Hospital Ass’n, 454 F.Supp. 351, 354 (D.Conn.1978) (60(b)(6)); FDIC v. Alker, 30 F.R.D. 527, 532 (E.D.Pa.1962) (60(b)(6)). For relief under subsection (3), Bridgeport must prove that the State changed its position and that its original position misled the city, so that it did not fully and fairly present its case. E.g., Maudlin v. M/V Peacock (In re M/V Peacock), 809 F.2d 1403, 1404-05 (9th Cir.1987).
2.
The State’s position with respect to the Bond Fund is different from the position it took at the July 16-23 hearing. At that hearing, the State relied upon and adopted Bridgeport’s Exhibit S to assert that the City could use the Bond Fund to pay its obligations under its 1991-1992 budget. See supra at 88-90. Exhibit S is the City’s projection of its cash flow for the 1991-1992 fiscal year. That cash flow analysis is based upon the existence of a budget deficit for the fiscal year and projects that Bridgeport’s cash will decline from approximately $28,000,000.00 at the beginning of the fiscal year to approximately $12,000,000.00 at the end of the fiscal year. If Bridgeport balanced its budget, it would have approximately the same amount of cash at the end of the fiscal year as it had at the beginning, rather than $16,000,000.00 less as demonstrated in Exhibit S. Exhibit S and a balanced budget are mutually exclusive. Thus, the State’s position, relying on Exhibit S, that the City could use the Bond Fund to pay bills assumed that Bridgeport’s 1991-1992 budget would not be balanced. The State now says that Bridgeport's 1991-1992 budget must be balanced and that the City cannot use the Bond Fund as revenue to do so.
I need not, however, determine whether the State’s change in position is sufficient to justify relief under Rule 60(b), as Bridgeport has failed to prove either of the other elements of the test, i.e., that the change in the State’s position requires an alteration of the August 1 order because it proves that Bridgeport was insolvent when it filed for relief under chapter 9 or that Bridgeport was prevented from fully and fairly presenting its case at the July 16-23 hearing.
The State’s position that Bridgeport must balance its 1991-1992 budget does not alter the conclusion that Bridgeport is solvent. If Bridgeport is able to and does raise taxes and/or reduce spending enough to balance its budget, it will be able to pay its bills as they become due. See Special Act, § 3, supra at 87. If, on the other hand, Bridgeport is unable to balance its budget, it will have an operating deficit, and it will be able to use the Bond Fund to pay its debts as they become due. The first scenario is a self evident statement of solvency. The second requires a bit more clarification.
Although a literal reading of the Special Act requires that Bridgeport have a balanced budget, statutes must be construed under the assumptions that the legislature intended a reasonable and rational result and that the legislature intended exceptions to statutes where necessary to avoid unjust, oppressive, or absurd consequences. E.g., Rector of Holy Trinity Church v. United States, 143 U.S. 457, 461, 12 S.Ct. 511, 512-13, 36 L.Ed. 226 (1892); United States v. Mendoza, 565 F.2d 1285, 1288 (5th Cir.1978), modified, 581 F.2d 89 (5th Cir.1978); Windham First Taxing District v. Windham, 208 Conn. 543, 553, 546 A.2d 226 (1988).9 Moreover, *93it is assumed that the legislature enacts statutes with existing statutes in mind and intends to create one consistent body of law, so that it is the duty of courts to find “by any fair interpretation ... a reasonable field of operation for two allegedly inconsistent statutes, without destroying or preventing their evident meaning and in-tent_” Windham First Taxing District, supra, 208 Conn. at 553, 546 A.2d 226. See also Caulfield v. Noble, 178 Conn. 81, 93, 420 A.2d 1160 (1979).
The provision of adequate services by government is a prerequisite to civilized living in modern urban centers. As noted in this court’s July 22 order, Connecticut has delegated to its cities the duty to provide their residents with a wide variety of necessary services. In re City of Bridgeport, supra, 128 B.R. at 698. To enable Connecticut cities to provide for the public safety, health, and general welfare of its residents and business community, Connecticut General Statutes § 7-194 provides:
[A]ll towns, cities or boroughs which have a charter or which adopt or amend a charter under the provisions of this chapter shall have the following specific powers in addition to all powers granted to towns, cities and boroughs under the constitution and general statutes: To manage, regulate and control the finances and property, real and personal, of the town, city or borough and to regulate and provide for the sale, conveyance, transfer and release of town, city or borough property and to provide for the execution of contracts and evidences of indebtedness issued by the town, city or borough.
Further, Connecticut General Statutes § 7-148(c) empowers cities to, inter alia, make contracts, institute actions and proceedings, establish and maintain a budget, assess and collect taxes, borrow, purchase property, provide for public services such as fire and police, and construct public works such as highways and sewers.
It is obvious that a city can only provide an adequate level of necessary services if it can pay for them. See In re City of Bridgeport, supra, 128 B.R. at 698. It is equally true that there is a point beyond which a city, or any government, can no longer raise taxes. See United States v. Bekins, 304 U.S. 27, 53-54, 58 S.Ct. 811, 816, 82 L.Ed. 1137 (1938) (“Improvement districts, such as the petitioner, were in distress. Economic disaster had made it impossible for them to meet their obligations. As the owners of property within the boundaries of the district could not pay adequate assessments, the power of taxation was useless.”). At some level of taxation, taxpayers will either leave or be unable to pay, and a tax rate increase will reduce the amount of taxes collected.
Theoretically, Bridgeport can balance its 1991-1992 budget. It could, for example, terminate most of its police, fire and sanitation personnel or double its tax rate. The former option would be in derogation of its duties to its residents; the latter would be absurd, impractical, and unjust. Accordingly, the Special Act requirement that Bridgeport balance its budget must be read in light of its home rule obligations and the practical reality that there is a limit on the amount of taxes which can be paid. The Connecticut legislature could not have intended that there be slavish adherence to the balanced budget requirement at the expense of the well being of Bridgeport’s residents. Therefore, I conclude that the Special Act should be interpreted only to require Bridgeport to balance its budget if it is reasonably able to do so.
If Bridgeport is not reasonably able to balance its budget, it will have the right to use the Bond Fund to pay debts arising out of its unbalanced budget as they become due. As noted, § 3 of the Special Act provides that the Bond Fund “shall be applied ... to fund general fund deficits.” A general fund deficit may be caused by an inability to balance the budget, and a deficit caused by such a circumstance is not excepted from the statute. The FRB cannot create such an exception, and any attempt to do so would be void and without legal effect. Young v. Chase, 18 Conn. App. 85, 557 A.2d 134, 138 (1989), cert. denied, 211 Conn. 807, 559 A.2d 1141 (1989); Waterbury v. Commission on Hu*94man Rights & Opportunities, 160 Conn. 226, 230, 278 A.2d 771 (1971) (“[An administrative body] cannot modify, abridge or otherwise change the statutory provisions under which it acquires authority unless the statutes expressly grant it that power.”).
Bridgeport has presented no evidence and, indeed, made no argument that it was prevented from fully and fairly presenting its case at the July 16-23 hearing.
CONCLUSION
Even assuming that the State’s change in position from the position it took during the July 16-23 hearing rose to the level of one of the Rule 60(b) grounds for relief, Bridgeport has not, and indeed cannot, demonstrate that the August 1 order should be altered or amended. Therefore, if I had jurisdiction to enter an order on this motion, it would be denied.
APPENDIX A BRIDGEPORT EXHIBIT S
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*95[[Image here]]
*96[[Image here]]
*97[[Image here]]
*98[[Image here]]
*99[[Image here]]
. See infra at 91 for the procedure adopted in this circuit on motions for relief under Rule 60(b) Fed.R.Civ.P. after appeal.
. Special Act No. 88-80 was amended by Special Act No. 89-23 (May 24, 1989); Special Act No. 89-47 (June 27, 1989); and Special Act No. 90-31 (June 6, 1990).
. Bridgeport’s fiscal year is from July 1 to June 30. It cannot be determined whether a fiscal year ends with a surplus or a deficit until a final audit is completed. That process is typically concluded in the fall of the succeeding fiscal year.
.Bankruptcy Code § 921(c) provides:
After any objection to the petition, the court, sifter notice and a hearing, may dismiss the petition if the debtor did not file the petition in good faith or if the petition does not meet the requirements of this title.
Code § 109(c) provides:
An entity may be a debtor under chapter 9 of this title if and only if such entity—
(2) is generally authorized to be a debtor under such chapter by State law, or by a governmental officer or organization empowered by State law to authorize such entity to be a debtor under such chapter;
(3) is insolvent; [and]
(4)desires to effect a plan to adjust such debts....
. Code § 101(32) provides:
"insolvent" means—
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(C) with reference to a municipality, financial condition such that the municipality is—
(i) generally not paying its debts as they become due unless such debts are the subject of a bona fide dispute; or
(ii) unable to pay its debts as they become due....
. As noted infra at 91, the basis for the instant motion is that the State now takes a different position.
. On August 7, Bridgeport was granted an extension of time until September 3 to file an appeal of the August 1 order. On August 23, Bridgeport filed a motion for a stay pending appeal, *91which was denied on September 12. In re City of Bridgeport, 132 B.R. 81 (Bankr.D.Conn.1991).
. In DeFilippis the court held that relief under Rule 60(b)(5) requires proof that "a change in conditions ... makes continued enforcement *92inequitable." DeFilippis, supra, 567 F.2d at 344. If a change in conditions would not produce a different result, continued enforcement of a judgment would not be inequitable.
. The Court in Holy Trinity, supra, 143 U.S. at 461, 12 S.Ct. at 512-13, remarked:
The common sense of man approves the judgement mentioned by Paffendorf, that the Bolognian law which enacted "that whoever drew blood in the streets should be punished with the utmost severity," did not extend to the surgeon who opened the vein of a person that fell down in the streets in a fit. The same common sense accepts the ruling, cited by Plowden, that the statute of I Edw. II., which enacts that a prisoner who breaks prison shall be guilty of a felony, does not extend to a prisoner who breaks out when the prison is on fire, "for he is not to be hanged because he would not stay to be burnt.” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491354/ | 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 two-*198count Complaint filed by CoreStates Bank of Delaware, N.A. (CoreStates) seeking a determination that the debt due and owing by Gary J. Jolicoeur and Donna L. Jolico-eur (Debtors) to CoreStates is nondis-chargeable pursuant to § 523(a)(2)(A) and § 523(a)(2)(B) of the Bankruptcy Code. The parties agreed at the final evidentiary hearing to dismiss the claim based on § 523(a)(2)(B), and thus, only the claim based on § 523(a)(2)(A) remains for consideration. The facts relevant to the matter under consideration, as established at the final evidentiary hearing are as follows.
The Debtor, Gary Jolicoeur, has worked for several years as a general manager at a meat processing plant, and his earnings fluctuated from approximately $2900.00 to $3600.00 per month. In December, 1989, the Debtor and his wife, Donna, purchased an interior decorating business which Donna was to operate. Notwithstanding the fact that the Debtors hired an accountant to review the books of the decorating business before they purchased it, soon after sinking their life savings of $35,000.00 into the business, the Debtors discovered they were responsible for an additional $12,-000.00 in liabilities incurred by the prior owners of the business. This early discovery promptly set the Debtors back financially and began what appears to be a series of events ultimately leading up to the financial difficulties of the Debtors.
In March, 1990, Gary Jolicoeur took a leave of absence from his job in order to help his wife in the business, as the Debtors were determined to make their new business a success. Although Donna Joli-coeur intended to draw approximately $400.00 per week in salary from the business, she often failed to take the salary because of the poor cash flow of the business. This, combined with Gary Jolicoeur’s reduced salary due to his leave of absence, caused the Debtors to rely more and more on their credit cards. While the Debtors did not live off their credit cards, they occasionally used credit cards when they had dinner in a restaurant with their three children, and they took cash advances on some occasions for the business.
The Debtors opened an account with CoreStates in October, 1989, and when the Debtors filed their Petition for Relief under Chapter 7 of the Bankruptcy Code in November of 1990, the Debtors had a balance on the Corestates card of approximately $5,200.00, of which $3,500.00 was incurred between August 16, 1990 and November 5, 1990. The Debtors had additional credit cards, however, the total amount owed on these cards does not demonstrate that the Debtors had an extravagant or luxurious lifestyle.
The Debtors incurred additional unexpected financial difficulties in 1990 when their 16-year-old son was in two automobile accidents. The Debtors were forced to pay $2,400.00 for repairs or else they faced having their automobile insurance can-celled. As their financial situation worsened, Gary Jolicoeur became increasingly nervous, and found himself battling depression and anxiety, which caused him to incur additional and abnormal expenses. Further, because of the stress placed on the Debtors’ marriage due to the financial difficulties, the Debtors had a temporary marital separation during the summer of 1990, which doubled their living expenses.
These are the facts upon which Corestates bases its claim of nondischargeability pursuant to § 523(a)(2)(A) of the Bankruptcy Code. This Section provides as follows:
§ 523. Exemptions to Discharge.
(a) A discharge under section 727, 1141, 1228(a), 1228(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;
In order to sustain a claim of nondischarge-ability under § 523(a)(2)(A) of the Bankruptcy Code, a creditor must prove each of the operating elements of § 523(a)(2)(A) by a preponderance of the evidence, rather than by the standard of clear and convine-*199ing evidence, Grogan v. Garner, — U.S. —, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).
A claim of nondischargeability under § 523(a)(2)(A) cannot be sustained simply because the cardholders exceeded their credit limit. First National Bank of Mobile v. Roddenberry, 701 F.2d 927 (11th Cir.1983). Rather, the issue in this case is whether the Debtors knew, or should have known, when they incurred the CoreStates charges that they would not be able to pay for them. In Roddenberry, the Court held that the card issuer assumes the risk that a cardholder may exceed the credit limit, and only charges which were incurred after the privilege to use the credit card was revoked could be declared nondischargeable. However, the instant case differs from Roddenberry in that these Debtors never exceeded their credit limit, nor did CoreStates ever revoke the Debtors’ privilege to use the card.
The Court, in this case, is satisfied that the Debtors did not incur charges on their CoreStates card while having no intention to pay for them. Instead, this Court finds that the Debtors made efforts to make payments on their CoreStates card, and they struggled sincerely to improve their financial situation. The Court attributes the Debtors’ financial problems to the unanticipated liabilities of the decorating business that the Debtors incurred soon after they purchased the business, their son’s automobile accidents, the expenses associated with Gary Jolicoeur’s medical condition and the Debtors’ temporary marital separation.
This Court notes that the Debtors, who testified they worked up to 60 hours a week in order to make their business successful, tried very diligently to improve their financial situation and to keep current on their bills. In fact, this Court notes that the majority of unsecured debt incurred by these Debtors were debts associated with their business. Clearly, this is not a case where on the eve of bankruptcy, the Debtors embarked on a spending spree to purchase luxury goods while having no intention to pay for the goods.
In sum, this Court is satisfied that the creditor has not met its burden of proving that its claim should be declared nondis-chargeable under § 523(a)(2)(A) of the Bankruptcy Code. Thus, the Debtors’ debt due and owing to CoreStates is within the overall protection of the bankruptcy discharge. A separate Final Judgment shall be entered in accordance with the foregoing.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490816/ | OPINION
DAVID W. HOUSTON, III, Bankruptcy Judge.
Came on for consideration the complaint to recover garnished wages filed by the debtor, Herman Haynes, Jr., hereinafter referred to as debtor or plaintiff; answer to said complaint and counter-claim against the plaintiff and cross-claim against the co-defendants, First United Bank of Mississippi and Taylor Machine Works, Inc., having been filed by the defendant/trustee, Jacob C. Pongetti; answers to said complaint having been filed by First United Bank of Mississippi, hereinafter referred to as First United Bank, and Taylor Machine Works, Inc., hereinafter referred to as Taylor Machine Works or employer; all parties being represented before the Court by their respective attorneys of record; and the Court having heard and considered same, hereby finds as follows, to-wit:
I.
This Court has jurisdiction of the subject matter of and the parties to this proceeding pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. This is a core proceeding as defined in 28 U.S.C. § 157(b)(2)(A), (B), (E), and (0).
II.
That by their answers, the defendants, First United Bank and Taylor Machine Works, admit that the dispute in this adversary proceeding, concerning wages garnished subsequent to November 4, 1987, is at issue only between the plaintiff/debtor and the defendant/trustee. The defendant, First United Bank, contends that it is entitled to retain all wages garnished from the debtor’s salary prior to November 4, 1987, but this is not disputed. The defendant, Taylor Machine Works, has essentially asked this Court for direction as to whom to pay the wages withheld from the debt- or’s salary subsequent to November 4, 1987.
III.
On November 4, 1980, a judgment was enrolled against the debtor in favor of First United Bank in the sum of $13,052.84 plus interest to accrue at the rate of 8% per annum, as well as, attorney’s fees in the sum of $2,600.00. On August 30, 1985, a writ of garnishment was served on the debtor’s employer, Taylor Machine Works. First United Bank failed to renew its judgment prior to the expiration of the statute of limitations as required by § 15-1-47, Mississippi Code Annotated, and, as such, the lien of the judgment lapsed on November 4, 1987. At that time, the garnishment served on the debtor’s employer should have also terminated. However, the employer continued to withhold from the debt- or’s wages as if the garnishment were still effective.
On June 2, 1988, the debtor filed a voluntary Chapter 13 bankruptcy petition, which was converted to a Chapter 7 case by order entered June 16, 1988. The debtor was discharged on October 21, 1988.
The debtor has claimed as exempt property, pursuant to § 85-3-1(1)(a) Mississippi Code Annotated, hereinafter MCA, the aforementioned wages that were erroneously withheld by his employer, Taylor Machine Works, from and after November 4, 1987. For reference purposes, this Code section is set forth as follows:
§ 85-3-1. Property exempt from seizure under execution or attachment; entitlement to exemptions under federal *46law and under Constitution and statutes of Mississippi.
(1)There shall be exempt from seizure under execution or attachment:
(a) Tangible personal property of any kind, not exceeding Ten Thousand Dollars ($10,000.00) in value, which shall be selected by the debtor; provided, however, this paragraph shall not apply to distress warrants issued for collection of taxes due the state or to wages described in Section 85-3-4. (emphasis added)
The debtor has further claimed that the aforementioned wages should be turned over to him pursuant to the provisions of 11 U.S.C. §§ 522(g), 522(h), 544(a), and 547(b). These Code sections, however, are not applicable to this proceeding. The only issue that is significant is whether the debtor can claim an exemption in the aforesaid wages pursuant to § 85-3-1(1)(a), MCA, to which the trustee strenuously objects.
IV.
As noted in § 85-3-1(1)(a), MCA, quoted hereinabove, the exemption in tangible personal property of any kind, not exceeding $10,000.00 in value, does not apply to wages described in § 85-3-4, MCA. For reference purposes, the latter Code section is set forth as follows:
§ 85-3-4. Execution or attachment of wages, salaries or other compensation; limitations.
(1) The wages, salaries or other compensation of laborers or employees, residents of this state, shall be exempt from seizure under attachment, execution or garnishment for a period of thirty (30) days from the date of service of any writ of attachment, execution or garnishment.
(2) After the passage of the period of thirty (30) days described in subsection (1) of this section, the maximum part of the aggregate disposable earnings (as defined by section 1672(b) of Title 15, United States Code Annotated) of an individual that may be levied by attachment, execution or garnishment shall be:
(a) In the case of earnings for any workweek, the lesser amount of either,
(i) Twenty-five percent (25%) of his disposable earnings for that week, or
(ii) The amount by which his disposable earnings for that week exceed thirty (30) times the federal minimum hourly wage (prescribed by section 206(a)(1) of Title 29, United States Code Annotated) in effect at the time the earnings are payable; or
(b) In the case of earnings for any period other than a week, the amount by which his disposable earnings exceed the following “multiple” of the federal minimum hourly wage which is equivalent in effect to that set forth in subparagraph (a)(ii) of this subsection (2): The number of workweeks, or fractions thereof multiplied by thirty (30) multiplied by the applicable federal minimum wage.
(3)(a) The restrictions of subsection (1) and (2) of this section do not apply in the case of:
(i) Any order for the support of any person issued by a court of competent jurisdiction or in accordance with an administrative procedure, which is established by state law, which affords substantial due process, and which is subject to judicial review.
(ii) Any debt due for any state or local tax.
(b) Except as provided in subpara-graph (b)(iii) of this subsection (3), the maximum part of the aggregate disposable earnings of an individual for any workweek which is subject to garnishment to enforce any order for the support of any person shall not exceed:
(i) Where such individual is supporting his spouse or dependent child (other than a spouse or child with respect to whose support such order is used), fifty percent (50%) of such individual’s disposable earnings for that week; and
(ii) Where such individual is not supporting such a spouse or dependent child described in subparagraph (b)(i) of this subsection (3), sixty percent (60%) of such individual’s disposable earnings for that week;
*47(iii) With respect to the disposable earnings of any individual for that workweek, the fifty percent (50%) specified in subparagraph (b)(i) of this subsection (3) shall be deemed to be fifty-five percent (55%) and the sixty percent (60%) specified in subparagraph (b)(ii) of this subsection (3) shall be deemed to be sixty-five percent (65%), if and to the extent that such earnings are subject to garnishment to enforce a support order with respect to a period which is prior to the period of twelve (12) weeks which ends with the beginning of such workweek.
(Hereinafter, all references to Code sections shall be considered as Mississippi Code Annotated unless specifically identified otherwise.)
A literal reading of both § 85-3-1(1)(a) and § 85-3-4 indicates that wages, subject to a writ of garnishment, can be claimed as exempt property only for a period of thirty days from the date of the writ of garnishment. Thereafter, a specified percentage of the debtor’s wages are subject to being withheld to satisfy the garnishment. As such, § 85-3-4 protects the balance of the wages which can be paid over to the debtor. The effect of both sections is to prohibit the debtor from claiming an exemption in those wages which are subject to being withheld and paid over to a garnishing creditor.
The exclusion from § 85-3-1(1)(a) of wages described in § 85-3-4 implies, however, that the drafters of these two Code sections contemplated that wages would, in fact, be considered as tangible personal property. This Court concurs.
V.
Insofar as this proceeding is concerned, the debtor’s wages were withheld pursuant to an invalid garnishment, which should have been terminated at the time that the judgment in favor of First United Bank expired. Technically, these wages should have been timely paid over to the debtor. One must remember that all wages are not excluded from the provisions of § 85-3-1(1)(a), only those wages described in § 85-3-4. It is the opinion of this Court that wages, not subject to a garnishment as contemplated in § 85-3-4, would necessarily be included within the protective ambit of § 85-3-1(1)(a). As such, since the debtor’s employer wrongfully withheld portions of his wages after November 4, 1987, these monies, which the Court finds to be tangible personal property, can be claimed by the debtor as exempt provided they do not exceed the $10,000.00 statutory limitation when considered along with the debt- or’s other tangible personal property exemption claims.
VI.
Since the debtor is eligible to claim an exemption in the aforesaid wages, as of the date of the filing of his bankruptcy petition, the avoidance powers and rights of the trustee as set forth in 11 U.S.C. § 544(a) are inapplicable.
The debtor’s employer, Taylor Machine Works, shall be directed to pay over to the debtor all wages withheld subsequent to November 4, 1987, provided that said with-holdings do not exceed the sum of $10,-000.00, when considered together with the value of other tangible personal property exemptions claimed by the debtor. The counter-claim filed by the trustee objecting to the debtor’s claim of exemption as to these withheld wages shall be overruled. The defendant, First United Bank, shall be entitled to retain all wages withheld from the debtor’s salary prior to November 4, 1987.
An Order will be entered consistent with this Opinion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490817/ | DECISION AND ORDER DENYING MOTIONS OF PLAINTIFF AND DEFENDANT FOR SUMMARY JUDGMENT
WILLIAM A. CLARK, Bankruptcy Judge.
Dated at Dayton, Ohio this 29th day of November, 1988.
This matter is before the court upon cross-motions of plaintiff and defendant for summary judgment. The court has jurisdiction pursuant to 28 U.S.C. § 1334 and the standing order of reference entered in this district. This adversary proceeding is a core proceeding under 28 U.S.C. § 157(b)(2)(F) and (H).
UNDISPUTED FACTS
On April 27, 1988 the trustee in bankruptcy for the bankruptcy estate of debtor Lelia V. Jackson filed a complaint against defendant Fre, Inc. in order to avoid an alleged transfer made by the debtor to Defendant as fraudulent or preferential. The following facts appear undisputed from the pleadings and affidavits filed in this matter:
1) On October 5, 1984 Harry Jackson purchased a ring from Elder-Beerman Stores for a purchase price of $2467.68 and granted a security interest in the ring to Elder-Beerman Stores;
2) On October 9, 1984 an appraiser for Elder-Beerman appraised a 14 carat ring as having a “current retail value” of $4,850.00;
3) On July 18, 1986 Mr. Jackson, while married to the debtor, deposited a gold ring at Defendant’s pawn shop in exchange for a $500.00 loan. The agreement between Mr. Jackson and Defendant required interest to be paid at the rate of $25.00 per month plus a storage charge of $1.00 per month until the pawned ring was either redeemed or forfeited;
4) Mr. Jackson died on February 13, 1987;
5) On March 21, 1987 Defendant sent a notice to Mr. Jackson’s residence that the ring would be forfeited in accordance with Ohio law if not redeemed by April 21,1987;
6) After receiving the notice of forfeiture, the debtor went to the pawn shop and informed Mr. Steve Bertke of Defendant’s establishment that she did not desire to redeem the ring for $734.00 ($500.00 original loan plus $234.00 accumulated interest and storage charges) and that Mr. Bertke could sell the ring. Debtor was told that *69the ring would not be sold until the “due date” of April 21, 1987;
7) Defendant declared the ring forfeited on April 21, 1987. Subsequently, Defendant removed a one carat diamond from the ring, remounted it in a ladies’ ring and sold it to a retail purchaser for $1,500.00;
8) Debtor filed her petition in bankruptcy on June 26, 1987;
9) Debtor has stated in an affidavit in this proceeding that Harry Jackson owned more than one yellow gold ring.
The trustee maintains that the forefei-ture of the ring by Defendant constituted either a fraudulent or preferential transfer under the Bankruptcy Code and is, therefore, voidable by the trustee.
DISPUTED OR UNSUBSTANTIATED FACTS
Federal Rule of Civil Procedure 56(c) requires 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 matter there is clearly a dispute concerning the value of Mr. Jackson’s ring. The appraisal submitted by the trustee values a ring at $4,850.00, but David Bertke states in his affidavit that the reasonable fair market value of the ring on July 18, 1986 was $500.00. In addition, Defendant has submitted an affidavit from Ted Herzog which tends to impeach the appraisal made at Elder Beerman Stores. A motion for summary judgment does not contemplate a trial by affidavits and the court is unable to reconcile the conflicting opinions regarding the ring’s value without the opportunity to hear and view the witnesses. Further, at this point, there is some doubt as to whether Harry Jackson pawned the same ring that was purchased and appraised in 1984. Debtor has stated in her affidavit that Harry Jackson owned more than one yellow gold ring.
Finally, the court notes that, while the parties agree that the pawned ring was subject to a lien in favor of Elder-Beerman in the amount of approximately $7,000.00, the documents before the court do not clearly establish the existence and amount of that lien. The retail installment contract between Harry Jackson and Elder-Beer-man grants a security interest in a ring in the amount of $2567.68. How did the ring become subject to a $7,000.00 security interest? Although the debtor has listed Elder-Beerman as a creditor in the amount of $7,172.00 with a security interest in “furniture, diamond ring, table computer, couch, 2 chairs, 4 kitchen chairs” (valued at $6,367.00), the court has been presented with no evidence of the current debt or the security interest covering these items. Nor does the court know whether the “diamond ring” listed in the debtor’s schedules is the ring that was pawned with Defendant or is a different ring.
As a result of these disputed and unsubstantiated facts, the court is unable to grant summary judgment to either party.
PRELIMINARY CONSIDERATIONS OF LAW
The court believes that the following observations may be beneficial in assisting the parties’ preparation for trial. The relevant portion of Section 548 of the Bankruptcy Code provides that,
The trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor voluntarily or involuntarily—
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(2)(A) received less than a reasonably equivalent value in exchange for such transfer or obligation; and (B)(i) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation....
11 U.S.C. § 548(a). The court’s initial inquiry will be into the nature of the debtor’s *70“interest” in the ring at the time she informed Steve Bertke that he could sell the ring.
Property of a bankruptcy estate includes “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1). It is not necessary, however, that a debtor have a “possessory” interest in property at the time of filing a petition in bankruptcy:
§ 541(a)(1) is intended to include in the estate any property made available to the estate by other provisions of the Bankruptcy Code ... Several of these provisions bring into the estate property in which the debtor did not have a possessory interest at the time the bankruptcy proceedings commenced. U.S. v. Whiting Pools, Inc., 462 U.S. 198, 205, 103 S.Ct. 2309, 2313-2314, 76 L.Ed.2d 515 (1983).
Examples of such provisions are sections 543 (“Turnover of property by a custodian”), 547 (“Preferences”), and 548 (“Fraudulent transfers and obligations”). Id. at n. 10, 103 S.Ct. at n. 10. Despite provisions restoring the right of possession to a trustee, the Bankruptcy Code does not create an interest in property if the debtor never held such an interest. “[Interests of the debtor are ‘created and defined by state law.’ ” Wilson v. Bill Barry Enterprises, Inc., 822 F.2d 859, 861 (9th Cir.1987) (quoting Butner v. U.S., 440 U.S. 48, 55, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979)).
It is undisputed that, on the date of his death, Harry Jackson was the owner of the ring which had been deposited with Defendant. Did the debtor have an interest in Harry Jackson’s ring following his death? With respect to personal property, the Supreme Court of Ohio has long held that personal property does not vest in a decedent’s heirs at the time of death:
1. As a general rule administration is a prerequisite to the devolution of the personal estate of a decedent.
2. The personal property of a deceased person does not vest in his heirs but is in abeyance until administration is granted and is then vested in the administrator by relation from the time of death, and no right of action on a promissory note belonging to a decedent person is shown by a party in an action on the note by proof of possession and that he is the sole heir of the decedent. McBride v. Vance, 73 Ohio St. 258, 76 N.E. 938 (1906).
Similarly and more recently, the Supreme Court of Ohio has held that,
[t]he title to personal property of a deceased person passes to his personal representative, his executor or administrator, pending the settlement of the estate whether he dies testate or intestate. The Winters National Bank & Trust Co. v. Riffe, 2 Ohio St.2d 72, 206 N.E.2d 212 (1965).
The court also observed that,
“[a]fter the debts are paid, the balance of the personal property is either divided in kind, pursuant to the terms of the will, or is reduced to money and then divided, all in accord with the orders of the probate court.” Id., 206 N.E.2d at 216 (quoting DuVall v. Faulkner, 113 Ohio St. 543, 545, 149 N.E. 868).
Here, the ring would be subject to paying the debts of Harry Jackson, the owner of the ring, before the debtor or any other heir could receive any benefit from the ring. The court is not unmindful that a dishonest debtor could simply postpone administration of a decedent’s estate until the debtor’s bankruptcy proceedings are complete and then attempt to receive a distribution from the decedent’s estate. It may well be, under certain circumstances, that an heir’s anticipated distribution is sufficient to qualify as some type of equitable interest for bankruptcy purposes. For the trustee to prevail in the instant matter he must show that the debtor’s “interest” in decedent's property has some value and that the debtor’s actions surrendered that value for less than a reasonably equivalent value.1
*71It was the “possible” right to receive the ring, after probate proceedings, that was given up by the debtor — not the ring itself. The trustee asserts that the ring itself became property of the bankruptcy estate under the broad definition of estate property. Although estate property is broadly defined, the Bankruptcy Code, as stated above, does not create rights and interests that never existed. In Whiting Pools, upon which the trustee relies for a broad interpretation of estate property, the Court concluded that “the reorganization estate includes property of the debtor that has been seized by a creditor prior to the filing of a petition for reorganization.” 462 U.S., at 208-209, 103 S.Ct. at 2315. Although the case granted greater “possessory” rights to the trustee than those held by the debtor prior to the filing of the bankruptcy petition, the case did not grant to the trustee any rights that the debtor had never possessed. The trustee’s reading of Whiting Pools is too broad. The Bankruptcy Code does not displace a state’s laws of descent and distribution. The effect of state probate proceedings upon the title and value of a decedent’s property cannot be ignored in this court. Further, the trustee should be prepared to offer legal authority for his view that the debtor even had the “right to redeem” the ring. Although Defendant offered the debtor the opportunity to redeem the ring, that offer does not establish the existence of a legal right to redeem.
In short, the trustee bears the burden of proof under Bankruptcy Code Section 548 and must be able to show that debtor gave up something of value and that she would have been the recipient of that value absent her declining to redeem the ring.
With respect to the trustee’s allegations of a preferential transfer to Defendant, the provisions of Section 547 are plainly inapplicable. There is nothing before the court to indicate that there was ever “an antecedent debt owed by the debtor before such transfer was made” as required by Section 547(b)(2). Any antecedent debt was owed by the decedent, Harry Jackson, and not by the debtor.
For the foregoing reasons it is hereby ORDERED that the motions of plaintiff and defendant for summary judgment are DENIED.
. In the event that the ring was subject to a $7,000 lien, the court fails to discern how the ring could have any value to decedent’s heirs. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490818/ | *72ORDER RE CONFIRMATION
BURTON PERLMAN, Chief Judge.
This Chapter 13 case came on for hearing on confirmation.
Debtors’ plan provides for the payment to the trustee monthly of $1,050.00 for a period of 36 months. Monthly payments to three secured creditors totaling $900.00 are expressly provided. The plan provides for 30% payment to unsecured creditors. The schedules provided by debtors show unsecured indebtedness in the amount of $77,-690.18. This is accounted for by significant purchases on 12 credit cards, 16 “consumer credit purchases”, a revolving credit line, and a signature loan. No objection to confirmation of the plan was filed by any creditor.
Upon inquiry by the court at the confirmation hearing, we were informed by debtors that debtor Donald Carr had been employed in the east at a substantial rate of remuneration. For personal reasons, he returned to this area, but was unable to secure employment at compensation comparable to that he had been earning. At the hearing, we were informed further that debtors set out to maintain their standard of living at the level to which they had been accustomed, and did so by the mechanism of drawing cash on their credit cards. Throughout the period that this was happening, debtor Mary Carr had been employed in this vicinity, her gross income for 1987 having been $27,822.09. The debtors have two children. What impresses us from this account is that debtors made no effort to accommodate themselves to their actual circumstances. They were certainly far from being destitute in view of Mary Carr’s income. They incurred enormous unsecured debt from many creditors to support a lifestyle they simply could not afford.
We reserved decision on confirmation at the conclusion of the hearing because of the circumstances of this extraordinary case. We find ourselves considerably conflicted in this situation. On the one hand, the monthly payment proposed to be paid to the trustee is not unreasonable given the present circumstances of these debtors. Furthermore, no creditor has objected to the plan. On the other hand, it is our perception that a bankruptcy judge has an obligation to preserve the integrity of the bankruptcy process. It is this conflict which led us to reserve decision on confirmation.
Upon further consideration, we have reached the conclusion that we must deny confirmation of the plan proposed. In re Okoreeh-Baah, 836 F.2d 1030 (6th Cir. 1988) dealt with the requirement for good faith to be found at 11 U.S.C. § 1325(a)(3). More specifically, it clarified the position taken in Memphis Bank and Trust Company v. Whitman, 692 F.2d 427 (6th Cir.1982), regarding questionable pre-plan conduct. Okoreeh-Baah mandates that we apply an analysis of the totality of the debtors’ circumstances. It reaffirms Memphis Bank in its holding that pre-plan conduct is relevant to a determination of good faith. Both Okoreeh-Baah and Memphis Bank cite with approval the decision in In re Kull, 12 B.R. 654 (D.Ct.M.D.Ga.1981). Kull held that in a consideration of good faith, for Chapter 13 purposes, a number of factors might be considered. Among them is “the circumstances under which the debtor has contracted his debts.”
We think that this is a case where the question of pre-plan conduct is consequential and should enter into our conclusion on the existence of good faith with respect to confirmation. In defense of the bankruptcy system, we cannot confirm a Chapter 13 plan at 30% for unsecured creditors, where the incurring of the debt was not for an acceptable purpose, but rather was for the maintaining of an artificial standard of living, given the circumstances of the debtors.
Adopting the language of the Okoreeh-Baah case, if this is not dishonest conduct, it is at least questionable conduct. In these circumstances, and in the absence of objection by creditors, we cannot deny confirmation outright. We can, however, require a maximum effort toward repayment of creditors on the part of these debtors. What is presently presented is not a maximum effort. Debtors could increase the amount that they propose to pay to their creditors. They could do this by extending *73the length of the plan to the full extent permitted by law.
Confirmation is denied. Debtors shall have thirty (30) days within which to file an amended plan. If they fail timely to do so, the case will be dismissed.
So Ordered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490819/ | MOOREMAN, Bankruptcy Judge:
By this appeal, the debtor/appellant seeks to set aside a Summary Judgment granted by the bankruptcy court which partially validated a pre-petition tax foreclosure sale and post-petition issuance of the tax deed. As a result of the decision the debtor’s estate was allowed only a one-half (Vz) undivided interest in the property.
FACTS
The facts in this case are essentially undisputed. Mr. Sienkiewicz (debtor) and Mr. Wahl were former business partners and in 1981 owned as record title interest holders a certain piece of real property. Under a 1981 partnership dissolution agreement, Mr. Wahl conveyed his interest in the property to the debtor. However, through the “error of a scrivener” the property description was omitted from the property conveyance and record title remained in both the debtor and Mr. Wahl.
On June 22, 1983, Pierce County, Washington commenced tax foreclosure proceedings on the subject real property. Although the County attempted to mail notice of the foreclosure proceedings to both the debtor and Mr. Wahl, the notices were not received.1 It is undisputed that while the notice sent to the debtor was insufficient under state law, proper notice by publication was satisfied as to Mr. Wahl, who was listed on the title of record as co-owner. On October 7, 1983, a judgment foreclosing the County’s tax lien was entered and on October 21, 1983, the tax sale was conducted at which the appellees (Mr. and Mrs. Palzer) were the successful bidders. Prior to the issuance of the tax deed to the Palzers, the debtor filed his Chapter 11 proceedings on November 3, 1983. The actual tax deed was issued to and recorded by the Palzers approximately seven weeks later on December 20, 1983. Eventually, on December 12, 1985 (over two years later and after the filing of the bankruptcy), a deed was executed and recorded purporting to convey Mr. Wahl’s interest to the debtor.
*141The debtor then brought the underlying adversary action to quiet title in the property against Pierce County and the Palzers. The debtor and the Palzers filed what amounted to joint motions for summary judgment. After a hearing on the matter, the bankruptcy court determined that under Washington state law, notice by publication had been sufficient as to Mr. Wahl. Further, the bankruptcy court determined that under the Washington state recording statute, the Palzers, as good faith purchasers, were entitled to a one-half (V2) undivided interest in the property equivalent to the interest held by Mr. Wahl. The bankruptcy court also determined that because notice was improper as to the debtor, the debtor’s undivided one-half interest was not affected by the tax deed sale.
DISCUSSION
Although this appeal arises out of a Summary Judgment, the material facts are undisputed, and thus, no issue of material fact exists. Accordingly, the only issues before this Panel are issues of law and subject to de novo review. In re Pizza of Hawaii, Inc., 761 F.2d 1374, 1377 (9th Cir.1985).
The essential issue in this case is whether the pre-petition tax foreclosure sale was valid under Washington State law.2 The debtor contends that the tax foreclosure sale was invalid because it failed to give him the required' notice of the foreclosure sale and of the statutory right of redemption.
As set forth above, it is undisputed that Mr. Wahl received adequate statutory notice by publication. Additionally, it is undisputed that the debtor did not receive adequate notice of the foreclosure sale. Under these circumstances, the debtor argues the tax foreclosure sale was entirely void, while the Palzers argue that the sale *142was void only as to the debtor, but not as to Mr. Wahl, who according to the title of record held a one-half interest in the property.
In the case of Valentine v. Portland Timber and Land Holding Co., 15 Wash. App. 124, 547 P.2d 912 (1976), the Washington Court of Appeals addressed the effect of a foreclosure sale when an unrecorded interest holder was not joined as a party to the foreclosure action. The court held that although the unrecorded interest holder was a necessary party, “[t]hat does not mean, however, that failure to join such a person nullifies the action. It only means such a person’s interest is unaffected.” Id. 547 P.2d at 914 (citations omitted) (emphasis added).3 The court stated, “[p]ublic policy reasons dictate that the recording statute should protect the foreclosing mortgagee as well as the purchaser at a foreclosure sale against unrecorded and unknown interests.” Id. (emphasis added). See also Aberdeen Federal Savings & Loan v. Empire, 36 Wash.App. 81, 672 P.2d 409, 411 (1983) (citing Valentine with approval).
The debtor relies heavily on the case of Rosholt v. County of Snohomish, 19 Wash.App. 300, 575 P.2d 726 (1978), for the proposition that failure to give notice of a foreclosure sale to one co-owner renders any foreclosure sale void. Although the Rosholt case appears analogous on its face, it is clear from the facts of that case that the Rosholt decision merely held that failure to give adequate notice to record title holders will void the tax foreclosure sale. The Rosholt ruling is based on well recognized due process and involved a case where none of the record title holders received adequate notice. The Washington Court of Appeals determined that insufficient notice had been given to all interest holders and accordingly, the foreclosing court lacked any jurisdiction to enter a judgment of foreclosure. Id. 575 P.2d at 729. Thus, the Rosholt court did not address the issue present in this case as to the effect of a tax foreclosure sale on a record title holder who does receive adequate notice.
Consistent with the Rosholt decision, the bankruptcy court held that the debtor’s interest was unaffected by the tax foreclosure sale because the debtor had not received sufficient notice. However, Mr. Wahl, who held legal title to an undivided one-half interest in the property, did receive legally adequate notice by publication. Accordingly, the state court did have jurisdiction to enter a pre-petition judgment foreclosing the tax lien as to Mr. Wahl’s interest. Valentine, 547 P.2d at 914-915. As a bona fide purchaser for value, the unrecorded conveyance to the debtor is void as against the Palzers. Valentine, 547 P.2d at 915. Since the foreclosure sale was valid under state law as to a one-half undivided interest in the property, the debt- or did not have any interest in that portion of the property at the time of his Chapter 11 filing. See footnote 2 (supra). Accordingly, the issuance of the trust deed did not violate the automatic stay of § 362.4
Based on the foregoing, the bankruptcy court’s Summary Judgment is AFFIRMED.
. Apparently, the notice sent to the debtor had the incorrect city and zip code. It was returned to the County as not deliverable.
. The debtor argues that the County’s issuance of the tax deed to the Palzers violated the automatic stay of § 362. As a basis for this argument, the debtor contends that the subject property became property of the estate on November 3, 1983, even though the actual foreclosure sale had occurred pre-petition on October 21, 1983. The debtor argues that "the sale was not final’ until the county recorded the tax deed pursuant to state statute.
It is well recognized that rights of redemption are property of the debtor’s estate within the definition of § 541. E.g. In re Bialac, 712 F.2d 426, 430-31 (9th Cir.1983). In this case, however, it is essentially undisputed that the right to redeem property subject to a tax foreclosure sale expires under Washington state law when the foreclosure sale occurs. Thus, the debtor did not have any right to redeem the property if the foreclosure sale was valid.
Additionally, the debtor argues that he had an equitable interest in the entire piece of property and accordingly, the issuance of the tax deed after the filing of the petition violated § 362. This argument assumes, however, that the debt- or did in fact have an interest in the entire piece of property at the time of his bankruptcy filing. It is undisputed that the foreclosure sale and subsequent issuance of the tax deed did not effect the debtor’s undivided one-half interest in the property and that the tax deed at issue was deemed by the bankruptcy court to convey the other one-half interest to the Palzers. Whether § 362 was violated turns on whether the debtor had any rights in that portion conveyed to the Palzers. If, at the time the debtor filed his petition, he held an interest in that portion now claimed by the Palzers, then the issuance of the tax deed would have been subject to the automatic stay. Thus, we turn to the effect the tax foreclosure sale had on any interest claimed by the debtor.
It is essentially undisputed that prior to the tax foreclosure sale, the debtor held equitable title in the entire piece of property. However, the Washington Revised Code follows a "race/notice” recording statute by providing as follows:
Real Property Conveyances to be Recorded. A conveyance of real property, when acknowledged by the person executing the same ... may be recorded in the office of Real Property Conveyances to be Recorded. A conveyance of real property, when acknowledged by the person executing the same ... may be recorded in the office of the [county recorder]. Every such conveyance not so recorded is void as against any subsequent purchaser or mortgagee in good faith and for valuable consideration from the vendor, his heirs or devi-sees, of the same real property or any portion thereof whose conveyance is first duly recorded.
R.C.W. 65.08.070 (emphasis added). Since the Palzers recorded their tax deed (December 1983) prior to the debtor’s attempted rec-ordation of the partnership conveyance (December 1985), and because the debtor does not contest the bona fide status of the Palzers, the Palzers would not be subject to the conveyance from Mr. Wahl to the debtor if the tax foreclosure sale was valid.
. The majority of cases which have addressed this issue have also determined that where sufficient notice has been supplied to one co-owner, but not to another, the tax sale is void only as to the party who did not receive adequate notice. E.g. Brandt v. City of Yuma, 124 Ariz. 29, 601 P.2d 1065, 1067 (1979).
. Even assuming that the debtor held some equitable interest in the subject portion of the property at the time his petition was filed, the debtor could not avoid the issuance of the trust deed unless the requirements of 11 U.S.C. § 549(c) were satisfied. Although this issue was not addressed by the parties, nothing in the record indicates whether a copy of the debtor’s petition was filed with the county recorder's office, thereby allowing the debtor to avoid the post-petition transfer and issuance of the tax deed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490820/ | JONES, Bankruptcy Judge,
dissenting.
I would respectfully dissent. The first holding of the case of Rosholt v. County of Snohomish, 19 Wash.App. 300, 575 P.2d 726 (1978), is set forth 575 P.2d at page 729 as follows:
When the County discovered from the title report that additional record title *143holders existed, it was required to give them the same notice it extended to the person listed on the county tax rolls. This was not done pursuant to the statute, and jurisdiction for the purposes of the tax foreclosure proceeding was not obtained. The foreclosure sale and the issuance of the tax deed are void.
As in Rosholt, the title report obtained by the county revealed the names of two co-owners, Mr. Sienkiewicz (debtor) and Mr. Wahl. Proper notice by publication was only given to Mr. Wahl. In fact, Mr. Sienk-iewicz was owner of equitable title to the entire property, being entitled to a reformed or additional deed from Mr. Wahl, his prior co-owner. According to Rosholt, the county was required to give Mr. Sienk-iewicz the same notice it provided to Mr. Wahl since it was on notice of the correct title holders listed in the title report. Without such notice jurisdiction for the purposes of the tax foreclosure proceeding was not obtained. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490821/ | ORDER
GEORGE B. NIELSEN, Jr., Bankruptcy Judge.
I
This matter arises on undisputed facts. Regina Marie Sellner (“debtor”) and her former spouse, Charles Sellner, owned real property located in Glendale, Arizona, in joint tenancy with right of survivorship. The Sellners separated and a divorce suit was filed in Maricopa County Superior Court.
On August 10, 1987, a judgment and decree of dissolution which, inter alia, awarded the realty to debtor, was entered. Although debtor asserts the August divorce decree was recorded, she fails to specify the date, nor does she argue that recordation occurred prior to September 30, 1987, the date the Internal Revenue Service (“Service”) recorded a lien against Charles Sellner for his separate tax liability. Docket 16, Affidavit at 1-2. Debtor had been filing separate tax returns since 1984.
In apparent compliance with the divorce decree, Sellner executed a quitclaim deed of his interest in the property to debtor on October 6, 1987, which was recorded on October 30, 1987. Docket 18 at Attachment A. Debtor filed a declaration of *153homestead on the residence on November 2, 1987, pursuant to state law. A.R.S. § 33-1101, et seq. (1988 Supp.). Shortly thereafter, she filed a voluntary Chapter 13 bankruptcy case. On April 28,1988, debtor instituted this adversary proceeding against the former spouse and the Government, seeking to have the secured tax claim held inapplicable to her interests in the residence.1
With Court approval, the property has been sold and the standing trustee is holding $9,967.15 in sale proceeds pending resolution of this dispute through plaintiff-debt- or’s motion for summary judgment.
II
The first matter to be determined is whether delinquent taxpayer Charles Sellner had any interest in the subject realty on September 30, 1987, when the Service recorded its notice of federal tax lien against “all property and rights to property” belonging to him. See 26 U.S.C. § 6321.
State law is incorporated for the limited purpose of determining whether the taxpayer’s interest is “property” or “rights to property” to which the lien can attach. United States v. Mitchell, 403 U.S. 190, 197, 91 S.Ct. 1763, 1768, 29 L.Ed.2d 406 (1971). (Under Louisiana community property law, wife’s interest is sufficiently vested and substantial to be liable for federal tax, notwithstanding her subsequent renunciation of community rights.)
Under Arizona law, the unrecorded August 10, 1987 judgment and dissolution decree is binding on the parties and subsequent purchasers with notice. A.R.S. § 33-412 B. It is a void conveyance, however, as against creditors and subsequent purchasers without notice. A.R.S. § 33-412 A; Rowe v. Schultz, 131 Ariz. 536, 537-39, 642 P.2d 881, 882-84 (App. 1982) (judgment lien attaches and prevails over prior unrecorded quitclaim deed).
The second conveyance document, Charles Sellner’s quitclaim deed to Mrs. Sellner, was neither executed nor recorded until well after recordation of the tax lien.
Accordingly, regardless of the validity of the decree and quitclaim deed as between the spouses, under applicable Arizona law they are not valid conveyances of the taxpayer’s property as to intervening secured creditors such as the Service. Therefore, the tax lien properly attached.
III
The second issue concerns whether subsequent recordation of an Arizona homestead invalidates this lien.
State homestead property is not considered exempt from levy under the Federal Tax Code. 26 U.S.C. § 6334(a), (c) (1988 Supp.).
There is no automatic exemption of property from federal levy simply because it may be exempt under state law. Mitchell, supra. 403 U.S. at 204-05, 91 S.Ct. at 1771-72; United States v. Overman, 424 F.2d 1142, 1145 (9th Cir.1970), citing United States v. Heffron, 158 F.2d 657 (9th Cir.), cert. denied, 331 U.S. 831, 67 S.Ct. 1510, 91 L.Ed. 1845 (1947).
Finally, this is not a case where debtor argues that the effect of the subsequent homestead declaration is to create an immediate transfer of a presently-existing property interest, which invalidates the prior lien. Shaw v. United States, 331 F.2d 493, 497 (9th Cir.1964) (federal tax lien held valid against California homestead). But cf. United States v. Rogers, 649 F.2d 1117, 1125-28 (5th Cir.1981) (subsequent tax lien ineffective against prior Texas homestead).
Accordingly, subsequent declaration of the homestead is ineffective as to the Service’s tax lien in this case.
IV
Although only the plaintiff-debtor filed moving papers seeking summary judgment, *154Docket Nos. 16, 17, the Government’s response agreed there was no dispute of material fact, requested entry of judgment as a matter of law, and was supported by the requisite separate statement of facts. Docket Nos. 18, 19 at p. 5. See Local District Rule 11(L)(1); Local Bankruptcy Rule 9033. It appearing from the pleadings that there is no genuine issue of material fact, and the defending party is entitled to judgment as a matter of law, the government’s papers will be deemed a cross-motion for summary judgment and granted.
The Government is directed to lodge and serve a proposed judgment. In shaping the judgment, state law will define the interest to which the lien attaches. Overman, supra, 424 F.2d at 1146.
Given the ineffective transfer as to the federal creditor, each spouse would appear to own an undivided half interest in the parcel or its proceeds. In re Ackerman, 424 F.2d 1148, 1150 (9th Cir.1970). It further appears:
The Government cannot claim from the proceeds of sale more than that share of the proceeds attributable to the taxpayer’s half of the community interest in the asset. It cannot reach the proceeds attributable to the wife’s interest. Her interest was not subject to attachment for her husband’s ... tax debt, and the Government’s right to share in the proceeds of sale does not exceed the taxpayer’s interest-in the property subjected to the lien.
(Citation omitted). Overman, supra, 424 F.2d at 1146; Ackerman, 424 F.2d at 1150.
Unless a consensual judgment has been entered in this proceeding, the litigants will appear for a status hearing on March 9, 1989, at 9:30 a.m., in Hearing Room No. 2, Fifth Floor, United States Courthouse, 230 North First Avenue, Phoenix, Arizona.
. Although phrased in terms of a complaint to determine dischargeability of a debt, 11 U.S.C. § 523, it appears debtor in reality seeks determination of the validity, priority or extent of the tax lien. Rule 7001(2), F.Bk.R. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490822/ | MEMORANDUM OPINION
STEWART ROSE, Chief Judge.
BACKGROUND
This lawsuit was originally filed in State Court on July 7, 1987. The plaintiffs, Tony and Roxann Aguilar, filed their Chapter 11 petition on February 25, 1988. The suit was removed to the Bankruptcy Court on April 28, 1988 by defendant Valley Federal Savings Bank. Defendant Fred Sanders, a former officer of Valley, has filed his own Chapter 7 petition.
Before the Court today is a motion for summary judgment filed by Valley. The controversy arises from the sale and financing of a restaurant and liquor license in Artesia, New Mexico in the spring and summer of 1986. The Aguilars allege misrepresentation, conversion, defamation, interference with business relations, infliction of emotion distress, breach of fiduciary duty and illegal repossession. Valley denies the allegations and raises as an affirmative defense that the claims were compulsory counterclaims in prior state court litigation. The parties chose not to file briefs supporting their relative positions, but instead asked the Court to rely on extensive oral argument, deposition testimony, affidavits and documents. Having considered the arguments and evidence submitted, the Court holds that Valley is entitled to summary judgment on Counts I and III. Valley is entitled to partial summary judgment on Counts II, IV, V and VI.
FACTS
The facts as ultimately found by the Court follow. Additional findings are stated in the discussion of each part of the complaint.
Tony Aguilar is a former banker and until recently operated several businesses in Roswell and Artesia, New Mexico. He is married to Roxann Aguilar. W.A.M. Investments, Ltd. is a New Mexico limited partnership. Tony is the general partner. Bav-Ma, Inc. is a New Mexico Corporation owned or controlled by Tony. In April and May of 1986, W.A.M. contracted to pur-' chase a building, furniture, fixtures and a liquor license in order to operate a restaurant. Valley owned all of the purchased assets except the building. Valley also financed part of the purchase. Complications arose over transfer of the liquor license and the new restaurant never operated at a profit. Tony, his entities and his *210businesses suffered continuing financial setbacks.
Sometime in late 1986 and early 1987, two State Court lawsuits were filed. In CV86-435, W.A.M. and Aguilar sued Valley and others. The complaint alleged breach of contract to deliver the liquor license, sought rescission of the guaranties and promissory note, alleged negligence and breach of warranty of title and sought rescission of the contracts for sale of the fixtures and building. In CV87-27F, Albuquerque Federal Savings and Loan, first mortgagee, sought foreclosure against Tony, W.A.M. and Valley. Tony filed a crossclaim against Valley seeking to have all of the transactions declared as one and rescinded because of the failure of Valley to transfer the liquor license. Valley filed a crossclaim seeking judgment on its note from W.A.M.
A complete set of pleadings from the State Court was not put into evidence, but it appears from those that were provided that the cases were consolidated and cross motions for summary judgment were filed.
The State Court ruled that among the parties, the liquor license is vested in W.A.M., subject to Valley’s lien; claimant Taylor has no interest in the license; the State Court litigation is no impediment to the transfer of the license by the State; W.A.M. must cooperate in the transfer of the license and has no claim against Valley until it fails in a good faith attempt to effect a transfer; Valley has breached no duty to W.A.M.; W.A.M. has abandoned all other claims in its complaint and the W.A.M. complaint is dismissed. The bankruptcy and current lawsuit followed.
DISCUSSION
A. Count I — Misrepresentation
Count I, in part, alleges negligent or intentional misrepresentation on the part of Valley by its failure to make an additional $90,000 loan to Tony, or his partners in W.A.M. The money was to be in addition to the $155,000 borrowed by W.A.M. for the furniture, fixtures and liquor license. The new loan would cover operating expenses of the new restaurant. No inquiry into the existence of a fact dispute need be made. Even if all facts are as the plaintiffs claim, the defendant is nevertheless entitled to judgment. Any cause of action involving a representation to make a loan was a compulsory counterclaim in the prior litigation. Such a claim is barred by Fed.R. Civ.P. 13, and should have been brought in CV87-27F against Valley’s crossclaim. Paragraph 5 of Count I, made applicable to all six counts, states that the bank, “in connection with the sale of a liquor license” said it would loan additional money. Since this complaint is “in connection with the sale of a liquor license”, it arises from the same transaction or occurrence as the two State Court lawsuits.
On pages 242 through 260 of Tony’s deposition, the bank’s counsel asks Tony to state the facts supporting Count I. Tony alleges the promise to loan an additional $90,000 and discusses the terms and what assets he might pledge as security. On page 255, Tony ties the transactions together. He states that the bank officer said to close the $155,000 loan first, and then the bank would loan the $90,000 after the liquor license was transferred. The loan for the furniture, fixtures and license and the promised future loan are all part of the same transaction. Fed.R.Civ.P. 13(a) mandates that this type of claim be litigated with all other claims. The identical New Mexico rule, SCRA 1986, Civ.P.R. 1-013(A) is discussed in a similar context in Slide-A-Ride v. Citizens Bank of Las Cruces, 105 N.M. 433, 733 P.2d 1316 (1987). In New Mexico courts, “a transaction or occurrence is the same if a ‘logical relationship’ exists between the opposing parties claims. A logical relationship will be found if both the claim and counterclaim have a common origin and a common subject matter.” 105 N.M. at 436, 733 P.2d at 1318. The reasoning of the New Mexico Supreme Court is persuasive and will be applied. The Aguilars’ claims for a representation to loan money were compulsory counterclaims in the State Court. They cannot be raised here.
That much of Count I alleging a misrepresentation to loan money is dismissed and *211summary judgment is granted for the defendant bank.
The remainder of Count I alleges misrepresentation, to others, by the bank, of the Aguilars’ financial condition. In essence, a defamation is alleged, and the count is dismissed and summary judgment shall enter for the bank. The Court’s reasoning is discussed in connection with the ruling on Count III.
B. Count II — Conversion
Based on the uncontroverted affidavit of William Harrison, an officer of Valley, and the supporting bank documents, the Court makes the following additional findings:
Savings account No. 10234003 was held jointly by Tony and Roxann. On July 30, 1986, $50,000 was deposited into the account. On July 31, $4,800 was withdrawn by a check made payable to Roxann. Also on July 31, $23,000 was transferred, by the bank, to the account of Bav-Ma, Inc. Between July 31, and August 14, three transfers, totaling $26,569.52, were made by the bank to the account of W.A.M. On August 28, $524.57 was withdrawn by Tony.
On July 31, Bav-Ma was indebted to Valley on a promissory note. The note was in default. Bav-Ma’s account was in overdraft. The funds transferred into the Bav-Ma account covered the overdrafts. W.A. M. was also in debt to Valley on a defaulted note. The funds transferred into the W.A.M. account were also used to cover overdrafts.
In July of 1985, Tony signed a guaranty, promising to pay all of Bav-Ma’s debts to Valley. The guaranty gave Valley a contractual right of offset against any of Tony’s accounts. A similar guaranty was signed by Tony and Roxann for all of W.A. M.’s debt to valley, but no right of offset was granted. The signature card and deposit agreement contain no express right of offset.
Count II alleges the conversion of $54,-000 from the Aguilars’ account by the bank. The motion for summary judgment contends that Valley had either permission or a legal right of offset.
As for the $23,000 applied to Bav-Ma’s overdrafts, the Court concludes that Valley had a contractual right of offset. The undisputed facts are that Tony’s guaranty promised to pay all of Bav-Ma’s debts to Valley. Bav-Ma was indebted to Valley on July 31 by way of overdrafts. A bank has the right to charge its customer’s account with items properly payable even though an overdraft is created. Such an overdraft creates an implied promise to pay on the part of the customer. N.M.Stat.Ann. § 55-4-401(1) (1978) and official comments. The Bank properly exercised its contractual right of offset as far as the $23,000 transferred to Bav-Ma is concerned. Fidelity National Bank v. Lobo Hijo Corp., 92 N.M. 737, 594 P.2d 1193 (N.M.App.1979). That part of Count II alleging conversion of $23,000 is dismissed and summary judgment shall enter for the bank.
It is further undisputed that Tony and Roxann withdrew $524.57 and $4,800, respectively. The bank did not convert this money. So much of Count II alleging conversion of $5,324.57 is dismissed and judgment shall enter for the bank.
Of the $54,000 alleged to have been converted, $25,675.43 remains. However, the bank asserts it transferred $26,569.52 to the W.A.M. account. The numbers supplied by the parties are off by $893.89. The Court cannot account for the difference and makes no ruling on the discrepancy.
Nevertheless, the bank transferred $26,-569.52 to the W.A.M. account. The documents offered by the bank fail, on their face, to grant to the bank a contractual right of offset.
The bank asserts a common law right of offset. That may be true in all other jurisdictions, but the New Mexico Supreme Court has specifically declined to rule on the existence of such a right. Melson v. Bank of New Mexico, 65 N.M. 70, 332 P.2d 472 (1958). This Bankruptcy Court, deciding issues of state law, will not speak for the State Supreme Court and create a new common law right. As well, no statutory right of offset was cited to the *212Court. This being so, summary judgment must be denied as to the $26,569.52 transferred to the W.A.M. account, without prejudice to the submission of additional documents or legal authority to show a right of offset. A fact dispute remains on the issue of authorization of the transfers by the plaintiffs.
C.Count III — Defamation
Count III of the complaint, in paragraph 4, states that “Defendant Sanders and/or with the ratification of Defendant Bank,” defamed Aguilar. It is hornbook law that the bank, a corporation, can only act through its officers, agents or employees. The bank cannot have defamed Tony on its own. It could only defame Tony by authorizing Sanders to do so, by ratifying Sanders’ actions or by a theory of vicarious liability whereby Sanders acted within the course or scope of his employment.
The complaint only alleges ratification by the bank. The uncontroverted affidavit of bank officer Harrison states that Valley neither authorized or ratified the actions of Sanders. There being no fact dispute on the issue of ratification or authorization of Sanders’ actions, summary judgment is granted in favor of Valley on Count III of the complaint.
D.Count IV — Interference with Business Relations and Infliction of Emotional Distress
Count IV makes no additional factual allegations but merely relies on other counts of the complaint. The Court has already dismissed, as to the bank, those parts of the complaint that allege a misrepresentation, a defamation and a conversion of money except to the extent of $26,-569.52. Count IV thus alleges damages with no factual basis. This count states no claim. It is dismissed without prejudice to the allegation of other facts which might support such a claim for damages.
The Court must note, however, that even if the bank converted the $26,569.52, Tony and Roxann, it seems, suffered no damage to their business relations and suffered no emotional distress. The undisputed documentary evidence presented by the bank shows that the money was used to cover W.A.M. overdrafts. By paying the items in the first place, the bank furthered and promoted Tony’s business interests. The bank prevented the emotional distress that would have accompanied $26,000 worth of unpaid and returned checks.
E.Count V — Breach of Fiduciary Duty
Count V alleges a breach of fiduciary duty by the bank. The motion for summary judgment requests that Count V be dismissed insofar as it alleges a defamation by the bank. The Court has ruled that the bank did not defame Tony. Summary judgment is granted for the bank insofar as the count alleges a defamation.
F.Count VI — Illegal Repossession and Trespass
Count VI alleges illegal repossession of a truck and trespass to Tony’s home. The undisputed documentary evidence, uncontroverted affidavits of Harrison and Budwine and deposition testimony reveal that the bank had a valid and perfected security interest in the truck and that the loan was in default. The truck was not illegally repossessed.
The undisputed affidavits and deposition testimony of Bartlett and Hightower show that Tony and Roxann did not own the home, that the home was unoccupied and that the mortgage to Valley was in default. The bank, under these circumstances, rightfully locked up the house. Tony does, however, claim an oral lease or other agreement giving him a right to possession. No terms are shown, and the circumstances are quite vague.
In this situation, summary judgment is granted in favor of the bank on Count VI, without prejudice to the plaintiff to allege other facts showing the Aguilar’s exclusive right to possession of the home, by an agreement with the owner and further *213showing the bank had no right to protect its mortgagee interest.
CONCLUSION
Summary judgment is granted in favor of the bank on Counts I and III and they are dismissed in their entirety. Judgment is granted to the bank on Count II except to the extent of $26,569.52 transferred to the W.A.M. account, without prejudice to a showing of a right of offset. Count IV alleges no facts to support the claim for damages and is dismissed without prejudice to the allegation of other facts. Count V is dismissed so far as it alleges a defamation. As to the truck in Count VI, judgment is granted in favor of the bank. As for the house, judgment is granted to the bank, without prejudice to the allegation of facts supporting the plaintiffs’ right to possession of the home and showing no right, on the part of the bank, to protect its interests.
This opinion constitutes the Court’s findings of fact and conclusions of law. Counsel for defendant bank shall prepare and submit an appropriate form of judgment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490823/ | MEMORANDUM DECISION AND ORDER
STEPHEN J. COVEY, Bankruptcy Judge.
This matter comes before the court this 9th day of December, 1988 on the motion of Cimarron Federal Savings & Loan Association (“Cimarron”) to determine the applicability of the automatic stay provided under § 362 of the Bankruptcy Code on the following described parcel of real estate to-wit:
Blocks Four (4) and Five (5) of Wilkerson Addition to the Incorporated Town of Pryor Creek, Mayes County, State of Oklahoma a/k/a Meadow Trace Apartments.
*214This Court having examined the pleadings, heard the arguments of counsel, considered the stipulated facts and being fully advised in the premises holds as follows:
The court finds that Phoenix Federal Savings & Loan Association (“Phoenix”), predecessor in interest to the movant, filed a petition for foreclosure of its mortgage against the above property on July 27, 1987. The petition was filed against the debtor and four purported insiders of the debtor (stockholders). At the time of the filing of the petition the record legal title to the property was in the insiders. The debt- or had no interest in the property, having conveyed its prior interest to the insiders years before the filing of the foreclosure petition. The debtor was joined as a party to the foreclosure petition because it was liable on the note secured by the mortgage.
On September 4, 1987 at 9:10 a.m., Phoenix filed a notice of lis pendens pertaining to the foreclosure action pursuant to 12 O.S.A. (Supp.1987) § 2004.2 which in parts material to this case provides as follows:
§ 2004.2
(A) Upon the filing of a petition, the action is pending so as to charge third persons with notice of its pendency. While an action is pending, no third party shall acquire an interest in the subject matter of the suit as against the prevailing party’s title; except that:
(1)As to actions in either state or federal court involving real property, such notice shall be effective from and after the time that a notice of pendency of action, identifying the case and the court in which it is pending and giving the legal description of the land affected by the action, is filed of record in the office of the county clerk of the county wherein the land is situated; and
(B) Except as to mechanics and material-man lien claimants, any interest in real property which is the subject matter of an action pending in any state or federal court, acquired or purported to be acquired subsequent to the filing of a notice of pendency of action as provided in subsection A of this section, or acquired or purported to be acquired prior to but filed or perfected after the filing of such notice of pendency of action, shall be void as against the prevailing party or parties to such action.
Three of the insiders after the initiation of the foreclosure action but before the filing of the notice of lis pendens, executed and delivered quit claim deeds conveying their interest in the property to the debtor. These deeds were executed on August 11 and 19, 1987. The fourth insider executed a similar quit claim deed on September 4, 1987 on the same day, but apparently after the notice of the lis pendens was filed. None of the quit claim deeds were recorded. The movant thereafter obtained a foreclosure judgment on March 28, 1988 against the insiders and the debtor. There has been no allegation of any error in the foreclosure procedures undertaken by the movant.
The issue for this court to decide is whether the foreclosure action against the property in question is stayed by the automatic stay granted in § 362 of the Bankruptcy Code. Said section provides in portions material to the present case as follows:
362
(a) Except as provided in subsection (b) of this section, a petition filed ... operates as a stay, applicable to all entities, of—
(1) the commencement or continuation, including the issuance of employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;
(2) the enforcement, against the debt- or or against property of the estate, of a judgment obtained before the commencement of the case under this title;
(3) any act to obtain possession of property of the estate or of property *215from the estate or to exercise control over property of the estate;
(4) any act to create, perfect, or enforce any lien against property of the estate;
(5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title; ...
Under subsections (2), (3), (4) and (5) the automatic stay applies to the enforcements of judgments, liens and claims against property of the estate or the debtor. If the property in question is property of the estate or the debtor, then the automatic stay applies and the foreclosure action of the movant cannot proceed without the movant obtaining relief from the automatic stay. On the other hand, if the property in question is not property of the estate or debtor then the foreclosure action can proceed because the automatic stay is not applicable.1
Section 541 of the Bankruptcy Code provides in part as follows:
541
(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) ... all legal or equitable interests of the debtor in property as of the commencement of the case.
This Court holds that the property is not the property of the estate of the debtor pursuant to § 541 (supra) and therefore the foreclosure action is not subject to the automatic stay. The lis pendens provisions of the Oklahoma law clearly provide that after a notice of lis pendens is filed a conveyance of the property that is the subject matter of the lawsuit mentioned in the lis pendens notice is void and of no effect. The statute also provides that conveyances made before the filing of the lis pendens notice but recorded afterwards are also void and of no effect.
In the instant case one of the conveyances by an insider to the debtor was made the same day the lis pendens notice was filed but at a later hour in the day. This conveyance is clearly covered by the lis pendens statute cited above and is void. As to the other three insider conveyances they were made prior to the filing of the lis pendens notices but were never recorded. Conveyances made before the filing and recorded afterwards are clearly void. The same rule should apply to prior deeds that were never recorded as in the instant case. While the statute does not expressly cover this situation it would not make sense nor be within the intent of the statute to say that prior deeds recorded after the lis pendens were void but similar deeds never recorded were valid.
Since the conveyances to the debtor from the insiders were void and no effect the debtor did not have a legal or equitable interest in the property as of the commencement of the case and it was therefore not property of the estate and therefore not entitled to protection of the automatic stay.
IT IS THEREFORE ORDERED, ADJUDGED AND DECREED that the motion of Cimarron Federal Savings & Loan Association is granted and this Court expressly finds that the subject property is not property of the estate and Cimarron Federal Savings & Loan Association may proceed with its foreclosure proceeding against said property.
. The automatic stay does apply, of course, to any actions against the debtor personally. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490824/ | MEMORANDUM OF DECISION
GEORGE S. WRIGHT, Chief Judge.
This matter came before the Court on the Plaintiff’s Motion to Determine Secured Status and Objection to Claim of Exemptions. The issue involved is whether an above-ground swimming pool is a fixture. After a trial and consideration of the applicable law, it is the opinion of the Court that the above-ground pool is not a fixture and therefore not subject to the mortgage with Transamerica Financial Services, Inc. This memorandum shall constitute findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052.
FINDINGS OF FACT
The debtor/defendant purchased an above-ground swimming pool from Inland Pools, Inc. Inland Pools took a security interest in the pool and filed a UCC-1 Financing Statement, with the debtors’ deed attached, in the appropriate county probate office, and the same was listed in the index to real estate mortgages. The debtors subsequently assembled and placed the pool in their back yard.
In April of 1987 the debtors executed a mortgage loan with Transamerica Financial Services, Inc. Transamerica paid off the seller of the swimming pool and a cancellation of the financing statement was filed of record. The debtor subsequently filed a *224Chapter 7 Bankruptcy Petition on May 24, 1988.
After the filing of the Chapter 7 petition, the debtors abandoned their home but disassembled the pool and took it with them. The plaintiff (Transamerica) contends that the pool is a fixture and is therefore subject to its mortgage.
This Court must now decide whether an above-ground swimming pool is a fixture. If so, the pool will be subject to the mortgage with Transamerica, but if the pool is not a fixture then it may properly be claimed as exempt personality under Alabama Code Section 6-10-6 to the extent it does not exceed the statutory amount allowed by Section 6-10-6.1
CONCLUSIONS OF LAW
A fixture has been defined as “an article which was once a chattel, but which, by being physically annexed or affixed to the realty, has become accessory to it and part and parcel of it.” Farmers and Merchants Bank v. Sawyer, 26 Ala.App. 520, 522 163 So. 657, 658 (1935). There being no precise definition of a fixture2, it is “only from an examination of the circumstances of each case that doubt may be resolved as to whether a certain item is a fixture.” Milford v. Tennessee River Pulp and Paper Company, 355 So.2d 687, 690 (Ala. 1978). In Langston v. State, 96 Ala. 44, 46, 11 So. 334, 335 (1891) the Alabama Supreme Court set forth a three-prong test for making the determination. The elements of this test include:
(1) Actual annexation to the realty or to something appurtenant thereto: (2) Appropriateness to the use or purposes of that part of the realty with which it is connected; (3) The intention of the party making the annexation of making permanent attachment to the freehold. This intention of the party making the annexation is inferred; (a) From the nature of the articles annexed; (b) The relation of the party making the annexation; (c) The structure and mode of annexation; (d) The purposes and uses for which the annexation has been made.
1. ACTUAL ANNEXATION
The strength and permanence of the anchoring foundation, while not conclusive, is a factor to be considered. Langston, 11 So. at 335. In the case at bar, the pool lacked any anchoring devices. The pool was not cemented in or blocked off. Trial testimony revealed that sometime after the debtors assembled the pool, they constructed a wooden deck around it. Such action appears to be a method of anchoring the pool, however; the debtors subsequently decided to remove the deck and attach it to the house to serve as a front porch. This subsequent action by the debtors is a strong indication that they did not view or intend for the pool to be permanently affixed or anchored, but rather considered it to be movable. The fact that the pool was not anchored in any way and that structures associated with or connected to the pool have been freely moved and adapted to other uses convinces this Court that the first prong of the test should be viewed as indicia of the pool lacking fixture status.
2. APPROPRIATENESS TO PURPOSE OF REALTY
Clearly a back yard swimming pool is appropriate for personal family use in a residential setting. Equally clear is the fact that a swimming pool is useful for only a limited period of the year. An above-ground pool can be assembled and disassembled within a few hours3 thus in*225dicating that disassembly and removal of the pool during periods of nonuse is equally appropriate for the purposes of the realty.
3. INTENTION TO MAKE A PERMANENT ATTACHMENT
Intention is to be inferred from the nature of the articles annexed; the relation of the party making the annexation; structure and mode of annexation; and the purposes and uses for which the annexation was made. Milford, 355 So.2d at 690. As previously noted, a wooden deck had been constructed around the pool, but that same deck was removed and used as a front porch to the debtors’ home. This action shows a lack of intention to make the pool a permanent attachment. Furthermore, the nature of the pool itself lacks permanency. The ease of assembly/disassembly is one of the pools principle features and as such lends credence to the movable nature of the item. Even though the pool adds to the enjoyment of the residence it is not an essential part of the realty.
CONCLUSION
After considering each prong of the three part test enunciated in Langston, this Court is of the opinion the above-ground swimming pool is not a fixture and therefore not subject to the mortgage executed between the debtors and Trans-america.
This memorandum shall constitute findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052. A separate order will be entered in accordance with the foregoing.
DONE AND ORDERED.
ORDER DETERMINING SECURED STATUS AND OVERRULING OBJECTION TO CLAIM OF EXEMPTIONS
This matter having come on for TRIAL on the plaintiffs MOTION TO DETERMINE SECURED STATUS AND OBJECTION TO CLAIM OF EXEMPTIONS and the Court having been fully apprised of the premises and the applicable law, it is, by the Court,
ORDERED, ADJUDGED AND DECREED:
1. That the claims of Transamerica Financial Services, Inc., as to the above-ground swimming pool constituting a fixture and thus subject to the mortgage between the debtors and Transamerica, are hereby determined to be UNSECURED.
2. That Transamerica’s objection to, claim of exemptions is OVERRULED.
3. That the debtors may claim as exempt personality, under Alabama Code Section 6-10-6, the above-ground swimming pool. Said exemption shall be allowed only to the extent it, along with all other personality exemptions claimed by the debtors, does not exceed the statutory amount allowed by Section 6-10-6.
DONE AND ORDERED.
.Alabama Code Section 6-10-6 provides:
The personal property of such resident, except for wages, salaries or other compensation, to the extent of the resident’s interest therein, to the amount of $3,000.00 in value, to be selected by him or her, and, in addition thereto, all necessary and proper wearing apparel for himself or herself and family, all family portraits or pictures and all books used in the family shall also be exempt from levy and sale under execution or other process for the collection of debts. No wages, salaries, or other compensation shall be exempt except as provided in section 5-19-15 or Section 6-10-7.
. See Walker v. Tillis, 188 Ala. 313, 66 So. 54 (1914).
. The debtors testified that assembly time had taken approximately three hours. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490825/ | ORDER ON JOINT MOTIONS 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 the Trustee, the Plaintiff in this adversary proceeding, and by the State of Florida, Department of Business Regulation, Division of Florida Land Sales, Condominiums and Mobile Homes (State of Florida), who intervened in this proceeding on behalf of the Defendants. Through his Complaint, the Trustee seeks a determination by this Court that the numerous individual Defendants in this proceeding do not have an interest in funds totalling $18,023.86 presently in the Trustee’s possession. It is the contention of both the Trustee and the State of Florida that there are no genuine issues as to any material fact and this dispute may be determined as a matter of law. The undisputed facts relevant to a resolution of the motions under consideration are as follows:
Viking I (Debtor), the Debtor in this Chapter 7 liquidation case, was, at the time relevant, the developer of a condominium time-share project known as the Pine Island Resort Condominium. It is undisputed that the individual Defendants all entered into contracts with the Debtor for the purchase of the time-share units in the project. On March 16, 1981, the Debtor entered into an escrow agreement with North First Bank, n/m/a C & S National Bank of Florida, which purported to establish certain escrow accounts for funds received by the Debtor from time-share purchasers. However, contrary to the terms of the escrow agreement, the Debtor never established any escrow accounts with the Bank’s Trust Department and thus, no escrow agent was appointed. Instead the Debtor established two commercial accounts, one labeled, “Viking I Escrow”, Account No. 8018006, and one labeled “Viking I Ninety Percent,” Account No. 8019584.
It is undisputed that at all times relevant, the condominium time-share project was not substantially completed and, therefore, the Debtor was required by law to comply with the provisions of Fla.Stat. § 718.202, which governs the treatment of down payments made by purchasers of condominium time-share units prior to closing. The Statute requires the developer to establish one escrow account controlled by an escrow agent for down payments of up to *22710% of the sale price received by the developer from the time-share purchaser and one escrow account likewise controlled by an escrow agent for payments in excess of 10% of the sale price received by the developer from the purchaser prior to closing. As noted earlier, the Debtor never complied with the statutory requirements set forth in Fla.Stat. § 718.202, and there is no question that the Debtor never treated the accounts as segregated accounts maintained on behalf of the purchasers. It is without dispute that on occasion, the Debtor withdrew funds from these accounts, although it is not clear how the Debtor expended the funds once they were withdrawn.
It is the contention of the Trustee that as the Debtor did not establish the required escrow accounts, and that the Bank never treated these accounts as special escrow accounts, the Debtor deposited and withdrew funds received from time-share buyers in the two accounts as it deemed fit and it clearly treated these accounts as its own general operating unrestricted bank accounts, thus, the monies are general funds of the estate. Neither are these funds held in escrow nor funds impressed by a trust in favor of purchasers of time-share units. In addition, the Trustee also contends, although a proposition not very well articulated, that any interest the individual defendants may have in the funds may be avoided by the Trustee pursuant to § 544(a)(1) of the Bankruptcy Code.
In opposition the State of Florida contends that the treatment of the accounts was sufficient to satisfy the relevant Florida Statute, therefore, the funds never became properties of the estate and should be turned over to the State of Florida for the benefit of purchasers of time-share units.
The Court has considered the record, together with argument of counsel, and finds that the Trustee’s Motion for Summary Judgment is well taken and should be granted for the following reasons:
§ 541 of the Bankruptcy Code provides that property of the estate includes all legal or equitable interests of the debtor in property. The funds involved in this controversy were not sufficiently insulated to put the world on notice that the monies were being held in escrow on behalf of the purchasers. Thus, it is evident that a judgment creditor of the Debtor could have garnisheed the funds on deposit and would have prevailed over any claim of the timeshare purchaser. This being the case, the Trustee being armed with the special voiding power of a creditor who holds a judgment lien, whether or not such creditor exists under § 544(a)(1) would also prevail over the time-share purchasers. Based on the foregoing, this Court is satisfied that the Trustee’s Motion for Summary Judgment should be granted.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Summary Judgment filed by the Trustee be, and the same is hereby, granted. It is further
ORDERED, ADJUDGED AND DECREED that the Motion for Summary Judgment filed by the State of Florida be, and the same is hereby, denied.
A separate Final Judgment shall be entered in accordance with the foregoing.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490826/ | ORDER ON MOTIONS FOR SANCTIONS
ALEXANDER L. PASKAY, Chief Judge.
THIS is a Chapter 7 liquidation case and the immediate matters under consideration involve cross-motions for sanctions filed by Diversified Mortgage Investments, Inc. (Plaintiff), and Paul L. Morton (Defendant/Debtor) pursuant to Bankruptcy Rule 9011. The motions for sanctions have their geneses in a now dismissed adversary proceeding instituted by the Plaintiff against the Debtor, seeking to have a debt allegedly owed to the Plaintiff by the Defendant to be declared nondischargeable pursuant to §§ 523(a)(2), (a)(4) and (a)(6) of the Bankruptcy Code. Prior to the dismissal of the adversary proceeding, pursuant to the Motion for voluntary dismissal filed by the Plaintiff, the Defendant filed a Motion for Summary Judgment and Motion for Sanctions against the Plaintiff, alleging, inter alia, that the Plaintiff filed the adversary proceeding without any factual or legal basis and that the Complaint was frivolous. The Order of Dismissal was entered on August 22, 1988, which specifically reserved this Court’s jurisdiction to rule on the Debtor’s Motion for Sanctions. On August 17, 1988, the Plaintiff filed its own Motion for Sanctions against the Debtor, alleging that the Debtor’s Motion for Sanctions was itself frivolous and filed in bad faith. Of course, neither ground is sufficient to form the basis for imposition of sanction pursuant to Bankruptcy Rule 9011, even if established by the Plaintiff. The facts germane to the issue raised by the motions which are without dispute are as follows:
At the time relevant to this controversy, the Debtor was a principal officer of a corporation known as Insurance Services International, Inc. (ISI). The primary business of ISI was the operation of an insurance brokerage office. During 1983 the Plaintiff contracted with ISI to procure directors’ and officers’ liability coverage for the Plaintiff. It further appears that the Plaintiff forwarded to ISI a check in the amount of $45,000.00 made payable to ISI, representing the premium for its coverage. It is alleged by the Plaintiff that the Debt- or did not forward the premium to the liability insurance carrier which actually provided the coverage, but instead used the premium monies to pay for his own personal expenses. It further appears when the Plaintiff demanded an accounting of the funds paid to the Defendant, the Debtor not having been able to make restitution, agreed to acknowledge the indebtedness by execution, in favor of the Plaintiff, of a promissory note. The note executed by the Debtor on September 25, 1984, was in the *229amount of $33,750.00 and executed in favor of the Plaintiff in return for the Plaintiffs forbearance from suing the Debtor. This forbearance was made part of an agreement entered into between the Plaintiff and Defendant on September 4, 1984. The Agreement expressly provided that the Plaintiff would release the Debtor from any liability arising from the premium payment made to ISI. In addition, the Debtor paid $5,000.00 to the Plaintiff as part of the consideration required for the release agreement.
It is this release that the Debtor contends acted as a complete defense to any action based on the released claim, and therefore, the claim asserted by the Plaintiff violated the certification rule of Bankruptcy Rule 9011. This is so because, according to the Defendant, had Plaintiffs counsel conducted a reasonable inquiry prior to the filing of the adversary proceeding, he would have determined that the claims asserted in the Complaint were released and no longer enforceable. For this reason, Debtor urges that this Court sanction Plaintiffs counsel in the amount of Debtor’s attorneys fees and costs incurred in defending against this adversary proceeding.
In response to the Debtor’s Motion for Sanctions, Plaintiff’s counsel contends that he extensively researched the issue of whether or not Debtor’s execution of the notes and the Plaintiff’s release of the Debtor waived the Plaintiff’s right to object to the Debtor’s discharge or to seek the determination of the dischargeability of the promissory note. Plaintiff’s counsel admits that he knew of the existence of the release defense asserted by the Debtor, but counsel justifiably took the position that the release agreement failed for lack of consideration. Therefore, the release did not bar any nondischargeability claim by the Plaintiff. In support of this proposition, Plaintiff contends that his research indicated that the release given to the Debtor by Plaintiff did not constitute accord and satisfaction of the Debtor’s liability for the alleged misappropriated premium payment, citing 10 Fla.Jur.2d Compromise, Accord and Release, Secs. 26 and 27. According to this authority, a release, like a contract, must be supported by independent consideration and that even a release under seal, which creates a presumption that the release is supported by consideration, this presumption is rebuttable by competent proof of failure or want of consideration. Plaintiff’s counsel cites Royal Typewriter Co. v. Xerographic Supplies Corp., 719 F.2d 1092 (11th Cir.1983) to distinguish failure of consideration from want of consideration with the former being the neglect, refusal or failure to one of the parties to furnish the agreed on consideration and the latter being the total lack of consideration. Plaintiff’s counsel also cites Royal Typewriter for the proposition that failure of consideration can be established even when the defaulting party has partially performed. The Plaintiff's counsel further contends that the Debtor’s liability which would have been forgiven by the release is not forgiven because the Debtor failed to fully perform the consideration given for the release, i.e., full payment of the promissory note. Plaintiff’s counsel also cites Brewer v. Northgate of Orlando, Inc., 143 So.2d 358 (Fla. 2nd DCA 1962) and Hannah v. James A. Rynder Corp., 380 So.2d 507 (Fla. 3rd DCA 1980) for the proposition that a claim for accord and satisfaction must be supported by a new contract which must be between the same parties and which new contract must be executed to have the effect of satisfaction. In other words, partial performance of the new agreement is insufficient to constitute an accord and satisfaction. Plaintiff’s counsel further cites the case of In Matter of Dean, 9 B.R. 321 (B.C.M.D.Fla.1981) rejecting the Debtor’s argument that the character of the debt, even though originally tainted, was converted to a bargained-for promissory note and release agreement and, as such, is excepted from any provisions of § 523. The debtor in Dean misapplied insurance premiums from insureds failing to transmit them to the carriers who issued policies. The debtor signed a promissory note in favor of the carrier, evidencing the debt for the missing premiums and after filing his petition for relief attempted *230to have his debt to the carrier declared nondischargeable. This court in Dean stated that “the fact that the indebtedness admittedly due and owing to the carrier is evidenced by a promissory note is without significance and the issue of nondischarge-ability is in no way affected by the fact that the debtor signed a promissory note for the amount of the debt.” In Arnold v. Employers Ins. of Wausau, 465 F.2d 354 (10th Cir.1972) the Tenth Circuit Court of Appeals affirmed the judgment of the bankruptcy referee finding that a debt owing by the debtor/manager of an insurance company for failure to remit premium payments was nondischargeable as one obtained by fraud, even though the debtor entered into an oral agreement with the carrier treating it as an accounts receivable item. The court there stated that the acceptance of a note from one who procures a sum of money by fraud as an evidence of the debt thereby created does not take the debt out of the operation of the provisions of the Bankruptcy Code which excepts a debt from discharge. Based on the foregoing, it is clear that there was a legitimate dispute concerning the legal effect of the release. This being the case, it is difficult to accept the proposition urged by the Defendant that the claim asserted by the Plaintiff was clearly not supported by existing law.
This leaves for consideration the Plaintiffs Motion for Sanctions. It needs no elaborate discussion that the grounds urged by the Plaintiff for sanctions have nothing to do with the sanctions authorized by Bankruptcy Rule 9011, and, therefore, they are without merit.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Debtor’s Motion for Sanctions against Plaintiff be, and the same is hereby, denied. It is further
ORDERED, ADJUDGED AND DECREED that the Plaintiffs Motion for Sanctions against Debtor be, and the same is hereby, denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490827/ | MEMORANDUM OF DECISION
FREDERICK A. JOHNSON, Chief Judge.
The sole issue presented in this adversary proceeding is whether or not the bank violated the automatic stay by charging the debtors’ escrow account for attorney’s fees incurred by the bank in connection with a motion for relief from stay brought by the bank against the debtors several years before. The escrow account was established in connection with a mortgage granted by the debtors to the bank to generate funds for the payment of taxes and insurance as they became due. The court concludes that the bank did violate the stay; but, as stipulated by the parties, the violation was not intentional, willful, or malicious.
An analysis of several sections of the Bankruptcy Code are necessary here. We start with Section 362(a)(3), which provides, as pertinent:
Except as provided in subsection (b) of this section, a petition filed under section 301 ... of this title ... operates as a stay, applicable to all entities of—
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(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate;
Section 362(c) tells us:
Except as provided in subsections (d)(e) and (f) of this section [relief from stay]—
(1) the stay of an act against property of the estate ... continues until such property is no longer property of the estate;
Section 541(a) defines Property of the Estate as ...
(7) [a]ny interest in property that the estate acquires after the commencement of the casé.
Section 1306(a) further defines property of the estate, in addition to the property specified in Section 541, as
(1) all property of the kind specified in such section that the debtor acquires after the commencement of the case but before the case is closed, dismissed, or converted....
Section 1306(b) informs us that Except as provided in a confirmed plan, or order confirming the plan, the debtor shall remain in possession of all property of the estate.
The court’s order of confirmation makes it clear, in paragraph viii, that the court “retains jurisdiction of the property of the estate.”
All of the above Code sections, and the court’s order of confirmation are designed to protect the Chapter 13 debtor and the property of the estate during the administration of the Chapter 13 case. Most Chapter 13 cases are a delicate balance between rehabilitation and financial disaster; unilateral and unanticipated charges against the debtors’ escrow account can not be permitted.
Although Section 506(b) permits the holder of an “oversecured” claim reasonable fees, costs, or charges, if provided for by agreement, i.e.: the note and/or mortgage, the issue of reasonableness of such fees, costs or other charges must be presented to the court, with notice to the debtors and the standing Chapter 13 trustee. 3 Collier on Bankruptcy 11 506.05 (L. King, 15th Ed.1988).
This was not done in this case. The first indication of the bank’s unilateral action was contained in a letter to the debtors dated April 20, 1988, which stated:
*261This is to advise you that m connection with your Chapter XIII, (sic) we have charged your escrow account with $223.00 for attorney fees through April 12th.
The bank argues that once the debtors paid their money into the escrow account it lost its character as property of the estate. Its argument is manifestly wrong. The estate retained an important interest in that escrow account: that the funds be used for the purpose that they were intended, which was payment of taxes and insurance for the protection of the debtors and the bank. Any other use, without prior notice to the debtors, the standing Chapter 13 trustee, and, if necessary, approval of the court, was not only a violation of the automatic stay but probably also a violation of the bank’s duty as escrow agent.
The bank cites a decision of this Court, In re York, 13 B.R. 757, as support for its position. Reliance upon York is misplaced. In York the court’s ruling is clear:
While relief from stay is not necessary in order to pursue a post-petition claim against a Chapter 13 debtor, once the claim is reduced to judgment a creditor must obtain relief before he attaches or executes on property of the Chapter 13 estate. Such an attachment or execution would fall within the stay provisions of subsection 362(a)(3)....
Id. at 758.
In view of the stipulation of the parties that the violation was not willful, sanctions under 11 U.S.C. § 362(h) are not in order. However, the court will schedule a hearing on the reasonableness of the fees, even though the trustee stipulated that the fees were reasonable and necessary.
An appropriate order will be entered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490828/ | MEMORANDUM OF OPINION ON VOTING UNDER THE PLANS
JOHN C. AKARD, Bankruptcy Judge.
The Trustee, Walter C. Kellogg, filed a motion to determine the method of voting by limited partners on competing plans in these Chapter 11 cases.
Facts
On January 31, 1986, Mid-America Petroleum Corporation (MAP) filed its Chapter 11 petition. MAP is the general part-*433tier in twenty oil and gas limited partnerships which filed for relief under Chapter 11 on February 6, 1986. The partnership cases were administratively consolidated. Two plans of reorganization were filed. Both plans reorganize MAP into a new corporation and reorganize the limited partnerships. The Trustee moved the Court to determine if § 1126(d) of the Bankruptcy Code1 governs the voting procedures of the limited partners to the exclusion of any agreement between the partners and of state partnership law.
The Trustee’s Position
The Trustee averred Congress intended plan proponents to sell partnership assets, liquidate the partnership and reach other agreements on governing a business enterprise via a plan of reorganization, notwithstanding a non-bankruptcy law requirement to the contrary. He argued that pursuant to the Supremacy Clause of the United States Constitution bankruptcy law preempted state law to the contrary. He stated that to impose a state law voting requirement, more stringent than the two-thirds test of § 1126(d), would place unnecessary obstacles to and burdensome requirements on reorganization of business enterprises — none of which Congress envisioned.
The Equity Security Holders Committee’s Position
The Equity Security Holders Committee (Committee)2 contended that state partnership law, as agreed to by the partners in the partnership agreement, governed balloting by the limited partners. The Committee alleged that the proposed plans were designed to acquire the partnership assets in order to dissolve each partnership; therefore, the provisions of the limited partnership agreements which dealt with the sale or transfer of substantially all of the assets of each respective partnership, the dissolution of the partnership or the replacement of its general partner should govern. The Committee argued that the use of § 1126 to determine limited partners’ voting rights would violate the partnership agreements.
Analysis
A. Partnership Law
The Texas Revised Limited Partnership Act, art. 6132a-1, § 3.02 (Vernon 1988), grants partners the power to contract, by written agreement, for legal rights and duties with respect to voting and other actions. By the following provisions the MAP limited partnership agreements require the affirmative vote of limited partners holding at least a majority of interests in the limited partnership:3
Article VI: Management. If 6.5(m) Sale of Substantially All Assets. Except in connection with the termination of the Partnership pursuant to Article XI hereof, the General Partner may not sell all or substantially all the Assets of the Partnership without the affirmative vote or written consent of Limited Partners who are the record holders of a majority or more of the outstanding Units.... Article IX: Transfer of Partnership Interests. ¶ 9.2 Transfer of General Partner’s Interest. The General Partner’s interest in the Partnership shall not be assignable (except in connection with any merger, consolidation or sale of all or substantially all the assets of the General Partner) without the affirmative vote or written consent of Limited Partners who are the record holders of at least a majority of all Units outstanding.... Article XI: Termination and Winding Up. 1111.1 Dissolution. The Partnership will be dissolved upon the occurrence of any of the following events....
*434(b) The bankruptcy, insolvency or dissolution (except dissolution as a consequence of merger, sale of assets, amalgamation, consolidation or other corporate reorganization) of the General Partner or the occurrence of any other event which would permit a trustee or receiver to acquire control of the affairs of the General Partner;
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(d) The vote of 51% or more in interest of all Limited Partners after a proposal to dissolve has been made by at least 10% in interest of all Limited Partners.
B.Bankruptcy Code
Balloting by equity security holders is described in § 1126(d) which provides that
A class of interests has accepted a plan if such plan has been accepted by holders of such interests ... that hold at least two-thirds in amount of the allowed interests of such class held by holders of such interests ... that have accepted or rejected such plan.
The House Report (Reform Act of 1978) contained the following explanation of § 1126(d):
Subsection (d) provides similar treatment for classes of equity securities, but dispenses with the one-half in number required. A class of equity securities has accepted a plan if at least two-thirds in amount of the outstanding securities actually voted are voted for the plan....4
The Senate Report stated:
Under subsection (d), with respect to a class of equity securities, it is sufficient for acceptance of the plan if the amount of securities voting for the plan is at least two-thirds of the total actually voted.5
Section 101(15)(B) characterizes the limited partners’ interest in the limited partnership as an equity security.6 Section 101(16) defines an equity security holder to be a “holder of an equity security of the debt- or.” Therefore, under the Code, a limited partner is characterized as an .equity security holder.
Bankruptcy Rule 3018(a)(3) provides that a plan may be accepted or rejected by “an equity security holder of record at the date the order approving the disclosure statement is entered whose interest has not been disallowed.” Thus, a limited partner whose interest has not been disallowed is entitled to vote on the plan.
C. The Issues
In what manner will the votes of the limited partners be counted to determine whether the class of limited partnership interests (equity securities) has accepted or rejected the plan? Does the absolute majority standard of the partnership agreement apply to determine the necessary requirements for approval of the plan, or does the Bankruptcy Code standard of two-thirds in amount of those actually voting govern? To resolve these issues, the Court must determine whether federal law or state law governs voting requirements for the approval of a plan of reorganization.
D. Discussion
Although both the House and Senate Reports set forth the voting standard, neither addressed the specific issue presented in this case. This Court found no case which addressed this specific issue under the Code, or the Act. It is significant, however, that every case found which discussed aspects of the voting process followed the procedure set forth in § 1126(d).
Under the former Bankruptcy Act, as a result of the mandatory application of the absolute priority rule, shareholders of a Chapter X debtor did not have a right to vote on the plan. An exception to the rule existed if the debtor was found to be solvent. Section 179 of the Bankruptcy Act stated in pertinent part:
After a plan has been accepted in writing, filed in court, by or on behalf of creditors holding two-thirds in amount of *435the claims filed and allowed of each class, and, if the debtor has not been found to be insolvent, by or on behalf of stockholders holding the majority of stock, of which proofs have been filed and allowed, of each class ... the judge shall fix a hearing ... for the consideration of the confirmation of the plan....
Thus, if the Chapter X debtor was found to be solvent, the stockholders were enfranchised. The standard applied in determining their acceptance was an absolute majority of the outstanding shares of stock. 5 Collier on Bankruptcy, 111126.04 (15th Ed.1979). Section 1126(d) of the Code modified the Chapter X standard to require a two-thirds vote of those actually voting on the plan. Id.
In a recent case, In re Sovereign Group 1984-21 Ltd., 88 B.R. 325 (Bankr.D.Colo. 1988) the Court explored the nature and effect of partnership agreements on the Chapter 11 reorganization process. In Sovereign the debtor’s limited partnership agreement provided that a new general partner could be admitted as a successor upon the consent of the special limited partner and a majority in interest of the limited partners. The Court ruled that since the partnership agreement required only the consent of a majority of the limited partners for replacement of the general partner, the two-thirds requirement of § 1126 satisfied the Court’s ruling that a partnership plan of reorganization must comply with the terms of the partnership agreement when restructuring the management of the partnership. Id. at 331. Implicit in the court’s ruling is that by meeting the federal two-thirds standard for voting, the partnership agreement standard will necessarily be satisfied. This assumption, however, proves to be false. The federal standard requires two-thirds of those actually voting, while the partnership agreement, required an outright majority. This could lead to an anomaly when less than a majority actually vote. The result could be an approval under the federal standard, but a disapproval under the partnership standard. This dilemma is heightened by the fact that seldom do a majority of the members of any class actually vote on a plan. Applying the partnership standard could result in a more stringent standard for approval than that envisioned by Congress. The Sovereign Court based its holding on the rationale that a court should uphold the sanctity of partnership agreements in restructuring a partnership through a bankruptcy reorganization. Id. at 329.
In re Harms, 10 B.R. 817 (Bankr.D.Colo. 1981), an earlier decision from the same Court, held that, when a general partner filed under Chapter 11 and became a debt- or-in-possession, an inherent conflict of interest resulted in its status in the limited partnership which precluded it from remaining general partner. Applying the reasoning of Harms to MAP necessitates a change of general partner irrespective of how the limited partners might vote. In this case, both plans provide that the stock of MAP will be canceled and MAP will cease to exist. Therefore, a new general partner is necessary if the limited partnerships are to be reorganized. Each plan designates a new general partner.
State laws contrary to the laws of Congress are invalid under Article VI of the United States Constitution, the Supremacy Clause. Gibbons v. Ogden, 22 U.S. (9 Wheat) 1, 6 L.Ed. 23 (1824). The United States Supreme Court confirmed the applicability of the Supremacy Clause to the Federal Bankruptcy Act in Perez v. Campbell, 402 U.S. 637, 91 S.Ct. 1704, 29 L.Ed.2d 233 (1971). The voting process is both integral and essential to the bankruptcy reorganization process. Had Congress intended a different rule to apply to limited partnership voting, it would have said so.7
*436
Conclusion
Since the partnership agreement provision in question potentially conflicts with § 1126(d) of the Bankruptcy Code, the Court concludes that federal law pre-empts state law in determining how votes will be counted for the approval of a plan.
If a limited partnership constitutes a separate class, the vote of the class will be determined by the votes of the interests in the limited partnership pursuant to § 1129(d). In making that calculation, MAP’s vote and any insiders’ vote will be disallowed. MAP is a general partner in each limited partnership. If there are other general partners, they are insiders.
If there is more than one limited partnership in a class, each limited partnership will be deemed to have one vote, and a majority vote will be necessary to bind the class. The vote of each individual limited partnership will be determined as if that limited partnership were in a separate class.
ORDER ACCORDINGLY.8
. The Bankruptcy Code is 11 U.S.C. § 101 etseq. References to section numbers are to sections in the Bankruptcy Code.
. This Committee was formed by the U.S. Trustee to represent the interests of the limited partners.
. The provisions of all partnership agreements are substantially the same.
. H.R.Rep. No. 595, 95th Cong., 1st Sess. 410 (1977).
. S.Rep. No. 989, 95th Cong., 2d Sess. 123 (1978).
.§ 101(15) states "equity security” means — (B) interest of a limited partner in a limited partnership. ...
. Congress was undoubtedly aware that state corporation laws might mandate specific voting requirements for certain purposes. In passing the Bankruptcy Code, Congress chose not to look to state law for corporate voting calculations; rather, it established its own voting rules in § 1126(b). See e.g., Tex.Bus.Corp.Act.Ann. art. 5.10, (Vernon, 1980) which requires the affirmative vote of two-thirds of the outstanding shares for the sale of all or substantially all of the assets of the corporation not made in the usual course of business.
. This Memorandum shall constitute Findings of Fact and Conclusions of Law pursuant to Bankruptcy Rule 7052 which is made applicable to Contested Matters by Bankruptcy Rule 9014. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490829/ | ORDER
WILLIAM T. BODOH, Bankruptcy Judge.
This cause came before the Court on the submission by the parties on the pleadings and exhibits thereto to determine the dis-chargeability of certain obligations of the Debtor to the Plaintiff arising out of state court divorce proceedings.
The Plaintiff alleges that the Debtor should not be discharged from his obligations to pay the debts set forth in paragraph 3 of the complaint.
The Debtor filed his Petition for Relief under Chapter 7 of Title 11 on December 18,1987. After appropriate administration, the case was closed on September 26,1988. The Plaintiff moved to reopen the case and the Motion was sustained for the reason that there is no specific time limit for filing a complaint objecting to the discharge of debts such as those here involved. On October 11, 1988, the Plaintiff filed the instant complaint alleging that the Debtor’s obligation to satisfy certain liabilities pursuant to a divorce decree is nondischargeable pursuant to 11 U.S.C. Sec. 523(a)(5). Upon agreement of counsel, the parties elected to submit the dispute to the Court for determination based upon the pleadings and the exhibits attached thereto and upon stipulated findings of the state court dated May 5, 1987.
The Plaintiff and the Debtor apparently were married on June 22, 1968, out of which marriage two children were born. On December 12, 1986, the Court of Common Pleas, Division of Domestic Relations, for Mahoning County, Ohio, found that the *494Plaintiffs reasonable and necessary expenses amounted to Eight Hundred Ninety-Six & 00/100 Dollars ($896.00) per month. As a result, the court ordered the Debtor to pay Four Hundred & 00/100 Dollars ($400.00) per month for temporary child support. The Debtor was also ordered to pay the monthly financial obligations incurred by both himself and the Plaintiff, including the monthly household expenses of the marital residence, located at 11200 Gladstone Road, North Jackson, Ohio, where the Debtor’s spouse was to reside.1 The Plaintiff apparently moved to an Austintown address shortly thereafter. On May 5,1987, the same court ordered the Defendant to pay Four Hundred & 00/100 Dollars ($400.00) per month for temporary child support and Two Hundred Fifty & 00/100 Dollars ($250.00) for temporary alimony. The Court noted in its Findings of Fact that “outstanding obligations ... on the plaintiffs former residence in North Jackson [were] as follows: $185 for rent, $189 for electric, $279 for fuel oil.” The court also enumerated the Plaintiffs outstanding balances on her Austintown residence to be Eight Hundred & 00/100 Dollars ($800.00) for rent, One Hundred Forty-Three & 84/100 Dollars ($148.84) for telephone service, Sixty & 00/100 Dollars ($60.00) for natural gas, and Sixteen & 50/100 Dollars ($16.50) for garbage removal as of January 9, 1987. On or about September 7, 1987, the Domestic Relations Court entered a final decree which provided child support in the amount of One Hundred Seventy-Five & 00/100 Dollars ($175.00) per month and sustenance alimony in the amount of Five Hundred & 00/100 Dollars ($500.00) per month. The decree also made the Debtor responsible for the eight (8) debts which are the subject of this Complaint.
In order to render a debt nondischargeable by virtue of 11 U.S.C. Sec. 523(a)(5), this Court consistently has applied the three-prong test that originally was set forth in In re Calhoun, 715 F.2d 1103 (6th Cir.1983). The Calhoun tests are:
al whether either the state court or the parties to the divorce intended to create an obligation to provide support; and
(2) if so, whether such intended support is necessary to satisfy the daily needs of the children and former spouse; and
(3) whether the intended support is so excessive that it is manifestly unreasonable.
Our review of the factual circumstances surrounding this proceeding convince us that the parties intended to create a support obligation. The eight (8) obligations cover such everyday necessities as rent, electric service, heat, telephone service, and garbage removal. Provisions for rent and utility services for the former family certainly fall within the traditional concepts of support. Furthermore, other sections of the divorce decree deal with the division of property, and there is nothing to suggest that these eight (8) debts were assumed by the Debtor for the purpose of property division.
Moreover, the Court finds that these payments were necessary to insure the satisfaction of the daily needs of the former family. At the time of the divorce, the Debtor had a yearly income of Thirty-Two Thousand, Five Hundred & 00/100 Dollars ($32,500.00). The Plaintiff, on the other hand, was unemployed and had minor children to care for. The Domestic Relations Court found that she required almost Nine Hundred & 00/100 Dollars ($900.00) per month in order to meet her basic, necessary expenses. Thus, she did not have income sufficient to meet her reasonable and necessary expenses and the payments ordered by the state court were for that purpose.
Finally, we do not find the amounts to be unreasonable or excessive. At the time of the divorce, it appears that the Debtor’s income was approximately One Thousand, Five Hundred & 00/100 Dollars ($1,500.00) a month. The Domestic Relations Court had calculated his monthly expenses to be about Five Hundred Seventy-Five & *49500/100 Dollars ($575.00), which leaves a monthly amount of about Nine Hundred Twenty-Five & 00/100 Dollars ($925.00) to pay alimony, support, and the rental/utility obligations which are at issue here.
Accordingly, the eight (8) obligations assumed by the Debtor in the divorce decree are determined to be nondischargeable.
IT IS SO ORDERED.
. The Court specifically noted that rent and charges for electric, phone, and garbage disposal services at the North Jackson home should be paid by the Debtor. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490830/ | WILLIAM T. BODOH, Bankruptcy Judge.
This cause came before the Court on the adversary complaint, filed by THE FIRST NATIONAL BANK OF TOMS RIVER, N.J. (“FNB”), which asks the Court to find an obligation owing to it by Debtors to be nondischargeable pursuant to 11 U.S.C. Sec. 523(a)(2)(A). This is a core proceeding pursuant to 28 U.S.C. Sec. 157.
In or about October 1985, the Debtors applied for the reissue of a VISA credit card from FIRST NATIONAL. Mrs. Wel-len had been issued the card prior to their marriage. At the time of the application, Mr. Wellen was employed by the United *498States Navy and Mrs. Wellen was unemployed. Cards were subsequently issued to them which enabled them to use the automatic teller machines (ATM) for cash advances. The Debtors had a credit limit of One Thousand, Eight Hundred & 00/100 Dollars ($1,800.00) in use of the VISA card. The monthly statements during 1987 reveal the following activity on their VISA account: 1
MONTH NUMBER OP TRANSACTIONS CASH ADVANCES BALANCE
March 0 0 $1,832.39
April 0 0 1,794.17
May 0 0 1,760.50
June 1 $100.00 1,827.03
July 1 50.00 1,847.01
August 20 5,100.00 6,918.93
September 8 2,400.00 9,430.64
October 0 0 9,552.36
November 0 0 9,674.08.
In May 1987, while the Wellens were residing in Ohio, Mr. Wellen contacted an Ohio attorney regarding filing a petition in bankruptcy. On or about July 4, 1987, Mrs. Wellen returned to New Jersey and returned to Ohio in August 1987. On August 21, 1987, BANK ONE OF EASTERN OHIO, N.A. (“BANK ONE”), confiscated the VISA card of Mrs. Wellen when a woman attempted to use it in Warren, Ohio.2 On August 27, 1987, Mr. and Mrs. Wellen both signed documents with an attorney indicating their intent to file a joint petition in bankruptcy. It appears that Mr. Wellen may have surrendered his card to the attorney at this time. On November 20, 1987, the Debtors filed a petition for relief under Chapter 7 of Title 11 of the United States Code. FNB filed the instant adversary proceeding on February 22, 1988. A hearing was held on December 12, 1988.
In order to except an obligation from discharge pursuant to 11 U.S.C. Sec. 523(a)(2)(A), a creditor must prove:
(1) the debtor made certain representations in the process of obtaining property or refinancing;
(2) the debtor either knew the representations were false or the representations were made with gross recklessness as to their truth;
(3) debtor intended to deceive the creditor;
(4) creditor reasonably relied on the false representations;
(5) creditor’s loss was the result of the misrepresentation.
See In re Phillips, 804 F.2d 930, 932 (6th Cir.1986).
In a previous decision, this Court adopted the “implied representation” theory relating to credit card purchases. In re Chech, 96 B.R. 781, 783 (Bankr.N.D.Ohio 1988). That theory holds that “credit card purchases include an implied representation that the cardholder has the ability and intention to pay for the charge incurred.” Id. Thus, the only question remaining regarding the first element is whether the Debtors received the cash advances attributed to them. Bank records indicate that between July 1, 1987, and August 4,1987, more than Seven Thousand, Five Hundred & 00/100 Dollars ($7,500.00) was withdrawn in the form of cash advances from ATM machines on the Debtors’ account. Mrs. Wellen testified that she did not make any withdrawals from the account when she returned to New Jersey in July, 1987. Based upon our observation of her as a witness and consideration of other evidence, the Court does not credit Mrs. Wellen’s testimony.3 First of all, the location of the withdrawals corresponds precisely with Mrs. Wellen’s whereabouts at those times. On July 1, 1987, Three Hundred & 00/100 Dollars ($300.00) was withdrawn from McDowell *499National Bank, one of whose branches is near Kinsman, Ohio where both Mr. and Mrs. Wellen were residing at the time. On or about July 4, 1987, Mrs. Wellen returned to an area of New Jersey where all subsequent withdrawals were made. Ms. Adrian Sanchez, Assistant Cashier for FNB, testified that in order to effectuate a withdrawal, it is necessary to have both the card and a cardholder’s personal identification number (“PIN”). Mrs. Wellen testified that she made up this number from the first few numbers of her Social Security number. Whoever withdrew the funds must have had possession of a card and known the PIN. There is insufficient evidence that anyone other than Mrs. Wellen was responsible for the withdrawals.4 Furthermore, the video tape made at the Seaside Park branch of FNB on July 24, 1987, (Plaintiffs Exhibit M) during an ATM withdrawal with Wellen’s card and PIN shows a woman whom the Court believes to have been Mrs. Wellen. Finally, it appears that the same woman tried to use the VISA card at Bank One on August 21, 1987, when Mrs. Wellen’s card was confiscated. The Court believes Mrs. Wellen was involved in all these transactions. As a consequence, we find the first element is met.
The second and third elements require that the Debtors either knew the representations were false or acted with gross recklessness as to their truth in an attempt to deceive the creditor. Over the course of two months, it appears that Mrs. Wellen effected twenty-eight (28) withdrawals amounting to over Seven Thousand, Five Hundred & 00/100 Dollars ($7,500.00). There is nothing to suggest that Mrs. Wel-len could have reasonably believed that either she or her husband would be able to repay these advances. Indeed, the withdrawals may have been effectuated in contemplation of bankruptcy, given Mr. Wel-len’s consultation with an attorney concerning bankruptcy in May, 1987. The Court concludes that Mrs. Wellen falsely implied an ability to repay the withdrawals. The magnitude of her withdrawals suggests a conscious intent to deceive FNB. We find the second and third elements are also met.
The fourth element questions whether FNB reasonably relied on the Debtors’ false representations. Normally, FNB would have difficulty satisfying this requirement as it failed to take reasonable steps to stop further cash withdrawals after the approved credit limit had been exceeded. However, Ms. Sanchez adequately explained problems in the transmittal of data between the credit card processor and the ATM processor which were responsible for FNB’s inability to terminate the Debtors’ cash withdrawal privileges. In addition, there is nothing in the prior history of the account to suggest that FNB was unreasonable in relying on the Debtors’ misrepresentations. Therefore, we find the fourth element to be met.
The last element requires that the creditor’s loss be caused by the Debtors’ misrepresentations. There is little question that FNB would not have sustained a loss if the Debtors had not continuously implied their intent and ability to repay the charges incurred on their credit card.
The Plaintiff’s Objection will be sustained, and the Debtors’ obligation to the Plaintiff is found to be nondischargeable.
This shall constitute the Court’s findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052.
An appropriate Order shall issue.
.All activity on the account was in the form of cash advances. It is also helpful to note that there is approximately a one-month lag between the time the cash advance is received and the time it is reported on a monthly statement. Thus, for example, cash advances appearing on the August statement were received primarily during the month of July.
. The evidence in this proceeding supports the Court's conclusion that this person was either Mrs. Wellen or someone known to her.
. While there is a strong suspicion that Mrs. Wellen may have committed perjury, there is not sufficient evidence to recommend her prosecution to the United States Attorney's office.
. Although Mrs. Wellen made some vague references to a friend who could have used her card, no specific facts were revealed which would lend credence to her theory. Mrs. Wellen did not provide the friend’s name, how the friend obtained her PIN, nor specific times to support such a vague claim. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490836/ | MEMORANDUM DECISION AND ORDER
STEPHEN J. COVEY, Bankruptcy Judge.
On the 12th day of January, 1989, the Court heard the Trustee’s objection to the Debtors’ eligibility to proceed under Chapter 12 of the Bankruptcy Code. After considering the arguments and examining the authorities of counsel, the Court finds as follows:
The only issue before the Court is whether Debtors’ gross income from their farming operation was more than 50 percent of their total gross income during the 1987 tax year, as required under 11 U.S.C. Section 101(17)(A). The Trustee admits that Debtors meet all other eligibility requirements for Chapter 12 relief.
The term “gross income” is not defined in the Bankruptcy Code, but is defined in Section 61 of the Internal Revenue Code. Courts have differed over whether tax code law should be strictly applied in determining “gross income” under 11 U.S.C. Section 101(17)(A). In re Gossett, 86 B.R. 941, 942 (Bankr.S.D.Ohio 1988). In this case, the Court need not decide whether a strict tax code approach should be modified or abandoned because the Court finds that, under a strict tax code approach, Debtors meet the “gross income” test.
It is undisputed that Debtors receive income from two sources: (1) wheat farming, and (2) operation of the Rawhide Bar, involving beer sales. It is also undisputed that Debtors’ wheat farming qualifies as a “farming operation” under 11 U.S.C. Section 101(20), while operation the Rawhide Bar does not.
Section 61 of the Internal Revenue Code defines gross income as “all income from *801whatever source derived”, including “gross income derived from business”. 26 U.S.C. Section 61(a)(2). Therefore, the Court must determine Debtors’ gross income from their farming and bar businesses.
Treas.Reg. Section 1.61-4 governs the calculation of gross income of farmers. Debtors’ joint 1987 tax return indicates that Debtors’ gross income from farming was $32,000.00.
Treas.Reg. Section 1.61-3 states that gross income from a manufacturing, mining, or merchandising business is “the total sales, less the cost of goods sold, plus any income from investments and from incidental or outside operations or sources.” The Rawhide Bar is a retail merchandising business.1 Debtors’ joint 1987 tax return indicates that the Rawhide Bar had total sales of $48,133.45 and that the cost of goods (i.e. beer) sold was $40,779.15.2 Therefore, Debtors’ gross income from the Rawhide Bar’s beer sales was $7,354.30. In addition, Debtors reported other income to the Rawhide Bar of $3,360.18 from “Biggs Music”. Debtors’ total gross income for 1987 from the Rawhide Bar was therefore $10,-714.48.
Thus, Debtors’ combined 1987 gross income was $42,714.48, of which $32,000.00 was derived from wheat farming and $10,-714.48 from the Rawhide Bar. Debtors’ 1987 gross income from wheat farming constituted nearly 75% of their total gross income. Therefore, the Court finds that Debtors meet the definition of “family farmer” under 11 U.S.C. Section 101(17)(A) and are eligible for Chapter 12 relief.
IT IS THEREFORE ORDERED, ADJUDGED AND DECREED that the Trustee’s objection is denied and Debtors are eligible for relief under Chapter 12 of the Bankruptcy Code.
. 1987 Tax Form 1040, Schedule C, Part IV places "drinking places (alcoholic beverages)” in the same category as other retail merchandising businesses.
. Debtors erroneously listed cost of goods sold as deductible business expenses. However, the Court will not deny Debtors eligibility for Chapter 12 relief because of a mistake in their tax return. Congress did not intend Debtors’ skill in completing tax returns to determine their eligibility for Chapter 12 relief. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490838/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Chief Judge.
The trustee seeks determination under 28 U.S.C. § 157(b)(2)(B) and (K) of the validity, amount and priority of six competing claims against the debtor husband’s claimed share of recovered Spanish treasure.1 I will refer to him in this order as “the debtor”. This core matter was tried November 29.
Two defendants, Harris and Cobb Coin, have failed to answer and a default judgment against any claim either might assert against the treasure was authorized at trial.
A third defendant, Flaxman, died shortly before this action was filed. No service was attempted upon her estate. Therefore her estate is not bound by this decision. At one time, Flaxman claimed an attorney’s lien against the debtor’s share of the treasure. If not otherwise resolved, that claim must be the subject of another proceeding.
I now conclude that an undivided 70% share of the treasure presently in the trustee’s possession was owned by the defendant Hartman on the date of bankruptcy (September 15, 1986) and that it remains owned by him. That share never became a part of this bankruptcy estate under 11 U.S.C. § 541. The trustee owns the remaining undivided 30% share of the treasure.
Hartman’s share as well as the trustee’s share are each free and clear of any claim of any other party, other than the possible claim of Flaxman’s estate against the trustee’s share.
Hartman’s Title
On July 1, 1980, the debtor, who had participated with others in finding the treasure, contracted with Hartman to give him part of the debtor’s share in return for Hartman’s services in recovering the treasure. By amendment Hartman’s share was ultimately fixed at 70%.
In 1984, the debtor filed suit (No. 84-885-CA-17-Kenney) in the State court for St. Lucie County, Florida, against Cobb Coin and a third party to determine the parties’ respective interests in the treasure. Hartman intervened. A State court receiver was appointed to take possession of the treasure.
A summary judgment of the State court, entered August 28,1986, upheld Hartman’s contractual ownership of an undivided 70% of the treasure which was then in the State *843receiver’s custody, free and clear of any claim of the debtor or Cobb Coin or the third party.2 That judgment was never appealed and has become final.
After this bankruptcy was filed, less than a month after the judgment, the State court receiver as custodian was directed to and did turn over the treasure to the bankruptcy trustee as required by § 543. (Ex. 1). The trustee, therefore, holds as custodian the identical res litigated in the State court. There is, therefore, no uncertainty as to the identity or location of “the treasure” which is in dispute here.
The Claim of Scott and Expeditions
Defendant Scott and a corporation he controls, the defendant Expeditions Unlimited, Inc. (hereafter collectively “Scott”), claim a $200,000 first lien on the debtor’s share of the treasure. He also disputes Hartman’s entitlement to any part of the treasure. Both contentions are based upon the following events.
The judgment. On December 30, 1982, two years before the commencement of the State litigation, Scott obtained a $1.5 million judgment against the debtor in the District Court for this district (No. 80-6588-Civ-JAG) on his counterclaim against the debtor.3
The settlement. By a settlement agreement, approved by the District Court in November 1983, Scott’s judgment was reduced to $200,000 and the debtor agreed to secure payment by executing a lien on his share of the treasure. The documents were never executed and no lien was ever perfected by recordation.
The attempted intervention. In March 1985, a year after the filing of the State court action described above, Scott attempted to intervene in that action as the debtor’s assignee. Though we are told by a magistrate that the motion was denied (Ex. K at 1-2), neither the State court’s order nor the reason for denial is in this record. If there was error in that ruling, it was not appealed and has long since become binding on the parties.
The attempted garnishment. In April 1985, Scott served a federal writ of garnishment on the State court receiver and each party in the State court litigation. The writ sought garnishment of the debt- or’s share in the treasure to satisfy Scott’s reduced $200,000 judgment. No answer was ever filed and no judgment on the writ was ever entered.4
The federal appointment of a neutral custodian. In March 1986 the District Court appointed a neutral custodian (an auctioneer) to hold the treasure. This was two years after the filing of the State court litigation and while the treasure remained in that court’s custody through the State court receiver. There is no indication that the State court receiver was not a neutral custodian.
The treasure had never been within the possession or control of the District Court. Neither Hartman nor the State court receiver were parties to the federal litigation or to the stipulation between the debtor and Scott which apparently prompted this unusual order. There is no indication of any attempt to implement the March 1986 order.
The attempted garnishment and the appointment of a custodian are the only references to the treasure in the federal litigation. Though the federal litigation began four years before the State court litigation and both continued concurrently for two years before the State judgment, the Dis*844trict Court never enjoined either the State court or any of the litigants or took any other action to interrupt the concurrent State litigation.5
I can only surmise that it was never brought to Judge Gonzalez’ attention that the treasure was in the custodia legis of the State court and that at least three other parties, in addition to the two before him, claimed entitlement to the treasure. This inference is supported by the fact that no part of the district court record reflects these vital facts.
Scott’s Argument
Scott argues that the State court lacked jurisdiction, because the District Court found that the State court:
“was without subject-matter jurisdiction over the treasure because the treasure was under the jurisdiction of the United States Federal District Court.” (CP 12 at 3).
I disagree. Judge Gonzalez did not make and could not have made any such finding. The res (the debtor’s share of the treasure) was never within the possession of the District Court. The subject matter of the State court litigation (the contract between Hartman and the debtor) was never before the District Court. Only the State court has had jurisdiction of the res and the Hartman contract.
The federal litigation gave Scott and Expeditions an in personam judgment against the debtor, not the treasure and certainly not that portion of the treasure owned by Hartman through his 1980 contract.
Although the State court judgment may be attacked collaterally if void for lack of either subject matter or personal jurisdiction, Scott has not carried his burden here of demonstrating either.
Scott’s other argument is that he and Expeditions:
“possess a perfected lien on the treasure by virtue of the internal lien contained within the [District Court’s] Final Judgment.” (CP 12 at 2).
Again, I disagree. The “judgment” relied upon, the District Court’s Order of November 29, 1983 (Ex. A, attachment), merely approved the settlement between the debt- or and Scott in which the debtor agreed to:
“sign those documents necessary to perfect [a lien in favor of Scott and Expeditions, upon the debtor’s entitlement of the treasure].” (Ex A, attachment).
No documents were ever signed, much less perfected by recordation or otherwise before the date of bankruptcy. “Internal” liens, so far as I know, do not exist. If Scott is claiming an equitable lien against the debtor’s interest in the treasure by virtue of this Order, two things are clear: that secret lien is subject to Hartman’s ownership of 70% of the treasure; and that lien is subject to the trustee’s title to the remaining 30% of the treasure.
As of the date of bankruptcy, the trustee takes title to all interests of the debtor free of all unperfected liens. As stated in In re General Coffee Corporation, 828 F.2d 699, 704 (11th Cir.1987), cert. denied, — U.S. -, 108 S.Ct. 1470, 99 L.Ed.2d 699 (1988): *845In General Coffee, the Court recognized that a constructive trust survives the strong-arm powers of the trustee, but that an equitable lien, which it defined, does not. Scott neither asserts nor has a constructive trust.
*844“Section 544(a), the ‘strong-arm’ provision of the Bankruptcy Code, permits a trustee to avoid secret liens against property in the debtor’s possession. It grants a trustee the rights of an essentially ideal lienholder against property in which the debtor does not possess complete title.”
*845
The Trustee’s Claim
The trustee, supported by an unsecured creditor, has opposed the claims of Scott and Expeditions for essentially the same reasons I have rejected those claims.
The trustee opposes Hartman’s claim on the ground that the State court judgment was entered within 90 days before bankruptcy and is, therefore, voidable under § 547(b) as a preference.
I disagree with the trustee with respect to Hartman’s claim, because his argument begs the'question. Section 547(b) permits the avoidance under certain circumstances of transfers of property of the debtor. The State court judgment did not transfer any property of the debtor. The judgment held that 70% of the treasure did not belong to the debtor.
The difference is crucial, because the debtor’s transfer of his property interest was effected by his 1980 contract and its amendment, both of which occurred years before the bankruptcy. No court has ever held that a judgment determining a property interest is a voidable preference merely because the judgment was entered within the 90-day preference period.
The trustee’s remaining argument is that the State court judgment gave Hartman a lien, “as the treasure is not divisible.” This contention also lacks merit.
There is no reason to assume this treasure indivisible. The fact, if it be a fact, that it may be more valuable if sold as an intact collection rather than partitioned between the co-owners, does not make the State court judgment a lien or any other transfer. The judgment created no lien and transferred nothing.
Conclusion
As is required by B.R. 9021(a), a separate judgment will be entered in accordance with this decision. Each party shall bear its own costs.
DONE and ORDERED.
. The right, title and interest of the public, through the State of Florida, was determined and set apart at the outset. It is not in issue here.
. If the State court ever passed upon the parties’ entitlement to the remaining 30% of the treasure, its ruling is not before this court.
. This record does not show the basis for Scott’s judgment.
. Federal writs of garnishment follow State law. Rule 64, Fed.R.Civ.P. As was held in Sunland Mortgage Corp. v. Lewis, 515 So.2d 1337, 1339 (Fla.Dist.Ct.App.1987):
“Once a receiver is appointed for a business or person, as was done in this case, that entity loses the power to transfer its property subject to the receivership. Third parties, as well, cannot obtain a valid transfer or effect a valid lien on the receivership property through filing suits and obtaining a judgment." (Emphasis added).
. As was held in Southeastern Pipe Line Co. v. Powell, 113 F.2d 434, 435 (5th Cir.1940):
"A fundamental principle requires that one who claims a right in or to property held by a receiver must submit his claim to the court.”
It is equally fundamental that once a court has jurisdiction over a particular res, no other court can proceed in rem with respect to the same res and courts with concurrent jurisdiction will exercise their discretion to defer to that court for the sake of comprehensive disposition of rights in a particular piece of property. Universal Marine Ins. Co., Ltd. v. Beacon Ins. Co., 768 F.2d 84 (4th Cir.1985) (it is irrelevant in which court litigation first began); Levy v. Lewis, 635 F.2d 960, 965-66 (2nd Cir.1980); Federal Savings and Loan Insurance Corp. v. PSL Realty Co., 630 F.2d 515 (7th Cir.1980), cert. denied, 452 U.S. 961, 101 S.Ct. 3109, 69 L.Ed.2d 971 (1981) (possession of receiver withdraws property from jurisdiction of all other courts); Meter Maid Industries, Inc., 462 F.2d 436, 438 (5th Cir.1972). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490839/ | *6PROPOSED FINDINGS AND CONCLUSIONS
FREDERICK A. JOHNSON, Chief Judge.
On April 22, 1988, W.G.M.C., Inc. d/b/a Adworks & Marketing (Debtor) filed for relief under Chapter 7 of the Bankruptcy-Code. On July 19, 1988, the Chapter 7 Trustee filed a complaint captioned “Complaint to Compel Turnover of Assets,” (Complaint) against Country Hills Associates and Country Hills Development Corp. (defendants). The Trustee alleges in his complaint that Country Hills Associates had not paid a sum of money due the estate for prefiling marketing and advertising services.
The trustee has captioned his complaint as a “Complaint to Compel Turnover of Assets.” This would seem to indicate that this proceeding is a “core” proceeding. See 28 U.S.C. § 157(b)(2)(E). However, it clearly is not. The trustee’s cause of action is one at law, seeking to collect an account receivable, and falls within the definition of a related proceeding under 28 U.S.C. § 157(a).
The defendants have made timely demand for a jury trial. See Fed.R.Civ.P. 38(b). “In suits at common law, where the value in controversy shall exceed twenty dollars, the right to trial by jury shall be preserved ...” U.S. Const, amend. VII. This being a suit at common law for recovery of an alleged account receivable, the defendants are entitled to trial by jury.
Unfortunately, the right to jury trial in the bankruptcy court no longer exists. Under the 1978 Bankruptcy Reform Act, Pub.L. No. 95-598, a provision was made for jury trials in the bankruptcy court at 28 U.S.C. § 1480. See 1978 U.S.Code Cong, and Admin. News (92 Stat.) 2549, 2671. However, after the famous Marathon decision, Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), Congress enacted the Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353 (BAFJA or 1984 Act).
The 1984 Act contained a conflict involving Title II of the 1978 Act, which included 28 U.S.C. § 1480. Section 113 of the 1984 Act stated that Section 402(b) of the 1978 Act, (“Effective Dates”) “shall not be effective.” Section 121 of the 1984 Act, on the other hand, stated that Section 402 of the 1978 Act will become effective on “the date of .enactment of the Bankruptcy Amendments and Federal Judgeship Act of 1984.”
In examining the conflicting sections of the 1984 Act, the United States District Court for this district (Carter, J.) concluded that section 121(a) could not be given effect because to do so would give effect to provisions of the 1978 Act Congress clearly intended to be replaced in the 1984 Act. Precon, Inc. v. JRS Realty Trust, 45 B.R. 847, 12 BCD 824 (D.Me.1985). See generally, Sabino, Jury Trials in the Bankruptcy Court: The Controversy Ends, 93 Com.L. J. 238 (Summer, 1988). In making its decision, the court in Precon found the reasoning of In re Long, 43 B.R. 692, 12 BCD 442 (Bankr.N.D.Ohio 1984) to be “compelling” and adopted the conclusions of that case.
The Long opinion concerned whether one of the amendments contained in section 241(a) of the 1978 Act, i.e. 28 U.S.C. § 1478, survived enactment of BAFJA. As already suggested, the court in Long found that section 113 of the 1984 Act had to be given effect and therefore 28 U.S.C. § 1478 did not survive enactment of BAFJA.
Section 241(a) in Title II of the 1978 Act contains not just the amendment at 28 U.S. C. § 1478, but rather the amendments to 28 U.S.C. §§ 1471-1482 inclusively. See Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, 1978 U.S.Code Cong. & Admin. News (92 Stat.) 2668-71.
Because none of the Amendments contained in section 241(a) of the 1978 Act, i.e. 28 U.S.C. §§ 1471-1482, became effective, the right to a jury trial in bankruptcy court, contained in 28 U.S.C. § 1480, did not survive enactment of BAFJA. See In re Pro Machine, 87 B.R. 998, 1000, 18 BCD 51, 53 (Bankr.D.Minn.1988); Precon, Inc. v. JRS Realty Trust, supra.; In re Long, supra.
*7The recent abrogation of Bankruptcy Rule 9015, which had provided procedures to conduct jury trials in bankruptcy court, lends further support to the conclusion that there is no provision for jury trials in bankruptcy courts. See Sabino, supra., 93 Com. L.J. at 241. See also In re Pro Machine, Inc., 87 B.R. at 1001, 18 BCD at 53. No procedural nor statutory support exists for this court to grant defendants’ request for a jury trial.
In addition to the apparent impediments to a jury trial, “it makes no practical sense to have a jury trial in. bankruptcy court in a non-core proceeding.” In re Astrocade, Inc., 79 B.R. 983, 991 (Bankr.S.D.Ohio 1987). Even if a jury trial could be held in bankruptcy court, the inability to enter a final judgment in a non-core related proceeding means the parties on appeal are entitled to a trial de novo in District Court. Id. See Mohawk Industries v. Robinson Industries, 46 B.R. 464, 466 (D.Mass.1985).
However, the absence of authority for a jury trial in this court does not deprive defendants of a jury trial. See In re G. Weeks Securities, Inc., 89 B.R. 697, 706, 18 BCD 162, 170 (Bankr.W.D.Tenn.1988). The jury trial must simply be held in another forum.
These proposed findings and conclusions will be submitted to the District Court pursuant to 28 U.S.C. § 157(c)(1), which court may enter any final order the proceeding requires.
An appropriate order will be entered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490840/ | MEMORANDUM OPINION
HAROLD C. ABRAMSON, District Judge.
On 22 November 1988 the Court conducted a hearing on the Plan Trustee’s Objection to the Administrative Claim of Midlantic National Bank (“Midlantic”). At the conclusion of the hearing, the Court requested the parties to prepare letter briefs addressing certain legal issues. Following a review of the letter briefs, the pleadings on file and relevant documents, we conclude that Midiantic’s Administrative Claim should be denied and Midlantic will not be permitted to amend its proof of claim in this proceeding. This memorandum shall constitute findings of fact and conclusions of law under Bankruptcy Rule 7052.
GENERAL FACTUAL BACKGROUND
Midlantic requests the Court to exercise its equitable powers to grant Midlantic an Administrative Priority claim in the above styled case. The claim arises from a breach of a covenant against encumbrances in a General Warranty Deed (“Deed”) given by MRW, Inc. (“MRW”) (an affiliated company of-Mr. C.W. Murchison, Jr.) to Midlantic in lieu of foreclosure. Midlantic contends that Mr. C.W. Murchison, Jr. (“Murchison”) is individually liable for misrepresenting that the properties conveyed by the deed in lieu were free of encumbrances. The Plan Trustee points out that under the deed, only MRW made representations and warranties and that Murchison never made any representation concerning encumbrances.
The parties also interject an Agreement for Deed In Lieu of Foreclosure (“Agreement”) between Midlantic, Murchison and MRW. Under the Agreement, MRW agreed to convey certain properties to Mid-lantic by deed in lieu of foreclosure. By accepting the deed in lieu, Midlantic agreed to the cancellation and extinguishment of MRW’s liability on certain notes. Murchison was liable as a guarantor of the notes given by MRW. The Agreement further provided that notwithstanding the cancellation and extinguishment of MRW’s indebtedness, Murchison’s liability as the guarantor would “be limited to one-half the deficiency reasonably calculated to result” following delivery of the deed in lieu. The aim of the deed in lieu and reduction of guaranty liability was to reduce both the costs and time involved with a foreclosure by Midlantic. Moreover, section 3 of the Agreement contained additional representations by MRW and Murchison. Midlantic and Murchison memorialized this agreement through an Order Allowing Proof of Claim approved as to form and content by all of the parties. The Order Allowing Proof of Claim set the amount of Midlantic’s claim on Murchison’s liability as a guarantor of the MRW note at $462,110.00.
DISCUSSION
Resolution of Midiantic’s claim depends on interpretation of the deed. The *76Agreement will not be examined because the doctrine of merger.1 This is so because after delivery and acceptance, the deed is regarded as the final expression of the agreement of the parties and the sole repository of the terms on which they have agreed. Any subsequent cause of action between the parties must be based on the deed itself. See Levy v. C. Young Constr. Co., Inc., 46 N.J.Super. 293, 134 A.2d 717, 719 (App.Div.1957), aff'd 26 N.J. 330, 139 A.2d 738 (1958); Patel v. Erhardt, 177 N.J.Super. 556, 427 A.2d 121, 123 (App.Div.1981).
In the present case, MRW, not Murchison, executed and delivered the deed in lieu of foreclosure to Midlantic. The deed recites that “the ... Grantor [MRW] covenant ... [that] the above-described land ... at the time of the sealing and delivery of these presents, are not encumbered by any mortgage, judgment or limitation or by any encumbrance whatsoever ...” The grant- or and “lawful and right owner” of the property conveyed was MRW. MRW as grantor covenanted to Midlantic that no encumbrances burdened the property in question. Murchison did not participate in the conveyance as a grantor. Murchison’s only participation was that of a third party guarantor.2
The record before the Court does not indicate whether Midlantic conducted a review of the titles prior to acceptance of the deed. Notwithstanding, the record indicates that after Midlantic acquired the property, certain encumbrances were discovered when Midlantic later sold the properties. During title closing on the properties, Midlantic spent $90,115.88 to extinguish the encumbrances and deliver clear title to the purchasers. Based on this record, Midlantic would have a cause of action for breach of the covenant against encumbrances given by MRW. Likewise, Midlantic would not have a cause of action against Murchison for the breach of the covenant because Murchison did not participate in the conveyance. Moreover, the record does not establish a symbiotic relationship between MRW and Murchison. The notion of separate legal entities is scrupulously honored by this Court. Each comprises a separate legal entity, MRW a corporation, Murchison an individual. Each were involved with separate reorganization efforts. The fact that MRW was an affiliated entity does not allow one to conclude that Murchison’s pre-petition guaranty was tied to MRW’s representations in the deed. Accordingly, Midiantic’s claim does not lie in the Murchison case but in the MRW case.
Midiantic’s requests alternative relief to amend its proof of claim. The basis for amendment appears to be paragraph F of the deed which allows Midlantic the option of reinstating and reviving the indebtedness upon breach of warranty. Again, paragraph F recites that acceptance of the deed is “expressly conditioned and subject to the representation and warranty of MRW, Inc. that title to the property is ... free and clear of all liens and encumbrances.” Simply stated, the option activates in the event of a breach of MRW’s warranty. A plain reading of paragraph F suggests, however, that the option to reinstate and revive applies only to MRW’s indebtedness. In contrast, paragraph F provides neither reinstatement upon a Murchison breach nor reinstatement of one-half of the deficiency Murchison was released from if MRW breached a warranty. Indeed, as discussed above, Murchison made no warranties or representations in the deed. Accordingly, the option in paragraph F does not afford Midlantic the opportunity to reinstate the one-half deficiency released by Midlantic. Thus, we find no legal basis *77to support Midiantic’s request to amend its proof of claim for the full amount of the deficiency Murchison stood liable for as a guarantor.
IT IS TO BE SO ORDERED.
. All agreements entered into by and between the parties to a deed prior to its execution are presumed to have been merged in the deed, and the deed expresses all of the agreements between the parties. See generally Commercial Bank, Uninc. v. Satterwhite, 413 S.W.2d 905, 909 (Tex.1967); Barker v. Coastal Builders, Inc., 153 Tex. 540, 271 S.W.2d 798 (1954).
. Because Murchison did not have an interest in the property, at best Murchison could have delivered a quit claim deed of the subject property to Midlantic. However, even this would not aid Midlantic in proving a misrepresentation because a quit claim deed does not ordinarily contain warranties or representations. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490841/ | MEMORANDUM OF DECISION
JAMES H. WILLIAMS, Chief Judge.
Presented is a motion for relief from the automatic stay and/or the discharge injunction. Packaging Corporation of America (PCA) seeks such relief so as to be permitted to pay over money, retained by it under a construction contract with the Debtor, to certain subcontractors and employees of the Debtor who have filed mechanics’ liens against PCA’s property.
The Co-Trustees of The Gibbons Grable Assets Disposition Trust (Co-Trustees) filed an objection to PCA’s motion, maintaining that PCA’s claim of setoff, asserted under 11 U.S.C. § 553, is improper. The Co-Trustees challenge the validity of the mechanics’ liens and maintain that the bankruptcy court is the correct forum to make the determination. Soehnlen Piping Company (Soehnlen), the holder of one of the mechanics’ liens, filed a response objecting to this court’s jurisdiction.
A preliminary hearing was held on August 26, 1988, and a final hearing on September 23, 1988. The matter was taken under advisement to be decided by the court upon the submitted memoranda.
FACTS
PCA, the owner of an industrial plant, contracted with the Debtor for certain construction work. The Debtor completed the work prior to filing for relief under Chapter 11 of Title 11 of the United States Code on July 7, 1986.
PCA paid all amounts due the Debtor under the contract prior to the filing for bankruptcy protection except for $18,-148.06. Between July 18, 1986 and August 29, 1986, approximately $23,096.42 in mechanics’ liens were filed by employees and subcontractors of the Debtor against the property of PCA. Soehnlen claims a mechanic’s lien in the amount of $14,446.34. PCA asserts a pre-petition claim against the Debtor in an amount equal to the mechanics’ liens which it proposes to set off against the money it owes the Debtor pursuant to the construction contract.
DISCUSSION
Ohio Rev.Code § 1311.02 provides for the creation of liens upon various kinds of property on behalf of any person or corporation who does work or labor, or furnishes material or machinery, or provides other services pursuant to a contract. These mechanics’ liens attach to
such house, mill, manufactory, furnace, or other building, or appurtenance, fixture, bridge, or other structure, or nursery stock, or gas pipeline, or well ... and upon the machinery or material so furnished, and upon the interest, leasehold, or otherwise, of the owner, part owner, or lessee, in the lot or land upon which they stand,....
Ohio Rev.Code § 1311.02.
Accordingly, Soehnlen and the other claimants assert liens against the real and personal property of PCA.
Under the provisions of 28 U.S.C. § 157(b)(1), the bankruptcy court has the authority to hear and determine all core proceedings which arise in or under the Bankruptcy Code.
Among the matters listed as “core proceedings” under Section 157(b)(2) is the determination of the validity, extent or priority of liens. Section 157(b)(2)(E). Section 157(b)(2) must be read as empowering the court only to make a determination of the validity, extent or priority of liens upon property of the estate. In re Dr. C. Huff Company, Inc., 44 B.R. 129, 134 (Bankr.W.D.Ky.1984).
*114The .Co-Trustees, relying on Ohio Rev.Code § 1311.15 1, assert that Soehn-len’s mechanic’s lien reaches the funds held by PCA that are due the Debtor pursuant to the construction contract and that the Co-Trustees also have a claim or lien against those same funds under 11 U.S.C. § 544(a)(2).2 Therefore, the Co-Trustees assert that these competing liens vest jurisdiction over the instant motion in this court as a core proceeding under Section 157(b)(2)(A) and (K).
From its review of Ohio Rev.Code § 1311.15, the court does not find therein the creation of any rights for the mechanics’ lien claimants in the contract proceeds. Ohio Rev.Code § 1311.15 merely provides, as its title states, for the determination of superiority of liens and the effects of an assignment. Accordingly, the court finds that there are no competing liens on property that is property of the estate which would vest this court with jurisdiction pursuant to Section 157(b)(2).
The court now turns its attention to whether this is a non-core, related proceeding under which the court may conduct hearings, but may not enter final orders without the consent of the parties. 28 U.S. C. § 157(c)(2).
No definition of what constitutes a “related proceeding” exists in either 28 U.S.C. §§ 157 or 1334, but case law provides guidance. As was stated by the court in In re Bowling Green Truss, Inc., 53 B.R. 391, 394 (Bankr.W.D.Ky.1985):
If an action has a direct and substantive impact on the bankruptcy estate or its administration, then it is related to the bankruptcy case and jurisdiction exists. But if a controversy has only a vague or incidental connection with a pending case, and any impact its resolution may have on the bankruptcy estate is speculative, indirect or incidental, then the matter is unrelated to the bankruptcy case and we would not hear it.
In the present case the court is faced with a motion for relief from the automatic stay and/or the discharge injunction to permit PCA to pay certain lien claimants. The conflict between PCA and the lien claimants involves no issue of bankruptcy law, but only questions of state law. Additionally, the property subject to the liens is not property of the estate. Therefore, any decision by this court as to the validity of the mechanics’ liens on PCA’s property will have no effect on Debtor’s bankruptcy proceeding.
The only connection that the dispute between PCA and the lien claimants has to the Debtor’s bankruptcy proceeding is PCA’s assertion of a right of setoff. The court finds, however, that this connection is too remote and speculative to bring the matter within the court’s jurisdiction in that any right of setoff that PCA may possess is contingent upon a determination of the validity of the mechanics’ liens which this court finds to be a non-core, unrelated proceeding.
*115Accordingly, as PCA’s motion for relief from the automatic stay and/or discharge injunction appears to be dependent upon a finding that it is entitled to set off its mechanics’ lien liability against its indebtedness to the Debtor, the motion must fail as this court deems itself to be without jurisdiction to deal with such mechanics’ liens.
An order in accordance herewith shall issue.
. Superiority of liens; assignment.
The lien of a subcontractor shall be superior to any already taken or to be taken by the principal contractor in respect of the same labor, machinery, material, or fuel, and the liens of laborers, mechanics, or persons furnishing machinery, material, or fuel to a contractor or subcontractor, shall be superior to any lien already taken or to be taken by such contractor or subcontractor indebted to them in respect of such labor, machinery, material, or fuel. An assignment or transfer by the principal contractor or subcontractor, of his contract with the owner or principal contractor, as well as all proceedings in attachment, or otherwise, against such principal contractor or subcontractor, to subject or encumber his interest in such contract, is subject to the claims of every laborer, mechanic, subcontractor or materialman, who furnishes any labor, machinery, material, or fuel towards the construction, excavation, alteration, removal, or improvement as designated in sections 1311.01 to 1311.68', inclusive, of the Revised Code.
. 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—
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(2) a creditor that extends credit to the debtor at the time of the commencement of the case, and obtains, at such time and with' respect to such credit, an execution against the debtor that is returned unsatisfied at such time, whether or not such a creditor exists; ... | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490842/ | WILLIAM T. BODOH, Bankruptcy Judge.
This cause came before the Court on the Complaint filed by the Plaintiffs, Peter and Ann Perich, in which they ask the Court to find the Debtors’ obligation to them to be nondischargeable pursuant to 11 U.S.C. Sec. 523(a)(2).
FACTS
The Plaintiffs operated a successful and established photography business in Warren, Ohio, known as “Perich Studio Photography.” After approximately 37 years of operation, the Plaintiffs decided to sell the business so that they could retire. To elicit purchase offers, the Plaintiffs advertised in both local and professional publications. The Plaintiffs received several inquiries from prospective purchasers, one of whom was the Debtor, Mr. Westman. It appears that the Debtors initially traveled to Ohio to investigate the business in April, 1984. Over the next several months, both the Plaintiffs and the Debtors discussed the terms, prices and possible financing sources available for a purchase of the studio. In August, 1984, the Debtors submitted to the Plaintiffs a letter of intent and Two Hundred Fifty & 00/100 Dollars ($250.00) earnest money to purchase the business, inventory and equipment, and associated real estate from the Plaintiffs. The agreement envisioned a cash sale of Two Hundred Thousand & 00/100 Dollars ($200,000.00) with Twenty Thousand & 00/100 Dollars ($20,000.00) down payment and the balance to be financed through a loan procured by the Debtors. The Debtors borrowed Twenty Thousand & 00/100 Dollars ($20,000.00) for the down payment from Mr. Westman’s mother, Florence Dor-mey, and deposited Nineteen Thousand, Seven Hundred Fifty & 00/100 Dollars ($19,750.00) in an escrow account. A formal asset purchase agreement was completed on October 22, 1984, the same date that the Debtors began operating the business. On November 8, 1985, the Debtors executed a Thirty Thousand & 00/100-Dollar ($30,000.00) promissory note in favor of the Plaintiffs. The following day, the Plaintiffs received the balance of the Nineteen Thousand, Seven Hundred Fifty & 00/100-Dollar ($19,750.00) down payment which had been in escrow.1
In January, 1985, Aetna Finance Company, dba ITT Financial Services (“ITT”), sent Mr. Greg Zusan to view the property. *119Mr. Zusan cataloged the inventory, equipment and other photographic supplies and on January 10,1985, filed a financing statement claiming a security interest in those items. Although the security interest was claimed, no loan had either been made or committed on or before that date by ITT. At sometime thereafter, it appears ITT notified the Debtors of a willingness to loan One Hundred Seven Thousand & 00/100 Dollars ($107,000.00) to them secured by business assets. When the Plaintiffs were advised that ITT was only willing to loan One Hundred Seven Thousand & 00/100 Dollars ($107,000.00) to the Debtors, Plaintiffs agreed to accept an Eighty Thousand & 00/100-Dollar ($80,000.00) promissory note from the Debtors, secured by a second mortgage on the commercial property and a first-position security interest in all photographic equipment and inventory. This information was forwarded to Mr. Zusan by the Plaintiffs attorney, Kay L. Williams, ESQ., on January 22,1985, and it appears he, on behalf of ITT, agreed to Plaintiffs having a first lien on the equipment and inventory (Defendant’s Exhibit 16). As additional security, the Plaintiffs also sought to obtain a second mortgage on the Debtors’ former residence located in South Bend, Indiana. The Plaintiffs were aware of a financial statement in which the Debtors represented that the Indiana house was worth Forty-Five Thousand & 00/100 Dollars ($45,000.00) with a first mortgage of Eighteen Thousand, Two Hundred Twenty & 44/100 Dollars ($18,220.44).
On February 8, 1985, the Plaintiffs, the Debtors, and Kevin P. Sullivan, ESQ., of Milwaukee, Wisconsin, representing ITT, met at Ms. Williams’ office to close the purchase transaction. Numerous documents were signed at the closing. The Debtors signed a promissory note for One Hundred Seven Thousand & 00/100 Dollars ($107,000.00) in favor of ITT, secured by a first mortgage on the commercial real property. The Debtors also signed a promissory note for Eighty Thousand & 00/100 Dollars ($80,000.00) in favor of the Plaintiffs, secured by a second mortgage on the commercial real property. The Plaintiffs executed a general warranty deed in the commercial real property to the Debtors. Testimony shows that Mr. Sullivan had with him various security documents which would create in ITT a first-lien position with respect to the equipment and inventory. It further appears that Ms. Williams showed Mr. Sullivan correspondence between her and Mr. Zusan providing for the Plaintiffs to have a first position in the equipment and inventory and ITT to have a second position. It further appears from the testimony that Mr. Sullivan agreed that appropriate steps could be taken after the closing to secure the first position in the equipment in the Plaintiffs and a second position in ITT, and the Plaintiffs and Ms. Williams relied upon his professional representation in that respect. Mr. Sullivan was the only representative of ITT at the closing. Late in the afternoon, all the parties walked to the Recorder’s office to file the various documents. It appears that after Ms. Williams and the Plaintiffs left the Recorder’s office, Mr. Sullivan and the Debtors remained at the Recorder’s office and executed and filed a financing statement giving ITT a first-position security interest in all photographic equipment and supplies. Finally, on February 11, 1985, the Plaintiffs authorized the filing of a second mortgage on the Debtors’ property in South Bend, Indiana.
It is not clear to the Court why Mr. Sullivan or ITT, or both of them, were not made parties to this proceeding. The testimony and documentary evidence before us supports the conclusion that Mr. Zusan of ITT had stated before the closing that ITT would agree to Plaintiffs having a first position in the equipment and inventory and that ITT would take a second position. It seems clear that Mr. Sullivan knew of his client’s acquiescence in this respect and that at the closing, he agreed and represented that appropriate steps would be taken after the closing to see to the creation of the agreed lien interest in the equipment and inventory. The testimony in this respect is supported by Defendant Exhibit 16 and finds further support in the fact that Mr. Zusan, on January 10, 1985, filed a financing statement claiming a security in*120terest in the equipment and inventory, even though no loan had either been made or committed on or before that date. Mr. Sullivan’s remaining at the Recorder’s office with the Debtors after the other parties left and executing and filing the financing statement giving ITT a first-position lien in the equipment and inventory appears to this Court, from the evidence before it, to have been knowingly fraudulent. It is not explained why Ms. Williams did not take appropriate action after February 8, 1985, to discover and to rectify this apparent fraudulent act. The Court will inquire further as to whether ITT may have obtained property of the estate fraudulently and will bring Mr. Sullivan’s action to the attention of the appropriate authorities.
The Debtors paid interest on their obligations to Plaintiffs until April 15, 1985. On that date, the balance of the obligation was due and Debtors found themselves unable to pay that balance. As previously agreed, plaintiffs renegotiated the obligation in order to give the Debtors an additional two years to pay off the note. The Debtors defaulted under this arrangement in October, 1986. On January 24, 1987, the Debtors executed and delivered the deed to the real estate in Indiana to the first mortgagee in lieu of foreclosure. Plaintiffs apparently had no advance notice of this and have received no accounting for the sale proceeds, despite their having a second mortgage and the property, by Debtors’ calculation, having some Twenty-Seven Thousand & 00/100 Dollar ($27,-000.00) equity. The Debtors closed their business in June, 1987, and filed a Petition for Relief under Chapter 7 of Title 11 of the United States Code on June 30, 1987. The instant Complaint was filed by the Plaintiffs on September 28, 1987.
DISCUSSION
The Plaintiffs’ first complain that the Debtors’ obligation to them ought to be nondischargeable pursuant to 11 U.S.C. Sec. 523(a)(2)(B). The Court has previously held that Plaintiffs are responsible for proving four (4) elements in a nondis-chargeability action pursued under Sec. 523(a)(2)(B). These elements are:
(1) Debtors made a materially false representation in writing;
(2) The false writing concerned the Debtors’ financial condition;
(3) The creditor relied on the representation in extending credit and the creditor’s reliance on the representation was reasonable; and
(4) The representation was made with the intent to deceive.
Credithrift of America v. Greene (In re Greene), 85 B.R. 747, 750 (Bankr.N.D.Ohio 1988).
The Plaintiffs cannot succeed on this count because they fail to prove the first element. Although Joint Exhibit 1-C was identified and extensive testimony was elicited concerning it, Defendant’s counsel refused to stipulate to it and Plaintiffs’ counsel did not move for its admission. However, even if the Exhibit had been admitted, the Plaintiffs would still fail because the Court has searched the record in vain to locate any evidence showing the Defendant’s representation of the value of the Indiana property to be false. In their Complaint, the Plaintiffs allege the true value of the Indiana property to be Nineteen Thousand & 00/100 Dollars ($19,000.00) instead of Forty-Five Thousand & 00/100 Dollars ($45,000.00), as the Debtors represented in the financial statement. There is no evidence in the record to support that allegation. As a result, the Court will dismiss this Count of their Complaint.
The Plaintiffs also claim that the Defendant’s obligation to them should not be discharged pursuant to 11 U.S.C. Sec. 523(a)(2)(A), which provides:
(a) A discharge ... 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.
*121The Debtors testified that they agreed to provide Plaintiffs with a first-position security interest in the photographic equipment. The testimony shows that these representations were made by Debtors to persuade Plaintiffs to finance Eighty Thousand & 00/100 Dollars ($80,000.00) of the purchase price.2 Thus, the representations were made in order to procure an extension of credit from the Plaintiffs.
The Court finds the culpability of the Debtors to be clearly established by the testimony of Ms. Florence Dormey, Mr. Westman’s mother. Ms. Dormey worked for her son at the photography studio until about January, 1987. Ms. Dormey stated in her testimony that Mr. Westman had stated his dislike of Plaintiffs. Moreover, she testified that her son told her elatedly, “Boy, I fixed them” after the closing of the transaction in February, 1985. Ms. Dor-mey testified that when she questioned her son regarding his meaning, Mr. Westman told her that he had given ITT a first lien on the equipment. Mr. Westman did not deny the testimony of his mother but only said he could not remember making the statements. Mr. Westman’s testimony shows he knew that Plaintiffs expected a first-position security interest in the equipment, which he gave to ITT. Thus, the Court finds that the Debtors intended to deceive and/or defraud the Plaintiffs. Debtors’ counsel attacked Ms. Dormey’s credibility and the materiality of her testimony. We do not find either argument to be persuasive. The Court is satisfied that Ms. Dormey was competent to testify, as she had personal knowledge of the events. We do not find her status as a creditor or her unrelated attempted suicide to cast doubt upon her credibility. Indeed, we credit her testimony from our observation of her demeanor during the trial. Debtors’ counsel admits the relevance, but disputes the materiality, of Ms. Dormey’s testimony. We summarily reject this argument.3
It also appears that the Plaintiffs reasonably relied on the Debtors’ representations that he would give them a first-position security interest in the equipment. There is nothing to suggest the Plaintiffs were unreasonable in their reliance. The testimony clearly established that this was the minimum security which the Plaintiffs would accept in order to finance part of the purchase price. Finally, the Plaintiffs were injured by their loss of security caused by the actions of Debtors and Mr. Sullivan.
Plaintiffs’ Objection shall be sustained and Debtors’ obligation to the Plaintiff shall be found to be nondischargeable.
This shall constitute the Court’s findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052.
An appropriate Order shall issue.
. The down payment was paid to the Plaintiffs in two disbursements — $10,000 on November 2, 1984, and $9,816.57 (which included accrued interest) on November 9, 1984.
. Although we have couched this opinion in terms of false representations, the decision reached here would be identical whether the Debtors utilized false pretenses or actual fraud in their dealing with the Plaintiffs.
. The concept of materiality now is included within the scope of relevancy as defined in Rule 401 of the Federal Rules of Evidence. The Debtors’ culpability is certainly a "fact of consequence” in a dischargeability proceeding brought under 11 U.S.C. Sec. 523(a)(2)(A). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490843/ | ON MOTION FOR RECONSIDERATION OF CONFIRMATION OF PLAN OF REORGANIZATION
BERNICE BOUIE DONALD, Bankruptcy Judge.
CASE HISTORY
The Court had before it, on February 13, 1989, a core proceeding1 styled as a motion for reconsideration of a prior Order entered by the Court. The United States Trustee (U.S. Trustee) filed a motion for reconsideration pursuant to Fed.R.Civ.P. 59(e) on January 11, 1989, requesting that the Court amend its Order entered January 3, 1989, entitled “Memorandum Of Opinion And Order On Objection By The United States Trustee To Confirmation Of The Debtor’s Proposed Plan Of Reorganization” [hereinafter “Order”], 95 B.R. 79.
In its Order, the Court stated that the funds on which the U.S. Trustee calculated *143its fee were those disbursed by the debtor’s construction lender. However, the parties have, subsequent to the entry of the Order, filed a stipulation of facts dated January 11, 1989. The stipulation of facts state that the funds in dispute were not those disbursed by the debtor’s construction lender, but instead those funds disbursed by the closing attorney. The closing attorney disbursed funds to debtor’s creditors from the proceeds of the sale of two homes built by debtor. The closing attorney, Mr. George Mclngvale, disbursed the following amounts from the sale proceeds of lot 212: (1) $3,300.00 — real estate commission, (2) $73,868.17 — Peoples Bank & Trust, holder of first mortgage on lot 212, and (3) $99.75 —prorated 1988 taxes. The disbursements made from the sale proceeds of lot 109 were: (1) $4,000 — real estate commission, (2) $900.00 — loan discount fee, (3) $85,-292.93 — Peoples Bank & Trust, holder of first mortgage on lot 109, (4) $265.00 — warranty charge, and (5) $102.00 for prorated 1988 taxes. Total payments made by the closing attorney amounted to $167,827.85. The parties agree that the net proceeds, $14,672.15, were deposited in an interest bearing escrow account, therefore not disbursed by the closing attorney.
The U.S. Trustee argues that cause exists to amend the Court’s Order because the Court based its ruling on an erroneous finding of fact. Further, the U.S. Trustee avers that the closing attorney was, for all practical purposes, the debtor’s closing attorney, but admits that the closing attorney was acting for multiple parties. Thus, the U.S. Trustee contends that based on the assertion that the closing attorney was acting as agent for debtor, the funds were, in essence, disbursed by the debtor within the meaning of 28 U.S.C. § 1930(a)(6).
During the hearing, the debtor denied any intention to stipulate that the closing attorney was an agent or acted on behalf of the debtor.2 The parties, in any event, agree that the closing attorney represented multiple interests in the sale transactions.
DISCUSSION
This case does not necessarily involve a complicated fact pattern, however, inconsistencies between the facts presented orally at the hearing, and those presented in the parties respective Memoranda of Law, have caused some confusion. While the U.S. Trustee does refer to disbursements by the closing attorney in its Memorandum,3 the debtor often discussed disbursements by the construction lender in reference to the issue at hand, without objection or clarification by the U.S. Trustee.
Based on the parties stipulation of facts, the issue must be re-evaluated in light of those facts. The issue is whether cash disbursements by the closing attorney constitute “disbursements by the debtor” pursuant to 28 U.S.C. § 1930(a)(6)?
As previously noted,4 the term disbursement in 28 U.S.C. § 1930(a)(6) is not defined by the Bankruptcy Code. At present, there are no recorded cases interpreting the term used in the statute. Therefore, the Court, in its prior Order relied on case law interpreting the term disbursement in the context of 11 U.S.C. § 326.
A significant case discussed by the Court in its Order is In re Indoor-Outdoor Dining, Inc., 77 B.R. 952 (Bankr.S.D.Fla.1987). In In re Indoor-Outdoor Dining, Inc., the trustee in the Chapter 7 case, sold personal and real property of the debtor. The auction sale was approved by the Court and closed through a title company that received and disbursed the sale proceeds. Id. at 953. The trustee, in requesting his fees, contended that “disbursements by the title company are the equivalent of ‘monies disbursed ... by the trustee’ because the title company was acting as the agent of the trustee.” Id.
The Court stated that if the title company was the agent of the trustee, authority for such employment was never granted by *144the Court. Therefore, the Court assumed that the vendee insisted upon the title company’s participation, and the trustee merely acquiesced. Moreover, the Court went further to state, that if the record supported a finding that the trustee delegated the duty of collecting and disbursing the funds to the title company, it would follow the holding in In re New England Fish Company, 34 B.R. 899 (Bankr.W.D.Wash.1983). In In re New England Fish Company, the Court found that a trustee’s compensation must be based on actual monies disbursed, or turned over by the trustee to third parties. Id. at 902.
In making the analogy to the facts in In re Indoor-Outdoor Dining, Inc., the Court finds that in the present case, the debtor never applied to the Court, pursuant to 11 U.S.C. § 327, to employ the closing attorney. Yet the Court acknowledges that the debtor did obtain permission to sell the houses out of the ordinary course of business. However, based on the record before Court, it cannot be assumed that the closing attorney was debtor’s agent. Regardless, of whether the Court deemed the closing attorney the agent of the debtor, there is still authority which supports the contention that disbursements by the closing attorney are constructive disbursements, and, therefore, not disbursements by the debtor.
The Court recognizes the singular effect of holding that the disbursements in question are not disbursements by the debtor from which the U.S. Trustee can calculate its fees. Yet the Court does not see, as the U.S. Trustee argues, the far-reaching detrimental effect on the ability of the U.S. Trustee to carry out its duties. Since the U.S. Trustee’s office is a self-funding institution, not a for-profit organization, it should not calculate its fees based on monies not actually disbursed by the debtor.5
Equity dictates that in order to promote the goals of the Bankruptcy Code, undue hardships not be placed on debtors that would frustrate the debtor’s ability to reorganize. The method of calculation of the U.S. Trustee’s fees, therefore, must be based on actual, rather than, constructive disbursements.
Therefore, based on the foregoing, and in reliance on the stipulation of facts entered by the parties, the fee due the U.S. Trustee for the fourth quarter shall not be calculated based on funds disbursed by the closing attorney, and IT IS SO ORDERED.
. 28 U.S.C. § 157(b)(2)(L).
.See, page 3, Exhibit A stipulation of facts which states at one point "Debtors closing attorney”.
. Memorandum of Law in Support of Objection filed December 16, 1988.
. See page 4 of the Court’s Order.
. This Court does not address the issue of whether the minimum fee should be paid when no disbursements are made in a quarter, nor does it undertake to comment on whether the fee schedule in 28 U.S.C. § 1930(a)(6) unfairly discriminates between debtors with equivalent debts and assets. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490844/ | ORDER
JAMES G. MIXON, Bankruptcy Judge.
On March 23, 1988, Tien Nguyen and Phung Dang, husband and wife, filed a voluntary petition for relief under the provisions of chapter 13 of the United States Bankruptcy Code. An objection to confirmation of the plan was filed by Worthen Bank & Trust Company, N.A. (Worthen), and a confirmation hearing was held on August 5, 1988.
The proceeding before the Court is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(L). The Court has jurisdiction to enter a final judgment in the case.
The debtors’ schedules reflect that the debtors operated Livian, Inc., a clothing store business located in Little Rock, Arkansas, prior to filing bankruptcy. On November 21,1985, Tien Nguyen, on behalf of Livian, Inc. d/b/a Oriental Tailor Shop, executed a promissory note in favor of Worthen in the principal sum of $23,534.66. The note accrued interest at the rate of 13% per annum and was to be repaid on demand or in three consecutive monthly payments of $1,430.00, with the last payment to include all unpaid principal and accrued interest. The repayment of this note was guaranteed by the debtors pursuant to a written guaranty executed February 17,1985. The note stated that it was a renewal of earlier notes and that it was secured by second and third mortgages on the debtors’ homestead, as well as by all inventory and accounts receivable of the clothing store business.
On February 7, 1986, both debtors executed a document styled “Modification Agreement” which, according to a bank officer’s testimony, extended the due date of the balloon payment of the original note to February 23, 1986. The document stated that the modified note was secured only by the two mortgages on the debtors’ homestead.
The mortgages securing the note were executed by the debtors on May 12, 1983, and February 17, 1984, as security for funds advanced for the operation of Livian, Inc. Tien Nguyen also executed a security agreement1 on May 12, 1983, which granted a lien in inventory and accounts receivable in favor of Worthen to secure the same indebtednesses. The testimony at trial was that the inventory was depleted and that the few remaining accounts receivable had no value. The testimony also established that the debtors’ homestead was worth substantially more than an existing first mortgage and Worthen’s secured claim. On the day the petition was filed, the note to Worthen was fully matured and was in default.
The debtors’ narrative statement recites that Worthen’s claim was for an “arrear-age” in the amount of $17,000.00, and the plan proposes to repay the debt at the rate of $170.00 per month for ten years with a balloon payment of all unpaid principal and accrued interest at the end of ten years. Worthen’s objection to treatment of this claim is sustained for two reasons.
First, the plan misstates the amount of Worthen’s claim. The evidence is uncon-tradicted that the unpaid principal on the note is $17,890.59, plus accrued prepetition interest of $5,379.92 as of August 5, 1988. The evidence is also undisputed that Worthen’s claim is oversecured; therefore, unless Worthen agrees to accept less, any plan must propose that Worthen retain its lien and that its claim be paid in full including interest at the appropriate market rate, reasonable attorney’s fees and costs. See 11 U.S.C. § 1325(a)(5)(B); 11 U.S.C. *187§ 506(b); In re Hink, 81 B.R. 489, 491 (Bankr.W.D.Ark.1987); In re Driscoll, 57 B.R. 322, 328 (Bankr.W.D.Wis.1986); In re Crockett, 3 B.R. 365, 366-67 (Bankr.N.D.Ill.1980).
Second, although 11 U.S.C. § 1322(b)(2) provides that a chapter 13 plan may modify the rights of holders of secured claims, the power to modify those rights is limited by the provisions of sections 1322(b)(5) and (c). Section 1322(c) specifically provides that the plan may not provide for payment of a claim over a period that is longer than five years. See 5 Collier on Bankruptcy ¶ 1322.15 (15th ed. 1988). Section 1322(b)(5), the only provision which permits long-term payment, allows modification of the rights of holders of secured claims only if the plan “provides[s] for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any ... secured claim on which the last payment is due after the date on which the final payment under the plan is due.” See In re Foster, 61 B.R. 492, 494-95 (Bankr.N.D.Ind.1986); Knez v. Bosteder (In re Bosteder), 59 B.R. 878, 883 (Bankr.S.D.Ohio 1986); In re Hildebran, 54 B.R. 585, 587 (Bankr.D.Or.1985); 5 Collier on Bankruptcy II 1322.09 (15th ed. 1988). The debtors’ plan proposes a long-term payout of Worthen’s debt, a debt that matured pre-petition. The court’s statement in In re Johnson, 75 B.R. 927 (Bankr.N.D.Ohio 1987) is applicable here:
Where a chapter 13 plan proposes to cure a pre-petition default in the performance of an obligation to make a balloon payment due under a financing device, it must be denied confirmation as an impermissible attempt to modify a contract.
Id. at 931. See also Batt v. Fontaine (In re Fontaine), 27 B.R. 614, 614 (Bankr. 9th Cir.1982); In re Hamilton, 51 B.R. 550, 553 (Bankr.M.D.Fla.1985); In re Seidel, 31 B.R. 262, 264 (Bankr.D.Or.1983), aff'd sub nom. Seidel v. Larson (In re Seidel), 752 F.2d 1382 (9th Cir.1985).
The debtors’ plan may not be confirmed because of the violation of 11 U.S.C. § 1322(b)(5); therefore, a discussion of Worthen’s objection under 11 U.S.C. § 1322(b)(2) is unnecessary. The objection to confirmation is sustained, and the debtors are granted twenty days to file a modified plan, motion to dismiss or motion to convert to chapter 7 or chapter 11.
IT IS SO ORDERED.
. It is not clear if Tien Nguyen executed the security agreement as an individual or on behalf of Livian, Inc. The record is silent as to whether the inventory and accounts receivable were owned by the debtors or Livian, Inc. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490845/ | FINDINGS OF FACT, CONCLUSIONS OF LAW, AND FINAL JUDGMENT THAT PLAINTIFF HAVE AND RECOVER FROM THE DEFENDANTS IN ADVERSARY PROCEEDING NO. 82-882 THE SUM OF $16,276.84
DENNIS J. STEWART, Chief Judge.
These are adversary proceedings brought by the plaintiff trustee in bankruptcy several years ago for the purpose of recovering certain monies from the defendants as prohibited transfers. A judgment was formerly rendered by former Bankruptcy Judge Charles W. Baker on May 18, 1984, 41 B.R. 476. That judgment was issued with respect to three adversary actions, and may be described as follows:
(1) With respect to Adversary Proceeding 82-884, Judge Baker held that certain transfers were preferential and awarded judgment in favor of the trustee and against Mellroy Bank in the sum of $24,035 (who, in turn, was held entitled to recover the same sum on the basis of a guarantee from the defendants Anderson and Yancey).
(2) In Adversary Proceeding No. 82-882, Judge Baker concluded that “the defendants abused the corporate entity of Ozark Restaurant Equipment Co., Inc., to such an extent that they should be held liable for the debts of the debtor herein ... jointly and severally in the sum of $126,908.18.”
(3) In Adversary Proceeding No. 82-883, Judge Baker entered judgment against Anderson Cajun's Wharf, the apparent alter ego of Port City Equipment Co., for some $20,208.39 in value of goods shipped to the latter entity in July 1982 on the basis that it constituted a preferential trans*189fer within the meaning of section 547 of the Bankruptcy Code.
Judge Baker’s decision was appealed to the district court. On May 22, 1986, in In re Ozark Restaurant Equipment Co., Inc., 61 B.R. 750 (Bkrtcy.W.D.Ark.1986), the district court affirmed the judgments in Adversary Proceedings Nos. 82-888 and 82-884, but reversed the judgment in Adversary Proceeding No. 82-882, stating that:
“a chapter VII trustee liquidating a corporation has no standing on his own to bring an alter ego action. He does have power, of course, to avoid preferences and fraudulent transfers.”
61 B.R. at 757. The duty assigned to this court on remand was to determine whether the “ ‘low mark-ups’ accorded Anderson and his enterprises were fraudulent transfers as they are defined in the Code, or preferences.”
The trustee appealed from the district court’s order of remand, but, during the appeal, this court complied with the district court’s remand order, and, in Matter of Ozark Restaurant Equipment Co., Inc., 74 B.R. 139 (Bkrtcy.W.D.Ark.1987), issued its judgment on January 15,1987, in Adversary Proceeding No. 82-882 against the defendants in that action in the sum of $33,360.17. The rationale for this court’s judgment was that Judge Baker had found that the appropriate rate of markup was 30% of the supplies in question; that the district court had affirmed this holding; that the defendants had been charged only 7% mark-up on the supplies which the debt- or had transmitted to them within the year next preceding bankruptcy; and that, therefore, the defendants were to pay, with respect to those supplies, the 23% which constituted the difference between the 30% and 7% previously found by the district court to be the correct figures. Additionally, with respect to certain supplies which had been shipped on which there had been 10% markup, the 20% difference was to be paid as a matter of setting aside the fraudulent transfers. Other amounts were to be paid which the trustee alleged had been the subject of transfers as to which there had been no markup. It was respecting these other amounts that, on appeal to the district court, that court again remanded to this court to determine whether those transfers had taken place within a year of bankruptcy. Otherwise, the district court found that this court was in error for only according a 23% markup or a 20% markup rather than the full 30% markup as the measure of damages. See In re Ozark Restaurant Equipment Co., Inc., 77 B.R. 686, 696 (W.D.Ark.1987), to the following effect:
“Further, the court believes that there is an error in calculation on Item one. 74 B.R. at 145. The trustee sought recovery of the additional 23% markup on the sales totaling $75,206.46. The court allowed 23% on $70,286.41, which represents the total sales, $75,206.46 less the 7% markup already charged. This subtraction of the markup already charged skews the figures and results in the trustee receiving less than the full 30% markup which the bankruptcy court held was necessary to constitute reasonably equivalent value. The recovery should be calculated to give the trustee 23% of $75,206.45 or $17,297.49. This calculation should be corrected on remand. The case is therefore remanded for further proceedings consistent with this opinion.”
These considerations appeared to this court further to buttress the finding that the appropriate rate of markup to be considered was 30%.1 Therefore, on remand, this court issued its judgment on December *19024,1987, for 23% of $75,206.462 plus 20% of $65,000, the amount of the fraudulent transfers to Gonzales and Gertrude’s, which had not been challenged on the appeal. The trustee admitted that certain transfers were not made within the year next preceding recovery, with the result that all other elements of recovery dropped out. Matter of Ozark Restaurant Equipment Co., Inc., 83 B.R. 591, 594 (Bkrtcy.W.D.Ark.1987). Again, the judgment was appealed to the United States Court of Appeals for the Eighth Circuit. In In re Ozark Restaurant Equipment Co., Inc., 850 F.2d 342, 344 (8th Cir.1988), then, the court of appeals concluded as follows:
“For the above reasons we believe the district court erred in finding that all transfers with less than a thirty percent markup were for less than reasonably equivalent (value), and that finding is clearly erroneous. The record supports, at best, a twenty percent markup and we remand for recomputation. In all other respects; the order of the district court is affirmed.” (Emphasis added.)
Pursuant to that order of remand, the district court, on July 21, 1988, issued its own “order of remand,’’ in which it found as follows:
“(T)he court finds that the trustee is entitled to recover an additional 13% mark up rather than the 23% allowed in the court’s August 25, 1987, opinion. The recovery should be calculated to give the trustee 13% of $75,206.45 or $9,776.84, thus providing the trustee with a total mark up of 20%. This calculation should be corrected on remand. The case is therefore remanded for further proceedings consistent with this order.”
Consequent to the remand from the district court, this court, at the request of counsel for the parties, held its hearing on September 30, 1988, in Kansas City, Missouri, to permit the parties to present their respective views on the elements of recovery so as to aid the bankruptcy court in the “re-computation” commanded by the court of appeals. At that hearing, the plaintiff trustee in bankruptcy presented for the court's consideration the following proposed computation:
“Recovery is comprised of five elements:
1. Reasonably equivalent value on sales of $76,206.48. Judge Waters’ Order on Remand filed 7-1-88 clearly gives guidance: 18% of $76,206.46. $ 9,776.84
2. Reasonably equivalent value on sales to Gonzales & Gertrudes on sales of $66,000.
This Court had previously determined that a 80% markup was due to the estate and that only a 10% markup had been charged by the debtor prior to the filing. Based upon the 8th Circuit’s opinion, the markup should have been only 20% instead of the 80% awarded by this Court. This Court as trier of fact had previously determined that the sales to Gonzales &
Gertrude’s were $66,000.00 and that a 10% markup had previously already been charged. Hence, the markup to which the estate is now entitled is the difference between what the 8th Circuit has decreed (20%) and what the Debtor had previously charged (10%). Therefore, the estate is now entitled to the missing 10% on $65,000.00 .$ 6,500.00
3. Interest since date of this Court’s order dated January 23, 1987, on $6500.00 plus $9,776.84 equals $16,-276.84 at 6%.$ 976.59
4. The preferential transfer of.$24,035.82
5. Interest on the preferential transfer since Judge Baker’s May 18, 1984 order at 6%. $ 6,300.25
“Summary:
1. 13% on $75,206.45.$ 9,776.84
2. 10% on $65,000.00.6,500.00
3. Interest at 6% on two above since 1-23-87 . 976.59
4. Preferential transfer ... 24,035.82
5. Interest on preference since 5-18-84.6,300.25
Total.47,589.50.”
Counsel for the defendants objects to this computation on the grounds that (1) the district court “order of remand” is in error in awarding $9,776.84, the figure calculated on the basis of the court of appeals’ ruling that “the record before us supports only a twenty percent markup,” because only a 7-10% markup is justified by actual review of the invoices and (2) the interest figures which are contained in the proposed computation are not lawful.
With respect to the first objection raised by counsel for the defendants,, this court can only honor the findings previous*191ly made by the court of appeals and the district court. Both clearly state that a 20% markup is supported by the record and this court cannot now undertake to make different findings of fact and conclusions of law. This is so even if it is true, as counsel for the defendants contends, the court of appeals order — by using words indicating that the record supports a 20% markup “at best” — only intended to fix an outer limit and remanded the case for reconsideration of the appropriate percentage of markup within the 20% limit. For this court agrees with the district court that the court of appeals intended for its ultimate conclusion that a 20% markup was supported by the record to control the recom-putation in this case. That court issued its remand for the sole purpose of “recompu-tation,” not for the purpose of new and supplemental findings.
Further, even if it were true that the district court’s finding is erroneous, it is one on an ultimate issue, i.e., on an “ultimate fact” which is regarded as the equivalent of a conclusion of law which establishes the law of this case.3 Accordingly, this court may not question it on remand. “(A)fter the law of the case is determined by a superior court, the inferior court lacks authority to depart from it, and any change must be made by the superior court that established it, or by a court which it, in turn, owes obedience.” 1B Moore’s Federal Practice para. 0.404(1), p. 118 (2d ed. 1984); Matter of Dowell, 82 B.R. 998, 1009 (Bkrtcy.W.D.Mo.1988). Therefore, this court rejects the contention of counsel for defendants in this regard and adopts the finding of $9,776.84 as the appropriate award on the basis of a 20% markup.
The second contention of the defendants is that the interest figures which are included by the plaintiff trustee in her foregoing analysis of the elements of recovery are improper to be included at this stage of the proceedings. With this contention, this court is in agreement. The plaintiff trustee requests that this court now enter new judgments in the place of the judgments which were formerly affirmed and super-add to those judgments the interest which has accrued on them since the date of the entry of those judgments. There can be little question of the plaintiff trustee’s entitlement to interest on those judgments from the time of their rendition. See section 1961, Title 28, United States Code, to the following effect:
*192“Interest shall be allowed on any money judgment in a civil case recovered in a district court.... Such interest shall be calculated from the date of the entry of the judgment at the rate allowed by State law.”
But this result, under ordinary legal principles, follows even though the judgment itself may not contain any express provision for postjudgment interest. “The judgment bears interest by reason of the statute and it is not necessary that it or the mandate recite that fact.” Laughlin v. Boatmen’s Nat. Bank of St. Louis, 354 Mo. 467, 189 S.W.2d 974, 980 (1945). Now to enter a judgment so as to incorporate into it the interest which has accrued in the meantime would mean to compound the interest meantime accrued so that further interest is paid on it. “Compound interest is interest upon interest ... The carrying of accrued interest over as part of the new principal results in compound interest.” Vaughn v. Graham, 234 Mo.App. 781, 121 S.W.2d 222, 226, 227 (1938). And section 1961, supra, in providing that interest shall be calculated only to run from the “date of the entry of the judgment,” appears to prohibit such compounding of interest.
For, in order effectively to compound the interest, a second judgment would now have to be entered. “(B)ut only one final judgment shall be given in the action.” Laughlin v. Boatmen’s Nat. Bank of St. Louis, supra, 189 S.W.2d at 980. The time is now long since past when the federal bankruptcy court may vacate the judgment for the purpose of re-entering it. Otherwise, it is only for a “compelling reason” that the court may “reenter an order preserving a party’s right of appeal,” Kramer v. American Postal Workers Union, AFL-CIO, 556 F.2d 929, 930 (9th Cir.1977), and no such “compelling reason” has been stated or shown.4 And, even so, “plaintiff is entitled to interest under section 1961 from the date of verdict to date of payment, even where judgment is not entered ‘forthwith’ as required by Rule 58.” Turner v. Japan Lines, Ltd., 702 F.2d 752, 757, n. 5 (9th Cir.1983). This court accordingly declines to re-enter the former judgments so as to add interest to them.
The trustee has further, by implication, requested that the court make awards of prejudgment interest on the former judgment which constituted the recovery of a preferential transfer. It is true that, ordinarily, with respect to preference actions, prejudgment interest is awardable from the date of the filing of the complaint for recovery thereof. “It is well settled that interest upon a voidable preference recovered by a trustee in bankruptcy should be computed from the date of demand for its return or, in the absence of a demand, from the date of the commencement of the suit for its recovery.” Palmer v. Radio Corporation of America, 453 F.2d 1133, 1140 (5th Cir.1971), and cases there cited; In re Fulghum Const. Corp., 78 B.R. 146, 153 (M.D.Tenn.1987). The same rule is usually followed in fraudulent conveyance actions. See In re Universal Clearing House Co., 60 B.R. 985, 1002 (D.Utah 1986). But such awards are made as part of the substantive damage award and therefore are to be a subject of pleading and proof and included expressly in the judgment. Once the judgment is final, the court may not reopen it for the purpose of making an award of prejudgment interest.5 This principle applies, not only to the former judgment sounding in preference, but also to the action now at bar, which the appellate courts have remanded with instructions only to recalculate the former award and not for the purpose of making findings of fact and conclusions of law and rendering a new judgment on new elements of the plaintiff’s case. In observance of the principle, therefore, that lower courts must strictly obey the superior court’s in*193structions on remand, this court declines to superadd prejudgment interest either to the prior judgment or to this one now being entered. “It is the limited office of this court not to go beyond the district court’s instructions on remand.” Matter of Richardson, 85 B.R. 1008, 1016, n. 18 (Bkrtcy.W.D.Mo.1988). And, “(a) remand for additional evidence should be sparingly exercised. A court is reluctant to permit litigants to try their cases by piecemeal and continue protracted litigation concerning facts that could have been established at the original trial.” 5 Am.Jur.2d Appeal and Error section 972, p. 400 (2d ed. 1962). Accordingly, the appellate courts did not remand for findings and a judgment on this issue and none therefore will be made. And, from the principles which have been above stated, it is plain that the court has no authority to enter a second judgment on the former preference action which has now been final for over two years. The court will accordingly confine itself to determining that the appropriate amount of the award in Adversary Proceeding No. 82-882 is $16,276.84. It is therefore, accordingly,
ORDERED, ADJUDGED AND DECREED that the plaintiff trustee in bankruptcy have and recover, in Adversary Proceeding No. 82-882, the sum of $16,276.84 from the defendants therein named, jointly and severally.
. Curiously, the court of appeals attributed the error in determining that 30% was the appropriate rate of markup to the bankruptcy court. But it was the district court’s finding in this regard which this court has followed. Further, if, under the court of appeals' determination that "reasonably equivalent value” could not be determined wholly by evidence of the rate of markup which was necessary to the viability of the debtor but must also include sales in the open market, the only other available evidence, as observed by the court of appeals, was of sales to unrelated entities in which the markup ranged from 30% to 80%, evidence which would seem to have supported the 30% finding.
.With due respect, it appears that this court may have been correct in determining that the appropriate figure to be recovered was 23% of the cost figure, $70,286.41. "Markup" is ordinarily defined to be “(t)he amount added to the cost price in figuring a selling price to cover overhead and profit.” Webster’s New International Dictionary, 2d ed., 1954, p. 1505.
. See, e.g., Matter of Hammons, 614 F.2d 399, 403 (5th Cir.1980) (“The bankruptcy judge’s ‘new and different business’ determination was a conclusion as to the legal significance of evi-dentiary facts. As such, it was subject to review free of the clearly erroneous rule.’’); In re Richardson, 78 B.R. 960, 961 (W.D.Mo.1987) (“The district court must independently determine questions of law or mixed questions of law or fact." (Emphasis added.)). This principle is not universally followed. "Even when a district judge finds an ‘ultimate fact,’ a court of appeals is in error when it makes its own finding, for the ‘clearly erroneous’ standard under Rule 52(a) applies to all findings, including findings of ultimate facts.” 5 K. Davis Administrative Law Treatise para. 29:5, p. 352 (2d ed. 1984); Matter of Dowell, 82 B.R. 998, 1004, n. 7 (Bkrtcy.W.D.Mo.1987). In prior rulings, it appeared that our court of appeals recognized the validity of the latter principle, for it has consistently held that a district court may not make findings of fact in employing the "clearly erroneous” standard on review of a bankruptcy court decision. See Wegner v. Grunewaldt, 821 F.2d 1317, 1322 (8th Cir.1987), in which the bankruptcy court failed to make a finding which was "outcome determinative,” and the district court, on review, purported to make its own finding to supply the defect. In that case, the court of appeals stated as follows:
"The district court ... filled the void by making its own finding that Wegner’s consent was conditional. We do not believe that this is an issue that could have been determined as a matter of law. It is a factual question that should have been decided by the bankruptcy court, and the district court exceeded its authority in resolving the issue. Because this factual question is outcome determinative, we must remand this action to the bankruptcy court with instructions to conduct whatever proceedings are appropriate to make a factual finding on this issue and enter judgment accordingly."
See also Matter of Walker, 726 F.2d 452, 454 (8th Cir.1984) (The criticial question was held to be “one of fact to be decided in the first instance by the bankruptcy court.”) But this court is certain that, in the case at bar, the court of appeals regards its finding that the 20% markup is justified by the record to be a conclusion of law which establishes the law of the case and that the district court similarly regards its finding that the correct award with respect to the principal set of sales to related entities to be $9,776.84.
. In fact, this court is somewhat surprised that it should be suggested that a new judgment now be entered, for the aggrieved party would then have an opportunity again to appeal it. It is doubtful under such circumstances that any compelling reason can ever be shown for reentry of a judgment as to which there has already been an unsuccessful appeal.
. Cf. Matter of National Marine Sales and Leasing, Inc., 79 B.R. 442, 459 (Bkrtcy.W.D.Mo.1987). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490846/ | MEMORANDUM OF OPINION
LEWIS M. KILLIAN, Jr., Bankruptcy Judge.
THIS MATTER came on for hearing on defendant Sun Bank’s motion for summary judgment. The complaint in this adversary proceeding filed by St. George Island, Ltd. (SGI), the debtor-in-possession seeks a declaratory judgment, injunctive relief, and other relief regarding certain promissory notes and mortgages held by Sun Bank and upon which final judgments of foreclosure have been entered in state court. By this action, SGI seeks to have this Court declare that as the result of the foreclosure and sale of a single piece of property, all indebtedness owed to Sun Bank should be deemed satisfied and the various mortgages it holds to secure that debt be turned over to SGI. This adversary proceeding follows several other proceedings in the administrative case in which SGI has sought essentially the same relief and has lost at every instance.
The facts of this case are totally undisputed. On September 18, 1984, Sun Bank and John Stocks, the general partner of SGI entered into a revolving loan agreement pursuant to which Stocks executed and delivered a promissory note to Sun Bank in the amount of $2,500,000. This note was secured by a mortgage on real property of SGI located on St. George Island in Franklin County, Florida. The note contained a “cross-collateralization” clause which provided that the collateral pledged would also secure all other liabilities due or to become due from Stocks to Sun Bank. On May 31, 1985, pursuant to a first amendment to the revolving loan agreement, Sun Bank loaned John Stocks an additional $400,000 in return for which Stocks executed a promissory note and an additional mortgage encumbering real property owned by SGI in Leon County and Wakulla County, Florida. This note contained a similar cross collateralization clause. On September 19, 1985, Sun Bank loaned to John Stocks an additional $600,-000 pursuant to a second amendment to the revolving loan agreement and took as additional collateral real property owned by *346John Stocks in Franklin County, Florida. As with the other notes, this note also contained the cross collateralization clause.
None of the sums reflected in the three (3) promissory notes totalling $3,500,000 were paid and on August 13, 1986, Sun Bank filed a foreclosure action in Leon County, Florida under the $400,000 note given pursuant to the first amendment to the revolving loan agreement. It received its final judgment and foreclosure in that action on June 22, 1987, and judicial sale was scheduled for July 10. This Chapter 11 was filed immediately prior to the sale and the foreclosure sale was stayed pursuant to § 362(a) of the Bankruptcy Code.
On August 14, 1986, Sun Bank filed its foreclosure action in Franklin County pursuant to the 2.5 million dollar loan seeking foreclosure of its mortgage on the debtor’s property on St. George Island. No final judgment had been obtained with respect to this foreclosure action at the time this Chapter 11 case was filed.
On August 6, 1987, Sun Bank filed its motion for relief from the automatic stay seeking permission to go forward with both foreclosure actions. In addition to its 2.5 million dollar mortgage on the St. George Island property, Sun Bank asserted that the $1,000,000 in additional advances were also secured by that property, that it was subject to a judgment lien in favor of Leisure Properties, Ltd. in an amount well in excess of 1.2 million dollars and that it was also encumbered by a federal tax lien in excess of 2.2 million dollars. The only evidence of value offered by SGI with respect to the St. George Island property was an appraisal prepared in 1983 and updated in April of 1984, indicating a fair market value of $5,251,700. In view of the fact this value was substantially less than the aggregate of the liens encumbering the property, Sun Bank did not contest the valuation offered by the debtor and the Court found for purposes of the stay motion that the St. George Island property had a fair market value of $5,251,700. At hearing on Sun Bank’s motion, neither party asserted that the $1,000,000 in additional advances pursuant to the revolving loan agreement was not properly secured by the mortgages on the St. George property. However it was recognized that the priority of the lien securing the $1,000,000 was disputed. With respect to the Leon County property, the Court found that there was an equity cushion in the property and that the debtor was attempting to sell the property in order to realize that equity. The order entered by the Court vacated the automatic stay with respect to the St. George Island property and continued the stay with respect to the Leon County property. The debtor was required to sell that property within eight (8) months, a time calculated to afford ample opportunity for the sale but without the equity cushion being completely eroded through the accumulation of interest.
Pursuant to the order vacating the automatic stay with respect to the St. George Island property, Sun Bank proceeded with its foreclosure. At the hearing on final summary judgment in that action, Sun Bank moved and was allowed to amend its original complaint in order to allege that the $400,000 and $600,000 notes were also secured by the mortgage on the St. George Island property. The Circuit Court having reviewed the pleadings, affidavits, and depositions in the file found that the $400,000 and $600,000 loans were not secured by the mortgage on the St. George Island property and entered final judgment for Sun Bank with respect to the original 2.5 million dollar loan in the amount of $3,499,-098.48. The judgment lien of Leisure Properties and the tax lien of the United States of America were determined to be subordinate to the mortgage lien secured by the 2.5 million dollar note to Sun Bank. The foreclosure sale pursuant to final judgment was duly scheduled and properly noticed, and was conducted on March 22, 1988. Sun Bank was the purchaser for the sum of $100,000. No deficiency judgment has been sought by Sun Bank with respect to that final judgment in foreclosure.
With respect to the Leon County property, no sale was conducted as directed by the Court and any equity cushion which may have existed in that property has now eroded. On June 20, 1988, Sun Bank filed *347a renewed motion to have the stay lifted to enable it to go forward with its foreclosure sale. In response to Sun Bank’s renewed motion, the debtor first raised the issues which it is seeking to litigate in this adversary proceeding. In its response to the renewed motion for relief of Sun Bank, the debtor advanced the position that as the result of its being the purchaser of the St. George Island property at the foreclosure sale, Sun Bank had received property with a value in excess of all of the indebtedness owed to it by John Stocks and that accordingly the $400,000 and $600,000 notes should be deemed paid and the collateral securing those notes be released from the mortgages.1 The Court granted Sun Bank’s renewed motion finding that SGI did not have any equity in the roperty and that it was not necessary for an effective reorganization. § 362(d)(2).
St. George Island, Ltd. moved the Court to alter or amend its order vacating the stay and supported its position with Florida case law holding generally that where one holds two mortgages on separate parcels of property to secure the same debt, the mortgagee may foreclose either mortgage but that the foreclosure of the second will be barred when the value of the property first foreclosed is equal to or in excess of the debt. Symon v. Charleston Capital Corporation, 242 So.2d 765 (Fla. 4th DCA 1970); Waybright v. Turner, 129 Fla. 310, 176 So. 424 (1937); Prudence Company v. Garvin, 118 Fla. 96, 160 So. 7 (1934). Those arguments were rejected by the Court in its order entered on September 22, 1988, on the basis that the State Court determination that the $400,000 and $600,-000 notes were not secured by the mortgage on St. George Island property was collateral estoppel as to that issue and the cases cited by the debtor were not applicable.
That ruling of this Court is currently on appeal. The Court has granted the debtor a stay pending appeal conditioned on the posting of a supersedeas bond in the amount of $100,000.
In the instant adversary proceeding, the debtor is essentially seeking to accomplish the same result it has been unable to accomplish in defense of the stay relief proceedings. This complaint was filed shortly after this Court had rejected basically the same arguments in granting Sun Bank relief from the stay with respect to the Leon County property and at the same time ruling that the affirmative relief sought by the debtor in terms of turnover and accounting of funds and property were improperly raised in the context of a stay relief proceeding.
In this complaint the debtor is asking the Court to declare that the entire 3.5 million dollars principal indebtedness of John Stocks to Sun Bank has been satisfied by virtue of the foreclosure of the Franklin County property, to enjoin Sun Bank from any further action to collect such indebtedness or to foreclose upon collateral of the debtor pledged as security for those debts, and finally to require Sun Bank to turnover to the debtor any collateral held as security under the revolving loan agreement as amended. At the outset of this adversary, the debtor moved for a preliminary injunction seeking another stay of the Leon County foreclosure proceeding. That motion was denied on September 22, 1988, on the same grounds that the debtor’s motion to alter or amend the order granting relief from the automatic stay with respect to the Leon County property was denied. Sun Bank filed its motion for summary judgment in this case on November 23, 1988, and the motion was heard on January 11, 1989. The debtor filed an affidavit in opposition to the motion for summary judgment at 6:36 p.m. on the evening immediately prior to the hearing on the motion. The affidavit signed by C. Edwin Rude, Jr., counsel for the debtor basically recites the course of state court proceedings in which the debtor is seeking to obtain relief similar to that it is seeking here. Debtor’s counsel in his affidavit asserts that a factual issue exists regarding the value of security for Sun Bank’s 2.5 million dollar loan to John Stocks and for the first time in any of *348these proceedings, raises a legal issue of judicial estoppel.
The only matter of law or fact now raised by the debtor which has not previously raised and decided against the debtor is the issue of judicial estoppel. The debtor now takes the position that since Sun Bank has in this Chapter 11 case and in the state court mortgage foreclosure proceedings with respect to the Franklin County property taken the position that the $400,000 and $600,000 promissory notes were also secured by the St. George Island property, it is now precluded under the doctrine of judicial estoppel from asserting that those two notes were not secured by the Franklin County mortgage. Thus, the debtor argues that notwithstanding the clear ruling of the Franklin County Circuit Court that those two notes were not secured by the St. George Island property, Sun Bank is bound by its earlier assertions that they were so secured and collateral estoppel does not preclude relitigation of that issue.
The doctrine of judicial estoppel generally bars a party from asserting a legal position contrary to an earlier position in the same or related litigation. “Its purpose is to prevent a party from playing fast and loose with the courts and to protect the essential integrity of the judicial process.” In re Gaye-Joy Corp., Inc., 84 B.R. 235, 237 (Bkrtcy.M.D.Fla.1988). The Fifth Circuit in Texas Co. v. Gulf Refining Co., 26 F.2d 394 (5th Cir.1928) explained the concept of judicial estoppel when it stated
A party, who in litigation with his adversary has, with knowledge of the facts, asserted a particular claim, title, or right, cannot afterward assume a position inconsistent with such claim, to the prejudice of the same adversary, who has acted in reliance on such claim as it was previously made; in other words, a party who for the purpose of maintaining his position in litigation has deliberately represented a thing in one respect, is es-topped to contradict his own representation by giving the same thing another aspect in litigation with the same adversary as to the same subject matter. 26 F.2d at 397.
Judicial estoppel is an equitable rule which prevents a party from attempting to change the facts of a case to fit whatever theory seems to be most beneficial to it at the time. This Court does not find the doctrine of judicial estoppel to be applicable in this case. Sun Bank has not changed its theory or its facts. It is, instead, following the result of a final judgment of the state courts. It attempted to enforce its claim under the $400,000 and $600,000 notes against the St. George Island property in that foreclosure action and the Court ruled that the property did not secure- those notes. Thus, the only security available for those notes was the security given at the time they were made. To hold that because Sun Bank once claimed that the notes were secured by the St. George Island property they are bound by that claim even in light of a judicial determination to the contrary flies in the face of common sense and of the equitable principles upon which the doctrine of judicial estoppel are based. Additionally, the Franklin County foreclosure action was not the same proceeding nor does this Court view it as sufficiently related to this action or the Leon County action for judicial estoppel to lie.
Accordingly, this Court finds that there are no genuine issues of material fact present in this case and that as a matter of law the defendant Sun Bank is entitled to judgment in its favor on both counts of the complaint. A separate final judgment will be entered accordingly.
DONE AND ORDERED.
. At hearing on Sun Bank's renewed motion, SGI presented no authority for its position and the Court vacated the stay with respect to the Leon County property. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490847/ | 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 the dis-chargeability vel non of the liability for unpaid taxes of Richard C. King and Lynn C. King, the Debtors in the above-captioned Chapter 7 case. The liability alleged by the Government is the result of an audit of their tax return filed for the tax year 1978. In their Complaint, the Debtors seek a determination that the taxes claimed to be owed by them to the Government are dis-chargeable inasmuch as the obligation was not assessed within 240 days prior to the commencement of their Chapter 7 case. Based on this, the Debtors contend that none of the provisions of the Code which deal with exceptions to discharge of tax obligations, §§ 523(a)(l)(A)(l), (a)(1)(B)®, (a)(1)(c), are applicable, therefore, whatever their tax liability might be, they are protected by the overall protective provisions of the general bankruptcy discharge.
*357The facts as established at the trial are basically without dispute and can be summarized as follows:
Mr. King is a professional golfer who lived in several cities during and before the period relevant to the issues involved in this adversary proceeding. In 1979 the Debtors sought and obtained an extension to file their income tax return for the calendar year 1978. The request for extension (Plaintiffs’ Exh. No. 1) indicated the Debtors’ address to be 16403 Hexham Drive, Spring, Texas. The return for the tax year was ultimately filed within the extended time in which the Debtors stated their address to be 16403 Hexham Drive, Spring, Texas, and indicated their tax liability in the amount of $3,990.00 (Plaintiff’s Exh. No. 3). Thereafter, the Internal Revenue Service sought and obtained an agreement from the Debtors to extend the Statute of Limitation. The tax return of the Debtors was ultimately audited by the Internal Revenue Service and after audit, it was determined that the Debtors owed additional taxes in the amount of $24,580.00. On April 24, 1987, the Internal Revenue Service mailed what is commonly referred to as the “90-day letter” to the Debtors informing them of the result of the audit and the deficiency claimed by the IRS and the demand for payment (Defendant’s Exh. No. 2). This 90-day letter was mailed to the Debtors to 3650 Miriam Drive, Titusville, Florida. It is without dispute that the Debtors did not live in Titusville at the time the 90-day letter was mailed, albeit they lived in Titusville for approximately one year, from October 1983 to October 1984. After the expiration of the 90 days, the Government actively embarked on collection process of the taxes allegedly owed by these Debtors as a result of the audit. It is intimated by the Debtors that they filed a petition in the tax court and challenged the validity of the Government’s assessment on the ground that they had never received the 90-day letter which, by virtue of 26 U.S.C. § 6212(a) is condition precedent to making an assessment. Ironically, this is now precisely the position taken by the Government, who contends that its own assessment was legally invalid and actually never made inasmuch as that no 90-day letter was ever sent to these taxpayers. Based on the foregoing, it is the Government’s contention that since no assessment was ever made, these taxes are not barred by the provisions of § 523(a)(1) and, therefore, they are nondischargeable. Of course, the Debtors now take the totally opposite position and contend that while it is true that when the 90-day letter was mailed by the IRS, they no longer lived in Titusville, nevertheless, that was their last known address by the Internal Revenue Service and that is exactly what the Statute requires. Based on this, they contend that the assessment was valid, that it was made outside of the 240 days and, therefore, their tax liability exists and is dischargea-ble and is not within any of their excepted provisions of § 523(a).
There is no question that these Debtors lived at several different addresses and it is almost impossible to determine from this record precisely where they lived at the time the 90-day letter was mailed. Be that as it may, however, it appears that the evidence tends to establish that the last known address to the Internal Revenue Service was the Titusville address and even if it was not, it now ill behooves the Government to contend otherwise, especially in light of the fact that nevertheless the Government embarked on an extensive and active collection effort to collect these taxes. For this reason, if for no other reason, the Government is now estopped to challenge their own procedure and contend that the assessment is invalid.
A separate Final Judgment will be entered in accordance with the foregoing with the declaration that the taxes allegedly owed by them for the tax of 1978 are dischargeable.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that a Final Judgment be, and the same is hereby, entered.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490848/ | MEMORANDUM OF OPINION CONCERNING RENTALS
JOHN C. AKARD, Bankruptcy Judge.
This is another round in the continuing battles between Phoenix Grain, Inc. (Phoenix) and Thomas J. Griffith, Trustee-in-Bankruptcy for Hipp, Inc. (Griffith).
Facts
On October 1,1973 Hipp, Inc., executed a promissory note payable to John Hancock Mutual Life Insurance Company (the Hancock Note) for $2 million. The note was secured by liens on grain storage elevators located in Tulia, Nazareth, Vigo Park and Kress, Texas (the four elevators). On March 30, 1984 Hipp, Inc., leased the four elevators to Oles Grain Company (Oles Grain). On May 3, 1984 Oles Grain purchased the Hancock Note. At that time the principal balance was $570,296.87,1 In a prior proceeding Phoenix alleged that the Hancock Note had been endorsed to it and sought to foreclose on the elevators. The Court concluded that when Oles Grain, as the tenant of the property, acquired the lien on the property, the note and liens were extinguished. Therefore, the Court found that Phoenix had no interest in the Hancock Note. In re Hipp, Inc., 71 B.R. 643 (Bankr.N.D.Tex.1987) (This case will be referred to as Hipp I).2 Subsequent to that ruling, Phoenix Grain filed the captioned Adversary Proceeding asserting that it, as assignee of Oles Grain, is entitled to possession of the four elevators until the pre-paid rental has been consumed.
Hipp I was tried on September 24, 1986. Griffith, Phoenix, Oles Grain (through its attorney in its bankruptcy proceedings) and Robert H. Tolar, the Trustee-in-Bankruptcy for Oles Grain (Tolar), fully participated in the trial. At trial, neither the attorney for Oles Grain nor Tolar asserted that the *658lease between Hipp, Inc. and Oles Grain remained in effect.
Hipp, Inc. filed for relief under Chapter 11 of the Bankruptcy Code on April 11, 1984 (only a few days after leasing the four elevators to Oles Grain). Griffith was appointed Trustee in April, 1984. The case was converted to Chapter 7 on March 30, 1988, and Griffith was appointed Trustee in the Chapter 7 proceedings as well.
A petition for involuntary bankruptcy was filed against Oles Grain on April 4, 1985 in the Amarillo Division of this Court. The Debtor converted the case to a reorganization under Chapter 11 on June 25, 1985 and an order for relief was entered. In July, 1985 Tolar was appointed Trustee. The case was transferred to the Dallas Division of this Court on October 17, 1985.
Both Phoenix and Tolar appealed from this Court’s decision in Hipp I. Griffith and Tolar settled the controversies between the two bankruptcy estates and a motion to approve the compromise and settlement was filed in both bankruptcy estates. The Court approved the compromise in the Oles Grain bankruptcy, Case No. 385-32758-A-ll, on October 15, 1987 after hearing held October 8,1987. The Court’s approval was conditioned on the compromise being approved in the Hipp, Inc. bankruptcy.
On October 14,1987 Honorable Steven A. Felsenthal, United States Bankruptcy Judge heard counsel for Griffith, counsel for Tolar and counsel for Phoenix on the issue of the compromise and settlement in the Hipp, Inc. case. In open Court, Phoenix withdrew its objections to the compromise. The Court approved the compromise by Order dated October 29,1987. The compromise provided for a complete settlement of all issues between Griffith and Tolar and provided that the proceeds of the sale of the four elevators be divided between their respective bankruptcy estates.
Issue
The complaint filed in this proceeding asserted that “Phoenix is the apparent holder of certain leasehold interests originally created by Hipp, Inc. (prior to bankruptcy), in favor of Oles Grain Company, by virtue of a decision by this Court” in Hipp I. That is an incorrect reading of this Court’s decision. This Court determined that Phoenix had no interest in the Hancock Note and it denied Phoenix’s motion to be relieved from the automatic stay. The complaint then asserted that Phoenix acquired all of the interest of Oles Grain by virtue of a General Transfer and Release of Claims executed by Tolar on October 23, 1986.
DISCUSSION
On September 18,1986 Tolar, Oles Grain, David W. Oles (a debtor in a related Chapter 7 proceeding), Jack A. Moffitt, Jr., Trustee-in-Bankruptcy for David W. Oles, C.P. Oles, Curtis Commodities, Inc., Tulia Commodities, Top O’ Texas Truck Brokerage, Inc., OTC Transportation, Inc., Oles Trucking Company, Palo Duro Elevator Company, Inc., and Phoenix entered into an Agreement to Compromise Controversies. The agreement was not filed in the Oles Grain bankruptcy records until December 19, 1986. Tolar’s attorney acknowledged existence of this agreement at the hearing on September 24, 1986, but did not reveal its terms. The agreement settled a number of adversary proceedings, including a complaint objecting to the discharge of David W. Oles, provided for the release by Tolar of his claims to various items of property, including grain elevators in Amarillo, Texas to Phoenix and settled a number of other matters in exchange for specified payments by C.P. Oles or Phoenix to Tolar. In Paragraph 6(c) Tolar agreed to release or transfer any interest which he had in the Hancock Note and the collateral securing the Hancock note including all agreements and assignments related to the Hancock Note to Phoenix. The parties filed a joint motion to compromise the controversies on September 18, 1986 and the Court approved the compromise on October 6, 1986. The compromise, the motion to approve the compromise and the order approving the compromise contained no mention of a lease on the four elevators.
Acting pursuant to Paragraph 6(c) of the settlement agreement, on October *65923, 1986 Tolar executed a General Transfer and Release of Claims in which he transferred “all interest, if any,” which he in his capacity as Trustee for Oles Grain Company had in the Hancock Note “including all deeds of trust, security agreements, assignments of leases and rents, guarantees and other agreements and assignments related thereto (collectively called the ‘Property’)” to Phoenix. Tolar specifically released “any and all claims in and to the Property held by, or which might accrue to [him]” to Phoenix. The document further provided “[t]his transfer and release is to be construed broadly, and Robert Tolar, Trustee does hereby expressly disclaim and release any residual interest in the Property.” Again no reference was made to a lease on the four elevators. By way of this General Transfer and Release of Claims Phoenix acquired whatever “interest, if any” Tolar had in the Hancock Note and the security for that note. However, this Court found in Hipp I that the Hancock Note was extinguished on May 3, 1984 and when the Oles Grain bankruptcy was filed in April, 1985 there was no Hancock Note to pass to Tolar. Therefore, Tolar had no interest in the Hancock Note and Phoenix acquired nothing under the General Transfer.
Phoenix chose to negotiate with Tolar on the assumption that the Hancock Note was still in effect. Although the question of the status of the Hancock Note was raised at the hearing held September 24, 1986, Phoenix decided to proceed with its settlement without a decision from this Court as to the viability of that Note. Tolar made no warranties with respect to the Hancock Note; he only transferred his “interest, if any.”
Even given the most generous reading, the General Transfer does not encompass a lease on the four grain elevators nor any claim for prepaid rental with respect to those elevators. Thus, any residual claim under the lease — whether to the lease itself or for prepaid rentals — clearly was compromised and released by the settlement between Tolar and Griffith.
There was good reason for the settlement documents between Tolar and Phoenix not to assign the lease. The lease was no longer in effect. Section 365(d)(4) of the Bankruptcy Code3 reads as follows:
Notwithstanding paragraphs (1) and (2), in a case under any chapter of this title, if the trustee does not assume or reject an unexpired lease of nonresidential real property under which the debtor is the lessee within 60 days after the date of the order for relief, or within such additional time as the court, for cause, within such 60-day period, fixes, then such lease is deemed rejected, and the trustee shall immediately surrender such nonresidential real property to the lessor.
No evidence was presented to this Court that Tolar assumed the unexpired lease on behalf of the estate of Oles Grain nor does a review of the docket sheet in that case reveal any order granting assumption. Failing assumption, the lease terminated.4 Any residual claim which might possibly have existed by Tolar against Griffith for unpaid rentals or Griffith against Tolar for damages for termination of the lease was extinguished in the compromise and settlement made by the two Trustees.
Phoenix would treat the $580,118.91 paid by Oles Grain for the Hancock Note as an account which somehow was drawn upon each time rent became due under the lease, and then insist that the balance in this account was approximately $420,000.00 on June 25, 1985 the time of the entry of the order for relief in the Oles Grain Chapter 11 case. Phoenix then concludes that *660this $420,000.00 is a post-petition asset of the Oles Grain bankruptcy estate. This is not the case. Payment is considered made at the time the note is acquired rather than in increments as the rental payments become due. See Coppard v. Martin, 15 F.2d 743 (5th Cir.1926) cert. denied, 273 U.S. 753, 47 S.Ct. 456, 71 L.Ed. 874 (1976), and other cases cited in Hipp I, 71 B.R. 643 at 651. Thus, when Oles Grain acquired the Hancock Note on May 3, 1984, the Hancock Note and the liens securing it were extinguished and Oles Grain had a lease with prepaid rentals. The asset which went into the Oles Grain bankruptcy estate was not an account to be drawn upon but a lease with prepaid rentals. True, the landlord must account to the tenant for what the tenant paid for the lien. Thrall v. Omaha Hotel Co., 5 Neb. 295 (1877) and cases cited in Hipp I, 71 B.R. 643 at 651. However, that obligation is by way of prepaid rent; it is not a claim under a mortgage.
Phoenix asserted that the broad language of the General Transfer from Tolar to Phoenix on October- 23, 1986 included this “account” and the obligation of the landlord to account to the tenant for what he paid for the lien. That is simply not the case. The Hancock Note, all liens securing it, and all rights under the note and lien were terminated when Oles Grain purchased the Note. Oles Grain then held a lease with prepaid rentals. The tenant’s rights under the lease could not be assigned from Tolar to Phoenix because (as Phoenix admits) the lease was deemed rejected when it was not assumed by Tolar within time prescribed in § 365(d)(4). Clearly all that Tolar had was a claim for the prepaid rentals under the lease. Phoenix asserted that the broad language of the transfer of October 23, 1986 included these claims for prepaid rentals. The Court cannot agree. The General Transfer of October 23, 1986 only related to “all interest, if any,” which Tolar had in the Hancock Note and the security for the Hancock Note. The prepaid rentals under the lease cannot be considered to be rights relating to the Hancock Note or the security for it.
Oles Grain had a right to the prepaid rental under the lease prior to the filing of its bankruptcy. Thus, its right would be subject to setoff against any pre-petition claims of Hipp, Inc. against Oles Grain under § 553. Tolar retained the claim for prepaid rents. Both the claim for prepaid rents and the setoffs urged by Griffith were released in the settlement and compromise between Griffith and To-lar.
Clearly, Tolar owned the claim for prepaid rentals at the time of the hearing on September 24, 1986. At the hearing and in the briefs filed shortly thereafter, both To-lar and Phoenix were well aware that Griffith was asserting that the Hancock Note was canceled and that Oles Grain’s only claim was for prepaid rentals. In the face of this knowledge, Tolar and Phoenix decided to proceed with their compromise and settlement. If they had wished to assign the claim for prepaid rentals to Phoenix, the compromise and settlement could have been amended and the matter could have been considered by the Dallas Bankruptcy Court when it determined whether or not to approve the compromise and settlement. Griffith then would have been aware of the assignment of that claim and could have valued it in his negotiations with Tolar. The claim for prepaid rentals was undoubtedly a factor in the settlement negotiations between Griffith and Tolar.
Griffith also raises issues of res judicata and estoppel. However, it is not necessary to reach those arguments in view of the Court’s conclusions.
ORDER ACCORDINGLY.5
. Accrued interest on May 3, 1984 was $9,117.61. The principal and interest total slightly less than the $580,118.91 which Oles Grain paid to Hancock for the note. The difference may be represented by expenses which Hancock charged to Oles Grain.
. The principal shareholder of Phoenix is Dr. C.P. Oles, the father of David Oles who, in turn, was the principal officer of Oles Grain until its bankruptcy.
. The Bankruptcy Code is 11 U.S.C. § 101 etseq. References to section numbers are to sections in the Bankruptcy Code.
. Although § 365 relates to executory contracts and leases, there is no requirement that the lease be executory for these termination provisions to apply. There is some indication in documents filed in this proceeding that Griffith allowed Tolar to remain in possession of the four elevators for a substantial period of time during the Oles Grain Chapter 11 proceedings. Griffith may well have done that in order to protect the property from vandalism or other reasons sufficient to him. Such action does not constitute an assumption of the lease either by Tolar or Griffith.
. This Memorandum shall constitute Findings of Fact and Conclusions of Law pursuant to Bankruptcy Rule 7052. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490849/ | JUDGMENT AND ORDER
LEIF M. CLARK, Bankruptcy Judge.
At San Antonio, Texas, came on for trial the foregoing cause. Upon consideration of the evidence and the arguments of counsel, the court enters this judgment and order. The following represents this court’s findings and conclusions with respect thereto.
On May 15, 1984, Larry J. Stanley (“Stanley”) and his closely held company, Stanley-Southwest Investments, Inc. (“Stanley-Southwest”), formed a general partnership known as “Stanley Travel.” On June 6, 1984, Stanley filed an assumed name certificate for Stanley Travel, indicating that the entity was a general partnership. Though not reflecting who the partners were, the certificate did correctly reflect the partnership’s address. On December 26, 1984, Stanley Travel borrowed $25,-000.00 unsecured for furniture and equipment (the “Note”) from Colonial Frost Bank (“the Bank”).
On March 1, 1986, Stanley retired from the partnership by causing his company, Stanley-Southwest, which then owned 90% of the partnership, to “purchase” his 10% interest in the partnership for $20,000.1 Two weeks later, on March 14, 1986, Stanley-Southwest, d/b/a Stanley Travel, filed this bankruptcy.
Both prior to and following the bankruptcy filing, Stanley Travel continued to make its regular monthly note payments of $1165.19 to Colonial Frost. Three payments totalling $3,495.57 were paid prior to the filing, and $4,660.76 was paid post-petition. The debtor-in-possession, Stanley-Southwest, now seeks to recover all of these sums as preferential transfers under Sections 547, 549, and 550 of the Bankruptcy Code. 11 U.S.C. §§ 547, 549, 550.
The Bank argues that the plaintiff has no standing to recover these sums because the Bank made its loan to the partnership, not to Stanley-Southwest. What is more, the Bank contends it was deceived by the assumed name certificate into thinking that Stanley-Southwest had nothing to do with this partnership.2 It urges that it could be liable only to Larry Stanley or Stanley Travel for preferences received, but not to Stanley-Southwest. The Bank finally urges that this court does not have jurisdiction over this proceeding.
This court has the jurisdiction to enter a final, appealable judgment in preference litigation. 28 U.S.C. § 157(b). As a preliminary matter, the court also has the power (indeed the duty) to resolve issues of standing. U.S. v. One 18th Century Colombian Monstrance, 797 F.2d 1370, 1374 (5th Cir.1986).3 All federal courts are courts of “limited jurisdiction,” i.e., they hear only actual cases and controversies which are truly ripe for consideration and do not enter merely advisory decisions. Warth v. Seldin, 422 U.S. 490, 518, 95 S.Ct. 2197, 2215, 45 L.Ed.2d 343 (1975); U.S. v. One 18th Century Colombian Monstrance, 797 F.2d at 1375.
The Bank’s standing argument has some merit. A debtor-in-possession, exercising the powers of a trustee under Section 547 may only recover transfers of the debtor’s interest in property. 11 U.S.C. § 547(b) *704(“... the trustee may avoid any transfer of an interest of the debtor in property”). Recoveries under Section 549 are limited to transfers of property of the estate. 11 U.S.C. § 549(a) (“the trustee may avoid a transfer of property of the estate that occurs after the commencement of the case ... ”). The question here is whether the transfers in question came from the partnership, Stanley Travel, or from the debtor, doing business as Stanley Travel. In re Caudy Custom Builders, Inc., 31 B.R. 6, 8-9 (Bankr.D.S.C.1983) (a transfer of partnership property cannot be avoided by the trustee of a partner). If the property transferred to the Bank was that of the partnership, the plaintiffs case falls for failure to prove a transfer either of the debtor’s (i.e., Stanley-Southwest) interest in property or of property of the estate (i.e., Stanley-Southwest, debtor-in-possession). Id. If the property transferred is that of the debtor doing business as Stanley Travel, however, the transfer may be avoided under either Section 547(b) or 549.
Stanley Travel was undeniably a partnership at least until March 1, 1986. When the debtor, Stanley-Southwest, bought out Stanley’s 10% interest in Stanley Travel, it was left as the only remaining “partner.” The minimum requirement for a partnership is that it have at least two partners. TUPA, § 6(1); State v. Houston Lighting & Power Co., 609 S.W.2d 263, 267 (Tex.App.—Corpus Christi 1980, writ ref’d n.r. e.). The “buyout” thus should have worked a dissolution of the partnership. Tex.Rev.Civ.Stat.Ann., art. 6132b, § 29 (West pamphl. ed. 1988) (hereinafter “Texas Uniform Partnership Act” or “TUPA”) (“dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to associate in the carrying on as distinguished from the winding up of the business”); Kelly v. Kelly, 411 S.W.2d 953, (Tex.Civ.App.—Houston [1st Dist.] 1967, writ ref’d n.r.e.) (generally sale of partnership interest by one of two partners and that partner’s withdrawal from participation in the business dissolves the partnership).
The partnership agreement permits the continuation of the partnership despite the retirement of one partner. Plaintiff’s Exhibit 1. Under Texas law, the “partnership” could conceivably have continued its existence even after Larry Stanley’s retirement without a dissolution being effected as a matter of law. See Park Cities Corp. v. Byrd, 534 S.W.2d 668, 672 (Tex.1976) (partnership agreement controls over Uniform Partnership Act); TUPA, § 1, Comment 1; cf. Gevinson v. Manhattan Constr. Co. of Oklahoma, 420 S.W.2d 486 (Tex.Civ.App.—Ft.Worth 1967), rev’d on other grounds, 449 S.W.2d 958 (1969) (pre-TUPA, a single individual could not own a partnership). Here, though, the parties intended to terminate the partnership, as evidenced by (1) the final partnership tax return, closing the tax year on February 28, 1986 (Plaintiff’s Exhibit 3) and (2) the debt- or’s Schedule B-2, which fail to reflect any continuing interest in Stanley Travel as a partnership (Plaintiff’s Exhibit 6). The voluntary desire of a partner to dissolve a partnership is honored under the Uniform Partnership Act. TUPA, § 31(l)(b).
Dissolution does not automatically terminate a partnership. TUPA, § 30. To the contrary, there are three distinct stages in the process of discontinuing a partnership’s existence — dissolution, the winding up of partnership affairs, and termination. Bader v. Cox, 701 S.W.2d 677, 681 (Tex.App.—Dallas 1985, writ ref’d n.r.e.). During the period of dissolution, the partnership’s internal and external relations are governed by Sections 33-43 of TUPA. According to Section 40(a) of TUPA, the assets of the partnership available for satisfaction of partnership obligations upon the conclusion of the winding-up process are (I) the partnership property and (II) the contributions of partners necessary for the payment of all the liabilities of the partnership (specified in subsection (b) of Section 40). TUPA, § 40(a). Partnership property, in turn, is defined in Section 8 of TUPA as “all property originally brought into the partnership stock or subsequently acquired by purchase or otherwise, on account of the partnership ...” TUPA, § 8(1). Further, unless a contrary intention appears, “prop*705erty acquired with partnership funds is partnership property.” TUPA, § 8(2).
Texas is emphatically an “entity theory” state when it comes to partnerships. Jacox v. Cobb, 659 S.W.2d 743, 745 (Tex.App.—Tyler 1983, no writ); TUPA, § 1, Comment l.4 The continuation of the “entity” after dissolution serves to facilitate the winding-up process. See TUPA, § 30 (“on dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed”). The winding-up process is conducted primarily for the benefit not of the partnership’s creditors but of its respective partners. Not until the partnership’s assets have been applied to its obligations can it be known whether remaining partners will have to “ante up” additional capital to make up the difference or will instead receive the remaining assets as their profits. See TUPA, § 40.
It is true that one of the important aspects of the winding-up process is to pay off existing obligations. See, e.g., Hentges v. Wolff, 61 N.W.2d 748, 240 Minn. 517 (1953); Scaglione v. St. Paul-Mercury Indent. Co., 145 A.2d 297, 28 N.J. 88 (1958). That function, however, merely serves the larger purpose of winding-up, mainly, to determine the profits or losses to be shared by the partners. See, e.g., Park Cities Corp. v. Byrd, 534 S.W.2d 668, 672-73 (Tex.1976). It is not necessary to continue the legal existence of the partnership to protect creditors’ rights, because Section 41(2) of TUPA provides that claims of third party creditors will continue to be good against not only the partners but also the enterprise which might be continued as a new partnership or as a sole proprietorship, notwithstanding the dissolution of the partnership.5
It is pointless, therefore, to entertain the Bank’s arguments that it relied on the existence of the partnership when it accepted payments from Stanley Travel. Those cases which protect a creditor that does business with what it thinks is a partnership do so to preserve the creditor’s claim against the partnership’s assets and the partners themselves. See, e.g., Boyd v. Leasing Associates, Inc., 516 S.W.2d 485, 488 (Tex.Civ.App.—Houston [1st Dist.] 1974, writ ref’d n.r.e.); see TUPA, § 15. The Bank here continues to enjoy its claim against Stanley Travel’s assets, be they the assets of the partnership or the assets of the successor, Stanley-Southwest. Bankruptcy preference law does not alter these rights. Instead, it focuses on the role of a trustee acting on behalf of the estate of a given debtor to achieve a redistribution of estate property that will hopefully yield a more equitable sharing of losses suffered by all the estate’s creditors. M. Bienen-stock, Bankruptcy Reorganization, p. 345 (PLI, 1987). Theories of waiver, estoppel, and detrimental reliance are simply inappo-site.
Such theories are invalid defenses against a preference action anyway. The only affirmative defenses available to preference suits are those set out in Section 547(c). 11 U.S.C. § 547(c); see In re Day *706Communications, Inc., 70 B.R. 904, 910 (Bankr.E.D.N.C.1987). None of these defenses were asserted by the Bank in this action, so it is pointless to evaluate whether any of those defenses might have been available. See In re Fasano/Harriss Pie Co., 71 B.R. 287 (Bankr.W.D.Mich.1987).6
It is true that Section 40(a)(II) of TUPA includes as a partnership asset the capital contributions owed by partners needed to pay off the partnership’s obligations. TUPA, § 40(a)(II). The section sets out the rules for settling accounts “between the partners after dissolution.” Once accounts have been settled, and winding up has been completed, the partnership is terminated. See TUPA, § 30. Sections 15 and 41, not Section 40, control the relationship of partners and creditors after termination. To the extent a partner pays a partnership claim after termination of the partnership, it is paying off a personal liability created by Section 15 of TUPA. TUPA, § 15 (“All partners are liable jointly and severally for all debts and obligations of the partnership ... ”). It is no longer satisfying a partnership capital account obligation. Cf. TUPA, §§ 18(a), 40(d). What is transferred after termination, then, is not partnership property (i.e., capital contributions under Section 40(a)(II)), but partner property (i.e., satisfaction of joint and several liability under Section 15).
In this case, Larry Stanley retired from the partnership by having his company, Stanley-Southwest, buy him out. The Bank at that point enjoyed a claim against the assets both of Stanley Travel, the partnership, and of Stanley-Southwest, doing business as Stanley Travel. Meanwhile, the need for winding-up was obviated by Larry Stanley’s receipt of $20,000 for his 10% interest in the partnership from Stanley-Southwest. He waived any further rights to accountings or the like upon that assignment. Kelly v. Kelly, 411 S.W.2d 953, 955 (Tex.Civ.App.—Houston [1st Dist.] 1967, writ ref’d n.r.e.). There was thus no further winding up to be done. The sole remaining partner had assumed all the assets and liabilities of the entity, without further obligation to Larry Stanley. The partnership was thus effectively terminated at the same time as it was dissolved, with the three stages collapsed into an instantaneous moment. In this case, therefore, March 1,1986, the moment of dissolution, was also the moment of termination of the partnership.
Following this analysis, transfers prior to the dissolution (and termination) of the Stanley Travel partnership are transfers of partnership property, while transfers after that point in time are of Stanley-Southwest’s interest in property. Stanley Travel made regular payments of $1165.19 in December and January of 1986, prior to the dissolution. Neither of these payments can be avoided by the plaintiff, as they represent transfers of partnership property. See In re Caudy Custom Builders, Inc., 31 B.R. at 9.
It is not necessary to determine from what source Stanley Travel qua partnership acquired the funds with which to pay the Bank. Even though Stanley-Southwest made numerous advances to the partnership within ninety days of the filing, those advances are not preferences directly to the Bank as the initial transferee. It is true that, as a general principle, such preferential transfers could be recovered from the Bank to the extent that the Bank is shown to be a mediate or immediate transferee of the initial transferee, the partnership. 11 U.S.C. § 550(a)(2). Here, though, all the evidence indicates that the Bank falls within the exception carved out in Section 550 for those subsequent transferees who take for value (including the payment of an antecedent debt), in good faith, and without knowledge of the voidability of the transfer. 11 U.S.C. § 550(b)(1), (2). The Bank certainly did not know that Stanley-Southwest was a partner in Stanley Travel prior to the bankruptcy filing. The payment checks were written on an account simply styled “Stanley Travel” and *707came in fairly regularly. The partnership agreement was of course not a matter of public record and the assumed name certificate did not reflect Stanley-Southwest as a partner. The Bank’s failure to conduct a searching inquiry into the composition of the partnership does not undercut its good faith in receiving the payments. Thus, the December and January payments cannot be avoided even though made using funds received from Stanley-Southwest within the preference period. 11 U.S.C. § 550(b)(2).
The last Stanley-Southwest advance made pre-petition to the Stanley Travel business was on February 14, 1986. The next payment to the Bank, though due in February, was made March 3rd, just two days after the buyout. Even though the source of this payment was the Stanley Travel checking account, to which the receipts of the partnership (including advances by its partner, Stanley-Southwest) were deposited, the termination (as opposed to the mere dissolution) of the partnership changed the character of these funds from partnership assets to assets of Stanley-Southwest, d/b/a Stanley Travel. The March 3, 1986 payment was thus a transfer of the debtor’s interest in property, qualifying it for avoidance under Section 547(b).7
The same analysis confirms that the post-petition payments were made by Stanley-Southwest, d/b/a Stanley Travel. Therefore, these transfers are transfers of property of the estate avoidable under Section 549.8
CONCLUSION
In view of the foregoing, judgment is entered in favor of Plaintiff pursuant to Sections 549(a) and 550(a) for those funds transferred postpetition, in the total amount of $4,660.76, and for the March 3, 1986 payment of $1165.19 under Section 547(b). Insofar as plaintiff’s claims to the remaining prepetition transfers are concerned, judgment is denied.
So ORDERED.
. Not at issue in this proceeding is the propriety of this transaction under any other provisions of the Bankruptcy Code.
. The theory of the Bank is that it reasonably relied on the appearance that Stanley Travel was and continued to be a partnership and that only that partnership can avoid the payments it received. The entity that filed bankruptcy was not the partnership but one of the partners, Stanley-Southwest. Therefore, goes the argument, the debtor, by holding itself out as a partnership, is somehow estopped from avoiding the transfers of its personal property.
.Standing ... is literally a threshold question for entry into a federal court, limiting the exercise of its jurisdiction, and the court must consider the standing of any party even if the issue has not been raised by the parties to the action [citing Juidice v. Vail, 430 U.S. 327, 331-32, 97 S.Ct. 1211, 1215, 51 L.Ed.2d 376 (1977) and Jenkins v. McKeithen, 395 U.S. 411, 421, 89 S.Ct. 1843, 1848, 23 L.Ed.2d 404 (1969)].
Id.
. The commentary to the Texas Uniform Partnership Act (written by Alan Bromberg) notes that—
The Uniform Partnership Act leans heavily toward the entity idea, which accords with business usage. The Texas version goes even further. The only significant aggregate feature of the Act is the joint and several liability of partners (section 15). Even this is phrased as liability for the obligations "of the partnership." In contrast, entity notions permeate the Act, particularly four critical areas.
(1) Property ... The interest in the partnership is the partner’s individual property, quite independent of specific partnership proper-ty_ On the other hand, his rights in specific partnership property are wholly subordinated to the rights of the partnership entity as owner of the property....
(2) Creditors’ Rights. Partnership creditors are given priority in partnership assets, and individual creditors in individual assets (§§ 40(h), (i), 36(4))....
Id.
. The section reads as follows, in pertinent part: (2) When all but one partner retire and assign ... their rights in partnership property to the remaining partner, who continues the business without liquidation of partnership affairs, either alone or with others, creditors of the dissolved partnership are also creditors of the person or partnership so continuing the business.
TUPA, § 41.
. The Bank will not be foreclosed, however, from asserting the reliance-on-the-continuing-existence-of-a-partnership argument in a state court action against Larry Stanley. See Boyd v. Leasing Associates, Inc., supra; TUPA, § 15.
. There is no.dispute between the parties that the transfers in question satisfy the remaining elements of Section 547(b) and in any event, the evidence supports such a finding.
. Section 549 provides in pertinent part as follows—
(a) ... the trustee may avoid a transfer of property of the estate—
(1) that occurs after the commencement of the case; and
(2) ...
(B) that is not authorized under this title or by the court.
11 U.S.C. § 549(a). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490852/ | OPINION
Before MOOREMAN, PERRIS and JONES, Bankruptcy Judges.
MOOREMAN, Bankruptcy Judge:
This appeal arises out of the bankruptcy court’s order denying in part the appellant’s claim for protection under the Securities Investor Protection Act (SIPA).
FACTS
The debtor, Brentwood Securities, Inc. (“Brentwood”), is a stock brokerage and investment banking firm registered as a broker-dealer with the Securities Exchange Commission. Because the Brentwood did not maintain the minimum net capital required by the SEC to hold customer property and maintain customer accounts, Brent-wood customers were required to establish accounts with Wedbush, Noble & Cook, Inc. (“Wedbush”), another broker-dealer. Wedbush sent Brentwood customers regular statements setting forth the status of the customer’s account. See In re Brentwood, 87 B.R. 602, 603 nt. 1 (9th Cir.BAP 1988).
In February 1985, a liquidation proceeding was initiated by the Securities Investment Protection Corporation (SIPC), against Brentwood in the United States District Court for the Central District of California.1 The district court appointed SIPC as the trustee for the liquidation of Brentwood and removed the case to the bankruptcy court pursuant to 15 U.S.C. § 78eee(b)(4) of SIPA.
The appellant, Michael C. Jackman, asserted a claim for protection under SIPA on the basis of the following facts. On September 3, 1981, Jackman wire transferred $200,000 from Ireland to Brentwood’s bank account, purportedly to be deposited in an investment account. However, by a letter dated September 1, 1981, Jackman authorized the bank to transfer these funds to the personal account of Christopher De-lahunty, Brentwood’s president.2 On September 8, 1981, Delahunty withdrew $180,-000 of the $200,000 and deposited it in his personal account.
On that same date, an account was opened for Jackman at Brentwood’s clearing broker (Wedbush). Shortly thereafter, Delahunty deposited $120,000 into the account. On September 9, 1981, “$1,000,000 face value United States Treasury Bonds 8% 1996/2001” were purchased for Jack-man’s account at Wedbush. These bonds were purchased for $600,217.39, with a $120,000 personal check from Delahunty and by borrowing the balance of the purchase price on a margin loan.3 After this initial transaction, Jackman’s Wedbush account statement reflected only this $120,-000 deposit and not the $200,000 originally transferred from Jackman to Brentwood. The 1996/2001 Treasury Bonds were sold on November 25, 1981, at profit of approximately $70,000. Adding the $120,000 already reflected in Jackman’s Wedbush account statement and the $69,456.52 profit realized on the sale of the 1996/2001 Treasury Bonds, it would appear that the Wed-*1004bush account contained a balance of approximately $190,000, following the sale. Within the next five months, Delahunty made three cash withdrawals from Jack-man’s Wedbush account totaling $170,000. In January of 1983, Delahunty deposited $150,000 into Jackman’s account, leaving $20,000 of the $170,000 withdrawn by Dela-hunty from the account still unaccounted for and unreplaced.4
Contemporaneously with the $150,000 deposit by Delahunty into Jackman’s account, a second purchase of $1,000,000 face value U.S. Treasury Bonds 1993/1998 was made on Jackman’s instructions and listed on Jackman’s Wedbush account. The $150,-000 deposited funds were used to purchase the bonds and the remainder of the purchase was again made on a margin loan.5 In May 1983, Jackman withdrew $50,000 from his Wedbush account, thereby increasing his margin indebtedness to Wed-bush. On August 3, 1983, the Treasury Bonds were sold from the account on a margin call at a net loss to Jackman of $81,341.93.6 On August 10, 1983, Jackman withdrew $25,332.66 out of his account leaving a balance of $49.49.
On the basis of the above series of events, Jackman asserted a claim for protection under SIPA.7 However, Juliet Jo-bling-Purser also filed a claim asserting that she, and not Jackman, was entitled to the funds sought in the claim filed by Jack-man. Ms. Purser argued that Jackman entered the transactions at issue as a trustee of a trust of which she was the beneficiary. Ms. Purser was accordingly allowed to intervene on the matter.
Pursuant to the prescribed procedure, the SIPC notified Jackman and Ms. Purser that the claims were disallowed in their entirety. Both Jackman and Ms. Purser filed an objection to the SIPC’s denial of the claims.
The bankruptcy court determined that it would first decide the validity of the claims under SIPA and then at a later proceeding, address the issue as to who was rightfully entitled to any allowed claims. Accordingly, the hearing on the validity of the claims was held on April 28, 1987, wherein the bankruptcy court determined that a “protected cash claim” had been established in the amount of $20,000.
The bankruptcy court ruling was based inter alia on the conclusion that Jackman:
had some sort of a side deal with Mr. Delahunty that [$80,000] [see note 4] would go out, they’d do with what they want, [sic] They had some deal, who knows what it was.
... As a neutral bystander looking at this, its quite obvious something was going on strictly between Mr. Delahunty and Mr. Jackman.
Essentially, the bankruptcy court had concluded that although the original $200,-000 had been wired to Brentwood for the purpose of acquiring investments that would have been covered by SIPA, a subsequent agreement was later entered into between Jackman and Delahunty that the $200,000 funds would be used in a separate business deal of some kind. Accordingly, an account entitled to SIPA protection was *1005not created until Delahunty deposited $120,000 into Jackman’s newly created account for the purpose of purchasing the first set of Treasury Bonds.
Although the bankruptcy court had not yet determined whether Jackman or Ms. Purser would be entitled to the $20,000, Jackman brought this appeal seeking to set aside the denial of the remaining claims.
DISCUSSION
Standing
Initially, SIPC argues that Jackman lacks standing to bring the instant appeal since the bankruptcy court subsequently determined that Ms. Purser was rightfully entitled to all claims asserted by Jackman. Although this Panel previously denied SIPC’s motion to dismiss this appeal based on the identical argument, SIPC again argues that because of the bankruptcy court’s subsequent order, Jackman lacks standing to pursue this action.8
The facts relevant to SIPC’s argument that this appeal should be dismissed for lack of standing are as follows. The bankruptcy court held a hearing on “the second portion” of this case on January 7, 1988. Pursuant thereto, the court determined that the allowed claim of $20,000 “is properly payable to intervenor Juliet Jobling-Purser, and not to Claimant Michael Jack-man.” Jackman did not file a notice of appeal from this order and accordingly, SIPC argues that Jackman lacks standing to appeal the instant order since he is not entitled to any proceeds arising out of the claim at issue.
SIPC’s argument fails, however, in view of the undisputed fact that Jackman is the trustee of an express trust in which Ms. Purser is the beneficiary. Accordingly, Jackman may well be responsible for any trust funds which were lost as a result of a breach of the fiduciary duty. Given the fact that Ms. Purser contends the trust funds were lost because of Jackman’s breach of fiduciary duty, Jackman may have a substantial stake in the outcome. Based on these undisputed facts, Jackman does have standing to prosecute this appeal as trustee of the express trust.
Merits
The issue on the merits of this appeal is whether Jackman is entitled to protection as a “customer” under SIPA for certain of his claims. Whether a person satisfies the statutory definition of a customer entitled to protection under SIPA is a question of law subject to de novo review. In re Brentwood, 87 B.R. at 606. A trial court’s findings of fact giving rise to the determination of customer status, however, should be reviewed under the clearly erroneous standard. Bankruptcy Rule 8013.
Jackman asserts that he had no knowledge of and did not consent to the initial withdrawal of the transferred funds by De-lahunty. Jackman also contends that after receiving the initial Wedbush statement of his account, he became concerned that only $120,000 was reflected and not the full $200,000 transfer. Accordingly, Jackman states that he requested all the Treasury Bonds be sold. Although the Wedbush account statements did not reflect the amount that Jackman considered to be in his account, he states that Delahunty assured him that “the property in [his] account was safe.” Jackman contends that in November 1982, Delahunty informed him that 419 bonds with a face value of $419,000 had been purchased for a cost of $250,000 which is approximately the amount Jackman then considered to be in his “account with Brentwood.”9 Jackman *1006argued that he “demanded that [Mr. Dela-hunty] deliver the bonds to [Jackman], however, this was not done.”
In January 1983, Jackman ordered 1993/1998 Treasury Bonds to be purchased and argues that he intended the 419 bonds “already in the account” to be used as collateral. The Treasury Bonds were, however, purchased on margin with a $150,000 personal check from Delahunty. Jackman argued that Delahunty had told him the $150,000 were the proceeds from the sale of 150 of the 419 bonds allegedly “held for safekeeping” by Brentwood. Jackman also contends that although he requested the 1993/1998 Treasury Bonds to be transferred to another broker, this was not done and eventually, a “forced sale” of the Treasury Bonds occurred pursuant to a margin call. Jackman asserted that had his account actually contained the amount of cash and securities that Delahunty had assured him existed, the equity in his account would have been sufficient to satisfy the margin call.
Accordingly, Jackman’s asserted claim was for the value of the Treasury Bonds as of January 1983, 269 bonds with a $269,000 face value (419 less the 150 sold by Dela-hunty), and accrued interest on the account.
Jackman argues on appeal that he had sustained his burden of proving that he was a “customer” of Brentwood with respect to each claim made and therefore entitled to SIPA protection. Although the bankruptcy court determined that the initial transfer of $200,000 was “customer” property entitled to SIPA protection, Jack-man’s subsequent authorization to Dela-hunty to withdraw those funds to the personal account of Delahunty, removed them from SIPA protection.
It is recognized that although a person may be considered a “customer” with regard to some claims, this does not mean that “customer” status will be afforded as to all claims. E.g. In re Stalvey Associates, Inc., 750 F.2d 464, 471 (5th Cir.1985). The Stalvey court stated:
[A claimant’s] customer status in the course of some dealings with a broker will not confer that status upon other dealings, no matter how intimately related, unless those other dealings also fall within the ambit of the statute. “The Act contemplates that a person may be a ‘customer’ with respect to some of his claims for cash or shares, but not with respect to others.” S.E.C. v. F.O. Baroff Co., 497 F.2d 280, 282 n. 2 (2d Cir.1974). Customer status “in the air” is insufficient to confer the SIPA’s protection on a given transaction.
Id. See also In re Brentwood, 87 B.R. at 606-07.
In the instant case, the bankruptcy court found that Jackman and Delahunty were involved in a separate “partnership.” Accordingly, the court concluded that Jack-man’s claim was outside the scope of SIPA protection. Under the clearly erroneous standard, there is sufficient evidence in the record to support the bankruptcy court’s finding. First, Jackman apparently drafted a letter authorizing Delahunty to draw from the original $200,000 transfer. Additionally, Jackman had moved from Ireland in July of 1982, because Delahunty had offered to hire Jackman to “provide the debtor with consultation services in areas of interest to the debtor.” There is also evidence in the transcript that Delahunty and Jackman had previously discussed other business opportunities.
The bankruptcy court also determined that “the testimony of [Jackman] is not all that credible, quite frankly.” This is supported by the fact that when Jackman requested his entire account be transferred to Merrill Lynch in July 1983, the only assets requested to be transferred were the 1993/1998 Treasury Bonds. This is inconsistent with Jackman’s assertions that Brentwood also held 269 bonds in his account at that time period.
*1007Additionally, Jackman never requested that Brentwood or Delahunty purchase the 419 bonds that Jackman argues should have been in the account. Finally, Jack-man testified that “the bonds were used by Delahunty as collateral for his (Delahunty’s) purchase of another company.” These facts tend to support a finding that a separate “partnership” between Jackman and Delahunty existed. Accordingly, the bankruptcy court determined that with regard to these bonds “[t]here is no credible evidence or testimony that any such bonds were purchased by Mr. Delahunty for Mr. Jackman’s account.”
Although Jackman introduced into evidence a hand written note on Brentwood’s stationary and signed by Delahunty stating that Brentwood “holds in safekeeping for [Jackman’s] account $269,000 face value U.S. Treasury Bonds,” Bankruptcy Rule 8013 precludes this Panel from setting aside the bankruptcy court’s findings unless clearly erroneous. Based on the facts set forth above, the evidence would support a conclusion that Jackman failed to establish his “customer” status regarding each of the underlying transactions with Brent-wood.
Given these facts, the bankruptcy court’s findings defeat as a matter of law Jack-man’s claim of customer status under SIPA. See 15 U.S.C. § 78iii(2) (defining “customer” as a person “who has a claim on account of securities received, acquired, or held by the debtor in the ordinary course of its business as a broker deal-er_”) (emphasis added).
Accordingly, the bankruptcy court’s order is AFFIRMED.
.“[T]he purpose of SIPA was to protect customers of brokerage houses, restore investor confidence in the securities market and upgrade the financial responsibility of brokers dealers.” In re Brentwood Securities, Inc., 87 B.R. at 606 (citations omitted).
"SIPC was established to liquidate a broker or dealer when customers’ assets are in danger and in the case of a failed broker or dealer, a customer’s claim is insured by SIPC, just as the depositor of a failed bank receives protection from the FDIC.” Id.
. Although this letter was not included in the appellant’s Excerpts of Record, it is referred to in the transcript from the court below and Jack-man does not dispute the fact that the letter specifically authorized the transfer of the funds at issue.
. A margin loan is a loan through a broker-dealer which enables a customer to purchase the securities with a payment of a certain percentage of the purchase price. The customer takes the market risk for the entire position and the securities collateralize the loan.
. The Bankruptcy court determined only this $20,000 amount would be afforded protection under SIPA. Appellant’s entire argument is based on this $20,000 amount and the $80,000 "missing" amount which is the difference between the original $200,000 transfer and the $120,000 check from Mr. Delahunty used to open the Wedbush account.
. Jackman contends that the $150,000 was the proceeds from the sale of 150 of the 419 bonds, discussed above, allegedly held for safe-keeping by Brentwood. Jackman further contends that he intended the 419 bonds to be used as collateral for the purchase of the 1993/1998 bonds.
. Although Jackman contends he had demanded that Delahunty transfer his account to another broker, this was not done and the 1993/1998 bonds remained in Jackman’s Wedbush account at the time of the margin call.
.Jackman’s initial claim filed with the SIPC set forth the amount of his claim as of the filing date as follows:
Claim for Cash Credit Balance- $170,000
Claim for Bonds:
U.S. Treasury Bonds 1993/1998- $ 75,000
U.S. Treasury Bonds 1996/2001- $269,000
Total $514,000
. Ms. Purser did not file a notice of appeal from the initial order which limited the amount of the claim to $20,000. However, in response to the appellee’s initial motion to dismiss this appeal, Ms. Purser’s attorney filed a "Statement of Position Re Trustee’s Motion to Dismiss.” Ms. Purser’s apparent position is that Jackman may prosecute this appeal only "in his capacity as trustee for Ms. Purser, and not in any separate individual right.” Additionally, Ms. Purser’s response argues that her “objection to trustee’s denial of claim” is still "pending” and although the order presently before this Panel may be res judicata as to that claim, she still may have separate substantive rights against the debtor.
. Jackman argued at trial that although he was receiving account statements from Wedbush with a balance of approximately $190,000, he appears to have thought that a separate “Brent-*1006wood account” existed. Although no formal statements with such an account were ever received by Jackman, eventually he did receive a hand written note allegedly from Delahunty setting forth an account balance listing the 419 bonds. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490854/ | MEMORANDUM OPINION
MARK B. McFEELEY, Bankruptcy Judge.
This matter came before the Court for hearing on plaintiffs motion to file a second amended complaint and the objection thereto by defendant Barnhill. Having considered the arguments of counsel and the letter memoranda submitted therewith, and being otherwise fully informed, the Court finds the objection well taken.
Although amendments to complaints should be freely permitted when justice so requires, see Fed.R.Civ.P. 15(a); Foman v. Davis, 371 U.S. 178, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962); S.S. Silberblatt, Inc. v. East Harlem Pilot Block-Building 1 Housing Development Fund Company, Inc., 608 F.2d 28, 41 (2d Cir.1979), it would be an exercise in futility to allow an amendment when the new complaint would not survive a motion to dismiss. See J. Moore, 3 Moore’s Federal Practice 11115.08[4] (2d ed.1985); Freeman v. Marine Midland Bank, 494 F.2d 1334, 1338 (2d Cir.1974); Vibrant Sales, Inc. v. New Body Boutique, Inc., 105 F.R.D. 553 (S.D.N.Y.1985).
In re Sattler’s Inc., 73 B.R. 780, 785 (Bankr .S.D.N.Y.1987).
*70Plaintiffs proposed second amended complaint is identical to the first, with one exception; it adds paragraph 7 to Count I against Barnhill that states:
Alternatively, the transfer from debtors to William Barnhill was made on November 20, 1985. On information and belief, the trustee states that the check attached hereto as exhibit A was delivered to William Barnhill and/or his agents on November 18, 1985, said check was postdated to November 19, 1985, and said check was honored by the drawee on November 20, 1985.
Taking judicial notice of the file the Court finds that the 90th day before the bankruptcy petition was filed is November 20, 1985.
In an earlier order entered in this case the Court ruled that the appropriate way to count days for purposes of the 90 day preference period is backwards from the date of the petition. Johnson v. Barnhill (In re Antweil) 97 B.R. 63 (Bankr.D.N.M. 1988). That order also found the case of In re White River Corporation, 799 F.2d 631 (10th Cir.1986) binding. That case states that the date of delivery of a check is the date of transfer if the check is presented for payment within 30 days and honored.
Trustee makes two arguments to support amending the complaint: first, that the date of delivery rule should not apply to post-dated checks and, second, that the date of delivery rule only applies to Bankruptcy Code § 547(c) defenses, not § 547(b) preference actions. Each will be discussed in turn.
The Court finds that the date of delivery rule should apply to post-dated checks. The date of delivery rule is the method adopted by the Court of Appeals for the Tenth Circuit to determine when a transfer made by check occurs. In re White River, 799 F.2d at 633. One purpose stated by the Court in adopting that rule was to allow the debtor, as opposed to a bank, to determine the “precise date of transfer.” Id. at 634. By defining “delivery” to be the later of the date a check is received or dated will further that purpose. This interpretation will also comport with the state law treatment of post-dated checks.1
The Court also finds that the date of delivery rule should apply to § 547(b) preference actions as well as to § 547(c) defenses thereto. First, White River held that “a transfer occurs upon delivery” and rejected the argument that a transfer occurred on the date a cheek was honored. 799 F.2d at 633. The trustee makes the same argument in this case.
Second, the Court finds no good reason to view a single transaction differently depending on which subsection of the statute is being read. Finally, in this case the date on the check and the date the cheek was delivered to Barnhill are both outside the 90 day preference period. This does not seem to be the type of situation Congress intended to cover when it passed section 547. See 124 Cong.Rec. S17414 (daily ed. Oct. 6, 1978) (“Payment of a debt by means of a cheek is equivalent to a cash payment, unless the check is dishonored.”)
Therefore, if the Court granted the plaintiffs motion to file a second amended complaint that complaint would not survive a motion to dismiss. Plaintiff’s motion will be denied.
In the October 24, 1988 order entered in this case the Court granted all pending motions to dismiss except Barnhill’s and reserved ruling on the Barnhill motion pending the outcome of plaintiff's motion to amend the complaint. For the reasons set forth in the October 24, 1988 order the Court now finds Barnhill’s motion to dismiss well taken.
An appropriate order shall enter.
. Section 55-3-114 N.M.S.A. provides, in part:
(1) The negotiability of an instrument is not affected by the fact that it is undated, antedated, or postdated.
(2) Where an instrument is antedated or postdated the time when it is payable is determined by the stated date if the instrument is payable on demand or at a fixed period after date. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490855/ | *75MEMORANDUM DECISION AND ORDER
STEPHEN J. COVEY, Bankruptcy Judge.
On January 23,1989, the Court heard the Trustee’s action, brought pursuant to 11 U.S.C. § 544(b) and 24 O.S.1986 § 112 et seq., to avoid alleged fraudulent transfers by Debtors. After considering the evidence presented and the arguments and authorities of counsel, the Court finds as follows:
Debtors filed their petition seeking relief under Chapter 13 of the Bankruptcy Code on February 9, 1988, and the case was converted to a Chapter 7 case on April 6, 1988.
Under 11 U.S.C. § 544(b), the Trustee may avoid transfers voidable under applicable state or federal law by a creditor in the case holding either an allowable unsecured claim or an unsecured claim not allowable only under § 502(e).
Under § 117(A) of Oklahoma’s Uniform Fraudulent Transfer Act (“UFTA”), a transfer made by a debtor is voidable as fraudulent as to a pre-existing creditor if the transfer is made for less than reasonably equivalent value and the debtor was insolvent at that time or became insolvent as a result of the transfer.
Prior to filing bankruptcy, Debtors made the following transfers and received no value in exchange for them: (1) The transfer of $65,000.00 cash to USA Property Company (“USA”) from September through December, 1986; (2) The transfer of 500 jointly-owned shares of USA stock, representing 100% ownership of the corporation, to the Quinton R. Dodd Family Trust (“Trust”) on December 12, 1986; and (3) The transfer of $27,049.54 cash to the Trust on August 28, 1987. It is undisputed that Oklahoma law applies to these transfers
The only issues before the Court are: (1) Whether Debtors were insolvent at the time of the transfers or became insolvent as a result of the transfers; and (2) Whether a creditor of Debtors at the time of the transfers could have avoided the transfers under Oklahoma law and this creditor has either an allowable unsecured claim in the bankruptcy case or an unsecured claim not allowable only under § 502(e). If so, the Trustee may avoid the transfers under 11 U.S.C. § 544(b) and § 117(A) of the UFTA.
The Trustee has the burden of proving insolvency. Georgia Pacific Corp. v. Lumber Products Co., 590 P.2d 661 (Okla. 1979).1 However, Oklahoma law is unclear as to the standard of proof on insolvency.2 The Trustee maintains that the applicable standard is proof by a preponderance of the evidence, while Defendants state that it is proof by clear and convincing evidence. It is unnecessary to decide this legal issue because the Court finds that the Trustee’s proof meets both standards.
Under § 114 of the UFTA, a debtor is insolvent if the sum of the debtor’s debts exceeds the debtor’s assets at a fair valuation. Using this test, for the reasons set forth below, the Court finds that Debtors were rendered insolvent on December 12, 1986, when they transferred ownership of USA to the Trust. Thereafter, Debtors *76remained insolvent through the date they filed their petition herein.3
It is undisputed that, after the transfer of USA stock on December 12, 1986, Debtors’ only possible assets were as follows: (1) 50% of the stock of Lakeland Real Estate Development, Inc. (“Lakeland”); (2) 50% of the stock of DSH Interiors, Inc. (“DSH”); and (3) 50% ownership of the Dodd and Henry Partnership (“Partnership”). Accordingly, the Court must determine the fair value of these assets.
Lakeland was in the business of developing an 80-acre mixed residential/commercial project on Lake Hudson in Mayes County, Oklahoma. The project .was financed by Phoenix Federal Savings & Loan Association (“Phoenix”) which had a first mortgage on the project. By December of 1986, Lakeland had partially completed development of the first 40 acres, but had not obtained sufficient financing to complete the project. The project was not producing a positive cash flow and was on the verge of collapse due to the downturn in the Oklahoma economy. The fair value of the project, Lakeland’s sole asset, was approximately $4 million on December 12, 1986. Lakeland owed Phoenix approximately $5.1 million at this time. Debtors’ ownership interest in a corporation with negative net worth and cash flow must be valued at zero, in the absence of any evidence that the stock otherwise had a market value.
DSH operated a carpet business with locations in Tulsa, Pryor and Claremore, Oklahoma. DSH leased the store buildings in Pryor and Claremore, but owned the building in Tulsa. DSH’s sole assets were the store inventory, equipment, and accounts and the building in Tulsa. On December 12, 1986, the fair value of DSH’s store inventory, equipment, and accounts for all locations was approximately $50,-000.00. At that time, the Bank of Oklahoma, Pryor (“BOK”), held a first lien on such inventory, equipment, and accounts securing an indebtedness on two notes from DSH in the amount of approximately $235,000.00. On December 12, 1986, the fair value of the real estate and store building in Tulsa was between $500,000.00 and $790,000.00. Phoenix held a first mortgage on this property securing an indebtedness of approximately $640,000.00 at that time. DSH had not paid the rent owing on the leases of the Pryor and Claremore stores for some months. The Court infers from this that the stores were not producing a positive cash flow on December 12, 1986. Accordingly, the fair value of Debtors’ ownership interest in a corporation with dubitable net worth and cash flow must be zero, in the absence of any evidence that the stock otherwise had a market value.
The Partnership owned the store buildings in Pryor and Claremore which were leased to DSH in December of 1986. As stated above, DSH was not making rent payments at this time. The fair value of these properties was at most approximately $240,000.00. Phoenix held a first lien on the properties securing an indebtedness of approximately $162,000.00. Another party held a second lien on the properties securing an indebtedness in the amount of approximately $51,000.00. Thus, Debtors 50% interest in this partnership had a maximum fair value of approximately $13,-500.00'.
Therefore, the Court finds that the fair value of all Debtors' assets was approximately $13,500.00 on December 12, 1986.
The Court must next determine the amount of Debtors’ debts on December 12, 1986. Under § 113(5) of the UFTA, “debt” means “liability on a claim”. Under § 113(3) of the UFTA, a claim includes a right to payment “whether or not the right is reduced to judgment, liquidated, unliqui-dated, fixed, contingent, matured, unma-tured, disputed, undisputed, legal, equitable, secured, or unsecured.” Under § 114(E) of the UFTA, a debt does not include an obligation “to the extent it is *77secured by a valid lien on property of the debtor not included as an asset.”
On December 12, 1986, Debtors had each co-signed the note from Lakeland to Phoenix and thus each had a debt to Phoenix in the amount of approximately $5.1 million.4 In addition, Mr. Dodd had debts based on numerous personal guaranties, but the Court need not discuss these debts.
Therefore, the Court finds that Debtors were insolvent on December 12, 1986 because they had debts of at least $5.1 million and assets of a fair value of only $13,-500.00. Furthermore, the Court finds that Debtors remained insolvent until the filing of bankruptcy.
The only remaining issue is whether an unsecured creditor in this case could have avoided the transfers under Oklahoma law. The Court finds that on December 12, 1986, Phoenix was a creditor of Debtors and could have brought suit under § 117(A) of the UFTA. Furthermore, Phoenix is a creditor in this bankruptcy case with an allowable claim of over $5 million which is largely unsecured.5
Therefore, under 11 U.S.C. § 544(b) and 24 O.S.1986 § 112 et seq., the Court finds that the Trustee may avoid Debtors’ fraudulent transfers of USA stock and $27,-049.54 to the Trust.
IT IS THEREFORE ORDERED, ADJUDGED AND DECREED that the Trustee is entitled to recover the USA stock and $27,049.54 from the Trust and the Trust is ordered to transfer this property to the Trustee.
. That case construed the burden of proof under former § 104 of Oklahoma’s Uniform Fraudulent Conveyances Act, repealed and amended by § 117(A) of the UFTA. Because of the similarity between the two statutory provisions, the Court does not believe that the Oklahoma legislature, in enacting § 117(A) of the UFTA, intended to alter the burden of proof on insolvency established by Oklahoma case law under former § 104. Furthermore, the Court finds no rationale requiring a different burden of proof under § 117(A) of the UFTA.
. No Oklahoma cases construe the standard of proving insolvency under § 117(A) of the UFTA or its similar predecessor, § 104 of the former Oklahoma Uniform Fraudulent Conveyances Act. Two cases construing a distant predecessor statute, § 9697, O.S.1931, are anything but clear as to the standard of proving insolvency. Levinson v. Glidden, 169 Okla. 546, 37 P.2d 924 (1934); Foster v. Shirley, 170 Okla. 373, 40 P.2d 1083 (Okla. 1935). The Court recognizes that some courts in other jurisdictions, construing the Uniform Fraudulent Conveyances Act, have held that the proper standard is proof by clear and convincing evidence. First Nat'l Bank in Albuquerque v. Abraham, 97 N.M. 288, 639 P.2d 575, 579 (1982); Furniture Mfrs. Sales, Inc. v. Deamer, 680 P.2d 398, 400 (Utah 1984).
. The Court need not immediately address whether Debtors were insolvent from September through December, 1986, when they transferred $65,000.00 to USA. The issue becomes moot if the Court finds that the Trustee is entitled to recover the transfer of 100% ownership of USA on December 12, 1986.
. This note was secured by property of Lake-land, not property of Debtors. Therefore the value of the security is not deducted to determine the amount of the debt to Phoenix. Even if the value of the security were deducted, the debt to Phoenix would be approximately $1.1 million.
. The Court takes judicial notice of the claim filed in this case by Phoenix. The Court also takes judicial notice of the terms of Debtors' proposed Chapter 13 Plan, which stated that Phoenix's claim was largely unsecured. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490856/ | ORDER ON OBJECTION TO CLAIMS
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 case and the matters under consideration are two objections filed by Captran Creditors Trust (Debtor) to the allowability of the claims of George E. Mills, Jr. (Mills), Claim No. 18 filed in the amount of $3,499 based on professional services allegedly rendered to the Debtor, and Claim No. 20 filed by Joan Smoak (Smoak) in the amount of $800 also based on professional services allegedly rendered by Ms. Smoak to the Debtor.
The objection to the claim of Mills is based on the contention of the Debtor first that the accounting services allegedly rendered by Mills were rendered to the former Trustees of the Debtor, and not to the Debtor; second, the report prepared by Mills was done intentionally incorrectly in order to facilitate the former Trustees to cover up their own malfeasance and misfeasance and was intended to assist several entities to cover up a misuse of escrow funds received by the Debtor. The objection to the claim of Ms. Smoak basically reasserts the allegation set forth in an objection filed to the claim of Mr. Mills.
On October 14, 1988, the Debtor filed an amended objection in which the Debtor merely stated that it is not indebted to the Claimant in any amount. However, the amended Objection is coupled with a counterclaim based on the right of set-off, the details of which are set forth in a complaint filed by the Debtor against several entities including the claimants, Mr. Mills and Ms. Joan Smoak.
Although the clarity of the objections filed by the Debtor leaves a lot to be desired, it developed at the final evidentiary hearing that it is the Debtor’s position first that the services rendered by Mr. Mills and Ms. Smoak were not rendered to the Debt- or, but to the former Trustees of the Debt- or; second, in any event, the services rendered by Mr. Mills were totally worthless and furnished no benefit to the Debtor, and, therefore, his claim should not be allowed for failure of consideration. While the Debtor also attempted to inject sundry and various claims asserted originally in its counterclaim, and in its Complaint filed against the Claimants and others, Adversary No. 88-460, the matter was only tried on two issues: 1) were the services rendered by Mr. Mills and Smoak ever authorized by the Debtor and actually rendered to the Debtor; and, 2) whether or not Mills is entitled to any compensation at all due to total failure of consideration.
In order to put the issues in proper focus, a brief recap of the historical background of this Chapter 11 case and its predecessor Chapter 11 case should be helpful.
Captran Resorts International, Inc., (CRI), is a Florida corporation and was at the time relevant engaged in developing various and sundry projects in southwest Florida for the purpose of selling timeshare units in the facilities which either have already been constructed or were in the process of construction. On July 16, 1982, CRI filed its Voluntary Petition for Relief under Chapter 11, having run into serious financial difficulties. Its efforts to obtain rehabilitation under Chapter 11 of the Bankruptcy Code never reached fruition. Even before CRI undertook first steps toward reorganization, it entered into an agreement with its creditors for the *86purpose of conveying all, or practically all of its assets to a newly created entity, Captran Creditors Trust (Trust). According to the trust agreement (Claimants’ Exh. No. 2A), Mr. David W. McConnell (McConnell) and Mr. Gerard McHale, Jr. (McHale), were appointed as Trustees for this newly created Trust and were charged with the duty of liquidating the assets of CRI which, as noted above, were to be conveyed into the trust. Pursuant to the terms of the Agreement, the assets specified in the Trust instrument of CRI were, in fact, transferred into the Trust.
On January 9, 1985, North American Title Insurance Agency, Inc., (NATIA), George E. Mills (Mills) and Joan Smoak (Smoak) filed an Involuntary Petition under Chapter 11 against the Trust, alleging the Trust was not paying its debts as they became due and therefore they are entitled to the entry of an order for relief against the Trust pursuant to § 303(h)(1) of the Bankruptcy Code. The Involuntary Petition was vigorously contested by the Trust. The parties embarked on extensive discovery, and it was not until July 3,1986, on the eve of the trial, which has been postponed several times, that the Trust consented to the entry of an order for relief under Chapter 11 of the Bankruptcy Code. The Order for Relief specifically provided, however, that the Debtor’s right to seek imposition of sanctions against the petitioning creditors, including Mills and Smoak, pursuant to § 303(i) of the Bankruptcy Code for the alleged bad faith filing of the involuntary petition shall be preserved. This was done because of the contention of the Debtor that neither Mills, NATIA, Smoak, nor CRI, are creditors of the Trust. The request for imposition of sanctions filed by the Debtor is currently the subject of a pending adversary proceeding which is yet to be tried. This is the factual scenario which forms the background of the objection to the claims of Mills and Smoak, the matter under consideration. The facts relevant to the resolution of the issues outlined earlier as developed at the final evi-dentiary hearing can be summarized as follows:
George E. Mills (Mills) is a certified public accountant who was employed by CRI and placed in charge of finances and accounting of the affairs of CRI between December 1982 and April 1984 when he resigned. His immediate supervisor was Mr. Trowbridge who was the sole.stockholder and principal officer of CRI. In December 1982 the Debtor entered into an agreement with CRI, according to which CRI was placed in charge of marketing time-share units on behalf of the Debtor. Under this arrangement, North American Title Insurance Agency, Inc. (NATIA), was the closing agent for sales of the timeshare units, an entity which was also controlled by Trowbridge. Ms. Smoak was the vice-president of NATIA and was in charge of its day-to-day operations. It appears that the original Trustees, McHale and McConnell, were fired on August 27, 1984, by the major beneficiary of the Trust, Club Baha, although according to Mills, they were not fired but resigned and their resignation was not to be effective until October 1, 1984. (Claimants’ Exh. No. 3). Be that as it may, there is no question that McHale and McConnell resigned and were replaced by the new Trustees, Michael Glanz and Sylvia Steeves.
In late August, Mills received a telephone call from one of the original Trustees, McHale, and was requested to prepare a final report and accounting for McHale and McConnell, the original Trustees. Pursuant to instruction Mills prepared a document entitled, “Captran Creditors Trust Statement of Financial Position at August 27, 1984” (Debtor’s Exh. No. 1). The preparation of this report forms the basis of the claim of Mills for which he is now asserting that he is entitled to have his claim allowed in the amount of $3,499.
It is without dispute that the Circuit Court in and for Lee County entered an order on September 14, 1984, and directed the former Trustees, McHale and McConnell to file with the Circuit Court a final report and accounting of their trusteeship (Claimants’ Exh. No. 4). Thus, it was clearly a duty imposed on the former Trustees to file such report. Of course, ordinarily the cost of preparation of such report is *87a properly chargeable item to the beneficiaries of the Trust, provided the report was properly prepared; the charges for the report were reasonable; and, of course, represented measurable benefit and value to the Debtor and assisted the successor Trustees to discharge their duties under the Trust. This brings forth the prime and the most important contention of the Debt- or which is that Mills’ report is totally worthless, presented no benefit and value to the Debtor and was done solely to exonerate the former Trustees from their alleged wrongdoings committed by them during their trusteeship.
Mills concedes that the Final Report and Accounting prepared by him was merely a compilation of previously prepared, mostly outdated records. He also admits that it was not prepared with any compliance with the generally accepted accounting principles. The fact of the matter is that the so-called Final Report and Accounting was not even signed by Mills, which is clearly an absolute requirement of the accounting profession. Thus, any report submitted by an accountant, reflecting the financial condition of a client must be signed by the accountant who prepared the report whether or not the report is audited. Moreover, there is undisputed evidence in this record to establish that the report was not much value and, in fact, contained actual inaccurate factual statements. As a result, Mills was charged with professional incompetence and misconduct by the Professional Board of Regulation Board of Accountancy (Debtor’s Exh. No. 2). In this administrative proceeding of a Complaint filed by the principal of Club Baha, the beneficiary holding the vast majority of the beneficial interest, Mills entered into a stipulation with the Board and consented to the imposition of a fine and to the suspension of his license as a certified public accountant for two years, which, however, according to him, was reduced to one year. Be that as it may, it is clear that the report was not the end product of a professional, for which Mills charged professional rates. Moreover, it is clear that for this reason, the report represented hardly any measurable benefit and value to the Debtor, and for this reason, Mills compensation, while allowable, should be drastically reduced.
This leads to the consideration of the objection of the Debtor to the claim of Ms. Smoak. As noted earlier, Ms. Smoak was the person in charge of the business of NATIA which was acting as closing agent for the sale of time-share units initially sold for CRI, and later on after a Trust was formed, by CRI acting as selling agent for the Debtor. As noted earlier, NATIA is also controlled by Trowbridge, the principal of CRI, and he is also the sole stockholder and principal officer of NATIA. Ms. Smoak was employed by NATIA from January 1982 until August 3, 1984. On August 31, 1984, she claims that she was requested by McConnell, one of the former Trustees, to prepare copies of closing documents for Gerbowski, who requested the information on behalf of Club Baha, the beneficiary of the Trust holding by far the largest interest in the Trust. According to her statement, she started to work on this task in late August, but resigned on August 27 when she learned that McConnell was no longer a Trustee. There is no evidence that Gerbowski requested Ms. Smoak in her capacity as a private individual to furnish him any of the records concerning the sold and unsold time-share units and Gerbowski assumed at the time he talked to her in the office of NATIA that she was still an officer of NATIA, and the closing agent. Ms. Smoak kept no time records of any sort whatsoever, and she has no back-up documents to substantiate the time she had allegedly spent for the services which forms the basis of her claim, let alone to substantiate that her services were required by the Debtor.
Based on the foregoing, this Court is satisfied that she failed to establish with the requisite degree of proof that she has any claim whatsoever for any amount.
Based on the foregoing, it is
ORDERED, ADJUDGED AND DECREED that the objection to Claim No. 18 of George E. Mills be, and the same is hereby, sustained, and the claim is allowed, but reduced to $500.00. It is further
*88ORDERED, ADJUDGED AND DECREED that the objection to Claim No. 20 of Joan Smoak be, and the same is hereby, sustained, and the claim is disallowed in to to.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490857/ | FINDINGS OF FACT, CONCLUSIONS OF LAW, MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 liquidation case and the matters under consideration are several claims set forth in a Complaint filed by Barnett Bank Trust Co., N.A. (Barnett) against Leon Wysocki (Debtor) involved in this Chapter 7 case. In Count I Barnett seeks an order from this Court declaring that the obligation allegedly due and owing by the Debtor to the Plaintiff shall be declared to be nondischargeable on the basis that the Debtor furnished a false financial statement to the Bank pursuant to 11 U.S.C. § 523(a)(2)(B). The claim set forth in Count II of the Complaint seeks an order from this Court denying the Debtor’s general bankruptcy discharge pursuant to 11 U.S.C. § 727(a)(3) of the Bankruptcy Code based on the allegation that the Debtor failed to keep or maintain any records or books from which the Debtor’s financial condition could be ascertained. The claim in Count III of the Complaint also seeks a denial of the Debtor’s discharge pursuant to 11 U.S.C. § 727(a)(5) of the Bankruptcy Code on the basis that the Debtor has failed to satisfactorily explain the loss of assets. In response to the allegations contained in the Complaint, the Debtor contends that the Plaintiff has failed to meet its burden of proof sufficient to warrant the denial of the Debtor’s discharge under 11 U.S.C. § 727(a)(5) and (a)(3)'. At the final evidentiary hearing, the following facts which are relevant and germane to a resolution of the matters under consideration were established and are as follows.
At the time relevant to the matter under consideration, Leon Wysocki, the Debtor was the sole general partner of Tangerine Retirement Center, Ltd. Tangerine Retirement Center, Ltd., was a limited partnership which was formed for the purpose of developing an adult congregate living fácil*94ity located in Brooksville, Florida, known as the Tangerine Retirement Center. It appears that the City of Brooksville issued industrial revenue bonds to fund the development of the project. The Plaintiff, Barnett Bank Trust Co., was the trustee for the bond holders. On November 1, 1983, the Debtor executed and delivered to Barnett a limited guarantee agreement (Plaintiffs Exh. 5). By the terms of the guarantee, the Debtor guaranteed repayment principal and interest on the bonds. It appears that for a while the Debtor made his interest payments on the bond, but somewhere sometime in January 1985, Tangerine defaulted on its obligation to repay by failing to make the interest payment due for that month. It appears that in connection with this guarantee, the Debtor submitted his personal financial statement to the City of Brooksville. That financial statement indicated that the Debtor had total assets of $4,475,168.00. At the final evidentiary hearing, the record also revealed that the Debtor’s September 21, 1984, financial statement showed total assets of $5,250,-969.00. There also appears to have been put into evidence two bank accounts which were in the Debtor’s name individually. The first account was held at Freedom Savings & Loan and was opened by the Debtor on January 16, 1985, with a $50,-000.00 deposit (Plaintiff's Exh. No. 41). The second account held in the Debtor’s individual names was an account opened at Barnett Bank of Pasco County with a balance of $226,716.63. Plaintiff’s Exh. No. 14-39 indicate that the Debtor was the record owner of several pieces of real property through the period of 1982 through 1985. It is the Plaintiffs contention that all of these assets and all of these deeds indicate that at one point in time, the Debt- or owned substantial and significant assets, which assets were not listed on the Debt- or’s schedules and statements of financial affairs filed in connection with his Petition for Relief under Chapter 7 of the Bankruptcy Code. In light of the unexplained loss, disposal or disappearance of these assets prior to the Petition and the nonexistence of any of the Debtor’s records to indicate the disposition of these assets, it is the Plaintiff’s contention that the Debtor should be denied a discharge pursuant to § 727(a)(3), or in the alternative § 727(a)(5) of the Bankruptcy Code.
Under § 727(a)(3) of the Bankruptcy Code, the Debtor will be denied a discharge if
... the debtor has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records, and papers from which the debtor’s financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all of the circumstances of the case; ....
The initial burden of proof under § 727(a)(3) is on the Plaintiff, B.R. 4005. Once the objecting party shows that the Debtor’s records are absent or are inadequate, the burden of proof then shifts to the Debtor to justify the inadequacy or nonexistence of the records. Stuart Enterprises v. Horton, 621 F.2d 968 (9th Cir. 1980); Goff v. Russell, 495 F.2d 199 (5th Cir.1974); Richter v. Gordon, 83 B.R. 78 (Bkrtcy.S.D.Fla.1988)
The Debtor, testified at the trial that having been blind for twenty-five years, all records pertaining to his own personal finances were kept by his accountants, Oliver & Co. Clint Patterson, a certified public accountant employed by Oliver & Co., testified that he prepared the Debtor’s personal income tax returns for the tax years 1983 — 1987. The testimony from Mr. Patterson indicated that he did not have any source documents with which to prepare the Debtor’s individual tax returns. In fact, the returns were prepared by him based on information provided to him by the Debtor. It appears that all the information came solely and completely from the Debtor’s memory. It also appears that Ralph Garcia, a certified public accountant, with a specialty in accounting for developers and with expertise in adequacy of business records, testified on behalf of the Plaintiff as an expert witness. Mr. Garcia reviewed the documents maintained by Oliver & Co. with respect to the Debtor individually. Based on what he examined, Garcia opined that the Debtor’s records were not sufficient to allow one to trace the acquisition, disposition or existence of his *95personal assets between 1982 — 1986. Mr. Garcia also indicated that in his opinion that at a minimum, a person ostensibly involved in buying and selling of real estate, as the Debtor was, there should be copies of deeds and copies of closing statements. None of the Debtor’s records contained any such documents relating to the transactions.
Based on the foregoing, this Court is satisfied that the Debtor’s failure to maintain books and records concerning his business transactions, records from which his financial condition can be ascertained, was not justified under the circumstances. In light of the foregoing, it is unnecessary to rule on the alternative ground asserted by Barnett based on the alleged failure of this Debtor to satisfactorily explain the loss of his assets, neither is it necessary to rule on the claim of nondischargeability pursuant to § 523(a)(2)(B).
A separate Final Judgment shall be entered in accordance with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490858/ | MEMORANDUM OF DECISION ON MOTION OF BANK OF BOSTON CONNECTICUT FOR RELIEF FROM AUTOMATIC STAY
ROBERT L. KRECHEVSKY, Chief Judge.
I.
The principal issue presented in this proceeding is the right of a bank, two and one-half years after the filing of a bankruptcy petition (petition), to select against which of two pre-petition obligations of the debtor the bank may set off funds on deposit in the debtor’s bank accounts on the petition date. A further question is whether the bank should credit appropriate interest to these funds from the date of the petition to the date of setoff. The appearing parties have submitted the matter to the court on briefs only, with no evidentia-ry hearing requested.1
II.
On March 15, 1985, the date of the filing of its chapter 11 petition, Century Brass Products, Inc. (the debtor) owed approximately $4,600,000.00 to Bank of Boston Connecticut (the bank). The debtor had incurred the debt prior to 1980 and secured it with mortgages on various parcels of its realty (mortgage debt). The bank, in 1983, had also loaned the debtor $620,000.00 with the debt secured by a junior position on the debtor’s continuous casting machine (machine debt). General Electric Capital Corporation (GECC) held the first lien on the machine and a junior lien on the debtor’s realty. The promissory notes signed by the debtor to evidence the machine debt provided:
The Undersigned hereby grants to the Bank a lien and right of set-off for all of the Undersigned’s liabilities hereunder, upon and against all of the Undersigned’s deposits, credits and other property now or hereafter in the possession or control of the Bank or in transit to it. The Bank may at any time apply the same or any part thereof to any of the Undersigned’s liabilities whether or not matured at the time of such application.
The debtor and the bank agree that the debtor, on or about the petition date, had funds totaling $104,882.79 on deposit at the bank.
The bank took no apparent action to assert the setoff of the bank accounts until November 5, 1987, when it filed its motion requesting relief from the stay imposed by 11 U.S.C. § 362(a)(7) (a bankruptcy petition operates as a stay to the setoff of any pre-petition debt owed to the debtor against a claim against the debtor). The debtor had never requested the bank to turn over to it the funds in these accounts. In the intervening years, the bank’s mortgage debt has remained fully secured. The court, however, in July 1986, had approved the sale of the continuous casting machine, and insufficient sums were realized to satisfy any portion of the debtor’s machine debt. The court, following the sale, had also refused the bank’s request to require GECC, as the holder of a prior lien on the machine, to marshall assets — a ruling subsequently affirmed by the district court upon the bank’s appeal. Century Brass Prod. v. Colonial Bank (In re Century Brass Prod.), 95 B.R. 277 (D.Conn.1989).
The bank’s relief from stay motion requested: (1) “an order granting relief from [the] automatic stay ... ”, and (2) “an order authorizing [the bank] to off set the funds on hand against the indebtedness owed to it arising out of the [machine debt]”. The motion alleged that, with interest, this debt amounted to $639,870.14 as of March 15, 1985. The debtor, on December 8, 1987, filed a response to the motion agreeing to the entry of an order for relief from stay, provided that the order require the setoff be applied to the mortgage debt, and interest calculated at 10% per annum from the *154date of the petition be added to the funds on deposit. GECC appeared in support of the debtor’s response. The debtor, together with the unsecured creditors’ committee, GECC and several other major creditors, consented to the entry of a court order on December 18, 1987 modifying the automatic stay to permit the bank “to offset against the funds on hand amounting to $104,882.79”2 The consented-to order reserved for further order of the court the issues “as to which indebtedness against which the funds should be offset, and whether Bank of Boston Connecticut should credit interest to the funds.” The parties subsequently requested the court to delay rendering its ruling. On January 26, 1989, the debtor notified the court that all parties agree that the remaining issues are now ripe for decision.
III.
The debtor concedes in its brief that the bank has a right of setoff against either loan. The debtor contends that because the bank did not effect a setoff before the onset of the present controversy, it is now subject to the rule that an undesignated payment from a debtor is to be applied to the older debt — in this case, the mortgage debt. American Woolen Co. v. Maaget, 86 Conn. 234, 243-45, 85 A. 583 (1912). GECC argues that the rule that a debtor has the right at the time of payment to direct its application to any debt that the debtor owes to the creditor applies to the present circumstances. See id. In this case, “the time of payment”, according to GECC, would be the debtor’s consent to the order lifting the automatic stay, in which the debtor requested the funds be applied to the mortgage debt.
The bank relies on the express provisions in the machine-debt note granting it the right to set off the debtor’s bank deposits against any of the debtor’s liabilities to it and on the doctrine that undesignated payments must be applied “to the debt which has the most precarious or inferior security.” Ford Bros., Inc. v. Ward Co., 107 Conn. 425, 432, 140 A. 754 (1928).
IV.
The Bankruptcy Code (Code) provides, with exceptions not relevant here, that the Code “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_” 11 U.S.C. § 553(a).
The legislative history to § 553 states that § 553 “preserves, with some changes, the right of setoff in bankruptcy cases now found in § 68 of the Bankruptcy Act.” H.R.Rep. No. 595, 95th Cong., 1st Sess. 377 (1977), reprinted in 1978 U.S.Code Cong. & Admin.News 5963, 6333. While it was generally held under the Act that federal law governed issues arising under § 68, when “the situation is one that § 68 does not prescribe for or regulate, ... the courts apply the law of a state in connection with matters of substantive law relating to the asserted right of set-off—as, for example, the imputation of payments on a plurality of obligations held by a creditor.” 4 J. Moore, Collier On Bankruptcy 11 68.06 at 886.1 (14th ed. 1978) (footnotes omitted).
In the second circuit, the court of appeals has consistently and strongly supported a creditor’s right of setoff in bankruptcy. Scherling v. Chase Manhattan Bank (In re Tilston Roberts Corp.), 75 B.R. 76, 79 (S.D.N.Y.1987). In In re Applied Logic Corp., 576 F.2d 952, 957 (2d Cir.1978), the court acknowledged that while one of the “dominant impulses in bankruptcy is equality among creditors” and that with setoff “the dominant impulse ... is inequality among creditors”, the right of setoff will prevail. “The rule allowing setoff, both *155before and after bankruptcy, is not one that courts are free to ignore when they think application would be ‘unjust’. It is a rule that has been embodied in every bankruptcy act the nation has had, and creditors, particularly banks, have long acted in reliance upon it.” In re Applied Logic Corp., 576 F.2d at 957-58 (footnotes omitted); see also In re Bohack Corp., 599 F.2d 1160, 1164-65 (2d Cir.1979) (The right of setoff “has the effect of paying one creditor more than another”, but despite this inevitable effect, the doctrine of setoff “has long occupied a favored position in our history of jurisprudence.”).
I conclude that a Connecticut court based either upon the language contained in the machine-debt notes or upon the other circumstances hereinbefore described would permit the bank to apply the debt- or’s payment received by way of setoff to the unsecured machine debt rather than require the bank to apply the setoff against the earlier mortgage debt where setoff against the mortgage debt would have absolutely no benefit to the bank. Ford Bros., Inc. v. Ward Co., 107 Conn, at 432, 140 A. 754; cf. Sullivan v. Merchants Nat’l Bank, 108 Conn. 497, 503, 144 A. 34 (1928) (The equities of a creditor with a right of setoff against an insolvent party are superior to the equities of the general creditors of the insolvent party).
The unexplained two-and-one-half-year delay between the filing of the petition and the filing of the bank’s motion for relief from stay cuts both ways in considering the equities of the parties. “The mere passage of time, however, will generally not constitute a waiver of setoff absent some inequitable conduct by the creditor or prejudice accruing to the debtor.” L. King, 4 Collier On Bankruptcy ¶ 553.07 at 553-34 (15th ed. 1988) (footnotes omitted). The debtor, as well as the bank, could have at any time during this period applied to the court for an order dealing with the bank accounts, and the record presented demonstrates neither inequitable conduct by the bank nor prejudice to the debtor.
V.
The debtor’s request that the court order the bank to credit the funds on deposit with interest from the date of the petition has merit. The bank had possession of these funds for over two and one-half years. Making the bank responsible for interest is equitable, notwithstanding the failure of the debtor to act. Cf. In re Inslaw, Inc., 81 B.R. 169, 170 (Bankr.D.D. C.1987). The debtor has requested interest at the rate of 10% per annum, but I find that the interest rate should be that which the bank paid on regular saving accounts during the period from March 15, 1985 to the date of setoff. It is
SO ORDERED.
. There is no disagreement among the parties as to the facts stated herein and the documents referred to in this memorandum were, with the exception of the proof of claim, attached as exhibits to the bank’s moving papers.
. The consent by the debtor and the involved creditors to the entry of this order may well have been improvident. The proof of claim filed by the bank on July 11, 1985, and examined by the court sua sponte, stated that neither the mortgage debt nor the machine debt was subject to setoff or counterclaim. In such an instance, the law may find waiver of the right of setoff. See In re Britton, 83 B.R. 914, 919-20 (Bankr.E.D.N.C.1988); 4 L. King, Collier On Bankruptcy ¶ 553.07 (15th ed. 1988). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490868/ | ORDER ON MOTION FOR TEMPORARY RESTRAINING ORDER, MOTION TO INTERVENE AND MOTION TO DISMISS
ALEXANDER L. PASKAY, Chief Judge.
THIS CAUSE came on for hearing upon a Motion for Temporary Restraining Order filed by Evis M. Suarez, the Debt- or/Plaintiff in the above-captioned adversary proceeding. The Debtor seeks an Order from this Court temporarily enjoining the Defendant, Twin Jay Chambers Partnership from proceeding with a foreclosure sale of the Debtor’s only asset, real proper*60ty known as Travatine Island, which sale was scheduled for December 30, 1988. In opposition to the Motion for Temporary Restraining Order, the Defendant filed a Motion to Dismiss the Complaint on the grounds that the Complaint was improperly served on the Defendant, and that it failed to state a cause of action for which relief could be granted. Also under consideration is a Motion to Intervene in this adversary proceeding filed by R. Bruce McLaughlin, chairman of the unsecured creditors committee who seeks to join in this proceeding to prevent the sale of the real property of the Debtor. The Court has considered the Motions, together with the record and inasmuch as the foreclosure sale has been cancelled and has not been rescheduled, this Court is satisfied that the Motion for Temporary Restraining Order should be denied as moot. As to the Defendant’s Motion to Dismiss the Complaint for Injunctive Relief, this Court is satisfied that it should be denied for the following reasons:
Twin Jay’s Motion to Dismiss is based on two contentions: First, Twin Jays argues that the Complaint should be dismissed because it was not properly served upon Twin Jays. As to this contention, this Court is satisfied that it is not well taken, and the Motion to Dismiss cannot be sustained on this basis alone. A complaint which seeks to issue a temporary restraining order may be filed without notice to anyone if the complaint, which is verified, or the affidavit sets forth what is required by F.R.C.P. 65. As to the second contention upon which the Motion to Dismiss is based, it appears that Twin Jays alleges that the Complaint fails to state a cause of action for injunctive relief. Inasmuch as argument on this contention was not brought out at the emergency hearing for the temporary restraining order, this Court is satisfied that it should defer ruling on the Motion to Dismiss Complaint and set the Motion to Dismiss Complaint on this basis for hearing. As to the Motion to Intervene filed by R. Bruce McLaughlin on behalf of the unsecured creditors committee, this Court is also satisfied that this should be reset for hearing on the issue of whether or not the creditors committee has standing to intervene in this adversary proceeding.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Temporary Restraining Order be, and the same is hereby, denied as moot. It is further
ORDERED, ADJUDGED AND DECREED that a hearing on this Motion to Dismiss Complaint for Injunctive Relief and the creditors committee’s Motion to Intervene be, and the same are hereby rescheduled to March 14, 1989, at 11:00 a.m., 1989.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490869/ | ORDER ON MOTION TO CONVERT TO CHAPTER 7
ALEXANDER L. PASKAY, Chief Judge.
THIS CAUSE came on for consideration upon a Motion to Convert the above-captioned Chapter 11 case to a Chapter 7. The Motion is filed by Summit Landings and Yachting Center, Inc. (Summit). The Motion was originally heard by the late Judge Lionel Silberman, who took the Motion under advisement. The responsibility to consider the Motion was assumed by the undersigned when Judge Silberman died. The Debtor and Summit agreed to submit the matter to be considered by the undersigned on the transcript and exhibits placed in the record at the hearing before Judge Silberman, which record in pertinent parts reveals the following.
Summit is a corporation which owns as one of its primary assets a marina in Bre-vard County, Florida. The marina consists of four buildings, boathousing, a restaurant and lounge. It appears that Brevard R & M Partners, Inc. (Debtor), entered into an agreement with Summit for the lease of the restaurant, the lounge, and the attendant marina facilities. The agreement provided that the lease would begin January 18, 1988, and required a monthly rental of $20,000.00 per month, and capital improvements to be made by the Debtor on the property in the amount of $50,000.00. This sum was to be paid by June 30, 1988, with an additional $50,000.00 payment for capital improvement by December 30, 1988. The lease also required the Debtor to pay a $50,000.00 principal payment by March 31, 1988, and another $50,000.00 principal payment on September 30, 1988. The lease also gave the Debtor an option to purchase the property to be exercised by March 31, 1989, pursuant to which the Debtor had the right to purchase the properties covered by the lease from Summit for a purchase price of $2.4 million dollars.
The Debtor took possession of the leased premises on January 18,1988, and operated a restaurant business there ever since, and for a while abided by the terms of its agreement with Summit and paid the monthly rental pursuant to the terms of the lease.
It appears that on July 10, the Debtor failed to remit the $20,000.00 lease payment to Summit, neither did it pay the rent for the next two months. It is also undisputed that the Debtor did not make the $50,000.00 capital improvement payment which became due on June 30, 1988, nor were the capital improvements payments required by the agreement, which became due on December 30, 1988.
On August 3, 1988, Summit filed a lawsuit in the County Court of Brevard County, Florida, and sought to evict the Debtor from the leased premises. Subsequently, an Order was entered by the County Court granting the Motion for Writ of Possession, unless the Debtor posted with the Clerk of the Circuit Court of Brevard County a bond in the amount of $65,000.00 payable in cash by 4:00 p.m., on Monday, September 12, 1988. The Order further provided that in the event the Debtor failed to abide by the terms of the Order, the stay of the writ of possession would automatically terminate without further order of the court. It is undisputed that the Debtor did not deposit the $65,000.00 with the Clerk of the Circuit Court as required by the Order by the due date, i.e., September 12, 1988. On that same date, the Debtor filed its Petition for Relief under Chapter 11 of the Bankruptcy Code, which, of course, immediately imposed the automatic stay provided for by § 362 of the Code, preventing Summit to proceed with the eviction proceeding.
In its Motion to Convert, Summit contends that the Debtor lacks the ability to reorganize and therefore, his case should *62be converted to a Chapter 7 liquidation case pursuant to § 1112(b). In its Motion, Summit alleges numerous specific violations of the lease and various violations of the provisions of the health code of the County. Summit contends that the Debtor’s actions caused the liquor license held by Summit to be deactivated, which in turn severely curtailed the effectiveness of the operation of the restaurant. Based on these, Summit contends that the business in no longer a viable business enterprise, and the Debtor has nothing to rehabilitate or reorganize, which in turn warrants a dismissal pursuant to 1112(b)(2) of the Bankruptcy Code.
In opposition to the Motion to Convert, the Debtor contends that it should be given a chance to reorganize; it has a viable ongoing business; that it has obtained a substitute liquor license; and it has not only the need, but also the capacity to achieve rehabilitation under Chapter 11.
While this Court is not without doubt whether or not this particular Debtor will ultimately be able to effectively reorganize its business, it is satisfied at this time that it should be given one chance and one chance only to do so. Accordingly, this Court is satisfied that the Motion to Convert should be denied, and the Debtor should be given one opportunity to obtain confirmation. Based on the foregoing, it is
ORDERED, ADJUDGED AND DECREED that the Motion to Convert be, and the same is hereby, denied, and the Debtor be, and the same is hereby, directed to file a Disclosure Statement and Plan of Reorganization within 15 days of the entry of this Order.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490871/ | ORDER ON MOTION FOR PRELIMINARY INJUNCTION
ALEXANDER L. PASKAY, Chief Judge.
This is a Chapter 7 liquidation case and the matter under consideration is a Motion for Preliminary Injunction filed by Jerry L. Daniel (Daniel), the Plaintiff, who instituted the above captioned adversary proceeding. The Complaint filed by the Debtor seeks a preliminary and permanent injunction against David K. Oaks (Oaks) and Leonard M. Johnson (Johnson), d/b/a Oaks and Johnson, Attorneys at Law.
Pursuant to the request for an emergency hearing this Court heard statements of counsel for the Plaintiff and statements on behalf of the law firm of Oaks and Johnson and is satisfied the Plaintiff Daniel is entitled to a permanent injunction based on the following undisputed facts.
Jerry L. Daniel filed his voluntary petition for relief on November 21, 1986. In due course this Court issued an Order directing to hold a meeting of creditors as required by Section 341(a) of the Bankruptcy Code. Notice included a provision which fixed February 23,1987, as the deadline for filing complaints pursuant to Section 523(c) and Section 727 of the Bankruptcy Code. The schedules submitted by the Debtor scheduled among the secured creditors, Do-teileen Mariner, a/k/a Dottie Mariner (Mariner), with an address of 255 Webbs Lane, Mayfair Apts., # C31, Dover, DE 19901. On January 28, 1987, Mariner filed a Motion for Relief From the Automatic Stay. On January 29,1987, this Court entered an Order ex parte and denied the motion without prejudice for improper service. On February 25, 1987, Mariner filed an Amended Motion for Relief From Automatic Stay and sought adequate protection in the alternative. In the Amended Motion she alleged that she is the holder of a promissory note and a mortgage encumbering certain property owned by the Debtor and the mortgage is in default, therefore, she is entitled to obtain relief from the stay in order to file a cross-claim foreclosing her mortgage.
On February 5, 1987, this Court entered an Order directing response to the Amended Motion for Relief From the Automatic Stay. No response having been filed by the Debtor or by the Trustee, on March 5, 1987, this Court entered an Order prepared by counsel which granted the Amended Motion lifting the automatic stay and the Order permitted further proceedings in the foreclosure action by Mariner against the Debtors Jerry L. Daniel and Karran M. Daniel, his wife, who is also a Debtor in this Chapter 7 case.
No complaint having been filed pursuant to Section 523(c) or Section 727 of the Bankruptcy Code, on July 27, 1987, the Debtors were granted their discharge.
On December 6, 1988, the Debtor Jerry L. Daniel filed a Motion to Reopen the case. *75The motion was denied by this court on January 18,1989, on the basis that the case was still open thus the Motion to reopen the case was premature. The Order further provided that part of the Motion to Reopen, which sought the imposition of sanctions against Dottie Mariner and her attorney for violation of the permanent injunction imposed by Section 524(a)(2) of the Bankruptcy Code, was procedurally improper. For this reason, this Court denied the request for imposition of sanctions without prejudice.
On February 21, 1989, the Debtor, filed this adversary proceeding. In Count I the Debtor sought a preliminary and permanent injunction enforcing the provisions of Section 524 of the Bankruptcy Code prohibiting David K. Oaks and Leonard M. Johnson, the attorneys for Mariner from proceeding against the Debtor in the lawsuit in Charlotte County Circuit Court, No. 86-1029 EOF and to cease and desist of any further attempts to collect a debt owed by the Debtors to Mariner. In Count II of the Complaint the Debtor seeks damages, costs and attorney fees, and punitive damages against the Defendants for malicious prosecution.
It is without dispute that the Defendants did in fact file a crossclaim in a pending foreclosure action originally commenced by Federal National Mortgage Association and sought a deficiency judgment based on compensation and punitive damages for fraud.
On April 24, 1987, counsel for the Debtor notified Daniel K. Oaks of Oaks and Johnson that he was not in a position to accept any service of a Complaint on behalf of the Debtor and that the Debtor, Daniel J. Johnson filed a Chapter 7 petition and the debt owed to the client of the Defendant has been discharged.
Notwithstanding the foregoing, Daniel K. Oaks, one of the Defendants notified the attorney for the Debtor that according to his view, the rules provide that the discharge must be pled as an affirmative defense and unless an answer or a motion to dismiss is filed they will proceed with the lawsuit and will obtain the relief sought by default. It appears now that Daniel K. Oaks scheduled the Debtor’s deposition for February 28, 1989, and Daniel K. Oaks, in spite of the permanent injunction included in the Discharge, intends to proceed to prosecute the claim on behalf of Mariner unless enjoined by this Court.
According to Daniel K. Oaks, he is relying on the language of the order entered by this Court on the Amended Motion for Relief entered on March 15,1987. This Order submitted by counsel ostensibly granted a carte blanc authority to Mariner to conduct further proceedings without limitations against the Debtors Jerry L. Daniel and his wife Karran M. Daniel. Obviously, the phraseology used by the Order is improperly broad since it was never intended to permit Mariner to proceed and seek an in personam money judgment against the Debtors, and clearly the relief was granted only to permit to proceed in rem against the property and to foreclose her interest. For this reason this Court is satisfied a separate order shall be entered to vacate the Order of March 5, 1987, and enter an appropriate order consistent with the foregoing.
Section 524(a)(2) provides as follows:
“a discharge ... operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover, or offset any such debt as a personal liability of the debtor....”
Based on the foregoing facts and relevant Statute, this Court is satisfied that inasmuch as Mariner has failed to file a timely complaint pursuant to Section 523(c) of the Bankruptcy Code, the debt owed to her is within the protective provisions of the general bankruptcy discharge and any action or attempt to collect the same in spite of a discharge is a clear violation of the permanent injunction included in the discharge. Moreover, if the injunctive relief sought by the Debtor in this adversary proceeding is not granted the Debtors will suffer irreparable harm. For this reason *76the Debtors are entitled to the relief sought.
Based on the foregoing, it is
ORDERED, ADJUDGED AND DECREED that the partial final judgment be and the same is hereby entered on Count I in favor of the Plaintiff Jerry L. Daniel and against the Defendants David K. Oaks and Leonard M. Johnson, individually, and as members of the law firm d/b/a Oaks and Johnson, be, and the same are hereby, enjoined and prohibited permanently to take any further action against Jerry L. Daniel which is designed to impose a personal liability on the Debtor Jerry L. Daniel or from attempting in any way to enforce any claim against the Debtor on behalf of Mariner.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490872/ | MEMORANDUM OPINION
GEORGE L. PROCTOR, Bankruptcy Judge.
This matter is before the Court upon objection of defendant made to plaintiff’s introduction of a business record designated as plaintiff’s Exhibit 60-A.
Argument of counsel was heard on February 22, 1989, and March 23, 1989, and upon submission of trial memoranda by counsel, the Court enters this Memorandum Opinion.
*91FACTS
The plaintiff in this proceeding seeks to admit an internal memorandum designated as plaintiffs Exhibit 60-A regarding audit report of excessive loan authorizations and conflicts of interests in accord with Fed.R. Evid. 803(6) which provides a hearsay exception for records of regularly conducted business activity.
Plaintiff offers this document through the testimony of Charles Atkins, President and Chairman of the Board of National Trust Group (“NTG”), and member of the board of Southern California Savings (“So-Cal”). Plaintiff asserts that Atkins: (i) directed or supervised the preparation of the document in his official capacity; (ii) received and reviewed it in the course of his official duties; (iii) had personal knowledge of the identities of the author; and (iv) was intimately familiar with the record-keeping procedures of NTG and SoCal.
The defendant counters that this business document should be ruled inadmissible because (i) the authors do not cite or reference sources of information (ie. financial statements as opposed to rumors in the financial community); (ii) it was not contemporaneously prepared; and (iii) Atkins is not the proper custodian or qualified expert to testify about the records.
CONCLUSIONS OF LAW
The crux of the objection centers on whether Atkins is the proper witness through which the business record he received in the course of his duties with NTG and SoCal may be admitted.
A. THE BUSINESS RECORD EXCEPTION
The Defendant has raised an objection to the introduction of this record based on Federal Rule of Evidence 803 which provides:
The following are not excluded by the hearsay rule, even though the declarant is available as a witness.
(6) Records of Regularly Conducted Activity. A memorandum, report, record or data compilation, in any form, or acts, events, conditions, opinions or diagnoses, made at or near the time by, or from information transmitted by, a person with knowledge, if kept in the courts of a regularly conducted business activity, and if it was the regular practice of that business activity to make the memorandum, report, record or data compilation, all as shown by the testimony of the custodian or other qualified witness, unless the source of information or the method or circumstances of preparation indicate lack of trustworthiness. The term “business” as used in this paragraph includes business, institution, association, profession, occupation, and calling of every kind, whether or not conducted for profit.
Fed.R.Evid. 803(6)
Thus, the following elements must be satisfied prior to the introduction of business records: (a) the document was made at or near the time of the events recorded; (b) by or from information transmitted by a person with first hand knowledge; (c) made and kept in the course of regularly conducted business activity pursuant to a regular practice of that business activity; and (d) all of the above are shown by the testimony of the custodian or other qualified witness.
The Advisory Committee was explicit in its intent to have this section broadly construed:
The form which the “record” may assume under the rule is described broadly as a “memorandum, report, record or data compilation, in any form.”
Fed.R.Evid. 803(6) Advisory Committee Note.
The Eleventh Circuit Court of Appeals followed this broad construction of Rule 803(6) in Itel Capital Corporation v. Cups Coal Co., Inc., 707 F.2d 1253 (11th Cir.1983), where the former vice-president of Itel identified (by deposition) leases and related documents made and kept by Itel in the ordinary course of business. The trial court admitted the evidence over objection of the defendants that the documents were forgeries. The Eleventh Circuit Court of Appeals affirmed the admissibility of the *92documents, holding that since the documents were kept in the ordinary course of business “[the] evidence [is] sufficiently trustworthy to bring it within Rule 803(6).” The court opined that once evidence was admitted, appellants were free to argue to the jury that the documents were forgeries. 707 F.2d at 1259, 1260.
The Eleventh Circuit Court of Appeals is not alone in this broad construction of the Federal Rules of Evidence. In the case In re Japanese Electronic Products, 723 F.2d 238, 289 (3rd Cir.1983), rev’d on other grounds 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986), the court held that Rule 803(6) “should be generously construed to favor admission.”
The Court agrees with this broad construction of Rule 803(6) and finds the document in question to be a business record excepted from the hearsay rule.
B. QUALIFIED WITNESS REQUIREMENT
A witness authenticating the record at trial need not be the person who actually prepared the record. For example, in United States v. Parker, 749 F.2d 628 (11th Cir.1984), a customs certificate of the United Kingdom, prepared by a Scottish distributor of Dewar’s Scotch, was properly authenticated by a vice-president of the U.S. importer who received it. The court said the testimony of the vice-president was “sufficient to support the trustworthiness of the document, and to prove that it was prepared in the usual course of business.” Id. at 633.
That case is strongly analogous to the facts before this Court in respect to plaintiffs Exhibit 60-A received by Atkins in his capacity as President and Chairman of the Board of NTG. The mere fact that the document was not prepared by Atkins does not alter the fact that the document is of great import to the organization and can be reasonably expected to be relied upon in the regular course of SoCal’s business activity. Therefore, plaintiffs Exhibit 60-A is admissible through the testimony of Atkins.
Since the witness need not be the person who actually prepared the record, “a qualified witness is ... one who can explain and be cross-examined concerning the manner in which the records are made and kept.” Wallace Motor Sales, Inc. v. American Motor Sales Corp., 780 F.2d 1049, 1060-61 (1st Cir.1985). See also, Capital Marine Supply, Inc., v. M/V Roland Thomas, II, 719 F.2d 104 (5th Cir.1983) (account manager who had direct control over a business account could authenticate business records prepared under his direction or supervision, even though he did not actually prepare the records); United States v. Moore, 791 F.2d 566, 574-75 (7th Cir.1986) (holding that “the phrase ‘qualified witness’ is to be broadly interpreted as requiring only someone who understands the system.”); and Hanley v. United States, 416 F.2d 1160 (5th Cir.1969) (also holding that the custodian’s lack of personal knowledge regarding the accuracy of documents “affects the weight only and not the admissibility of the [documents].”).
Because of his familiarity with SoCal’s recordkeeping procedures and his personal knowledge of this memorandum, it is appropriate that it be admitted through Atkins and he be subject to cross-examination regarding the recordkeeping procedures of the business records involved. Additionally, argument can be made as to the weight the trier of the facts should assign to the evidence.
C. THE CONTEMPORANEOUS REQUIREMENT
The contemporaneous requirement of Rule 803(6) requires that a record be “made at or near the time” of the event recorded. In the case before this Court the document in question is a memorandum concerning the findings of an internal auditor. Necessarily, this document deals with past events, however the contemporaneous requirement relates to the event of the audit and the subsequent report, not the records and information relied on by the auditor.
The defendant has misplaced its reliance on cases involving the length of time be*93tween the occurrence and recording of events. See, United States v. Kim, 595 F.2d 755 (D.C.Cir.1979) (telex report inadmissible where it purported to record bank deposits actually made two years earlier); Missouri Pacific Railroad Company v. Austin, 292 F.2d 415 (5th Cir 1961) (report of specific words uttered made fourteen months after the event held to be inadmissible); Melinder v. United States, 281 F.Supp. 451 (W.D.Okla.1968) (summary of expenditures inadmissible where there was a lapse of two to five years between the expenditures and their recording). These cases are easily distinguished from the case before this Court. In short, for the cases cited by the defendant to be applicable here, there would necessarily have been an unwarranted lapse from the date of the audit to its preparation. This not being the case, the memoranda in question do not lack contemporaneousness as required by Rule 803(6).
D. THE BUSINESS ROUTINE AND PURPOSE REQUIREMENT
Again, when the Court looks to the Advisory Committee Notes, the broad scope of the Rules is apparent:
The element of unusual reliability of business records is said variously to be supplied by ... actual experience of business in relying upon them, or by a duty to make an accurate record as part of a continuing job or occupation.
Fed.R.Evid. 803(6) Advisory Committee Note.
The memorandum in question, prepared by an internal auditor would obviously fall within this sweeping description. The appellate cases which hold documents inadmissible because of this requirement center on the unusualness of the document itself or the unusual application of the document relative to the purpose of business organization. See United States v. Kim, 595 F.2d 755 (D.C.Cir.1979) (telex report made in response to government subpoena inadmissible as a business record); United States v. Foskee, 606 F.2d 111 (5th Cir. 1979), cert. denied, 444 U.S. 1082, 100 S.Ct. 1036, 62 L.Ed.2d 766 (1980); Snyder v. Whittaker Corp., 839 F.2d 1085 (5th Cir.1988) (memorandum inadmissible as business record where proponent failed to show it was prepared in the regular course of its author’s business).
However, this is not the case before the Court. There is nothing unusual about the ordering, preparation, and transmittal of auditing memoranda among top level executives as those involved in this case.
Rule 803(6) gives this Court the discretionary power to exclude any business records if “the source of information or the method or circumstances of preparation indicate lack of trustworthiness.” The burden of demonstrating such untrustworthiness is on the party opposing admission. Furthermore, the Rule does not require this Court to independently analyze the procedures used by business in making regularly kept records. In re Japanese Electronic Products, 723 F.2d at 289. Accordingly, the Court finds that the document admissible as a business record through Atkins.
CONCLUSION
Having considered the arguments and relevant case law, the Court finds that Exhibit 60-A is admissible. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490873/ | MEMORANDUM OF DECISION
ROBERT L. KRECHEVSKY, Chief Judge.
I.
The single issue for resolution in this adversary proceeding is the right of an unpaid subcontractor who manufactured and installed a commercial dishwasher in a hospital building to claim and enforce a mechanic’s lien against the property owner. The chapter 7 trustee in this case, standing in the shoes of the general contractor, seeks to invalidate the lien in order for the debtor’s estate to receive the contract balance due from the property owner and thereby require the subcontractor to share ratably with the estate creditors who hold unsecured claims.
II.
New London Store Fixture Co., Inc. (the debtor), on April 25, 1987, contracted with Lawrence and Memorial Hospital (Hospital) to make certain modifications and improvements to the kitchen in the Hospital’s building located on Montauk Avenue in New London, Connecticut. The contract included the replacement of the Hospital’s dishwasher. The debtor obtained the new dishwasher from the defendant, Hobart Corporation, who also did the installation, completing its work on July 29, 1987. Hobart, on August 25, 1987, filed with the Town Clerk of New London a certificate of mechanic’s lien in the amount of $37,407.77 against the Hospital property and timely served the Hospital with a notice of intent to claim a lien and with a certificate of lien. On or about March 29, 1988, Hobart commenced an action to foreclose the mechanic’s lien in state court.
Three creditors of the debtor had filed an involuntary chapter 11 bankruptcy petition against the debtor on October 8, 1987. An order for relief was entered by consent of the debtor on December 11, 1987. Upon the motion of a petitioning creditor, the court converted the case to one under chapter 7 on January 19, 1988, and Thomas M. Germain became trustee of the debtor’s estate. The trustee commenced the present proceeding on June 23, 1988 against Hobart only, seeking to enjoin Hobart’s prosecution of its mechanic’s lien foreclosure action. Hobart moved the bankruptcy court to abstain from hearing the trustee’s complaint, but at a pretrial conference held on September 19,1988, Hobart agreed not to pursue its abstention motion, and the trustee agreed to join the Hospital as a party-defendant to his action. The trustee did join the Hospital as a party-defendant and sought to recover from the Hospital the unpaid balance on the contract.1
The evidence introduced at the trial disclosed that the dishwasher installed in the Hospital’s kitchen is of stainless steel construction, twenty-two feet long, three feet wide, and seven feet high. It contains elaborate, high-pressure, motor-driven washing, sanitizing and rinsing components. The installation required an electrician to wire the dishwasher to the Hospital’s electrical system, and a plumber to weld the dishwasher’s six or seven pipes to building outlets to handle water, drain and steam functions. The dishwasher is not bolted to the floor, but it is too heavy to be carried and would have to be divided into segments to be removed. Although not work done by Hobart, the dishwasher has a metal addition built onto it to vent steam through a duct in the kitchen ceiling. The useful life of the dishwasher is approxi*132mately twenty years. On occasion, such dishwashers may be dismantled and resold as used machines. No party introduced into evidence the terms of the debtor’s contract with the Hospital to indicate the extent of the debtor’s total work and the complete contract price. The parties stipulated that the balance due on the contract between the debtor and the Hospital was $35,136.50.
III.
Hobart contends, and the trustee denies, that Hobart’s furnishing and installation of the dishwasher is within the provisions of the Connecticut mechanic’s lien statutes, Conn.Gen.Stat.Ann. § 49-33 et seq. (West Supp.1988). Section 49-33, in pertinent part, provides:
(a) If any person has a claim for more than ten dollars for materials furnished or services rendered in the construction, raising, removal or repairs of any building or any of its appurtenances ... and the claim is by virtue of an agreement with or by consent of the owner of the land upon which the building is being erected or has been erected ... or of some person having authority from or rightfully acting for the owner in procuring the labor or materials, the building, with the land on which it stands ..., is subject to the payment of the claim.
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(e) A mechanic’s lien shall not attach ... in favor of any subcontractor to a greater extent in the whole than the amount which the owner has agreed to pay any person through whom the subcontractor claims....
(f) Any such subcontractor shall be subrogated to the rights of the person through whom the subcontractor claims, except that the subcontractor shall have a mechanic’s lien or right to claim a mechanic’s lien in the event of any default by that person....
A subcontractor’s right to a mechanic’s lien in Connecticut flows “from his equitable entitlement to the lien which would otherwise attach in favor of the general contractor.” Seaman v. Climate Control Corp., 181 Conn. 592, 601, 436 A.2d 271 (1980). Furthermore, “all subcontractors are preferred to the general contractor if the lienable fund is inadequate to cover outstanding claims.” Id. at 605, 436 A.2d 271. Neither the trustee, representing the general contractor, Hobart as the subcontractor, nor the Hospital as the property owner, has made an argument as to whether or not the debtor would have been entitled to claim a mechanic’s lien under its contract with the Hospital. From evidence introduced by the trustee that the debtor and the Hospital had “entered into a contract by the terms of which said [debtor] was to perform improvements and modifications to the [hospital's] kitchen”, see Exh. 2, it is likely that the debtor would have been entitled to a mechanic’s lien and, correspondingly, so would Hobart.
I need not, however, rest my ruling on this unargued point because even assuming that the furnishing and installation of the dishwasher were the sole extent of the debtor’s obligations under the contract, I conclude that Hobart is entitled to assert a mechanic’s lien.
The remedial purpose of the mechanic’s lien statute “to furnish security for a contractor’s labor and materials requires a generous construction.” Camputaro v. Stuart Hardwood Corp., 180 Conn. 545, 550, 429 A.2d 796 (1980). Connecticut case law is clear that the installation of a fixture in an existing building gives rise to a mechanic’s lien. See, e.g., Hartlin v. Cody, 144 Conn. 499, 506, 134 A.2d 245 (1957). As to what constitutes a fixture, a court will look at all the circumstances involved in the annexing of the article to the property-
The installation of fixtures in a building gives rise to a lien under the statute only if the fixtures become a part of the realty, that is, only if they are permanent fixtures. It is essential to constitute a fixture that an article should not only be annexed to the freehold, but that it should clearly appear from an inspection of the property itself, taking into consideration the character of the annexation, the nature and the adaptation of the arti*133cle annexed to the uses and purposes to which that part of the building was appropriated at the time the annexation was made, and the relation of the party making it to the property in question, that a permanent accession to the freehold was intended to be made by the annexation of the article.
Stone v. Rosenfield, 141 Conn. 188, 192-93, 104 A.2d 545 (1954) (citations omitted).
Applying this doctrine to the present matter, I find that the dishwasher constitutes a permanent fixture. I hold no doubt, although no direct evidence was presented, that the Hospital, as the owner of the building and the land, would have intended that the dishwasher be a continuing accession to its property. The very size and weight of the dishwasher, with its many pipes welded to the building’s pipes, and the attached metal steam-venting apparatus leading to the duct in the ceiling, taking into account the use of that part of the building as a kitchen, reasonably leads to the conclusion that the dishwasher was an appropriate article adapted to such location and was a permanent fixture. Cf. Stockwell v. Campbell, 39 Conn. 362 (1872) (the installation of a portable furnace in the pit of a cellar, held in place by its own weight and easily removable, was a fixture and gave rise to a mechanic’s lien).
IV.
For the reasons stated, judgment will enter that Hobart Corporation holds a valid mechanic’s lien on the property of Lawrence and Memorial Hospital and that the sum of $35,136.50, the balance due on the Hospital’s contract with the debtor, shall be paid over to Hobart Corporation in satisfaction of its mechanic’s lien.
. The Hospital, the trustee and Hobart appeared by counsel at a pretrial conference held on December 12, 1988, at which time, in light of the parties' agreement that the bankruptcy court would determine all issues, the court ruled, pursuant to 28 U.S.C. § 157(b)(3), that the proceeding would be treated as a core proceeding. The trustee had alleged in the amended complaint that the matter was a core proceeding, an allegation denied by Hobart and neither admitted nor denied by the Hospital. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490874/ | DECISION and ORDER ON DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
BURTON PERLMAN, Chief Judge.
In this adversary proceeding, plaintiffs seek damages from defendant, a feed supplier, who, they say, sold them tainted and contaminated feed grain which caused the death of a large number of pigs. The third cause of action in the complaint is framed as one for strict liability under the laws of the State of Ohio. Defendant has moved for summary judgment on this cause of *316action. It asserts that in the circumstances of the transaction here involved, it would be contrary to the law of the State of Ohio to find liability on the basis of strict liability.
In support of its motion, defendant has filed the affidavit of Paul Dome, owner and president of defendant. In addition, defendant relies upon the Disclosure Statement of plaintiffs. In opposing the motion, plaintiffs have filed the affidavit of Vicki J. Ames, and also rely upon an answer to interrogatories by defendant. Plaintiffs requested an oral argument, and one was held.
The relevant facts are as follows. The defendant owns and operates a grain storage facility, a warehouse, in Hillsboro, Ohio, which is bonded and licensed by the State of Ohio and the Federal Government. Its business was the storing and grinding of grain for feed. Defendant did not purchase grain from plaintiffs nor sell grain to them during the period here in question. Defendant did not receive title to any of plaintiffs’ grain in that period. Plaintiffs withdrew from their account in the defendant grain bank all grain which they had delivered to the grain bank.
Defendant processed grain delivered to them by plaintiffs for storage. Upon receipt, grain was weighed, tested for moisture, and visually inspected for damage. It was then dumped into one of the receiving pits to be elevated into one of the bins for storage or drying. Grain that required drying was put into one of two or three wet holding tanks, and dried as soon as possible through one of two dryers until dry enough for storage (13% to 15% moisture). Grain was processed by being ground in defendant’s mills and then mixed to customers’ specifications. Grain was then stored in dry bins equipped with aeration fans and temperature gauges. Plaintiffs, in the course of their dealings with defendant, had the option of receiving back the grain in the condition in which it had been delivered, unground, or to receive back ground grain to which supplements may have, on the order of plaintiffs, been added. Defendant made separate charges for drying, storing, grinding and delivering grain. There was an occasion in 1985 after a dispute between the parties over a balance due from plaintiffs to defendant when defendant sold some of the grain belonging to plaintiffs and retained the proceeds. The relevant time period here in question is about March, 1985.
The essential basis for the present motion for partial summary judgment is that the undisputed facts depict a transaction in the nature of a bailment, not a sale, and there must be a sale before application of the doctrine of strict liability is appropriate. Plaintiffs respond to this thrust by contending that the law of strict liability does not depend upon so rigid a classification. In addition, plaintiffs contend that even if defendant is correct in its analysis of the law, the facts here should be construed as constituting a sale.
Ohio has approved the Restatement, Second, Torts § 402(a) version of strict liability in tort. Temple v. Wean United, Inc., 50 Ohio St.2d 317, 364 N.E.2d 267 (1977). The Restatement at § 402(a) says:
Special Liability of Seller for Physical Harm to User or Consumer
(1) One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property, if
(a) the seller is engaged in the business of selling such a product, and
(b) it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold.
(2) The rule stated in Subsection (1) applies although
(a) the seller has exercised all possible care in the preparation and sale of his product, and
(b) the user or consumer has not bought the product from or entered into any contractual relationship with the seller.
The comments following § 402(A) in the Restatement reiterate that this is a special rule applicable to sellers of products (Com*317ment a), and that it applies to any person engaged in the business of selling products for use or consumption. It therefore applies to any manufacturer of such product, to any wholesale or retail dealer or distributor, and to the operator of a restaurant. The rule does not apply to the occasional seller of food or other such products who is not engaged in that activity as part of his business. (Comment f).
Strict liability applies to sales of goods and not to services. A court has rejected a plaintiffs reliance of strict liability in tort where plaintiff contracted hepatitis as a result of a blood transfusion. The procuring, furnishing or distribution of blood was a rendition of a service, pursuant to state statute, not a sale, and thus not within the scope of the doctrine of strict liability. Morse v. Riverside Hospital, 44 Ohio App.2d 422, 339 N.E.2d 846 (1975).
After considering the words of the Restatement, § 402(A) and its comments, as well as pertinent case law, we find that the sale of a product is a necessary element of strict liability.
The foregoing does not conclude our inquiry, for it is still necessary to deal with the contention of plaintiffs that the facts here are to be construed as a sale. Movant vigorously contends that the present facts can only be held to show a bailment relationship between the parties. The facts are not in dispute. Plaintiffs, growers of grain, delivered grain to defendant to be stored by it. In connection with the storage, defendant rendered the further service of drying the grain and processing it into feed in its mill, adding supplements to the mix if requested by plaintiffs. The grain, of course, was a fungible commodity, and there was redelivered to plaintiffs, after processing, not the very grain which plaintiffs had delivered to defendant, but other grain from its stores. That it was not the very same article which was redelivered, as is commonly the case with fungible products, does not make the present transaction a sale. Inglebright v. Hammond, 19 Ohio 337 (1850); O’Dell v. Leyda, 46 Ohio St. 244, 20 N.E. 472 (1889).
Further, the fact that defendant dried and ground plaintiffs’ grain for a fee did not make the transaction a sale for present purposes. To hold otherwise would be inconsistent with the purpose of strict liability. The purpose of the doctrine is to impose liability upon a seller or a product which the seller offers to the general public, not where, as here, there is a direct relationship between the two parties to the transaction, and one of them is processing the goods of the other. In the latter case, questions of liability must be determined pursuant to traditional negligence concepts.
Following the hearing, defendant filed by leave a further memorandum to support its position that the second cause of action in the complaint, that for breach of warranty, should also be dismissed. Its argument is that defendant in fact is a warehouseman under the laws of Ohio, and the duty of a warehouseman is to exercise ordinary care as to goods bailed.
We deny defendant’s motion in this regard. While defendant may store goods, the fact is that that is not all that it did with respect to grain delivered to it. It also processed the grain. It dried, ground, and added supplements. In respect to these operations, it was performing operations beyond those rendered by a warehouseman.
Defendant’s motion for summary judgment is granted to the extent that it seeks dismissal of the third cause of action, that based on strict liability. It is denied as to dismissal of the second cause of action, that for breach of warranty.
So Ordered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490875/ | MEMORANDUM OPINION
JOHN H. SQUIRES, Bankruptcy Judge.
This matter comes before the Court on motions for summary judgment pursuant to Federal Rule of Civil Procedure 56 incorporated by Federal Rule of Bankruptcy Procedure 7056 filed by Bernard Chaitman (the “Trustee”) as trustee for the estate of Candy Braz, Inc. (“Candy Braz”) on objections to the allowance of claims filed by Mahmud Issa Mohmad Saleh (“Issa”) and Ibrehim Sayes (“Sayes”) and on cross motions for summary judgment filed by Issa and Sayes. For the reasons set forth herein, the Court having considered all the pleadings and exhibits filed does hereby deny the Trustee’s motion for summary judgment on the claims of Issa and Sayes. The Court does hereby grant Issa’s and Sayes’ cross motions for summary judgment.
I. JURISDICTION AND PROCEDURE
The Court has jurisdiction to entertain these motions pursuant to 28 U.S.C. § 1334 and General Orders of the United States District Court for the Northern District of Illinois. These motions constitute core proceedings under 28 U.S.C. § 157(b)(2)(A), (B), (0).
II. STANDARD FOR SUMMARY JUDGMENT
In order to prevail on a motion for summary judgment, the movant must meet the statutory criteria set forth in Rule 56 of the Federal Rules of Civil Procedure, made applicable to adversary proceedings in the Bankruptcy Court by Federal Rule of Bankruptcy Procedure 7056. Rule 56(c) reads in part:
[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.
Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986); Hoss-man v. Spradlin, 812 F.2d 1019, 1020 (7th Cir.1987).
The primary purpose for granting a summary judgment motion is to avoid unnecessary trials when no genuine issue of material fact is in dispute. Farries v. Stanadyne/Chicago Div., 832 F.2d 374, 378 (7th Cir.1987). The burden is on the moving party to show that no genuine issue of material fact is in dispute. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 2514, 91 L.Ed.2d *372202 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 585-586, 106 S.Ct. 1348, 1355-1356, 89 L.Ed.2d 538 (1986). Moreover, all reasonable inferences to be drawn from the underlying facts must be viewed in a light most favorable to the party opposing the motion. Marine Bank, Nat. Ass’n v. Meat Counter, Inc., 826 F.2d 1577, 1579 (7th Cir.1987); DeValk Lincoln Mercury, Inc. v. Ford Motor Co., 811 F.2d 326, 329 (7th Cir.1987); Bartman v. Allis-Chalmers Corp., 799 F.2d 811, 312 (7th Cir.1986), cert. denied, 479 U.S. 1092, 107 S.Ct. 1304, 94 L.Ed.2d 160 (1987). Furthermore, the existence of a material factual dispute is sufficient only if the disputed fact is determinative of the outcome under the applicable law. Egger v. Phillips, 710 F.2d 292, 296 (7th Cir.1983) (en banc), cert. denied, 464 U.S. 918, 104 S.Ct. 284, 78 L.Ed.2d 262 (1983). On cross motions for summary judgment, the Court must rule on each party’s motion individually, denying both motions if a genuine issue of material fact exists. ITT Indus. Credit Co. v. D.S. America, Inc., 674 F.Supp. 1330, 1331 (N.D.Ill.1987); Wausaw Ins. Co. v. Valspar Corp., 594 F.Supp. 269, 270 (N.D.Ill.1984).
III. FACTS AND BACKGROUND
On January 17, 1985, Candy Braz filed a Chapter 11 petition for relief under the Bankruptcy Code. Subsequently, on January 18, 1985, Bernard Chaitman was appointed as Trustee. The case has proceeded as a liquidation of Candy Braz’s assets.
IV. DISCUSSION
A. Claim of Sayes
The claimant Sayes is the brother-in-law of Sean Saleh (“Saleh”), the president of Candy Braz. On December 17,1984, Sayes gave Saleh a cashier’s check from Southwest Federal Savings and Loan Association made payable to Candy Braz in the amount of $40,000.00. Subsequently, on that same day the check was deposited into Candy Braz’s account at the Marquette National Bank in Chicago, Illinois. On May 8, 1985, Sayes filed a proof of claim in the amount of $40,000.00 together with a copy of a promissory note dated December 12, 1984. On January 29, 1987, the Trustee filed an objection to the allowance of the claim of Sayes. The Trustee’s objection was based in part on the failure of Candy Braz’s books and records to reflect that a loan transaction took place.
In the motion for summary judgment, the Trustee contends that Sayes could not enforce the claim against Candy Braz outside of the bankruptcy court. The Trustee claims that the money was a personal loan to Saleh and not a loan to Candy Braz as a corporation. The deposition of Sayes, attached to the Trustee’s motion for summary judgment is dispositive on the issue of whether the money was a loan to the corporate entity or a personal loan to one of its officers. Sayes stated in his deposition:
I need $40,000 because the company was behind in bills. And I told [Saleh], you know, “I’m looking for business myself.” [Saleh] said, “I could give you the money when you need it.” I said, “Okay. Two month I need my money.” [Saleh] said, “Okay.” We have breakfast, we went to the bank together, I pulled cashier’s check for him, I give it to him at the bank.
The crucial evidence is that the cashier’s check obtained by Sayes was made payable to Candy Braz, not to Saleh. Moreover, the check was deposited into Candy Braz’s corporate bank account, not a personal account of Saleh.
The Trustee cites Section 502 of the Bankruptcy Code in support of his contention that Sayes’ claim is unenforceable against Candy Braz’s estate. Section 502 provides in pertinent part:
(a) A claim or interest, proof of which is filed under section 501 of this title, is deemed allowed, unless a party in interest, including a creditor of a general partner in a partnership that is a debtor in a case under chapter 7 of this title, objects.
(b) Except as provided in subsections (e)(2), (f), (g), (h) and (i) of this section, if such objection to a claim is made, the *373court, after notice and a hearing, shall determine the amount of such claim in lawful currency of the United States as of the date of the filing of the petition, and shall allow such claim in such amount, except to the extent that—
(1)such claim is unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured;
11 U.S.C. § 502(a), (b)(1).
The Trustee asserts that Sayes’ claim is personal against Saleh and not against Candy Braz. Claims asserted by a relative of the debtor are carefully scrutinized. In re McClelland, 275 F. 576, 580 (S.D.Cal.1920); Walter v. Atha, 262 F. 75, 80 (3rd Cir.1919). However, the fact that a relative of a debtor files a claim does not in and of itself suggest that the claim is not genuine. The McClelland court noted that “[i]t is fundamental ... that a relative of a bankrupt has a perfect right to loan the bankrupt money, and, having done so, he has a perfect right, the same as any other person, to file a claim in the bankrupt’s estate and participate in the dividends....” 275 F. 576 at 580.
The fact that the transaction took place between relatives does not debar the claimant from sharing in the estate. Sayes has supported his claim by adequate proof and has met his burden of proof under Federal Rule of Bankruptcy Procedure 3001(f). The Trustee, on the other hand, has merely made unsupported conclusions. There is no convincing evidence that the money was either a personal loan or a gift to Saleh. The documentary evidence supporting Sayes’ claim shows he holds an unsecured $40,000.00 promissory note with no named payee, purportedly signed by a vice president of Candy Braz. The consideration supporting the note is evidenced by a subsequently dated cashier’s check payable to and endorsed by Candy Braz. The bank account statement shows the deposit of the check into that corporate account.
Sayes filed a Rule 12(e) statement to support his cross motion. The Rule 12(e) statement adopts most of the Trustee’s Rule 12(e) statement of material facts. The only facts not adopted by Sayes are that Sayes did not ask Saleh for the money until after the filing of the bankruptcy petition and that Sayes is not familiar with the principals of Candy Braz. The Court does not find these facts material so as to preclude the entry of summary judgment. None of the additional facts in Sayes’ Rule 12(e) statement have been denied by the Trustee. Moreover, neither party has filed a Rule 12(f) statement. Therefore, all material facts set forth in the pleadings are not disputed and these additional facts set forth in Sayes’ Rule 12(e) statement are deemed admitted by the Trustee.
Accordingly, the Court will deny the Trustee’s motion for summary judgment. The Court will, however, grant Sayes’ motion for summary judgment because no genuine issue of material fact is in dispute. As a matter of law the claim should be allowed in the amount of $40,000.00 as an unsecured claim. Candy Braz ultimately received and had the benefit of Sayes’ funds. Allowance of the claim against the estate of Candy Braz produces an equitable result under the facts and circumstances.
B. Claim of Issa
On May 8,1985, Issa filed a proof of claim in the amount of $200,000.00 together with a copy of a promissory note with no named payee, dated June 22, 1984, purportedly signed by a vice president of Candy Braz. Issa is a cousin of Saleh. Issa moved to the United States in May 1984 and lived with Saleh for less than a month. The circumstances surrounding Issa’s claim are somewhat similar to, but substantially more complex than, those regarding Sayes’ claim. As evidenced by Issa’s deposition and supporting documentation filed with the cross motions, on or about May 4, 1984, at Sayes’ suggestion and request, Issa deposited two cashier’s checks totaling over $264,000.00 into a new account opened in both their names at the Marquette National Bank (account number 130-874-4). At Saleh’s request and with Issa’s consent, on or about May 10, 1984, Saleh withdrew $210,000.00 from that account by check and deposited the check into another account at *374Marquette National Bank in Saleh’s name alone (account number 130-876-0). Subsequently, on June 24 and 29, 1984, two separate checks were drawn on the second account by Saleh in the respective amounts of $100,000.00, each payable to Candy Braz. The checks were deposited in Candy Braz’s corporate account (005-116-6), on June 24 and 29,1984, respectively. The bank statement for the third account reveals that subsequent checks were drawn on that corporate account showing those funds were utilized in Candy Braz’s business.
Issa testified that he authorized Saleh to draw moneys out of the first account to “apply to the business” and “expand the business.” He further testified that he received a $200,000.00 check drawn on the Candy Braz account as a guarantee that he would be repaid those funds and as proof of the loan arrangement. Although that check was never negotiated and was dated May 9, 1984, Issa’s uncontroverted testimony was that he received the check approximately one to one-and-a-half months after that date. Issa further testified that during his short visit in May 1984 Candy Braz looked like a worthwhile business and he agreed to invest therein. Apparently, Sa-leh utilized the approximate $64,000.00 balance of the initial deposit in the first account for his own purposes. There is no evidence clearly indicating that Candy Braz had the benefit of those funds.
Issa contends that this series of checks issued and drawn on various accounts had the net effect of a loan guarantee agreement whereby Issa was to be repaid $200,-000.00 under certain terms and conditions. Thus, this “agreement” in part was evidenced by Candy Braz’s $200,000.00 check which was never negotiated by Issa. The series of intermediate transactions involving checks deposited into and drawn on personal accounts of Issa and Saleh, and not directly from Issa to the account of Candy Braz, compounds the complexity of the facts and gives rise to the Trustee’s arguments that Issa’s real claim is against Saleh personally and not Candy Braz. Issa’s deposition transcript has been filed along with copies of the various checks and account statements. Issa’s testimony substantially supports his claim of a loan to be repaid by Candy Braz rather than the Trustee’s conclusion of a mere personal obligation to be repaid only by Saleh. Candy Braz ultimately received the $200,000.00 from Issa. Saleh did not retain that amount of Issa’s original deposit. He apparently used the balance for his own purposes.
Issa filed a Rule 12(e) statement to support his cross motion which adopts most of the Trustee’s Rule 12(e) statement of material facts. The only fact not adopted by Issa is the intent of Issa to share proceeds of the first account with Saleh. The Court does not find this fact material so as to preclude entry of summary judgment. None of the additional facts in Issa’s Rule 12(e) statement have been denied by the Trustee. Moreover, neither party has filed a Rule 12(f) statement. Therefore, all material facts set forth in the pleadings are not disputed and those additional facts set forth in Issa’s Rule 12(e) statement are deemed admitted by the Trustee.
From the foregoing evidence, the Court finds that Candy Braz effectively benefited from at least $200,000.00 of proceeds from the initial deposit. Although tracing of the proceeds through the accounts is somewhat difficult and Saleh was involved as an intermediary of this unusual business transaction, it is undenied that Candy Braz did have the benefit of that amount of Issa’s moneys. Under the McClelland and Walter holdings discussed above, Issa’s claim has been closely scrutinized. As the Seventh Circuit Court of Appeals noted in In re Franklin Bldg. Co., 178 F.2d 805, 809 (7th Cir.1949):
A bankruptcy court is essentially a court of equity, applying principles and rules of equity jurisprudence. It is empowered to allow or disallow claims and to determine controversies in relation thereto. It has full power to inquire into the validity of any claim asserted against the estate and to sift the circumstances surrounding any claim, to see that injustice or unfairness is not done in the administration of the bankrupt estate. Pepper *375v. Litton, 308 U.S. 295, 304-308, 60 S.Ct. 238, 84 L.Ed. 281....
178 F.2d at 809.
Accordingly, the Court finds that notwithstanding the unusual facts and circumstances of the transactions among Issa, Saleh and Candy Braz, it would be inequitable to disallow Issa’s claim when Candy Braz effectively had the use and benefit of his money. Therefore, the Court will deny the Trustee’s motion for summary judgment. The Court will grant Issa’s motion for summary judgment because no genuine issue of material fact is in dispute and the Court concludes, as a matter of law, the claim should be allowed in the amount of $200,000.00 as an unsecured claim.
Y. CONCLUSION
For the foregoing reasons, the Court hereby denies the Trustee’s motions for summary judgment on the claims of Issa and Sayes. The Court does hereby grant the motions for summary judgment filed by Issa and Sayes.
This Opinion is to serve as findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490876/ | ORDER DETERMINING VALIDITY, EXTENT AND PRIORITY OF LIENS
ALEXANDER L. PASKAY, Chief Judge.
THIS is a Chapter 11 case, and the immediate matter under consideration is a Complaint to Determine the Validity, Extent and Priority of Liens claimed to encumber the proceeds of the sale of certain inventory of the Debtor’s consisting of Spanish table wines. The Complaint was filed by Anerinbex, Inc. (Debtor), and named as Defendants Commerce Bank of Tampa (Commerce), the Citizens and Southern National Bank of Florida (C & S), International Decaffeinated Corporation (IDG), and the State of Florida Department of Business Regulation, Division of Alcoholic Beverages (State of Florida). The claim in Count I seeks an Order from this Court determining the extent, validity and priority of liens asserted against the proceeds of the sale by all the Defendants. The claim in Count II seeks an Order from this Court determining that the Debtor is not liable for any sales tax based on the sale of the Debtor’s wine. At the final evidentiary hearing, the following facts were established which are undisputed.
The Debtor is a Florida corporation and was at the time relevant engaged in the business of the retail sales of wines. The principals of the Debtor are Messrs. Fae-do and Domenge who are also the majority shareholders of the Debtor corporation. On May 7, 1986, Commerce granted two loans to the Debtor. One of these loans was a single payment loan and is evidenced by the Debtor’s promissory note payable to Commerce, stating the face amount of the loan as $270,000 (Commerce’s Exh. A). The second loan was a multiple advance line of credit with a ceiling of $180,000. This loan was also evidenced by the Debt- or’s note made payable to Commerce in the same amount (Commerce’s Exh. B). In connection with these loans, the Debtor and Commerce also entered into a security agreement which the Debtor granted Commerce a security interest in, inter alia, all the Debtor’s inventory and all its accounts receivables now existing or hereafter acquired (Commerce’s Exh. C). On May 12, 1986, Commerce filed a UCC-1 form with the Secretary of the State of Florida.
It further appears that on February 6, 1987, the Debtor and Commerce discussed the restructuring of these notes. As a result of these discussions, the Debtor executed two renewal notes, one a demand note in the amount of $155,000 (Commerce Exh. E) and the other in the amount of $149,820 which was by its terms to mature on February 7, 1989 (Commerce Exh. F). It appears that sometime in November 1987, the parties once again agreed to restructure the loans (Commerce Exh. G).
On August 24, 1987, C & S also recorded a UCC-1 financing statement with the Secretary of the State of Florida, perfecting its consensual lien on the Debtor’s wine inventory. It appears that IDC, the holder of a judgment against the Debtor obtained in a Texas state court domesticated its Texas judgment by complying with the Foreign Judgments Acts § 55.501 — 55.509 Fla.Stat. (1987). IDC’s judgment was recorded in Hillsborough County on March *57525, 1987. IDC also mailed notice of the recording to the Debtor as required by § 55.505(2) Fla.Stat. On April 21,1987, the Clerk of the Circuit Court for Hillsborough County issued a writ of execution on the IDC judgment despite the requirement of § 55.505(3) Fla.Stat., which requires at least thirty days between the date of notice to the debtor and issuance of writ of execution. No levy ever occurred and upon discovery of the error, the clerk withdrew the writ of execution and eventually issued a replacement writ of execution on January 6, 1988.
On March 4, 1988, the Debtor filed its Voluntary Petition for Relief under Chapter 11 of the Bankruptcy Code. Pursuant to an Order of this Court, the Debtor was authorized to sell its wine inventory free and clear of the liens and encumbrances and the Debtor sold substantially all of its inventory of Spanish table wines with the proviso that all liens were to be transferred to the proceeds of the sale. The Order provided that the sale was free and clear of all liens and encumbrances as a sale out of the Debtor’s normal course of business. The proceeds from this sale are the subject of the dispute under consideration, i.e., the validity and priority of the various liens claimed by the Defendants.
Based on these undisputed facts, the Defendants contend their respective liens in the proceeds have priority over the others based on the following propositions: First, Commerce argues that its UCC-1 and Security Agreement secures all of the Debt- or’s inventory and was recorded with the Secretary of the State of Florida on May 12, 1986, which clearly is first in time with respect to any interests claimed by the other Defendants. Therefore, it is Commerce’s position that its lien in the proceeds has priority over all other lienors.
C & S who is also a holder of a security interest in the Debtor’s inventory by virtue of the security interest granted by the Debtor, a consensual lien in the same, admits that it perfected its lien in November 1987 long after Commerce filed its own UCC-1 for the record. However, it is C & S’s position that the UCC-1 filed by Commerce describes the collateral securing Commerce’s interest as “assignment of inventory” which C & S asserts is an inadequate description to put subsequent creditors like itself on notice of Commerce’s claim of a security interest in the Debtor’s inventory. Based on this, C & S asserts that although prior in time, Commerce’s security interest in the proceeds should be subordinated to C & S. C & S also claims to be ahead of IDC’s judgment lien because the subsequent domestication and proper execution of IDC’s judgment lien which renders IDC a lien creditor of the Debtor did not occur until after C & S perfected its lien.
It is IDC’s contention that the execution which was issued upon its domesticated judgment lien against the Debtor occurred on April 21, 1987, and that its execution became a lien on all the personal property of the Debtor located in the county at the time the writ of execution was delivered to the sheriff, i.e., July 13,1987. By virtue of being earlier in time, it is the contention of IDC that its lien has priority of C & S’s lien which was perfected in November 1987. IDC urges this Court that whether or not the first execution issued by the Clerk of the Court for Hillsborough County was proper or not, is of no consequence because once the execution was docketed by the Sheriff, the docket would reveal the existence of the writ and put the public on notice of the same. In addition IDC also contends that since C & S did not assert any lien rights in the Florida State Court proceeding which involved domestication of IDC’s Texas judgment, C & S is bound by the judgment of the Circuit Court which entered the Texas judgment. According to IDC, C & S has no standing to question the validity of its original writ of execution, citing, United States v. State, 179 So.2d 890 (Fla. 3d DCA 1980). In this connection, IDC contends that the cancellation of the original writ of execution by the Sheriff was improper inasmuch as it was not done pursuant to a court order and that the temporary cancellation of the writ of execution by the Sheriff did not vitiate the judgment lien on the personal property of the Debtor, citing Smith v. Purdy, 272 *576So.2d 545 (Fla. 3d DCA 1973). As to having priority over Commerce, IDC contends that the loans which Commerce made to the Debtor and which were secured and perfected on May 12, 1986, were satisfied when the original loans were restructured and hence, Commerce’s security interest with respect to these loans was extinguished and since Commerce failed to obtain a new security interest, it no longer has a valid security interest. Moreover, even if it has one, it is unperfected because Commerce failed to file a new UCC-1.
Finally, the State of Florida contends that the sale of the Debtor’s inventory of Spanish table wines is subject to the Florida excise tax set forth in Chapters 561 and 564, F.S. This Statute imposes an excise tax in each gallon or fraction thereof of any beverage sold and requires payment of tax either by the manufacturers or by distributors of the beverage sold. While noting the holding in In re Cusato Brothers International, Inc., 750 F.2d 887 (11th Cir. 1985) which held that beverage taxes are not payable upon the liquidation of a wine distributors inventory in bankruptcy. The State of Florida attempts to distinguish the facts of this case for the facts involved in Cusato in this situation by contending that this Debtor is conducting business and is not liquidating its inventory.
Having considered the various arguments advanced by the Defendants, this Court is satisfied that the claims under consideration have the following priority. First priority should be accorded to Commerce. Clearly, Commerce acquired a valid security interest and first perfected its security interest in the wine inventory of the Debtor by virtue of recording the Security Agreement and UCC-1 on May 1, 1986. C & S’s assertion that its lien has priority because the collateral description contained in Commerce’s UCC-1 is inadequate to put subsequent creditors on notice of its claim must fail for the following reason. Although the word “assignment of inventory” as contained on the face of Commerce’s UCC-1 might not equate with “inventory” as defined or used in Fla.Stat. § 679.109(4) 1987, Commerce’s UCC-1 was not filed alone. Commerce filed both a UCC-1 and the security agreement it entered into with the Debtor which clearly grants Commerce a security interest in the Debtor’s inventory. The Commerce UCC-1 taken together with its security agreement is certainly sufficient to meet the requirements of the Uniform Commercial Code. A filing of both a financing statement and a security agreement satisfies the statutory requisites for filing a financing statement where a third party requesting information on the debtor would receive not only a copy of the financing statement, but also a copy of the attached security agreement. In re McKeon, 7 B.R. 10 (Bankr.N.D.Fla.1980). The filed UCC-1 and attached security agreement are to be read together to determine the sufficiency of the filing. Id.
Commerce’s lien also has priority over IDC again because of its being perfected earlier in time. IDC suggests that the original loans made by Commerce to the Debtor which were secured and perfected by the May 1986 UCC-1 filing, were satisfied and this satisfaction extinguished Commerce’s security interest in the Debt- or’s inventory. IDC further contends that Commerce having failed to file a new financing statement upon the alleged subsequent note did not have a perfected security interest at the time IDC perfected its lien. The facts established at the final evidentiary hearing show that Commerce’s loan to the Debtor was never paid off but were merely restructured. Also, the Security Agreement entered into between Commerce and the Debtor on May 7, 1986, states that the Debtor grants Commerce a security interest “to secure payment to Commerce .. .on all of Borrower’s (Debt- or’s) promissory notes, debts, obligations and liabilities to Commerce arising out of existing, concurrent or future credit granted by Commerce to the Debtor” (Commerce’s Exh. A). This Security Agreement and a UCC-1 were filed on May 12, 1986, and clearly perfect Commerce’s security interest in the Debtor’s inventory for all loans, present or future made to the Debt- or. Thus, this Court is satisfied that even if Commerce’s security interest secures a loan made subsequent to the filing of its *577UCC-1, it is clear that the security agreement contemplated such future loans and Commerce interest with respect to the subsequent loan relates back to the date of the filing of its UCC-1 for purposes of perfection. Hence, Commerce’s lien has priority over IDC.
Having concluded who’s on first, this leaves for consideration who’s on second. The issue involved in the resolution of this matter depends on whether the withdrawal of an improperly issued writ of execution terminated the priority standing held prior to the withdrawal. The Third District Court of Appeals held that although the withdrawal did not vitiate the lien, it did terminate its priority standing held prior to the withdrawal. Smith v. Purdy, 272 So.2d 545 (Fla. 3d DCA 1973). This Court is satisfied that the facts subju-dice are almost identical to those in Smith. Thus, when C & S perfected its lien on August 29, 1987, IDC had no valid prior lien, its execution having been withdrawn. Therefore, C & S’s lien is entitled to priority over IDC’s judgment lien.
Having concluded the respective priorities of the liens held by Commerce, C & S and IDC, this leaves for consideration the question of the validity of the tax lien claimed by the State of Florida pursuant to Chapters 561 and 564 Florida Statutes. Concerning this question, it should be pointed out at the outset that the Eleventh Circuit has made it clear that beverage taxes are not payable upon the liquidation of a wine distributor’s inventory in bankruptcy. In re Cusato Brother’s International, Inc., 750 F.2d 887 (11th Cir.1985). While the State of Florida intimates that this Chapter 11 Debtor is conducting business and thus, is not controlled by Cusato, this Court is satisfied that the State of Florida’s argument is without merit.
The facts in this case clearly indicate the Debtor-in-Possession was not and is not “conducting business” when it liquidated its entire inventory of almost 52,000 gallons of Spanish table wines to a single purchaser. It is clear this is a liquidating Chapter 11 and thus, Cusato, supra, is controlling. Based on the foregoing, this Court is satisfied that there is no excise tax owed to the State of Florida by this Debtor. For this reason, this Court is equally satisfied that any lien claimed by the State of Florida pursuant to Chapters 561 and 564, Florida Statutes, is invalid.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Priority and Validity of Liens in the proceeds of the Debtor’s inventory be, and the same is hereby, determined to be as follows:
First priority is accorded to Commerce;
Second priority is accorded to C & S;
Third priority is accorded to IDC, and any lien on the proceeds claimed by the State of Florida pursuant to Chapters 561 and 564 Fla.Stat. be, and the same is hereby, determined to be invalid.
A separate final judgment will be entered in accordance with the foregoing.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490877/ | ORDER ON MOTION FOR CLARIFICATION OF ORDER APPROVING REJECTION OF UNEXPIRED LEASES OF REAL PROPERTY
ALEXANDER L. PASKAY, Chief Judge.
THIS CAUSE came on for hearing upon a Motion for Clarification of Order Approving Rejection of Unexpired Leases of Real Property. The Motion was filed by Camp-town, Ltd., the Debtor in the above-captioned case, who seeks the clarification of an Order entered by this Court on January 26,1989, 96 B.R. 352, which granted in part and denied in part the Debtor’s Motion to Reject Unexpired Leases of Real Property. The Order denied the Debtor’s attempt at preventing the tenants from the use of the lots they occupy at the Debtor’s recreational vehicle park, but granted the Motion to the extent the Debtor sought authority to reject its obligation to furnish maintenance to the tenants. On February 10, 1989, the Debtor filed the Motion under consideration seeking an Order from this Court clarifying its previous order to provide that the tenants whose leases for maintenance were being rejected would have no rights to share or enjoy the common facilities and amenities of the recreational park and to restrict the dissenting tenants’ rights to lawful use and possession of their lots, ingress and egress to their lots and the right to transfer their interests in the lots.
In opposition to the Debtor’s Motion for Clarification, dissenting tenants Milton and Doreen Gordon contend that the lease agreement entered into between the Debtor *597and themselves provided that the tenant would pay the $5.00 maintenance fee in exchange for the Debtor to perform “maintenance ... including mowing, removal of rubbish and undesirable undergrowth from said parcel.” (Lessee’s Exh. No. 1) Based on this, the Gordons urge that the $5.00 maintenance fee payment has nothing to do with their rights to the common area and amenities of the recreational park and, therefore, the Debtor should not be allowed to restrict their rights to these amenities even if the portion of the lease containing the covenant for maintenance is rejected by the Debtor.
It is readily apparent that the threshold issue to be addressed is the timeliness of the Debtor’s Motion for Clarification of Order. If the issue is resolved against the Debtor, the merits of the Debtor’s Motion are rendered moot.
The Order which the Debtor seeks to clarify was entered on January 26, 1989. On February 10, 1989, fourteen days after the Order had been entered, the Debtor filed its Motion for Clarification of that Order.
Under Rule 59(e) of Federal Rules of Civil Procedure as adopted by Bankruptcy Rule 9023, a party may move to alter or amend a judgment entered by a court by filing a Motion to Alter or Amend such judgment not later than ten days after the entry of the judgment. Bankruptcy Rule 9002(5) defines judgment to include any order appealable to an appellate court. Hence, Motions to Alter or Amend Orders are subject to the time restrictions set forth in Bankruptcy Rule 9023. Bankruptcy Rule 9006(a) provides that when the period of time prescribed is less than eleven days, intermediate Saturdays, Sundays, and legal holidays shall be excluded in the computation. Given these rules, the last day for filing a Motion for Reconsideration or Motion to Amend this Court’s order entered January 26, 1986, was February 9, 1989.
The Debtor contends, however, that its Motion for Clarification is not subject to the time constraints mandated by Bankruptcy Rule 9023 because the Debtor is not seeking to “amend” or “alter” this Court’s previous Order, but is simply seeking a “clarification” of that Order.
This Court is not persuaded by the Debt- or’s use of semantics, and is convinced that the relief the Debtor is seeking, no matter what language it is couched in, is to amend the Court’s previous Order and, therefore, subject to the time restrictions of Bankruptcy Rule 9023. Based on this, the Debt- or’s Motion should be denied as being barred by the passage of time.
Be that as it may, the Court is satisfied that it should amend its previous Order to avoid any further litigation which might commence as a result of the silence in its previous Order as to the effect of the rejection of the maintenance covenant. The Court’s previous Order authorizes the rejection of the portion of the lease containing the covenant concerning maintenance. Paragraph 4 of the document entitled, “Lease of Camper Trailer Site at East Lake Toho, Osceola County, Florida”, which document is part of the record in this case, provides that
“the Lessee shall pay to the Lessor the sum of Five Dollars ($5.00) per month for maintenance_ In consideration of such sum, the Lessee agrees to perform maintenance consistent with the operation of Camptown Industries of East Lake Toho, including mowing, removal of rubbish, and undesirable undergrowth from said parcel. ” [emphasis added]
In its Motion for Clarification, the Debtor sought an Order from this Court determining that as a result of the rejection of the covenant to pay maintenance, the tenants shall not be entitled to use the common areas of the park nor its amenities. This Court is satisfied, however, that the tenants’ right to the use of the park’s common area and amenities was part and parcel of the consideration the tenants bargained for when they entered into their “lease agreement”, i.e., purchase agreement with the Debtor. Inasmuch as the Court denied the Debtor’s authority to reject this portion of the lease agreement, *598this Court is satisfied that the tenants’ rights with respect to the common areas and amenities shall remain undisturbed. To this extent, this Court’s previous Order dated January 26, 1989, shall be amended.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490878/ | MEMORANDUM AND DECISION ON COMPLAINT SEEKING DECLARATORY JUDGMENT ON VITALITY OF COMMERCIAL LEASE
ALAN H.W. SHIFF, Bankruptcy Judge.
The plaintiff seeks a declaratory judgment that its unexpired commercial lease with the defendant was still in effect at the time it filed its bankruptcy petition.
*655i.
The property at issue is a restaurant located in a river front residential — commercial complex in Greenwich, Connecticut, owned and developed by the defendant. It contains, in addition to the restaurant, residential condominiums in the $250,000.00 to $475,000.00 range, a marina, and an office building. On February 23, 1979, Combine of Fairfield, Inc., leased the restaurant from the defendant for a term of fifteen years. Pursuant to Article Seventh, II 7.02, Combine assigned the lease in April of 1987 to Wolfeboro Restaurant Services, Inc., a New Hampshire corporation, with the consent of the defendant.1 On February 18, 1988, Wolfeboro assigned the lease, with the consent of the defendant, to the plaintiff, a Connecticut limited partnership. Wolfeboro is the plaintiffs general partner.
In the early summer of 1988, Rex Seley, Wolfeboro’s chief executive officer and a limited partner of the plaintiff, met with the plaintiffs other limited partners to discuss the restaurant’s losses, and they decided to stop paying rent so that suppliers and employees could be paid while they looked for a buyer. Plaintiffs Pre-Trial Brief at 6. On June 22, 1988, the defendant sent a request for the payment of $22,500.00 past due rent for April, May and June, and $9,432.26 in real estate taxes. Defendant’s Exhibit A. On August 22nd the defendant sent another letter notifying the plaintiff that it was approximately three weeks late in submitting a statement of gross sales to be used in calculating percentage rent as required by Article First, ¶ 1.6(a), of the lease. Defendant’s Exhibit B. On September 13th the defendant sent a third letter, complaining about the plaintiffs failure to pay base rent and real estate taxes, submit a statement of gross sales, and provide a certificate of insurance. Defendant’s Exhibit D. At that time the arrearage had reached $41,-000.00.
On September 29, 1988, the defendant sent by certified mail a formal notice of default, Defendant’s Exhibit F, which was received by the plaintiff on October 4,1988. Defendant’s Exhibit G. The demand stated in part:
If Tenant does not cure the ... defaults within ten (10) days from the date hereof, Landlord and/or its agent, Yankee Property of Connecticut, Inc., which has the authority to act on Landlord’s behalf, shall vigorously enforce the rights of Landlord by commencing legal proceedings to collect all sums of money owed by Tenant and/or Guarantors and to evict Tenant from the premises.
The plaintiff’s management claims that it received none of these letters. It is noted, however, that the return receipt for the notice of default was signed by Chris Sapu-to, who was employed by Bleakley, Platt & Schmidt, plaintiff’s counsel. Defendant’s Exhibit G. The Bleakley firm’s address was given to the defendant as the place to send notices under the lease. Plaintiffs Exhibit 5.
In early October, 1988, Seley and Richard J. Reeves, the president of Wolfeboro, advised the defendant’s managing agent, Mario J. Tarantino, by phone and by letter, Plaintiffs Exhibit 6, that due to the failing economic condition of the plaintiff’s restaurant, an effort was being made to sell the restaurant and assign the lease. Tarantino’s response was “positive”, but the defendant was not requested to and it did not agree to suspend future rent payments or wait for the payment of rent then due.
On October 5, 1988, the plaintiff entered into a brokerage agreement with Victor Kleine which gave him the exclusive right to sell the restaurant. In early November, Kleine communicated the offer of a proposed purchaser-assignee, Hogan’s Casa Miguel, Inc., a “Mexican style restaurant”, to Reeves. On November 8, 1988, the defendant received a letter from the plaintiff *656seeking consent to the assignment of the lease to Hogan’s. Plaintiffs Exhibit 9. By a letter dated November 14th, the defendant informed the plaintiff of its refusal, stating that Hogan’s Mexican style restaurant would not be the best use of the waterfront property, and that it preferred a seafood restaurant. Defendant’s Exhibit 1. Kleine received other inquiries, but no written offers or proposals. On December 7th the plaintiff closed the restaurant.
Sheriff Richard Moccia claims that on December 8th, at the direction of the defendant, pursuant to lease Article Twenty-First, ¶ (e), see infra, he served a notice to quit by pushing it through the outside double glass doors of the closed restaurant. Deposition Transcript, March 7, 1989, at 6,10. On December 15th the plaintiff filed a petition under chapter 11. The defendant claims that it never received the notice to quit and only learned of its existence on January 26, 1989, at the first meeting of creditors called pursuant to Code § 341(a).
Just after the first week of December, 1988, Tarantino visited the premises, noted that the doors were locked, and observed a sign through the double glass front doors stating that the restaurant was closed for renovations and would be open on January 16th. Tarantino also observed an accumulation of mail and papers on the vestibule floor.
The restaurant had been leased on a so-called triple net basis. Kleine and the plaintiff had the only keys. In order to show the premises to a prospective new tenant sometime after Christmas, Tarantino requested a key from Kleine, who refused without the plaintiff’s permission. When permission was withheld, Tarantino changed the locks and gave a new key to Kleine. Tarantino returned to the restaurant in January, 1989, and observed that the mail and papers in the vestibule were gone.
II.
Under the relevant provisions of § 365, a debtor in possession, subject to court approval, may assume an unexpired lease unless “such lease is of nonresidential real property and has been terminated under applicable nonbankruptcy law prior to the order for relief.” 11 U.S.C. § 365(a), (c)(3). A two part analysis is applied to determine whether the plaintiff may assume the restaurant lease. It first must be ascertained whether the lease was terminated under applicable state law before the petition was filed. If it was, it then must be determined whether that result would be reversed under the state’s nonforfeiture doctrine. Vanderpark Properties, Inc. v. Buchbinder (In re Windmill Farms, Inc.), 841 F.2d 1467, 1472 (9th Cir.1988); Rich-Taubman Assoc, v. Masterworks, Inc. (In re Masterworks, Inc.), 94 B.R. 262, 265 (Bankr.D.Conn.1988), appeal docketed, Civ. No. B-89-167 (WWE) (D.Conn. March 28, 1989).
A.
Notice to Quit
Connecticut General Statutes § 47a-23 provides in part:
(a) When a ... lease of any land or building ... terminates ... by reason of any expressed stipulation therein ... and the owner or lessor ... desires to obtain possession or occupancy of the same, at the termination of the rental agreement or lease, ... he or they shall give notice to the lessee or occupant to quit possession of such land [or] ... building ... at least eight days before the termination of the rental agreement or lease ... or before the time specified in the notice for the lessee or occupant to quit possession or occupancy.
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(c) A copy of such notice shall be delivered to each lessee or occupant or left at his place of residence or, if the rental agreement or lease concerns commercial property, at the place of the commercial establishment by a proper officer or indifferent person.
Conn.Gen.Stat.Ann. § 47a-23(a), (c) (West Supp.1988).
Article Twenty-First, ¶ (e), of the lease provides:
*657[I]n case the Tenant shall default in the payment of any fixed rent, additional rent or percentage rent (if any) on any date upon which the same becomes due, or shall default in furnishing to the Landlord any statement required to be furnished by the tenant to the Landlord for use as a basis in computing any percentage rent payable hereunder, and any such default shall continue for 10 days after the Landlord shall have given to the Tenant a notice specifying such default, ...
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... the Landlord may give to the Tenant a notice of intention to end the term of this lease at the expiration of 3 days from the date of the giving of such notice, and, in the event such notice is given, this lease and the term and estate hereby granted ... shall terminate upon the expiration of said 3 days with the same effect as if the last of said 3 days were the date hereinbefore set for the expiration of the full term of this lease....
Plaintiffs Exhibit 1.
The service of a notice to quit terminates a lease under Connecticut law. In re Masterworks, supra, 94 B.R. at 267; Mayron’s Bake Shops, Inc. v. Arrow Stores, Inc., 149 Conn. 149, 156, 176 A.2d 574 (1961); The Chapel-High Corp. v. Cavallaro, 141 Conn. 407, 411, 106 A.2d 720 (1954); City of Bridgeport v. Barbour-Daniel Elec., Inc., 16 Conn.App. 574, 548 A.2d 744 (1988).
1.
The plaintiff contends, without persuasive argument or decisional authority, that the service of the notice to quit did not satisfy the due process requirements of the United States Constitution and was therefore ineffective. Plaintiffs Pre-Trial Brief at 9-10. In Kron v. Thelen, 178 Conn. 189, 423 A.2d 857 (1979), which is relied upon by the plaintiff, the Connecticut Supreme Court held that Connecticut General Statutes § 45-289, which imposes a thirty day time limit for filing appeals of Probate Court decisions, is subject to the implied requirement that the Probate Court give notice of its decision. That case is clearly inapposite.
By the plaintiff’s logic, it may avoid the consequences of a notice to quit by merely closing its business. That logic is flawed. If the plaintiff abandoned the premises, there would be no lease to assume. If it didn’t, it cannot immunize itself from the service of a notice to quit by hiding behind locked doors. I find that § 47-23(c) is “reasonably calculated, under all circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections ...,” Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314, 70 S.Ct. 652, 657, 94 L.Ed. 865 (1950) and therefore satisfies due process. The notice to quit was properly served and terminated the lease.
2.
The plaintiff contends that changing the locks and giving Kleine a new key nullified the notice to quit. That conclusion could only be reached if the giving of a key was inconsistent with the defendant’s intent to compel the plaintiff to vacate the premises. See Sandrew v. Pequot Drug, Inc., 4 Conn.App. 627, 495 A.2d 1127 (1985); Danpar Assoc, v. Falkha, 37 Conn.Supp. 820, 438 A.2d 1209 (Super.Ct.1981). No such conclusion is justified here.
Giving a new key to the plaintiff was not an isolated event. As noted the plaintiff had the only key. The defendant had a right and a need to enter the premises both to inspect them when it became apparent that the plaintiff was absent and to show them to a prospective tenant. Conn.Gen. Stat.Ann. § 47a-16 (West Supp.1988).2 In*658deed, rather than demonstrate a change of position by the defendant, showing the premises to a prospective tenant is consistent with the defendant’s service of the notice to quit. Giving a new key to the plaintiff was simply done so that the plaintiff could enter the premises during the time remaining before it was evicted.
B.
Anti-forfeiture
The plaintiff argues that even if the lease was terminated by the notice to quit, that result should be reversed under an anti-forfeiture doctrine adopted by Connecticut courts. See In re Masterworks, supra, 94 B.R. at 267. Reliance on that equitable doctrine, however, is not available if a tenant has inexcusably failed to pay rent agreed upon by the parties. Mobilia, Inc. v. Johonor M. Santos, 4 Conn. App. 128, 492 A.2d 544 (1985). The gravamen of the plaintiffs position is that it has the right to assign its lease; that it had a bona fide buyer-assignee willing to pay cash which would have paid the defendant in full; that the defendant unreasonably withheld its consent in violation of the lease; and that its failure to pay rent to the defendant was therefore justified.
The plaintiff relies on Warner v. Konover, 210 Conn. 150, 553 A.2d 1138 (1989), in which the Connecticut Supreme Court held that a landlord who retains discretion to withhold consent to an assignment must exercise that discretion in good faith and fair dealing, despite the absence of a provision that consent should not be unreasonably withheld. In that case, the landlord refused to consent to assignment unless the rent was renegotiated. In dicta, the court suggested that good faith precludes the exercise of discretion for the purpose of recapturing an opportunity foregone when the contract was executed.
The plaintiff implies that the defendant refused to consent to the Hogan assignment because it wished to lease the premises to Chart House, with which it had briefly negotiated before the premises were leased to Combine of Fairfield. No such implication is warranted. The evidence adduced at trial supports the finding that the defendant had reserved the right to refuse an assignment which did not reasonably comport with its concept of an appropriate tenant mix. The only inquiry that ripened into a bona fide offer to purchase was the proposed Hogan’s Casa Miguel assignment. The plaintiff argues that the defendant’s rejection of Hogan on November 14th for the stated reason that it was a Mexican style restaurant was improper, but even if it was, that conclusion is irrelevant in view of the plaintiff’s prior deliberate decision to use its cash flow to pay suppliers and employees rather than rent. An unexcused failure to pay rent from and after June, 1988, is hardly a proper foundation upon which to seek equitable relief as a remedy for an alleged improper rejection of a lease assignment in November.
In apparent recognition of that inconsistency, the plaintiff relies on promissory estoppel to excuse its failure to pay rent, but that doctrine is not available to one whose own omission or inadvertance has contributed to the alleged harm. Novella v. Hartford Accident & Indem. Co., 163 Conn. 552, 566, 316 A.2d 394 (1972). Moreover, promissory estoppel requires proof of two essential elements: first, a party must do or say something intended to induce another to believe in the existence of certain facts and, second, the other must actually change position or take some act to its detriment which it would not otherwise have done. First Conn. Small Business Inv. Co. v. Arba, Inc., 170 Conn. 168, 175, 365 A.2d 100 (1976); Multiplastics, Inc. v. Arch Indus., Inc., 166 Conn. 280,
*659286, 348 A.2d 618 (1974); Novella, supra, 163 Conn, at 563, 316 A.2d 394.
The claim is made that by conferring with a prospective tenant while at the same time representing to the plaintiff that it did not want to delay an assignment of the lease or cause the plaintiff hardship, the defendant was guilty of a misrepresentation which the plaintiff relied upon to its detriment, and that as a consequence, the defendant should be estopped from claiming that the lease was terminated. But, in order for the estoppel theory to be viable, the plaintiff would first have to prove that the defendant represented to the plaintiff that a notice to quit would not be served if the plaintiff attempted to find a suitable assignee. The evidence does not support any such finding.
Even if the defendant’s rejection of Hogan was an unreasonable exercise of its reservation of rights, there was no such promise. To the contrary, Seley testified that when he spoke to the defendant’s agent about the plaintiff’s financial difficulties and the plan to look for an acceptable purchaser-assignee, the question of delayed rent payments or concessions “never came up”. Moreover, the plaintiff’s failure to pay any rent after June had nothing to do with an attempt to find an assignee. Rent was not paid because of a decision by the plaintiff’s management to use its inadequate cash flow to pay employees and trade creditors rather than rent. Plaintiff’s Pretrial Brief at 6. Promissory es-toppel is not applicable here.
III.
For the foregoing reasons, judgment may enter that the lease to The Oyster Club of Greenwich was terminated prior to the commencement of this bankruptcy case and therefore may not be assumed, and IT IS SO ORDERED.
. Paragraph 7.02 provides in part:
"[T]he Tenant covenants and agrees, for the Tenant and its successors, assigns and legal representatives, that neither this lease nor the
term and estate hereby granted, nor any part hereof or thereof, ... will be assigned ... without the prior consent of the Landlord ..." Plaintiff’s Exhibit 1.
. Connecticut General Statutes § 47a-16 provides:
(a) A tenant shall not unreasonably withhold consent to the landlord to enter into the dwelling unit in order to inspect the premises, make necessary or agreed to repairs, alterations or improvements, supply necessary or agreed to services or exhibit the dwelling unit to prospective or actual purchasers, mortgagees, tenants, workmen or contractors.
*658(b) A landlord may enter the dwelling unit without consent of the tenant in case of emergency.
(c) A landlord shall not abuse the right of entry or use such right of entry to harass the tenant. The landlord shall give the tenant reasonable written or oral notice of his intent to enter and may enter only at reasonable times, except in case of emergency.
(d)A landlord has no other right of entry except (1) as permitted by section 47a-16a, (2) pursuant to a court order, or (3) if the tenant has abandoned or surrendered the premises.
Conn.Gen.Stat.Ann. § 47a-16 (West Supp.1988). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490879/ | ORDER
HUYETT, District Judge.
Upon consideration of Defendant’s Motion to Withdraw Reference, the plaintiff’s response thereto, and the parties’ memo-randa, and because:
1. On March 15, 1988, Darby Supermarkets, Inc. (Darby) filed a petition under Chapter 11 of the Bankruptcy Code.
2. On October 26, 1988, Darby filed the present adversary against Wetterau Finance Co., and associated corporations (Wetterau) in U.S. Bankruptcy Court. In its complaint, Darby alleges that an October 1986 purchase from Wetterau of certain supermarket equipment constituted a fraudulent conveyance as to Darby’s creditors because Darby was insolvent at the time of purchase, and it did not receive fair consideration for its cash payment and future obligations under its installment sales agreement with Wetterau 1 As relief, Darby seeks an order avoiding Wetterau’s security interest in the equipment and Darby’s $401,062.48 payment obligation, and for “further relief as the Court deems just and proper, including the refund of monies paid in excess of the actual value of the equipment, which sum is believed to exceed $50,000.” Complaint at 4, Exh. A to Defendant’s Motion.
3. Citing In re Kenval Marketing Corp., 65 B.R. 548 (E.D.Pa.1986), Wetterau now moves for an order withdrawing the *698reference of this adversary action to the U.S. Bankruptcy Court, asserting that it is “entitled to a jury trial because the relief that Darby is seeking is, at bottom, money damages.” Defendant’s Motion, II4. Wet-terau argues that because of limitations of “staff, space and judicial personnel” in the U.S. Bankruptcy Court for the Eastern District of Pennsylvania, “it is in the interests of judicial economy to withdraw reference of this matter from the Bankruptcy Court, and try this matter in the District Court.” Id., ¶ 5.
4. Unlike Kenval Marketing, this adversary action does not involve a complaint seeking only money damages. Although Darby does demand the refund of monies already paid in excess of the actual value of the equipment, the essential relief sought by the debtor is the avoidance of the creditor’s security interest in the equipment and of the debtor’s obligations under its contract with the creditor.
As Judge McGlynn recognized, where an adversary fraudulant conveyance action “seeks only equitable relief, such as the reconveyance of property, the avoidance of a lien, or an accounting, the right to a jury trial does not exist.” 65 B.R. at 554. Moreover, “if the requested relief is primarily equitable in nature, an additional claim for money damages will not convert the action into one at law.” Id. Other courts have held flatly that fraudulent conveyance actions are equitable in nature, and therefore do not require trial by jury. See, e.g., In re Minton Group, 43 B.R. 705, 707 (Bankr.S.D.N.Y.1984) (“Actions to set aside fraudulent conveyances have long been cognizable in equity where the Seventh Amendment does not require jury trials. This is so even if a money judgment is also requested, if such judgment is an integral part of the equitable relief sought”): In re Energy Resources, Inc., 49 B.R. 278 (Bankr.D.Mass.1985) (“It is now firmly established that an action to avoid a fraudulent conveyance is purely equitable in nau-ture and does not require a jury trial even when an alternative claim for monetary relief is made.”)
5. Because the relief sought by the debtor is primarily equitable in nature, Wetterau does not have a right to a jury trial in this adversary action.
Therefore, the defendant’s Motion to Withdraw Reference is DENIED.
IT IS SO ORDERED.
. Darby maintains that although its obligation is payable under the terms of an “Equipment Lease" with Wetterau, this document is "in fact and law" an installment sales contract. Debt- or’s Memo at 2, n. 2. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490880/ | MEMORANDUM OF OPINION AND ORDER
RANDOLPH BAXTER, Bankruptcy Judge.
This is a preference action wherein the parties have submitted the matter for resolution on cross-motions for summary judgment. Upon examination of the relevant pleadings, related documents, and the record generally, the following findings and conclusions are hereby made:
Herein, Marvin A. Sicherman (the Trustee), seeks recovery of a prepetition payment made by Service Bolt & Nut Company, Inc. (the Debtor) to the Defendant General Highway Express, Inc. (General). For purposes of establishing the existence of a preference, the parties have stipulated to all elements under § 547(b) of the Bankruptcy Code. (See Stipulations). Further, as addressed under § 547(c)(4), the parties have stipulated that new value in an amount of $1,620.91 was given following the preferential transfer which was beneficial to the Debtor thereby reducing the Trustee’s recoverable claim from $5,090.85 to $3,469.94. Id.
The dispositive issue is whether certain statutory provisions of the Interstate Commerce Act (ICA) would preclude the avoidance of a preferential transfer allowed under § 547 of the Bankruptcy Code. The Trustee contends that § 547 is the controlling statute and takes precedence over provisions of Title 49 U.S.C. § 10101, et seq. (ICA), in determining whether General must repay the sum of $3,469.94 as an avoidable preference. General, on the other hand, argues that this preference proceeding seeking a recovery against it is in violation of 49 U.S.C. 10101, et seq., specifically Sections 10741(a), 10761,11703,11705, 11902,11903,11904 of the ICA and that the Trustee’s position is without merit.
To resolve this issue, an examination of the underlying purposes for both principal statutes is significant. Section 547 of the Code [11 U.S.C. § 547] addresses the subject of preference. Its two-fold purpose is to (1) discourage creditors from racing to the courthouse to dismember the debtor *761during its slide into bankruptcy and (2) to promote equality of distribution by requiring any creditor which receives a greater payment than others of its class to disgorge the preference so that all creditors may equally share in the debtor’s estate. H.R. 8200, H.R.Rep. No. 595, 95th Cong., 1st Sess. 188 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5787, 5963; In re Arnett, 731 F.2d 358, 364 (6th Cir.1984); Barash v. Public Finance Corp., 658 F.2d 504, 508 (7th Cir.1981).
Significant to an understanding of the statutory purpose of § 547 is the Bankruptcy Code’s definition of the term “transfer.” Under § 101(50), transfer “means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property_” 11 U.S.C. § 101(50). The underlying intent or motive for the transfer is irrelevant. It is the “effect” of the transaction, rather than the debtor’s or creditor’s intent that is controlling. See 4 Collier on Bankruptcy, 11547.01 at 547-12, 13 (15th ed. 1988).
Next, the legislative purpose of the ICA is considered. Generally, the legislative purpose of the ICA has been fairly characterized as follows:
The legislative history of the Interstate Commerce Act, and indeed Congress' concerns with the content of what the Interstate Commerce Act purported to achieve, show plainly that correcting the evil of discriminatory transportation practices was the principal objective of the Act. Accordingly, the Interstate Commerce Act embodied a wide-reaching and sweeping scheme to prohibit unjust discrimination in the rendition of like services under similar circumstances or reasonable advantages to those involved in the business of interstate commerce. 1 Collier on Bankruptcy, II 5.37 at 5-158 (15th ed. 1985).
In addition to the aforementioned stipulations, the parties have also stipulated to the Court’s jurisdiction of this matter. Accordingly, this adversary proceeding arose under Title 11 United States Code and is a core matter pursuant to 28 U.S.C. § 157(b)(2)(F), with jurisdiction conferred under 28 U.S.C. § 1334. Upon comparison of the subject statutes’ legislative histories, their objectives and underlying purposes are not competitive nor conflicting with each other. The return of a preferential transfer as required under § 547(b) is not tantamount to a rebate or to any other discriminatory act addressed under the provisions of Title 49. A rebate, within the statutory scheme of the ICA connotes a consensual act between those parties engaged in interstate commerce, whereas an avoided and returned preference constitutes an involuntary act on the part of the transferee. See, U.S. v. Key Line Freight, Inc., 481 F.Supp. 91 (W.D.Mich.1977), aff'd, 570 F.2d 97 (6th Cir.1978). Additionally, the ICA’s discriminatory acts of special rating, rebates, drawbacks, etc., require the presence of intent to effectuate such proscribed activities. Under § 547(b) of the Bankruptcy Code, intent is irrelevant. In re Repro-Technics, Inc., 8 B.R. 225, 226 (Bankr.D.Me.1981). All that is required for an avoidable preference is the actual transfer being made within the preferential period, in addition to establishing the other elements of § 547(b). See also In re Penn Dixie Steel Corp., 6 B.R. 817 (Bankr.S.D.N.Y.1980), aff'd, 10 B.R. 878 (S.D.N.Y.1981).
In brief, the legislative intent of these statutes does not present competing interests at all. As shown above, the ICA provisions concern themselves with correcting discriminatory practices within the interstate transportation industry. To adopt the view that the ICA conflicts with and is controlling over the Bankruptcy Code would run counter to the Congressional purpose of establishing a uniform bankruptcy law. The view espoused by General was not the intent of the Congress. As well-established, the two-fold principal purpose of bankruptcy law is to provide a financially distressed debtor with a fresh start and to insure equality in distribution to the creditors of the debtor’s estate. Local Loan Co. v. Hunt, 292 U.S. 234, 244, 54 S.Ct. 695, 699, 78 L.Ed. 1230 (1934). Herein, General’s position is contrary to those fundamental purposes of bankruptcy law, *762and its reliance upon the cited sections of Title 49 is misplaced in its attempt to defeat a recovery under § 547.
The Bankruptcy Court must have the power to protect its jurisdiction to assure that the fundamental policies of bankruptcy law are subserved. See Bostwick v. U.S., 521 F.2d 741 (8th Cir.1975); In re Jon Co., Inc., 30 B.R. 831, 10 B.C.D. 1005 (D.C. Colo.1983). Consistent with this notion is the Seventh Circuit’s earlier ruling which held that “the Congress did not undertake to settle every collection problem.” Consolidated Freightways Corp. v. Admiral Corp., 442 F.2d 56, 62 (7th Cir.1971); See also In re Penn-Dixie Steel Corp., 6 B.R. 817 (Bankr.S.D.N.Y.1980). Further, where the freight charges are undisputed, and the only question concerns who is responsible for payment, no discrimination under the ICA is realized. Id. at 820. Here, it is uncontested that the Debtor was charged the full rate, whatever that rate was. Therefore, no discrimination respecting the rate can be found. Any deficiency experienced by General as a direct result of the operation of the bankruptcy law is not discriminatory as that term is addressed under the ICA. Like any other unsecured prepetition creditor, General is provided a remedy for any prepetition debt by filing an appropriate claim against the Debtor’s estate. In re Chateaugay Corp., 78 B.R. 713, 725 (Bankr.S.D.N.Y.1987).
In order to be sustained on a motion for summary judgment, the movant has the burden of proving that no genuine issue of material fact exists and, as a matter of law, he is entitled to a grant of summary judgment. See Smith v. Hudson, 600 F.2d 60 (6th Cir.1979), cert. dismd., 444 U.S. 986, 100 S.Ct. 495, 62 L.Ed.2d 415 (1979). At bar, that burden is upon the Trustee which must be met by a preponderance of the evidence. The Trustee has met the requisite burden of proof. Thusly, summary judgment favorable to the Trustee is appropriate, and is hereby granted.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490881/ | OPINION AND ORDER ON OBJECTION TO CLAIM OF EXEMPTION
BARBARA J. SELLERS, Bankruptcy Judge.
This matter is before the Court upon the objection of Sara Daneman, the duly-appointed trustee in bankruptcy (“Trustee”) to a claim of exemption asserted by the debtor, Mark E. Garland. The opposed exemption relates to a partial interest in certain real property claimed by the debtor as a homestead exemption. The Trustee’s objection was opposed by the debtor and was heard by the Court.
This Court has jurisdiction in this contested matter under 28 U.S.C. § 1334(b) and the General Order of Reference entered in this district. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B) in which this bankruptcy judge may enter a final order.
FINDINGS OF FACT
The facts of this matter are basically uncontested. The debtor filed a case under the provisions of Chapter 7 of the Bankruptcy Code on July 14, 1988. His bankruptcy schedules indicated ownership of a one-half interest in real estate located on Conbrook Court in Galloway, Ohio (the “Property”). Later events demonstrated, however, that the debtor’s interest in the Property was more accurately described as a one-third ownership interest. The debtor further asserted a claim of exemption for his interest in the Property in the amount of Five Thousand Dollars ($5,000) pursuant to Ohio Revised Code § 2329.66(A)(1).
On the date his bankruptcy was filed, the debtor did not reside in the Property and had not resided there since April 15, 1988. Furthermore, the debtor stated that he had no intention to return to that address as he had filed for divorce on April 22, 1988. However, his spouse and three minor children lived in the Property on July 14, 1988 when the homestead exemption was claimed.
Between April 15,1988 and July 14,1988 the Property was listed for sale by the debtor’s spouse. The debtor, his spouse and his spouse’s mother, as the owners of the Property, executed a contract for the sale of the Property on or about August 4, 1988 and that sale was finalized on September 30, 1988, after the Trustee had assumed the debtor’s interest. The proceeds from the sale were not used to purchase *769another residence. At the time of the hearing, the debtor did not know the whereabouts of his spouse or children except that he knew that they had left the state of Ohio.
ISSUES OF LAW
The issue before the Court is whether the intent of a debtor or his dependents to continue to reside in real property as a residence is a prerequisite for claiming a homestead exemption pursuant to Ohio Revised Code § 2329.66(A)(1) or whether physical presence in the real property, without such intent, is sufficient to permit the debtor’s interest in the property to be exempt from the claims of his creditors.
Ohio has opted out of the federal exemption scheme pursuant to 11 U.S.C. § 522(b). Therefore, Ohio bankruptcy debtors look to state law for exemption claims.
CONCLUSIONS OF LAW
Section 2329.66(A)(1) of the Ohio Revised Code provides a limited exemption from attachment by a judicial lien creditor, such as a trustee in bankruptcy, for a debtor’s interest in homestead property. The governing statute states:
(A) Every person who is domiciled in this state may hold property exempt from execution, garnishment, attachment or sale to satisfy a judgment or order as follows:
(1) the person’s interest not to exceed $5,000 in one parcel or item of real or personal property that the person or dependent of the person uses as a residence
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Ohio Rev. Code § 2329.66(A)(1).
The statute, on its face, allows for a homestead exemption not only if the debtor resides in the residence in question, but also if any of his dependents reside in the property for which the exemption is asserted. On its face the statute does not require specific intent. Consideration of the historical origin of the homestead exemption in Ohio and examination of other judicial interpretations of the statutory provision, however, convince this Court that specific intent to remain in the Property is required for allowance of a homestead exemption.
The homestead exemption in Ohio was designed to provide a home for the family of an insolvent debtor which was protected from the claims of creditors. Sears v. Hanks, 14 Ohio St. 298 (1863). The benefit was for the family. Sears at 301. However, in determining whether a debtor was entitled to a homestead exemption, the subjective intent of the debtor was critical. For instance, if a debtor sold exempt property and had no intent to use the proceeds to purchase another homestead, the exemption was disallowed and the proceeds frm the sale of the property were available to satisfy the claims of creditors. McComb v. Thompson, 42 Ohio St. 139 (1884).
Similarly, intent is important in determining whether an exemption will be allowed pursuant to Ohio Revised Code § 2329.66(A)(1). Specifically, a debtor who is living in a residence on the date of filing a bankruptcy petition, having prior to filing procured another residence, will be disallowed a homestead exemption under Ohio Revised Code § 2329.66(A)(1) when the debtor states or exhibits an intent to vacate the premises promptly after filing and then does, in fact, vacate without purchasing another residence. Matter of Pagan, 66 B.R. 196 (Bankr.N.D.Ohio 1986).
The intent of the debtor and his dependents in this case do not establish an entitlement to a homestead exemption by the debtor for his interest in the Property. The debtor did not reside in the Property on the date the bankruptcy was filed and expressly stated that he had no intent to return. The debtor’s wife, although residing in the property with the debtor’s three dependent children on the bankruptcy filing date, exhibited an intent to vacate the premises permanently very soon after the filing. Three months prior to the bankruptcy filing, the Property was listed for sale by the debtor’s spouse. Further, soon after the filing, a contract was executed to sell the Property and the Property was conveyed on September 30, 1988. Finally, *770no intent existed to use the sale proceeds to purchase another residence.
The Court finds that in the narrow circumstance where a debtor or his dependents state or exhibit an intention to permanently vacate the residence asserted as a homestead exemption soon after a bankruptcy filing, without intent to reinvest the proceeds of sale of that residence in other property to be used as a residence, the debtor’s interest may not be claimed as exempt from the interest of the trustee in bankruptcy under the provisions of Ohio Revised Code § 2329.66(A)(1). Allowance of such a claim of exemption would be inconsistent with the purpose of a homestead exemption under Ohio law. Accordingly, the Trustee’s objection to the debt- or’s claim of a homestead exemption for the Property is sustained.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490883/ | MEMORANDUM OF DECISION
DAVID E. RUSSELL, Bankruptcy Judge.
Richard D. Steffan, Esq., Trustee of the above-entitled Chapter 7 bankruptcy estate brought this motion for summary judgment regularly before this court on November 15,1988. Linda A. Selig, Esq., opposed the motion on behalf of Loran Janak, Edner Ruth Janak, Mary Ellen Janak, individually and as Executor of the Estate of Leslie Earl Janak (hereinafter “The Janaks”). The matter was taken under submission following oral argument.
UNDISPUTED FACTS
The Janaks own certain real property located at 2980, 2982, 2984, and 2986 35th Street in Sacramento, California which will hereinafter be referred to as the “35th Street premises”. On or around July 9, 1976 James E. Moore (hereinafter “Moore”) and Earl Janak, Loran Janak, and Janak and Scurfield, Inc., signed a letter of intent to enter into a limited partnership agreement to lease the 35th Street premises.
A dispute subsequently arose between the parties to the partnership agreement and, in an effort to resolve the ensuing litigation, those parties agreed that Moore would be granted an option to purchase the 35th Street premises for $95,000.00 on or around a date certain1 according to the terms of an option agreement finalized and fully executed on April 8, 1981. (See Ex. “A” to Adversary Complaint No. 287-0133, Filed April 3, 1987).
Specifically at issue in the above-entitled motion for summary judgment is the following provision relating to the assignability of the rights under the option agreement:
7. Assignability. Except as provided herein, MOORE may not assign this Agreement without the written consent of JANAKS. In the event an attempt of assignment is made in violation of this provision, then MOORE’s rights under this Agreement shall automatically terminate without notice. Within one month from the date hereof, MOORE, by giving written notice to JANAKS specifically naming the assignee, shall be permitted to once assign to a third party a beneficial interest in MOORE’s option rights in a specified amount not to exceed 15%. In the event such an assignment occurs, such assignee shall not be entitled to exercise the option without MOORE’s signature thereon indicating that MOORE is also exercising the option. Moreover, in the event of MOORE’s death or disability, rights under this option shall pass to his heirs, devisees or conservator, as the case may be.
Pursuant to the above provision, Moore assigned a 15% interest to Elmer R. Mala-koff on June 10, 1981.2
An involuntary Chapter 7 petition in bankruptcy was filed against Moore on March 28, 1984 and an order for relief was subsequently entered. In September, 1986, the Trustee, having succeeded to Moore’s interest in the 35th Street premises, attempted to move this court to approve the sale of the estate’s interest under the op*29tion agreement. The Janaks, however, refused to consent to an assignment by the Trustee to any entity other than Janak & Scurfield, Inc., a Janak family operated business which had offered $16,000.00 for the option. In light of the fact that overbids by third parties substantially exceeding Janak & Scurfield, Inc.’s offer had been extended to the Trustee but could not be accepted without the consent of the Janaks under the option agreement, the Trustee was compelled to file the above-entitled adversary complaint for the purpose of determining the effect and validity of the above-described assignability clause.
DISCUSSION
P.R.Civ.P. 56(c) provides the following' pertinent guidelines to which a court must adhere when determining the merits of a motion for summary judgment;
(c) Motion and Proceeding Thereon. ... The [summary] 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
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Inferences to be drawn from the underlying facts presented in the moving papers must be viewed in a light most favorable to the party opposing the summary judgment motion. (United States v. Diebold, Inc., (1962) 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176).
Once the moving party has met its burden of coming forward with proof of the absence of any genuine issues of material fact, the respondent bears the burden of rebuttal. (Celotex Corp. v. Catrett, (1986) 477 U.S. 317, 321, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265; Adickes v. Kress & Co., (1970) 398 U.S. 144, 159, 90 S.Ct. 1598, 1609, 26 L.Ed.2d 142). If the responding party fails to make a sufficient showing which establishes the existence of an essential element to that party’s case upon which it bears the burden of proof at trial, summary judgment may be granted. (Celotex Corp. v. Catrett, supra, 477 U.S. 317, 322-323, 106 S.Ct. 2548, 2552-2553).
This court must find for the reasons set forth below that this complaint is ripe for summary judgment in favor of the Trustee. As a preliminary matter, although it is undisputed that Moore’s 85% interest in the option agreement is clearly property of the estate as contemplated in 11 U.S.C. § 541(a)(1)3, this court must reject the Trustee’s contention that 11 U.S.C. § 541(c)(1)(A)4 was intended to void any valid contractual provisions which would otherwise have the effect of restricting the transferability of that interest. Rather, the Ninth Circuit Court of Appeals has unambiguously interpreted § 541(c)(1)(A) as “avoid[ing] only those restrictions which prevent transfer of the debtor’s property to the estate”. (In re Farmers Markets, Inc., 792 F.2d 1400, 1402 (9th Cir.1986). (Emphasis added)).
Thus, in order to determine the validity of a non-assignability clause as against a third party other than the Trustee, this court must look to state law. (4 Collier on Bankruptcy 11 541-02 at 541-10-11 (15th Edition); the existence and nature of a debtor’s interest in property is to be determined by non-bankruptcy law). The California Supreme Court in Kendall v. Ernest Pestana, Inc., (1985) 40 Cal.3d 488, 220 Cal.Rptr. 818, 709 P.2d 837 declared that where a commercial lease provided for the assignment of rights only upon prior consent of the lessor, such consent could be withheld only if the lessor presented a “commercially reasonable objection to the *30assignee or the proposed use”. (40 Cal.3d at 506-507, 220 Cal.Rptr. 818, 709 P.2d 837). This court agrees that the holding in Kendall is applicable to the facts of this case.
The California Supreme Court’s rationale in Kendall was based upon the combined policies of reducing restraints on alienation of interests in real property and promoting the implied contractual duty of good faith and fair dealing. (Supra, at 506, 220 Cal.Rptr. 818, 709 P.2d 837). Thus, the Court’s holding should naturally apply to any agreement which restricts the transferability of an interest in real property. In any event, this court can conceive of no compelling reason why this rule should not be applied to a similar assignment provision in an option agreement for the sale of real property. The holder of an option to purchase a fee simple interest in real property, regardless of whether that entity is the original optionee or an assignee thereto, has, unlike a leaseholder, no continuing relationship with the optionor once the option has been exercised. Thus, there are even fewer compelling policy reasons to rationalize an effort to restrain the alienability of such an interest under an option contract.
Despite numerous opportunities to do so, the Janaks have failed to set forth any commercially reasonable objections to the assignment of the option to a party other than Janak & Scurfield, Inc.5 If the Ja-naks cannot, or will not, specify any reasonable objections to the judicially supervised sale of the option to the highest bidder, then this court has no choice but to conclude that there are no reasons, commercial, or otherwise.
The mere transfer of the option clearly would not affect the Janak’s present proprietary interests in the premises because the option agreement does not contemplate the transfer of any interest less than a fee simple on a date certain. In any event, even assuming that only the Trustee could exercise the option, the Janaks would have no standing to object thereafter to the subsequent transfer of title to a third party. Thus, it is clear that the Janaks would sustain no greater prejudice by the immediate transfer of the option to a third party than they would if the property were transferred to such party following the exercise of the option in 1991.
Finally, it must be noted that the assignment clause expressly provides that the option “shall pass to [Moore’s] heirs, devi-sees, or conservator” if Moore should die or become incompetent before the option date. It seems to this court that such a clause allowing the interest to pass to a devisee or appointee without the consent of the Janaks would not have been allowed if the latter were so vehemently opposed to the assignment of the option to a third party.
Due to a complete failure by the Janaks to rationally explain their opposition to the assignment of the option to purchase a fee simple interest in the 35th Street premises, this court can only conclude that such conduct must have been motivated by a bad faith desire to strip the Trustee of his interest in the property for inadequate consideration.
DISPOSITION
For the reasons set forth above, this court finds that the Trustee is entitled to summary judgment on his adversary complaint no. 287-0133 as a matter of law. It is, therefore, this court’s intention to grant the above-entitled motion and order the relief requested in the adversary complaint.
*31In addition, this court finds that as the “prevailing partpes]” under Paragraph 12 of the option agreement6, the Trustee (as holder of an 85% interest) and Elmer Mala-koff (as holder of a 15% interest) are entitled to any reasonable fees and costs incurred by them in instituting, and supporting their respective positions in the above-entitled adversary complaint. (California Civil Code § 1717(a)7; In re Sonoma V, 23 B.R. 789, 796 (9th Cir.B.A.P.1982) (State law governs bankruptcy court’s determination as to whether litigant is contractually entitled to attorney’s fees)). The reasonableness of those fees and costs will be determined by this court upon proper application by the parties.
The Trustee will prepare and submit a proposed judgment in accordance with the above memorandum of decision.
. The option may only be exercised on or between the dates of January 1, 1991 and January 15, 1991. (Agreement, supra, at ¶ 2).
. Although the assignment to Malakoff was executed more than one month following the effective date of the option agreement, the assignment was nonetheless timely due to the provisions of a subsequent agreement entered into between the parties to the option on May 20, 1981 which extended the deadline for assignment of a 15% interest to thirty days from May 12, 1981. (Ex. "A-M2” to Adversary Complaint, supra).
. 11 U.S.C. § 541(a)(1) includes "all legal or equitable interest of the debtor in property as of the commencement of the case” as property of the estate. (United States v. Whiting Pool, Inc., 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515).
. 11 U.S.C. § 541(c)(1)(A) provides in pertinent part that "... an interest of the debtor in property becomes property of the estate under ... this section notwithstanding any provision In an agreement, transfer instrument, or applicable nonbankruptcy law—
(A) that restricts or conditions transfer of such interest by the debtor ...” (Emphasis added).
. In response to an interrogatory to indentify any party to whom the Janaks would permit an assignment of the option and to detail the reasons for such permission, the Janaks answered that the question was "irrelevant”. (Ex. “M-8” to Supplemental Declaration of Elmer Malakoff, Filed 10/31/88, at p. 4 ("Response to Interrogatory #3”). In response to an interrogatory which specifically queried as to the potential prejudice Janak would sustain were an assignment to be made to Malakoff (the holder of the 15% interest in the option), Janak’s counsel responded that "Throughout this case, [Janak] has consistently taken the position that the option agreement was personal to JAMES E. MOORE because it was the negotiated culmination of litigation between MOORE and the other defendants in this Adversary Proceeding.” (Ex. “M-8”, supra, at p. 3 (“Response to Interrogatory 'A'")). This response obviously begs the question, but is the closest that the Janaks have come to answering this pivotal question to date.
. 12. Attorneys’ Fees. In the event of any controversy, claim or dispute between the parties hereto, arising out of or relating to this Agreement or the breach thereof, the prevailing party shall be entitled to recover from the losing party reasonable expenses, attorneys’ fees, and costs. (Option Agreement, supra, at ¶ 12).
. Civil Code § 1717(a) provides as follows:
(a) In any action on a contract, where the contract specifically provides that attorney’s fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney’s fees in addition to other costs. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490885/ | STATEMENT OF THE PROCEEDING, FINDINGS OF FACT, AND CONCLUSIONS BY THE COURT
L. CHANDLER WATSON, Jr., Bankruptcy Judge.
Statement of the Proceeding —
The above-styled case was commenced January 26, 1988, and is pending before this Court under title 11, chapter 11, United States Code, with no trustee having been appointed. The above-styled adversary proceeding is related to said case and has been pending before this Court since its removal to this Court pursuant to “NOTICE OF REMOVAL’’ and “APPLICATION FOR REMOVAL’’ by defendant Deupree Food Systems, Inc. (hereinafter *84referred to as “debtor”), dated and filed in this Court on February 16, 1988.
There is no dispute between any of the parties as to the procedural events which have occurred in this litigation, and the Court takes judicial notice of those stated above and subsequently. This litigation was originally commenced as a civil action, upon a complaint filed by the plaintiff, First Alabama Bank (hereinafter referred to as “bank”) in the Circuit Court of Tal-ladega, Alabama, on October 24, 1986; wherein, Horton Construction Company, Inc. (hereinafter referred to as “H. Const.”), Michael T. Horton (hereinafter referred to as “Horton”), James L. (Skip) Deupree, Jr. (hereinafter referred to as “Deupree”), and the debtor were named as defendants. The main thrust of the bank’s litigation was to interplead the sum of $10,-000.00 (paid by the bank to the register of the state court); however, the bank asserted a claim for its attorney’s fees in the civil action and, also, asserted a counterclaim or setoff of $3,022.00 against H. Const, and Horton.
On February 3, 1988, NCR Corporation (hereinafter referred to as “NCR”) filed in said state court a motion to intervene in the interpleader action commenced by the bank; and, on March 3, 1988, the Honorable William C. Sullivan, judge of said circuit court, purported to enter an order granting the request of NCR to be constituted as an intervenor in the interpleader action. With its motion to intervene, NCR filed a motion for summary judgment in its favor, which, apparently, has not been brought on for a hearing in the state court or this Court.
On March 25, 1988, the bankruptcy court entered an order in this adversary proceeding, which directed the debtor to file herein a copy of all process and pleadings and a copy of all records and proceedings in the interpleader action.
A motion for summary judgment on behalf of the debtor and Deupree was withdrawn at a hearing in this proceeding on August 2, 1988.
Notwithstanding any inconsistency indicated by the foregoing statements, this proceeding was tried before the bankruptcy judge, without the intervention of a jury, on September 22, 1988, with full participation by all parties, including NCR, as intervenor; and, at the conclusion of the trial, the proceeding was taken under advisement for a final ruling by the Court, with leave to the parties to submit written briefs, which have been submitted and considered. For aught that appears, the register of the Circuit Court of Talladega County continues to hold said sum of $10,-000.00, which is a res or a stake now subject to the exercise of jurisdiction by this Bankruptcy Court and which is claimed, separately, by the debtor and H. Const. NCR claims to have the right to a satisfaction from the interpled funds of the unpaid balance of a judgment against H. Const.
Findings of Fact —
From 'the evidence presented to the Court, the stipulations by the parties, and certain uncontradicted statements by counsel during the trial, as well as obvious assumptions from the posture or the manner in which this dispute was submitted to the bankruptcy court for a resolution, the bankruptcy jduge finds the facts as follows:
1. The bank has incurred attorney’s fees of $786.50 by virtue of its interpleader action;
2. NCR is owed the sum of $5,473.62 by H. Const., as the unpaid balance of a judgment obtained by NCR in Civil Action No. CV86-PT-1782-E, in the United States District Court for the Northern District of Alabama, on January 14, 1987;
3. At the times involved in this litigation, Deupree was the vice president of the debtor, and Horton was president of H. Const.; and whatever dealings were had between the debtor and H. Const, (both corporations) were transacted by their respective officers, Deupree and Horton, with any exceptions not being reflected in the evidence;
4. Prior to any dealings between the debtor and H. Const., Deupree or the debt- or (or both) had been involved with the construction or operation (or both) of an *85Arby’s restaurant at Sylacauga, Alabama, in the spring of 1985; and, not long thereafter, Deupree and Horton orally agreed that the debtor and H. Const, would undertake the construction of Arby’s restaurants, with anticipated profits to be shared equally; and, pursuant to this agreement, the debtor and H. Const, built Arby’s restaurants at Talladega, Alabama, Lexington, Kentucky, Gulfport, Mississippi, and Gulf Shores, Alabama, equally sharing profits from these joint ventures of $20,000 to $80,000;
5. In these projects, H. Const, engaged in the on-site construction work and related office work, and the debtor obtained a letter of credit, necessary for the awarding to H. Const, of the construction contracts and availability of construction financing, as well as seeing to the coordination of the construction work with the financing and other requirements for the carrying out of the construction work; and, under the same arrangements, H. Const, undertook the building of an Arby’s restaurant at Millington, Tennessee, from which activity this litigation springs;
6. For the Millington job, H. Const, became indebted to NCR for the purchase of computer-type equipment installed in the Arby’s restaurant there, and this debt is the foundation of NCR’s judgment against H. Const.;
7. During or near the time of the Mill-ington job, Horton and his wife, who was office manager of H. Const., were divorced, and Horton was obligated to pay her $10,-000.00 in relation to the divorce;
8. Mrs. Horton, after the divorce, continued for some time in her capacity as officer manager of H. Const, and collected the $10,000.00 by making payable to herself an H. Const, bank check for that sum;
9. Prior to or at the beginning of the Millington job, Horton and Deupree furnished to the bank documents which authorized the bank to pay checks drawn on the checking account of H. Const, at the bank only upon the joint signatures of Horton and Deupree, and this bank account was used by H. Const, for handling transfers of funds related to the Millington job, and it was Horton’s practice to leave with Deu-pree blank checks for this account which Horton had signed, with the understanding that Deupree would use the checks in connection with the management services furnished by the debtor in the construction venture;
10. The $10,000.00 check paid to Mrs. Horton was obtained by her on the basis that it would be a draw against H. Const.’s share of the anticipated profits from the Millington job, and there was no evidence that either Horton or H. Const, challenged her receiving these funds in that fashion;
11. Horton spent a good deal of his time away from Sylacauga, Alabama, where, apparently, the H. Const, office was located; and, after the middle of April, 1986, a problem had developed with the Millington job, in that the property owner had failed or refused to make anticipated payments to H. Const., under the construction contract; and shortly thereafter, while Horton was out of town and Mrs. Horton was still acting as manager of the H. Const, office, Deupree signed and made payable to the debtor one of the H. Const, checks (numbered 168) for the sum of $10,000.00, which Deupree claims was to match a draw for H. Const, against anticipated profits of a like amount, being the $10,000.00 obtained by Mrs. Horton;
12. The check payable to the debtor for $10,000.00 was endorsed for deposit in the debtor’s name by Deupree and was deposited in a bank in Sylacauga, Alabama; but, before being transferred to and paid by the (Talladega) bank Mrs. Horton had informed Horton of the drawing of the check, during a telephone conversation with him, and Horton, in a telephone call to the bank, had advised the bank not to pay s.uch a check payable to the debtor (no check number being mentioned);
13. During the telephone call to the bank, Horton was informed that payment of the check would be stopped but that this instruction would have to be confirmed by a written stop-payment order;
14. Horton complied with the bank’s requirement for a written confirmation of the *86stop-payment order but the writing named Deupree — not the debtor — as the payee of the check and did not contain a check number;
15. In connection with these events, the bank issued to H. Const, a written acknowledgment of a stop-payment order on April 24, 1986, for a $10,000 check, payable to Deupree, with an “oral” box checked but with a check-number box left blank;
16. H. Const, check number 168, dated “4-20-86,” payable to the debtor in the sum of $10,000 was forwarded and presented to the bank, which, in regular course, photographed the check and entered a debit of $10,000 for it upon the the account maintained by the bank for H. Const.;
17. This debit was included in a debit to the account, on April 28, 1986, for five checks totalling $25,226.49; .
18. On April 24, 1986, the account shows a debit of $10, for a “stop payment fee,” and on April 29, 1986, the account shows a “deposit” of $10,000;
19. On a statement of account, issued by the bank to H. Const, on its account, showing a closing date of April 30, 1986, the bank listed numerous “CHECKS PAID,” including $10,000.00, check number 168, April 28;
20. The bank, however, did not pay the funds related to the check over to the debt- or’s forwarding bank, and, instead, returned the check to the debtor’s bank, with the legend “PAYMENT STOPPED” stamped three times across the face of the check;
21. On May 8, 1986, Deupree wrote to the bank advising that he was awaiting a reply to a request made to Horton “to honor check no. 168 in the amount of $10,-000”;
22. In the letter to the bank, Deupree requested that the bank withhold $10,000 until Horton’s consent was obtained or, if not obtained, that the bank interplead the money in the state court;
23. Also, on May 8, 1986, Deupree wrote to Horton — sending a copy to the bank — and outlined his expectation that the $10,000 be paid, as a draw equal to that which Mrs. Horton had previously obtained;
24. When Horton’s consent to payment of the check to the debtor was not forthcoming, the bank interpled the $10,000 in the state court, where the register holds these funds in an interest-bearing account; and
25. Following the bank’s debit of $10,-000.00 to the H. Const, account for check number 168, payable to the debtor, Horton was permitted to cash, at an affiliated bank in a different city, a check on the H. Const, account, which, when other checks on the account were paid by the bank, overdrew the account by $3,022.00, a sum now due the bank on the H. Const, account after the bank interpled the $10,000.00.
Conclusions by the Court —
The evidence establishes two major ambi-guties — one created by Horton and it followed by one on the part of the bank.
On, apparently April 24, 1986, Horton verbally directed the bank to stop payment on an H. Const, check for $10,000.00, payable to the debtor. He followed this with a written confirmation to the bank, but the writing varied from the oral order by naming Deupree as the payee of the check instead of the debtor. Adding to the uncertainty as to Horton’s intentions was the absence from the instructions of a check number.
Upon the presentment to the bank of the check payable to the debtor for $10,000.00, the bank appears to have treated the check as if there were no stop-payment order applicable to it. Accordingly, on April 28, 1988, this check and four other checks were debited to the H. Const, account.
At this point the bank held a check signed by the two jointly-authorized signatories. The bank had been told by one of them not to pay the check but later was given a written confirmation which varied from the oral order by describing a check payable to Deupree instead of the debtor. On the other hand, the endorsement of the check in the debtor’s name by Deupree signaled the bank that the other person jointly authorized to sign H. Const, checks *87was instructing the bank to honor the check.
Having first debited the H. Const, account for payment of the cheek, the bank appears then to have undertaken to dishon- or the check by stamping “PAYMENT STOPPED” three times across the face of the check and returning it and by withholding payment of the funds which the cheek purported to order to be paid to the debtor. Following the receipt of further indications that Deupree wanted the check paid and that Horton opposed payment, the bank interpled the sum of $10,000 in the state court.
Although, the H. Const, account reflects a “deposit” of $10,000.00 on April 29, 1986, the Court is not aware of any indication that this represented a reversal by the bank of the debit for the check on the preceding day.
NCR argues that the issuance of a bank check is not “an assignment of any funds in the hands of the drawee available for payment,” but this is an argument against a much lesser proposition than the one raised by the debtor’s position in this proceeding. The assertion by NCR appears to be what primary logic would teach, even if not codified in Code of Alabama, § 7-3-409(1) (1975, repl. vol. 1984) — which it is.
NCR, with some encouragement from Horton and H. Const., attempts to challenge the right of the debtor to a check for $10,000.00 on the H. Const, account, arguing that the Millington job had not reached a stage for there to exist any profits to be divided, in view of the owner’s cessation of payments to H. Const, under the construction contract. The prior practice of H. Const, and the debtor — on other jobs — had been to make draws against anticipated profits. It may be inferred that Horton was virtually the alter ego of H. Const., if not so in fact. The evidence shows that a draw of $10,000.00 for the account of Horton (by his former wife) had already been made, and it was not at all established that the debtor was not thus entitled to a corresponding draw of $10,000.00.
Deupree makes no claim to the stake in this litigation but supports the claim of the debtor. The debtor contends that there was no stop-payment order as to the check payable to the debtor for $10,000.00 — either oral or written. This contention, however, is contradicted by the bank’s officer, who testified that Horton told him over the telephone that Deupree “had signed a check for ten thousand dollars to his company.” [trial traspt. p. 66] Thus, there was in fact an oral order that correctly described the payee and the amount of the check but gave no date or check number. The debtor’s more fundamental position in this controversy appears to be that there was no legally-effective stop-payment order on the check in question and that the bank was not warranted in withholding payment of the check. While not clearly set out, this position depends upon a conclusion that the written stop-payment order replaced the oral one and must be found legally deficient because it did not identify the check in question as to its date or number and misidentified the payee as being Deupree instead of the debtor.
The Court has no problem in accepting the debtor’s conclusion that the written order to the bank superseded the oral order and must be taken as the controling one of the two. The written order followed the oral order and must be taken as the bank customer’s then-current position as to a check which had not yet been presented for payment. Furthermore, the written order would be less conducive to a misstatement or a misunderstanding than an oral order and would justify more reliance upon it.
This conclusion does not advance this controversy to a decision as the debtor contends. Although controlling, what does the written order control? It controls liability between H. Const, and the bank for payment of the misdescribed check and would relieve the bank from liability to H. Const, for payment of the check.
The cases cited by the debtor deal with a bank’s liability (or lack of liability) to its customer for paying a check in the face of a stop-payment order which misdescribes the check sought to be defeated. See Sher-*88rill v. Frank Morris, Etc., 366 So.2d 261 (Ala.1978). It is clearly established in the present case that, after Horton gave to the bank the sketchy and erroneous written stop-payment order, the bank would not have been liable to H. Const, had the bank paid the check over the counter. This sort of issue, of course, is not the same question presented when the check is misdescribed, the customer’s account is debited, the check is listed on the customer’s account as “paid,” but the bank refuses to settle with a forwarding bank for the check. If the bank then freezes the funds, the dispute becomes a three-headed controversy involving the bank and its customer and the payee of the check. This, then, is not the usual check stop-payment case.
While this litigation does not pose any real question as to whether the issuance of a check amounts to an assignment of funds or credits available for payment of checks against the bank account identified in the check, the issue does appear to bear some kinship to an assignment question. The debtor’s claim to funds in the H. Const, account was made to the bank at a time when the bank was not obliged to associate the stop-payment order with the check and had not in fact done so. One might suppose that this three-pronged claim to the interpled funds must be decided through some extrapolation by the Court of the rules of the law of assignments, because the parties cite no statutory precepts, save Code of Alabama, § 7-3-409, and that sets forth the earlier-stated basic rule that the issuance of a bank check does not amount to an assignment of funds credited by the bank to its customer’s account. Yet, Article 4 of the Alabama Uniform Commercial Code is titled “Bank Deposits and Collections” and consists of some 37 sections — several with multiple parts.
The Court is not persuaded to the implication of the briefs filed herein that the Alabama accumulation of rules governing “Bank Deposits and Collections” does not provide rules for a decision in this dispute. For example § 7-4-403 states that an oral stop-payment order binds a bank for only 14 days and that a stop-payment order “must be received at such time and in such manner as to afford the bank a reasonable opportunity to act upon it prior to any action by the bank with respect to the ‘item’ described in section 7-4-303.” Here, “item” means the check,1 and the reference to § 7-4-303 relates to “action by the bank” in regard to the check. One of the actions by the bank, as described in subdivision (l)(d), is that the bank has “[c]om-pleted the process of posting the item to the indicated account of the drawer.” But these rules, although illuminating, appear to deal with the right of the bank to pay the item rather than with the payee’s right to payment of the item in the face of a refusal to pay. In the present case, the bank was not bound by the ambiguous and sketchy stop-payment order, but still it did not pay over the proceeds of the check.
Turning, however, to § 7-4-213(1), we find that “[u]pon a final payment under subparagraphs (b), (c) or (d) the payor bank shall be accountable for the amount of the item.” Paragraph (1) begins with the statement that “[a]n item is finally paid by a payor bank when the bank has done any of the” four acts there described, such as “(a) [p]aid the item in cash.” Subpara-graph (c) is: “[c]ompleted the process of posting the item to the indicated account of the drawer,Thus, if the process of posting the item has been completed, the item has been finally paid by the payor bank, and that bank is then liable for the amount of the item. If there is any lack of clarity as to whom the bank is liable, it would make no sense if the reference were to the drawer, and the bank’s liability must be to the owner of the item or collecting bank or in an appropriate case to a prior endorser.
This conclusion is supported by the “Official Comment” to § 7-4-213(1), which explains the concept of “final payment:”
Final payment of an item is important for a number of reasons. It is one of several factors determining the relative priorities between items and notices, *89stop-orders, legal process and set-offs (Section 7-4-303). It is the “end of the line” in the collection process and the “turn around” point commencing the return flow of proceeds. It is the point at which many provisional settlements become final. See Section 7-4-213(2). Final payment of an item by the payor bank fixes preferential rights under Section 7-4-214(1) and (2).
2. If an item being collected moves through several states, e.g., is deposited for collection in California, moves through two or three California banks to the Federal Reserve Bank of San Francisco, to the Federal Reserve Bank of Boston, to a payor bank in Maine, the collection process involves the eastward journey of the item from California to Maine and the westward journey of the proceeds from Maine to California. Subsection (1) adopts the basic policy that final payment occurs at some point in the processing of the item by the payor bank. This policy recognizes that final payment does not take place, in such hypothetical case, on the journey of the item eastward. It also adopts the view that neither does final payment occur on the journey westward because what in fact is journeying westward are proceeds of the item. Because the true tests of final payment are the same in all cases ■and to avoid the confusion resulting from variable standards, the rule basing final payment exclusively on action of the pay- or bank is not affected by whether payment is made by a remittance draft or whether such draft is itself paid.
In this proceeding, the remaining question is whether the bank had “completed the process of posting the item to the indicated account of the drawer.” The evidence shows that the bank entered a debit to the account of the drawer, H. Const., for $25,226.49, on April 28,1986. This was the sum of the five checks — including number 168, for $10,000 — shown on the drawer’s bank statement to have been paid against the account on that date. If that action did complete “the process of posting the item to the indicated account,” there is the further action of the bank in listing check number 168 as being paid for $10,000 on April 28, 1986, in the listing of checks paid — shown on the drawer’s account statement issued by the bank for the period ended April 30, 1986.
No detailed or reliable evidence of the posting process employed by the bank was presented, and there was no evidence that any further step by the bank was required to complete its process of posting the item to the H. Const, account, against which the check was drawn. At least as early as April 30, 1986, the bank had completed the process of “final payment” of the check payable to the debtor and had become “accountable” to it for the amount of the item, $10,000. The process of accounting by the bank was belatedly begun by the bank when it interpled the $10,000 in the state court and will be completed when the register pays over those funds to the debtor.
The evidence indicates clearly that the bank’s claim for an overdraft on the account arose after “final payment” of the check and that the bank has no counterclaim enforceable against the $10,000, now in the hands of the register. The bank’s problems with the check arose because of its failure to make a seasonable final settlement of the check after final payment, and the Court is unable to find that it has any equitable right to satisfy its legal fees from the $10,000 and thereby shift to the debtor the bank’s expense in disentangling itself from the results of its ambivalence. In the same vein, costs of this and the state court proceeding should be taxed to the bank.
The claim of NCR is an appendage to this interpleader proceeding. Its claim is only against H. Const, and may be asserted only against any funds here which belong to H. Const. There is none against which the claim may be levied. NCR, by its garnishment of the register (if that in fact occurred) and its intervention (if that in fact occurred), has been plumbing a dry well.
The question of liability of the bank to the debtor for interest on the $10,000 has not really been litigated in this proceeding, *90and the Court will presently abstain from that matter. If it is a real source of controversy between the bank and the debtor, perhaps they can resolve it by some mutually-acceptable compromise. The Court will enter an order for the resolution of the other matters.
JUDGMENT
In accordance with the Court’s findings of fact and conclusions of law made in the above-styled adversary proceeding on the present day, it is ORDERED by the Court as follows:
1. It is adjudged that the debtor, Deu-pree Food Systems, Inc., owns and has the unfettered right to the sum of $10,000 (including any interest earned thereon) paid by First Alabama Bank to the register of the Circuit Court of Talladega County, Alabama, by way of interpleader in that court's civil action designated as CV-86-200076;
2. It is adjudged that none of the other parties to this adversary proceeding, which encompasses said interpleader action, has any right to, title to, or enforceable interest in said funds;
3. The register of the Circuit Court of Talladega County, Alabama, is authorized and directed to pay said funds to said debt- or, Deupree Food Systems, Inc.;
4. The costs of this adversary proceeding and of said interpleader action in said State court are taxed to said First Alabama Bank;
5. All other claims or demands, except for any interest claimed by said debtor against First Alabama Bank, are denied and dismissed;
6. Unless an interest claim has been asserted by the debtor against First Alabama Bank through further pleadings filed herein by January 16, 1989, the clerk is authorized and directed to close this adversary proceeding, forthwith; and
7. The clerk shall mail a copy of this judgment and of said findings of fact and conclusions of law to each of the following by certified mail, return receipt requested: the register of the Circuit Court of Tallade-ga County, Alabama; the bankruptcy administrator; and the respective attorneys of record for First Alabama Bank, James L. Deupree, Jr., Horton Construction Co., Inc., Michael L. Horton, and NCR Corporation, respectively.
. Code of Alabama § 7-4-104(l)(g) (1975, repl. vol. 1984). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490886/ | FINDINGS OF FACT, CONCLUSIONS OF LAW MEMORANDUM OPINION
ALEXANDER- L. PASKAY, Chief Judge.
THIS IS a Chapter 7 liquidation case, and the matter under consideration is a claim of nondischargeability asserted by George A. Bragg and Florence R. ’ Bragg, his wife (Plaintiffs) who instituted this adversary proceeding pursuant to § 523(c) of the Bankruptcy Code. The claim of nondis-chargeability which is based on § 523(a)(2)(A) is asserted against John Thomas Gilpin (Debtor) who filed his Voluntary Petition under Chapter 7 of the Bankruptcy Code on June 17, 1988. The facts relevant to the claim under consideration as established at the final evidentiary hearing are as follows:
At the time relevant, the Debtor was the president and sole stockholder with his wife of a corporation known as Tom’s Mobile Home, Inc. (Tom’s). Tom’s has been in business for nineteen years and was engaged primarily in selling mobile homes including furnishings. The transaction is commonly referred to as a “package deal” (Plaintiffs Exh. No. 2). Pursuant to the contract of sale, the purchaser would receive a title to the land at the mobile home park, a fully equipped mobile home and additional amenities required by the park itself which consist of a carport, a porch, a utility shed and sod.
The record reveals that the business of Tom’s was cyclical in nature in that it always experienced an annual cash flow crunch, and its operation was tied over from time to time by bank loans obtained by the corporation.
On June 6, 1988, the Plaintiffs entered into a purchase agreement (Plaintiffs’ Exh. *94No. 1) with Tom’s pursuant to which they agreed to purchase a Sandalwood mobile home. The total purchase price was $37,-031.75. The sale included all items described in the “package deal”. The Plaintiffs paid Tom’s the total purchase price in three installments, the last payment on June 6, 1988 (Plaintiffs’ Exh. No. 3). It appears that the Debtor did shortly after the execution of the contract contact a subcontractor who did similar work for Tom’s over the years and directed the subcontractor to commence the construction of the amenities described earlier. It is without dispute that the job was never completed and the Debtor concedes that the Plaintiffs did not receive the carport, the porch, the utility shed and sod. It is without dispute that the Plaintiffs did receive the other items included in the package.
It appears that Tom’s had a long standing banking relationship with Barnett Bank of Polk County. However, in the Fall of 1987 the Debtor encountered some difficulty by obtaining an extension of its outstanding notes from Barnett. This in turn prompted the Debtor to contact the law firm of Stichter & Riedel, the law firm which ultimately filed the Voluntary Petition on behalf of the Debtor and his wife, and also on behalf of the corporation. The problem which arose in the fall of 1987 apparently had been resolved and Tom’s continued to do business, and all the way up to the time that the bankruptcy was actually filed, that is, even after the contract was entered into between Tom’s and the Plaintiffs.
It appears that Tom’s actually paid out of the monies received from the Plaintiffs close to $34,000 for the lot, the mobile home and the furnishings, and the balance was used to meet the general operating expenses of the corporation. There is no evidence in this record that the Debtor or his wife guaranteed the performance of this contract to the Plaintiffs or agreed to be personally liable for anything which might result from this transaction. There is clearly no evidence in this record that they individually became contractually indebted to the Plaintiffs. In this connection it also should be noted that the corporation was bonded having posted a $25,000 performance bond, and while the Plaintiffs knew about the bond, they failed to make a claim against the bond, which they could have done.
Tom’s financial condition further deteriorated and by late May or early June, it became evident that it would not be able to continue to carry , on its business. The Debtor contacted the law firm again and retained the law firm to file a Voluntary Petition on behalf of Tom’s and also on behalf of himself and his wife and paid the law firm on June 14 the fee charged for these two voluntary petitions. The Petition on behalf of the Debtors was filed on June 17, 1988.
These are the salient facts which have been established in the record on which the claim of nondischargeability based on § 523(a)(2)(A) is asserted. This section of the Code provides as follows:
§ 523. EXCEPTIONS TO DISCHARGE
(a) A discharge under section 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;....
It is well established that courts narrowly construe exceptions to discharge against a creditor and in favor of the Debtor. In re Cohen, 47 B.R. 871 (Bkrtcy.S.D.Fla.1985); In re Mart, 87 B.R. 206 (Bkrtcy.S.D.Fla.1988). It is equally true that the quality of the proof required to sustain a claim of nondischargeability is clear and convincing evidence. In re Booth, 70 B.R. 391 (Bkrtcy.Colo.1987) and In re Martin, 88 B.R. 319 (Colo.1988). It is equally axiomatic that before a claim of nondischargeability should be considered, it must be established that the Debtor is, in fact, indebted to the creditor who challenges the debtor’s right to obtain a discharge. A liability of a debtor to a creditor generally is either *95based on a contract or on some theory of a tort. There is nothing in this record which indicates that this Debtor ever became liable to the Plaintiffs on the basis of a contract. The contract to purchase the mobile home in question was a contract between the Plaintiffs and the corporation, Tom’s Mobile Homes, Inc. This Debtor never had any contractual relationship with this individual Debtor and there is nothing in this record to show that he individually guaranteed the performance of this contract and thus, could be held liable for the breach of same.
The only other possible alternate theory of liability might be based on a tort, particularly based on fraud. There is no question that one who obtains money or property by false pretenses, misrepresentations or by actual fraud could be held legally liable to the creditor from whom the monies were obtained. The second difficulty with the Plaintiffs’ case becomes evident when one considers this aspect of the case. There is not a scintilla of evidence in this case to show that this Debtor individually obtained any monies from the Plaintiffs nor that he made any misrepresentations or a false pretense. The corporation paid, as noted earlier, close to $34,000 in order to set up the mobile home for the Plaintiffs which included the cost of acquisition of the lot, payment for the mobile home which was under a floor-plan arrangement and paid for the other amenities which the Plaintiffs received. The balance of the monies obtained from the Plaintiffs according to the testimony was used to pay general operating expenses of the corporation. There is nothing in this record which warrants the conclusion first that this individual Debtor obtained any funds individually or used any of the funds individually for his own benefit. Neither is there evidence in this record to support the finding that this Debtor obtained the funds from the Plaintiffs by false pretenses, misrepresentation or actual fraud, knowing that Tom’s either will not be able to perform the contract completely, nor that when it entered into the contract the Debtor, Tom’s, and did not intend to perform the contract. The evidence indicates totally in the opposite direction. Compare Ford Motor Credit Co. v. Owens, 807 F.2d 1556 (11th Cir.1987); and John P. Maguire & Co. v. Herzog, 421 F.2d 419 (5th Cir.1970).
In sum, the Plaintiffs have failed to establish the requisite degree of proof in any of the operating elements of a claim of nondischargeability based on § 523(a)(2)(A) and, therefore, the Complaint shall be dismissed with prejudice.
A separate Final Judgment will be entered in accordance with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490887/ | MEMORANDUM OPINION
GEORGE L. PROCTOR, Bankruptcy Judge.
This adversary proceeding is before the Court upon Defendant’s Motion to Dismiss Count V of the complaint styled “Amended Objection to Claim and Counterclaim.” A hearing was held on February 8, 1989, and upon the argument and memoranda of law submitted by counsel, the Court enters the following Memorandum Opinion.
FACTS
On February 4, 1987, Defendant filed suit in the United States District Court for the Northern District of Georgia against Ronald C. Davis, his wife, and daughter. The daughter was later dropped as a party defendant in order to preserve diversity of citizenship. Davis answered the complaint but failed to assert a counterclaim.
On May 27, 1987, Defendant commenced a second action against Plaintiff, his wife and daughter in the Superior Court of Fulton County, Georgia. Again, Plaintiff did not assert a counterclaim.
On November 2, 1987, Plaintiff filed a petition for relief under Chapter 11 of the Bankruptcy Code. 11 U.S.C. §§ 1101, et seq. On January 14, 1988, he initiated this adversary proceeding objecting to Defendant’s claim and seeking damages flowing from allegations of (i) breach of committment; (ii) constructive fraud, breach of fiduciary duty, undue influence; (iii) bad faith; (iv) conversion; (v) malicious abuse of process.
Count Y of the Complaint seeks to recover damages from Defendant arising out of the two lawsuits filed in Georgia based upon the theory of “malicious abuse of process.”
Defendant argues that: (i) the tort of “malicious abuse of process” no longer exists under Georgia law but has merged into the tort of “abusive litigation”, (ii) that such an action cannot be maintained because Plaintiff did not file a counterclaim in the original actions, and (iii) an action for “abusive litigation” as it exists under Georgia law is unavailable in federal court.
DISCUSSION
Initially the Court must address whether Florida or Georgia law governs this proceeding. When a choice of law issue arises, federal courts should apply the forum state’s choice of law rule. Klaxon v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). In a tort action, Florida courts have adopted the “significant relationship” test set forth in RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 145. Bishop v. Florida Specialty Paint Co., 389 So.2d 999, 1001 (Fla.1980); In re Shepard, 29 B.R. 928, 931 (Bkrtcy.M.D.Fla.1983).
Under this test, Georgia clearly is the state possessing the most significant relationship to the occurrences giving rise to Plaintiff’s claim for recovery in Count V. Each lawsuit in which Plaintiff claims “malicious abuse of process” was filed in Georgia and the filing of these suits comprise the conduct which allegedly caused the injury. Furthermore, each lawsuit was based on a lending relationship existing entirely in Georgia while Plaintiff was a Georgia resident.
*97Turning to the substantive issues, the Court finds that the tort of “malicious abuse of process,” as pleaded by Plaintiff, no longer exists under Georgia law. In Yost v. Torok, 256 Ga. 92, 344 S.E.2d 414, 417 (1986), the Georgia Supreme Court merged the existing torts of malicious abuse of process and malicious use of process into a new, single cause of action for “abusive litigation.” Id. Thus, any recovery available to Plaintiff in Count V would necessarily be for injury resulting from “abusive litigation” as set forth in Yost.
It is not disputed that Plaintiffs allegations are within the intent and spirit of Yost, but merely mislabeled. However, Yost explicitly held that
The re-defined claim relative to abusive litigation arises, by necessity, only after the commencement of civil proceedings. It is derivative in nature, and hence it must be pleaded as a compulsory counterclaim or compulsory additional claim....
The adjudication of this claim (or such claims), however, will be deferred, by bifurcation, until after the disposition of the underlying action, whereupon it shall be the same fact finder — that is, by the judge or jury of the underlying action.
Id. at 417-418; (original emphasis).
These clear guidelines supplied by Yost necessitate the dismissal of Plaintiffs Amended Counterclaim Count V. It is obvious from the record that Plaintiff did not assert any compulsory counterclaims in either the state or federal cases commenced in Georgia. It is improper for this Court to consider the same now. This Court is not the finder of fact as explained in Yost.
The treatment of Georgia abusive litigation claims by several federal courts also favors dismissal of Count V to the extent it seeks recovery based on Defendant’s actions in the prior lawsuits.
In Majik Market v. Best, 684 F.Supp. 1089, 1092 (N.D.Ga.1987), the court agreed with the essential principles of Yost and determined that Georgia abusive litigation claims are not appropriate in federal court. Said the Court:
Using Rule 11, federal courts can provide any appropriate sanction for abusive litigation. That rule is sufficient to provide sanctions for bringing frivolous federal law claims in federal court.
Id.
In Union Carbide Corp. v. Tarancon Corp., 682 F.Supp. 535 (N.D.Ga.1988), the Court went one additional step and held that abusive litigation claims cannot be asserted in federal court. According to that court, a Yost claim for “abusive litigation” is a procedural device for monitoring litigation, not an independent tort. Id. at 545. Because Federal Rule of Civil Procedure 11 gives federal courts their own mechanism for controlling excessive litigation, a claim for “abusive litigation” is unavailable in federal court. Said the Court:
Rule 11, like a Yost abusive litigation claim, provides a mechanism for monitoring litigation ...
This court’s determination that a Yost claim may not be raised in federal court will not result in either forum shopping or inequitable administration of the laws ... because the same rights as set forth in Yost exist in the federal court through the implementation of Rule 11 ... Rules 11 and 37 of the Federal Rules of Civil Procedure are designed to address and very adequately redress damages from abusive litigation in federal court.
Id. at 545-46.
CONCLUSION
This Court finds that an action for malicious abuse of process will not lie under Georgia law where the defendant to the original lawsuit failed to file a compulsory counterclaim in that action. Alternatively, the Court finds that a claim for “abusive litigation” is not an independent tort but is instead a procedural device for controlling litigation. Because Rule 11 gives this Court an effective mechanism for redressing the damages caused by abusive litigation, Plaintiff’s current action is unwarranted. Accordingly, Count V of Plaintiff’s Complaint will be dismissed.
*98The 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/8490888/ | ORDER ON MAGIC TILT TRAILERS’ MOTION FOR RELIEF FROM STAY
ALEXANDER L. PASKAY, Chief Judge.
THIS CAUSE came on for hearing upon a Motion for Relief from Stay filed by Magic Tilt Trailers, Inc. (Magic Tilt). Magic Tilt seeks an order from this Court granting a relief from the automatic stay in order to recover certain properties currently in possession of Hastings Marine Corporation (Debtor) involved in the above-captioned Chapter 11 case. The Motion is based on the contention of Magic Tilt’s claim for relief on the basis that the trailers which are in the Debtor’s possession are not property of the estate, having been placed with the Debtor on a consignment basis. Alternatively, Magic Tilt seeks an order requiring the Debtor to make adequate protection payments on the basis that Magic Tilt holds a perfected security interest in the trailers, which interest is not being adequately protected. In opposition to the Motion to Lift Stay, the Debtor contends that Magic Tilt never entered into a consignment agreement with the Debtor, and that, therefore, the trailers are property of the estate and are protected by the provisions of § 362 of the Bankruptcy Code. In opposition to Magic Tilt’s alternative contention that it holds a perfected security interest in the trailers, the Debtor contends that first, Magic Tilt never ac*99quired any security interest in the trailers as the parties never entered into a Security Agreement, and, second, even if Magic Tilt held a security interest in the trailers it never was protected because Magic Tilt did not file a UCC-1 with the Secretary of State of the State of Florida indicating that Magic Tilt had a security interest in the trailers. Based on the foregoing, it is the Debtor’s contention that Magic Tilt does not have a security interest in the trailers which would be entitled to protection. The Court has considered the Motion, the respective contentions of counsel, and now finds the relevant facts established at the hearing on the Motion to Lift the Stay to be as follows:
Magic Tilt is a manufacturer of trailers, which it supplies to various business entities. In this specific instance, Magic Tilt placed its trailers in the possession of the Debtor, who is in the business of selling recreational boats. It appears that upon delivery of the trailer to the Debtor, the Debtor signed a document carrying the letterhead, “Magic Tilt Trailer”. The document (Debtor’s Exh. A) appears to be an invoice which indicates the model number, the size, the serial number of the trailers and the cost of each trailer. The invoice also contains the language at the bottom of it which reads as follows:
Goods sold and delivered to the purchaser named herein shall remain the property of the vendor, Magic Tilt Trailers until the specified purchase price is paid in full. Open terms EOM 10th. Full legal rate of interest will be charged on all past due invoices.
It is Magic Tilt’s contention that the language contained on the bottom of the invoice is equivalent to a consignment agreement.
Fla.Stat. § 672.201 governs written consignment agreements. This section provides that for a consignment agreement to be binding, it must be written and signed by the contingence.
There is nothing in this record to establish a written consignment agreement. The only documentary evidence evidencing the nature of the transaction between the Debtor and Magic Tilt is a routine commercial invoice commonly used in sales on open account. While it is true that the legend at the bottom of the invoice described earlier indicates an intention by Magic Tilt to retain title to the goods sold to the Debtor until the goods are paid for, this is certainly not tantamount to or the legal equivalent of a written consignment agreement. Even assuming, but not admitting, that the legend referred to may operate as an effective tool to convert a commercial invoice into an consignment agreement, such agreement can only be valid against creditors of the so-called consignee unless the person making delivery complies with the provisions of § 672.326(3) of the Florida Statutes which provides that the consignor
“(a) complies with an applicable law providing for a consignor’s interest or the like to be evidenced by a sign or
(b) establishes that the person conducting the business is generally known by his creditors to be substantially engaged in selling the goods of others, or
(c) complies with the filing provisions of the chapter on secured transactions (Chapter 679).”
There is nothing in this record to show that Magic Tilt complied with the applicable law providing for a consignor’s interest evidenced by a sign, or with the alternative available to a consignor under subclause (a) of § 672.326(3) Fla.Stat.
This leaves for consideration whether or not Magic Tilt has established a compliance with the criteria set forth in either § 672.326(3)(b) or (c).
First, it is without serious dispute that the Debtor was not generally known by its creditors to be substantially engaged in the sale of goods of others held by the Debtor on consignment.
Next, subclause (c) permits consignor as an alternative to protect its interest by complying with the provisions of Article 9 of the Uniform Commercial Code as adopted in this State (Section 679.9-101 — et seq.). Under this statute in order to have a valid enforceable security interest, there must be a validly created security interest *100by the execution of a Security Agreement. The Agreement must be in writing; must be signed by the debtor and the secured party; must include a granting clause, that is, statement that the debtor intends to create a security interest; and must adequately describe the collateral covered by the Security Agreement. § 679.9-203(l)(b) of the Florida Statutes.
Next, it is equally beyond dispute that before a validly created security interest can be enforced against a third party, with some exceptions not relevant here, it must be perfected by filing a financing statement (UCC-1) with the office of the Secretary of State of Florida. § 679.301 of the Florida Statutes.
It is undisputed that Magic Tilt and the Debtor never entered into a Security Agreement as such with respect to the trailers nor did Magic Tilt ever file a financing statement with the office of the Secretary of State of Florida. Notwithstanding, Magic Tilt urges that its retention of its manufacturer’s statement of origin (MSO) somehow effectively created and perfected its security interest in the trailers. This contention is based on the proposition that the perfection of interests in trailers are governed by the provisions of Chapter 319 Florida Statutes governing title certificates. Florida Department of Corrections v. Blount Pontiac-GMC, Inc., 411 So.2d 930 (Fla. 1st DCA 1982). Based on this, Magic Tilt contends that certificates of title to the trailers can not be obtained by a potential purchaser until Magic Tilt submits its MSO with the application for a certificate of title to be issued by the State of Florida Registration. However, counsel for Magic Tilt now concedes that boat trailers of the type in the possession of the Debtor are not governed by the provisions of Florida Statutes ch. 319. Therefore, this Court is satisfied that Magic Tilt does not possess a security interest in the trailers by virtue of its retention of the MSO’s.
Based on the foregoing, this Court is satisfied that Magic Tilt does not hold a perfected security interest in the trailers and if anything, only holds an unperfected security interest in the same. Accordingly, this Court is satisfied that Magic Tilt’s Motion for Relief from Stay or Alternatively for Adequate Protection, should be denied.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that Magic Tilt’s Motion for Relief from Stay and Alternatively for Adequate Protection be, and the same is hereby, denied.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490889/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Chief Judge.
The plaintiff/chapter 7 trustee seeks avoidance under 11 U.S.C. § 548(a)(2) (constructively fraudulent transfer) of the debt- or’s hypothecation to the defendant bank on August 12, 1987 of three automobiles.1 The then estimated value of the three cars was $14,485. (Ex. 20).
A week after the complaint was filed, the parties stipulated (CP 6) that “one of the two [sic] vehicles which are the subject to [sic] the adversary proceeding” had been sold, that the bank would sell the remaining vehicle, a BMW, and that the bank would hold the proceeds in escrow pending this decision.
The bank has answered and the matter was tried February 16. I now conclude that the trustee has failed to prove three of the four elements required under § 548(a)(2).
Within Year Before Bankruptcy
It is trustee’s burden to prove that the transfer was made “within one year before the date of the filing of the petition”. § 548(a). This debtor’s petition was filed on September 7, 1988. (Case No. 88-*10803556, CP 1). The parties stipulated that the court take judicial notice of the debtor’s bankruptcy file. (CP 14 at 12 and 24).
The parties have stipulated that the liens were “all filed on August 12, 1987”. (PreTrial Stipulation of Facts, ¶ 7). For the purposes of § 548, a transfer is made on the date it is perfected as to third parties. § 548(d)(1). Filing with the Department of Motor Vehicles perfects a vehicular lien in Florida, Fla.Stat. § 319.27(2).
For the purposes of § 548, therefore, this transfer occurred 13 months before the debtor filed for bankruptcy and is not actionable.
The trustee argues that because Fla. Stat. § 319.24(5)(a) entitles the owner of a liened vehicle to demand and receive release of the lien when it is satisfied, and because a $35,000 note partially secured by liens on the debtor’s cars was satisfied on December 8, 1987, the lien ceased to exist on that date and was not reincarnated until April 26 and July 25, 1988 when subsequent advances were made to the debtor’s wholly-owned corporation. (Trustee’s Post Trial Memorandum at 1-3).
I reject this contention. The liens, which secured a line of credit, were never released. (Pre-Trial Stipulation of Facts, 1121). Though the debtor demanded and obtained a release of the lien of a corporate van, the debtor never made a demand for release of the liens on his three cars. (CP 14 at 47). The Florida Statute is not self-effectuating and is totally irrelevant here.
Insolveney
It is also trustee’s burden to prove that the debtor was insolvent on the date the transfer was made, August 12, 1987. The only evidence offered to meet that burden was the following testimony of the debtor:
“Q In April of 1988 were your personal assets greater or lesser than the amounts that [sic] were obligated to pay? “A Lesser.
“Q In July of 1988 were your assets greater or lesser than your obligations to pay?
“A Lesser.” (CP 14 at 20).
• This was, respectively, eight and 11 months after the date of the transfer. However, the debtor’s bankruptcy schedules which he personally prepared (CP 14 at 23, 25) the following month, on August 29, 1988, and swore to under penalty of perjury showed assets of $201,295 and liabilities of $128,258. (Case No. 88-03556, CP 1 Summary of Debts and Property).
This debtor’s personal financial statement dated July 31,1987, one month before the date of the transfer, which was offered in evidence by the trustee (Ex. 11), shows assets of $576,200 and liabilities of $70,700.
Though the debtor also testified at trial that Global International Courier, Inc., a corporation wholly owned by the debtor (Case No. 88-03556, CP 1 Schedule B-2, Item “t”), had a value in April 1988 of “basically zero” (CP 14 at 19), that corporation’s balance sheet on July 31, 1987, one month before the transfer, showed assets of $130,742 and liabilities of $42,137. This balance sheet was prepared by a CPA from the “representation of management”. The debtor was then Global’s president and only operating officer. This exhibit was also placed in evidence by the trustee. (Ex. 1).
I reject the debtor’s unsubstantiated and self-serving testimony at trial, because it is in direct conflict with his earlier bankruptcy schedules as well as with his previous documented declarations, trustee’s exhibits 1 and 11. The trustee has not carried his burden of proving that the debtor was insolvent on August 12, 1987, the date of the alleged fraudulent transfer.
Reasonably Equivalent Value
It is, finally, trustee’s burden to prove that the debtor “received less than a reasonably equivalent value in exchange for such transfer”. § 548(a)(2)(A). Though defendant never loaned any money directly to the debtor, it established a line of credit for his wholly-owned export corporation, Global International Courier, Inc., and on several occasions extended it credit well beyond the value of the debtor’s three cars.
*109The corporate obligations were all personally guaranteed by the debtor and when he filed for bankruptcy he admittedly owed defendant $20,300 on that guaranty. (Case No. 88-03556, CP 1, Schedule A-3). Partially collateralizing a personal obligation is the equivalent of partially paying a personal obligation. In either event, the debtor receives full equivalent value by the pro tanto reduction of his personal obligation.
I am unpersuaded by the trustee’s unsupported argument that no value was given by the bank, because:
“Fresh cash was not received by Global or the debtor as the funds from the notes were used to pay off existing debts.” (Trustee’s Post Trial Memorandum at 3).
For the purposes of § 548:
“ ‘value’ means ... satisfaction or securing of a present or antecedent debt of the debtor_” § 548(d)(2)(A).
We need not, therefore, consider the trustee’s remaining argument that furnishing collateral for his corporation’s debts afforded the debtor no equivalent value. But even if the debtor had not personally guaranteed the corporate debts, it is well-settled that a debtor need not benefit directly in order to receive reasonably equivalent value through a transfer. Mayo v. Pioneer Bank & Trust Co., 270 F.2d 823, 829-30 (5th Cir.1959), cert. denied, 362 U.S. 962, 80 S.Ct. 878, 4 L.Ed.2d 877 (1960); Rubin v. Manufacturers Hanover Trust Co., 661 F.2d 979, 991 (2nd Cir.1981).
Mayo and Rubin applied § 67d of the former Act. However, neither the legislative history nor any court has suggested that a different rule applies under the present § 548(a)(2)(A).
Conclusion
As is required by B.R. 9021(a), a separate judgment will be entered dismissing the complaint with prejudice. Costs may be taxed on motion.
DONE and ORDERED.
. Count 3 of the Complaint (CP 1). At trial, the trustee abandoned his remaining three counts, (CP 14 at 17), and abandoned his allegation under § 548(a)(1) of actual fraud, (CP 14 at 3).
Although the transfer is alleged to have occurred both "on or about July 25, 1988” (CP 1 H 31) and “on or about August 12, 1987” (CP 1 1f 3), and the trustee’s evidence (Ex. 5) is a hypothecation dated October 8, 1987, the parties’ Pre-Trial Stipulation of Facts recites:
"The liens on the vehicles are [sic] all filed on August 12, 1987." (CP 13 -¶7). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490890/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Chief Judge.
The plaintiff creditor seeks exception from discharge under 11 U.S.C. § 523(a)(2)(A) and (B) for its claim of $5,595 on a Mastercard account. The debtor has answered and the matter was tried on March 16. Based upon this court’s ruling at trial that the complaint failed to allege grounds for relief under § 523(a)(2)(B), plaintiff abandoned that cause of action. Plaintiff proceeded under § 523(a)(2)(A). I now conclude that plaintiff has failed to carry its burden to establish an exception from discharge.
There is no conflicting testimony and the relevant details are not in dispute. There is a conflict with respect to the sufficiency of proof, the inferences to be drawn from the facts and the applicable legal standard.
A debt for obtaining credit by false pretenses, false representation or actual fraud is excepted from discharge under § 523(a)(2)(A). It is plaintiff’s contention that it was the victim of a false representation or actual fraud because the debtor had neither the ability nor the reasonable intent to repay the credit card debts incurred from February through April of 1988. (CP l).1
The issue is whether the debtor had no present intention to repay the indebtedness when the credit card charges were incurred. See First Nat’l Bank of Mobile v. Roddenberry, 701 F.2d 927, 929 n. 3 (11th Cir.1983) (decided under § 17(a)(2) of former Bankruptcy Act, but suggesting in dicta issue to be addressed as “actual fraud” under § 523(a)(2)(A)).
It is well-settled that the use of a credit card by a debtor who does not intend to pay constitutes false representation. 3 Collier on Bankruptcy ¶523.08[4] n. 19 (15th Ed.1988). Although it is plaintiff’s burden to prove that the debtor had an actual intent to defraud, proof of that intent may be inferred from the circumstances. There are a number of reported decisions reaching this conclusion from the pattern of use of credit cards. See, e.g., In re Dougherty, 84 B.R. 653 (9th Cir.B.A.P.1988) (and cases cited therein). Plaintiff's reliance on circumstantial evidence of the debtor’s financial condition at the time the charges were made to establish actual fraud is supported by current case law as one of several relevant factors. See, e.g., In re Williams, 85 B.R. 494, 499 (Bankr.N. D.Ill.1988).
The debtor’s Mastercard account, opened in November 1987, had been completely inactive until February 1988. From February through April 1988 the debtor charged a total amount of $5,595 ($942 for purchases of goods and $4,653 for credit draws on the account). The, debtor made no payments for any of these charges. He filed for bankruptcy seven months later, in November 1988.
The debtor, a retired executive, has a • yearly pension income from the Remington *115Co. of $45,000. His income from other investments was $15,000. In 1985 he became the sole investor in his adult son’s ice cream parlor business in Kansas City. The business filed for chapter 11 reorganization in July 1987.2 The credit card cash advances drawn on by the debtor were used to invest in that business venture.
The debtor’s hope of salvaging that failing business is not disputed. It is, of course, commendable that the debtor made an attempt to rescue the business. I do believe that the charges were used for that purpose. However, it is plaintiff’s position that the debtor’s conduct in drawing on the credit card account when there was no reasonable ability to repay constitutes a false representation or false pretenses. (CP 7 at p. 4).
The debtor’s explanation for the use of this account was that he hoped to be successful in his effort to bring the business out of its financial difficulties. The debt- or’s explanation is plausible. This conclusion is fortified by evidence that he invested approximately $35,000 received as a tax refund into the business in June 1988, after the credit card transactions complained of by the plaintiff. Also, he borrowed against his home equity by a second mortgage in the amount of $20,000 to make further investments in the business.
These circumstances persuade me that the debtor really believed he would have the means to pay these charges by saving the business. Plaintiff has not come forward with sufficient persuasive evidence that the debtor knew his investments were in hopeless trouble and that nothing could save him. There is no evidence whatsoever that he contemplated his own bankruptcy at the time he drew down the credit. The circumstances here do not reflect that the debtor’s conduct in using the credit card was so reckless it compels the inference of an actual intent to deceive or defraud. The sufficiency of the debtor’s income at the time, including the expected tax refund of $35,000, makes the inference of intent to defraud that may be drawn from reckless conduct inapplicable here.
It is plaintiff’s burden to prove exception from discharge “by clear and convincing evidence.” In re Hunter, 780 F.2d 1577, 1579 (11th Cir.1986). I find that it has failed to do so.
As is required by B.R. 9021(a), a separate judgment will be entered dismissing this complaint with prejudice.
The debtor’s motion seeking reimbursement of attorney’s fees under § 523(d) has not been heard, and a hearing is set on April 18, 1989 at 10:30 a.m. in courtroom 329 at 701 Clematis Street, West Palm Beach, Florida, for the purpose of considering that request. The setting of this hearing does not imply approval of that request, which will be decided after each party has an opportunity to be heard.
DONE and ORDERED.
. The contention is restated in plaintiffs post-trial memorandum (CP 7 at p. 1) as: "[the debtor] did not intend to repay the monies or that his financial situation was such that he could not reasonably believe he could repay these monies.”
. The chapter 11 case was converted to chapter 7 in August 1988. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490891/ | MEMORANDUM OPINION AND ORDER
BENJAMIN E. FRANKLIN, Chief Judge.
This matter came for trial on April 28, 1988, upon the complaint of Avila College *454to determine the dischargeability of a student loan of Linda Kem Bunger pursuant to section 523(a)(8). The plaintiff appeared by and through counsel, Thomas L. Lasley and Joe Hemberger. The debtor/defendant appeared by and through counsel, Richard W. Parker.
FINDINGS OF FACT
Based on the pleadings, stipulations of counsel, and the record, this Court finds as follows:
1. The plaintiff, Avila College, is a Pro Forma Corporation organized under the laws of Missouri.
2. The debtor/defendant, Linda Kem Bunger, is an individual residing in Johnson County, Kansas.
3. On November 18, 1988, the debt- or/defendant filed a voluntary petition for relief under chapter 7, title 11, United States Code.
4. On February 28, 1989, the plaintiff filed an adversary proceeding to determine the dischargeability of a student loan pursuant to section 523(a)(8) of the Code. On April 3,1989, the debtor/defendant filed an answer asserting that the student loan was over 5 years old and therefore dischargea-ble.
5. The debt in question is a National Direct Student loan in the total amount of $1500 which the debtor/defendant obtained when she was a student at Avila College. There is currently an outstanding balance of $1435.44 due and owing on the note.
6. Pursuant to the terms of the note, the debtor/defendant was to commence payment nine months after she ceased studies at the college. In this case, payments were to have commenced on or about March 1, 1983.
7. The debtor/defendant defaulted on the note. Her last payment was in March of 1984.
CONCLUSIONS OF LAW
It is stated in 11 U.S.C. section 523(a)(8) in part as follows:
(a) A discharge under section 727 ... of this title does not discharge an individual debtor from any debt—
******
(8) for an educational loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or a nonprofit institution, unless—
(A) such loan first became due before five years (exclusive of any applicable suspension of the repayment period) before the date of filing of the petition.
The sole issue before this Court is whether the student loan is nondischargeable under section 523(a)(8). Paragraph (A) of subsection (a)(8) imposes a time limitation on a debt for a student loan, after which it becomes dischargeable. To fall within the exception, the loan must have first become due prior to five years before the date of the filing of the petition. 3 Collier on Bankruptcy 523.18, pg. 523-133 (15th ed. 1989).
In the present case, this Court finds that the loan clearly became due more than five years before the filing of the petition. The loan first became due on March 1, 1983. The debtor/defendant filed her petition on November 18, 1988, five years and eight months later. Therefore, the student loan debt is dischargeable.
This Court notes that the plaintiff asserts that only the “installments” due and owing prior to the filing of bankruptcy are dischargeable. Since the debtor/defendant made her last installment payment within the five years before bankruptcy, the plaintiff asserts that the debt is nondischargeable.
However, this Court finds that the vast majority of the courts that have considered the issue have not adopted the plaintiff’s interpretation of the statute. See In re Nunn, 788 F.2d 617, 618 fn. 2 (9th Cir.1986). Most Courts rule that the five year period runs from the date such loan first became due, rather than the date each installment became due. I agree with those courts.
*455IT IS THEREFORE, BY THE COURT, ORDERED That judgment on the Complaint of Avila College to determine the dischargeability of a student loan is against the plaintiff and for the debtor/defendant, Linda Kem Bunger. The $1500 student loan debt is dischargeable. | 01-04-2023 | 11-22-2022 |
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