url stringlengths 56 59 | text stringlengths 3 913k | downloaded_timestamp stringclasses 1 value | created_timestamp stringlengths 10 10 |
|---|---|---|---|
https://www.courtlistener.com/api/rest/v3/opinions/8490892/ | MEMORANDUM OPINION AND ORDER
MARK B. McFEELEY, Bankruptcy Judge.
This matter came before the Court for hearing on plaintiff Security Federal Savings & Loan Association of Albuquerque’s Motion for Summary Judgment on the counterclaim of CST Group. Having considered the arguments of the parties and the affidavits and exhibits submitted therewith, the Court finds that there are no material questions of fact and that plaintiff is entitled to summary judgment.
*456FINDINGS OF FACT
1. In 1981 Margaret Chavez purchased certain real property (the “land”) in Albuquerque, New Mexico.
2. On January 1, 1984 Margaret Chavez, Robert S. Sanchez, Jr., Joanne Sanchez, Lina M. Trujillo, Joseph Mark Chavez and Mary Jane Chavez (the “partners”) entered into the CST Group partnership for the purpose of developing the land. Under the terms of the partnership agreement each partner had an equal right to manage the business.
3. After January 1, 1984 Margaret Chavez oversaw the development of the land property and replatted it into a subdivision of ten lots.
4. On or about July 1,1984 the partners amended the partnership agreement to appoint Margaret Chavez as the “managing partner” for financial affairs. This amendment stated, in part, “Margaret T. Chavez is hereby given authority to sign notes and mortgages on behalf of CST Group. All the parties named in the original Partnership Agreement, however, remain liable for payment of same.”
5. On or about August 31, 1984 Margaret Chavez executed a warranty deed for the land to CST Group. Between August 29, 1984 and September 3, 1984 the remaining five partners also executed warranty deeds for the property, naming CST Group as grantee.1 These deeds were filed for record on September 5, 1984.
6. In March of 1985, CST Group sold lot 4 to a third party.
7. On December 16, 1985 CST Group entered into the Villa Palomar joint venture agreement with Commercial Investments, Ltd. (“CIL”), now the debtor in this bankruptcy. A portion of that agreement reads:
WHEREAS, CST desires to enter into a joint venture agreement with CIL for the purpose of acquiring financing for the construction and selling of custom single-family residences on the property.
NOW THEREFORE, the parties to this Agreement, in consideration of mutual confidence and stipulations set out herein, agree as follows:
1. CST agrees to the assignment of the property to Villa Palomar Joint Venture.
2. CIL agrees to coordinate, manage, and oversee the construction of the homes on the property, and otherwise act as the general contractor.
3. CST agrees to permit the use of nine (9) of the lots currently owned by CST Group to be used as security for construction financing.
4. The parties to this Agreement agree to share equally in loan principal and interest costs of interim financing, as well as in all other legitimate costs associated with the construction and sale of homes on the property.
5. The parties to this Agreement agree to share equally in the net profits of the joint venture.
6. The parties further agree to accelerated release of the lots by the bank until the entire obligation to the bank is completely satisfied.
7. The parties to this Agreement agree that any questions which may arise, or any major decisions to be made as this venture progresses, will be resolved to the mutual satisfaction of the managing partners, Margaret T. Chavez and Wayne Crooks.
8. Time of Performance. This joint venture shall begin with the execution of this Joint Venture Agreement and shall continue for the duration of the construction of the improvements (homes), estimated to be a 15-month period ending on or before March 31, 1987.
The agreement was executed by Margaret Chavez for CST Group and Wayne. Crooks for CIL.
8.On or about March 15, 1986 the six partners listed both individually and as “d/b/a CST Group, a New Mexico General Partnership”, executed a warranty deed for *457the land, granting “to CST Group, a New Mexico General Partnership, an undivided one-half (V2) interest, and Commercial Investments, Ltd., a New Mexico Corporation, an undivided one-half (V2) interest, d/b/a VILLA PALOMAR, a New Mexico Joint Venture.” This deed was filed for record on March 20, 1986.
9.Contemporaneously with the partners’ execution of the warranty ,deed to Villa Palomar each partner, at Crooks’ request, signed a loose sheet of paper. This sheet stated:
IN WITNESS WHEREOF, we have hereunto set our hands and seals this 15th day of March, 1986.
JOSEPH MARK CHAVEZ
MARY JANE CHAVEZ
ROBERT S. SANCHEZ, JR.
JOANNE M. SANCHEZ
LINA M. TRUJILLO
MARGARET T. CHAVEZ
The only other contents on the sheet was a space for a notary public’s acknowledgment. No partner questioned Crooks regarding this sheet or its purpose.
10.On or about April 7,1986 a POWER OF ATTORNEY, consisting of two pages, was recorded with the County Clerk, naming Wayne Crooks as the six partners’ at-tomey-in-fact. A portion of this document follows:
This is a Limited Power of Attorney. We grant unto our said attorney-in-fact, Wayne R. Crooks, the power to sell for us any interest we have or claim in the following described real property ... (the land)
Our attorney-in-fact is authorized to make, receive, sign endorse, execute, acknowledge, deliver and possess such applications, contracts, purchase agreements, options, covenants, conveyances, deeds, trust deeds, security agreements, bills of sale, leases, mortgages, assignments and insurance policies and to execute releases and satisfaction of mortgages, liens, judgments, security agreements and other debts and obligations and such other instrument in writing of whatever kind and nature, including the execution of deeds, real estate contracts, notes, addendums to real estate purchase agreements and other documentation as may be necessary or proper in the exercise of the rights and powers herein granted.
The rights, powers and authority of said attorney-in-fact herein granted shall commence and be in full force and effect on March 15, 1986, and such rights, powers and authority shall remain in full force and effect thereafter until this Power of Attorney is specifically withdrawn by an instrument in writing.
GIVING AND GRANTING unto our said attorney full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, with the same force and effect, and to all intents and purposes, as we might or could do if personally present, with full power of substitution and revocation, ■hereby ratifying and confirming all that our said attorney or his substitute shall lawfully do or cause to be done by virtue hereof.
Page two of the power of attorney is the loose sheet of paper signed earlier by all the partners. None of the partners knew that Crooks would attach the signature page to a power of attorney. At the time, no partner was aware that this power of attorney had been recorded.
11. CIL proceeded to build houses on lots 3, 6, 7 and 8.
12. On or about August 21, 1986 a warranty deed for Lot 7 was executed from “CST Group, a New Mexico General Partnership, an undivided one-half (V2) interest, and Commercial Investments, Ltd., a New Mexico Corp., an undivided one-half 0/2) interest, dba VILLA PALOMAR as [sic] New Mexico Joint Venture” to Richard E. and Linda L. Howell. This deed was signed by Wayne R. Crooks for both CIL *458and CST Group. The acknowledgment for CST reads:
The foregoing instrument was acknowledged before me this 21st day of
August, 1986, by CST Group by: Wayne R. Crooks as Attorney in fact for [the six partners], Partners of CST Group, a New Mexico General Partnership.
This deed was recorded on August 22, 1986.
13. CST received no proceeds from the sale of lot 7.
14. On September 4, 1986 Wayne R. Crooks executed another warranty deed from CST and CIL dba Villa Palomar to Commercial Investments Ltd. for lots 1, 2, 3, 5, 8 and 9. Wayne R. Crooks signed the deed for CST as “President”. The acknowledgment section, as in the August 21, 1986 deed, refers to Crooks as “Attorney in fact” for the partners.
15. On or about September 5, 1986, CIL granted Security Federal a mortgage on lots 1, 2, 3, 5, 8 and 9.
16. On February 25,1987 CIL granted a mortgage to Security Federal on Lot 2.
17. On April 8, 1987 CIL and CST Group, dba Villa Palomar granted a mortgage to Security Federal on Lots 1, 5, 9 arid 10. Crooks signed for both CIL and CST Group. Crooks acknowledged for CST Group as its “Attorney in Fact.”
18. None of the partners of CST ever signed the notes or mortgages.
19. The deposition of Bobby Nafus, the loan officer at Security Federal, indicates the following:
a. From his dealings with Mr. Crooks he understood that Crooks was the owner of the land “along with this group that he was representing and also had the power of attorney to do so.” p.8
b. He never saw the joint venture agreement.
c. The title binder for the loan on lots 1, 2, 3, 5, 8 and 9 indicated that CST had an ownership interest in the land, p.10 See also Exhibit CST-5.
d. He received a copy of the power of attorney document from the title company. p.12.
e. He was not aware of anything unusual about the closing documents, p.16.
f. The title company informed him that Crooks had a power of attorney from CST group and the Crooks was representing CST. p.22.
20. The loan file for the April 10, 1987 loan contained a copy of the power of attorney document stapled to a memo dated July 8, 1987.
21. On July 10, 1987 the six partners caused a “Revocation of Power of Attorney” to be filed with the County Clerk.
22. CIL filed for relief under Chapter 7 of the Bankruptcy Code. Security Federal filed this adversary proceeding to foreclose on its February 25, 1987 note and mortgage for lot 2. CST has counterclaimed, seeking judgment against Security Federal for actual damages as a result of negligence, punitive damages, and damages for slander of title, plus fees and costs and title evidence.
23. CST has alleged:
a. Between September 4, 1986 and April, 1987 Security Federal negligently engaged in 5 transactions involving lots 1, 2, 3, 5, 8, 9 and 10 in wanton disregard of CST’s ownership rights.
b. Security Federal knew or should have known that CST owned the lots.
c. Security Federal knew that on March 15, 1986 CST purportedly granted an undivided one-half interest in the lots to CIL for “limited purposes.”
d. Title insurance commitments for the loans set forth the respective undivided one-half ownership interests of CST and CIL dba Villa Palomar.
e. That all loans were negligently prepared to CIL only, in derogation of CST’s rights.
f. That Security Federal’s negligence resulted in the conversion of all proceeds.
g. That the April, 1987 loan was made for lots which had no purchase agreements.
h. That Security Federal negligently accepted the signature of Crooks as attorney in fact.
*459i. That CST did not knowingly grant a power of attorney to Crooks.
j. The loans were made without notice to CST and without following standard and appropriate procedures.
Discussion
Federal Rule of Civil Procedure 56(c) provides, in part:
When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of the adverse party’s pleading, but the adverse party’s response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party.
Summary judgment is an integral part of the Federal Rules of Civil Procedure, which are intended to “ ‘secure the just, speedy and inexpensive determination of every action.’ ” Celotex Corp. v. Catrett, 477 U.S. 317, 827, 106 S.Ct. 2548, 2555, 91 L.Ed.2d 265 (1986) (quoting Fed.R. Civ.P. 1). A motion for summary judgment may be granted only when “there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). Although the material submitted by the parties in support of and in opposition to the motion must be construed liberally in favor of the party opposing the motion, Harsha v. United States, 590 F.2d 884, 887 (10th Cir.1979), the burden on the moving party may be discharged by demonstrating the absence of evidence to support an essential element of the nonmoving .party’s case. Celotex, 477 U.S. at 322, 106 S.Ct. at 2552. In such a situation, 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 proof.” Id. at 323, 106 S.Ct. at 2553.
Security Federal has moved for summary judgment on CST’s counterclaim. As grounds, Security Federal claims it was a bona fide purchaser for value under its mortgage, is not chargeable with any fraud alleged by CST, and that it holds a valid first mortgage on the Rand. In response, CST claims that there are 5 genuine issues of material facts which bear directly on Security Federal’s assertion of bona fide purchaser status. Each will be discussed.
1. Whether the power of attorney was an altered and fraudulent document.
CST claims that an evidentiary hearing is required to authenticate the power of attorney. The Court disagrees. All partners admit that their signatures appear on the document. See Deposition of Robert Sanchez, p. 18 line 14 and line 24; Deposition of Maryjane Chavez, p. 8 line 1; Deposition of Joseph Mark Chavez, p. 9 line 1; Deposition of Joanne M. Sanchez, p. 6 line 8; Deposition of Luna M. Trujillo, p. 12 line 11; Deposition of Margaret T. Chavez, p. 55 line 11 and page 57 line 11 and line 18. The document was filed for record. The issue is not whether the document was altered and fraudulent; rather, the issue is the legal affect of the recorded document. Under New Mexico law a bona fide purchaser for value takes free of defects that are unknown to the purchaser and not discoverable in the exercise of ordinary care. State v. Garcia, 77 N.M. 703, 709, 427 P.2d 230 (1967). Even if the power of attorney were both altered and fraudulent, Crooks could cut off CST’s interests through a conveyance to a bona fide purchaser for value. See e.g. International State Bank v. Bray, 87 N.M. 350, 352, 533 P.2d 583, 585 (1975). Therefore, no evidentiary hearing is required to authenticate the power of attorney document because its authenticity is not relevant to Security Federal’s motion.
2. Whether a power of attorney executed by the partners individually could authorize Crooks to act on behalf of the partnership.
The Court finds this to be a purely legal question. It therefore is not an impediment to the summary judgment motion. The Court finds, however, that *460Crooks could act as he did to encumber the land.
The record shows that all six partners granted to Crooks a power of attorney to deal with the land. Under New Mexico law a single partner can convey the entire partnership’s interest in real property. Dotson v. Grice, 98 N.M. 207, 211, 647 P.2d 409, 413 (1982). Clearly, then, a joinder of all partners could effect a conveyance. Crooks, as attorney in fact for all the partners, could also convey the partnership’s interests.
Ultimately, however, the Court finds the whole issue of the power of attorney to be irrelevant. It is undisputed that the land was deeded to the Villa Palomar Joint Venture. The land became joint venture property. The joint venturers were CIL and CST. Crooks, as agent of CIL, was an agent of Villa Palomar. As agent of Villa Palomar he could convey or encumber the Villa Palomar property without the consent of CST or its partners. Id.
3. Whether Security Federal had actual and constructive knowledge of the rights and title of CST Group.
CST claims that Security Federal had actual and constructive knowledge of the rights and title of CST group and therefore had a duty to investigate further, which it failed to undertake. Specifically, CST claims that the title binder revealed the interest of CST group yet Security Federal never obtained a copy of the power of attorney until after the last loan closed, and never obtained copies of the CST partnership agreement or the Villa Palomar Joint Venture Agreement. Had Security Federal obtained these documents, CST claims that it would have been clear that the land was partnership property, that Crooks had nothing to encumber or convey, and that limitations on Crook’s authority would have been obvious.
As discussed above, the record is clear that the land was not property of CST partnership. The land was joint venture property. Crooks, as a joint venturer had the capacity to and in fact did encumber the property.
Furthermore, it is not relevant that Security Federal obtained the power of attorney after the last loan was closed, if this in fact is true.2 Whether Security Federal saw the power or not it is deemed to have had notice of it from the time it was recorded. See § 14-9-2 N.M.S.A. (1978). (Recorded writings affecting title to real estate “shall be notice to all the world of the existence and contents of the instruments so recorded.”) In any event, Security Federal was aware of the power before the first loan closed. See Deposition of Bobby Nafus, page 8, lines 1-9.
Had Security Federal actually obtained the CST partnership agreement or the Villa Palomar Joint Venture Agreement, those documents would not have demonstrated any limitations on Crook’s authority. First, the CST agreement makes no reference either to Crooks or to the joint venture. It does establish, however, that the purpose of CST is to develop lots and build single-family homes on the land. Crooks’ actions appear to be in line with these stated purposes. Second, the Villa Palomar agreement states its purpose as “acquiring financing for the construction and selling of custom single-family residences” on the land, and specifically states “CST agrees to permit the use of nine (9) of the lots currently owned by CST Group to be used as security for construction financing.” Thus the agreement specifically anticipated encumbering the property. Crooks’ actions were completely consistent with the agreement.
Finally, whether there was a duty of further- investigation is a legal question. Under the facts of this case the Court finds none. Crooks had the authority to act for Villa Palomar, and did act. Even if the power of attorney had been the source of this authority there was no duty to go beyond its language. See Parton v. Robinson, 574 S.W.2d 679, 682 (Ky.App.1978). *461Its language allowed Crooks to encumber the land.
j. Whether Security Federal exercised reasonable care in the exercise of its obligations.
In support of this argument CST alleges that the power of attorney document would not have been found effective to encumber real estate according to the standard practice of Bernalillo County title companies. CST also argues that the joint venture documents and “authorization” should have been obtained. CST has provided no affidavits or other evidence of the standard practices of title companies in Bernalillo County, nor has it provided evidence that obtaining a joint venturer’s “authorization” is common practice. CST, therefore, has failed to establish any duty. On the other hand, the Nafus deposition indicates that loan packages consisting of a note and mortgage are sent to the title company, page 12, lines 14-16, and the documents are signed and executed there, id. line 13. After closing, a title policy is returned, id. page 10 lines 13-14. The Court cannot find this procedure negligent as a matter of law. Therefore, CST fails to meet its burden on this theory. Celotex, 477 U.S. at 323, 106 S.Ct. at 2553.
CST also claims that negligent acts of Security Federal resulted in the conversion of all proceeds. CST, however, has come forward with no evidence to support this claim as it pertains to proceeds of the sale of houses: there is no evidence that Security Federal ever had control or possession of the sales proceeds, nor is there evidence that Security Federal had a duty to anyone regarding them. Therefore, as applied to sales proceeds the Court finds no negligence.
There were two categories of loans, those to CIL alone and those to CIL and CST d/b/a Villa Palomar. For the loans to CIL alone Security Federal had no duty to ask Villa Palomar, the prior owner of the land, for its advice on how the loan proceeds should be disbursed. There being no duty, there can be no negligence. Furthermore, by dealing with CIL, Security Federal was in fact dealing also with Villa Palomar through its agent. Villa Palomar is therefore estopped from claiming that disbursements were improperly made. For the joint venture loans the proceeds were paid to CIL, a joint venturer. Payment to an authorized agent constitutes payment to the principal, if the agent is authorized to collect. Bozza v. General Adjustment Bureau, 103 N.M. 200, 204, 704 P.2d 454, 458 (Ct.App.1985). Crooks was an agent for the joint venture. No limitations on his authority were made known to Security Federal. Surely there cannot be a duty imposed on lenders to ensure that funds loaned to a partnership will be applied as each partner assumes they will be. The Court finds that any duty Security Federal had ended when it paid the proceeds of the joint venture loans to Crooks.
5. Whether CST Group acted to protect its interests upon learning of improprieties in the loan transactions and the use of a fraudulent power of attorney.
This issue is not relevant to whether Security Federal was a bona fide purchaser for value. Any actions by CST would have occurred after Security Federal had already obtained its bona fide purchaser status.
The Court finds, however, that the power of attorney was not revoked in writing until after the last loan was closed. Until revoked in writing a power is deemed valid with respect to a bona fide purchaser or incumbrancer for value and without notice of the revocation. § 47-1-18 N.M.S.A. (1978). Therefore, CST’s actions before recording the revocation are not relevant.
CST has failed to demonstrate that there are any genuine issues of fact on any matters relevant to Security Federal’s motion for summary judgment. The sole question remaining for the Court is whether Security Federal is “entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c).
In New Mexico, a bona fide purchaser for value without notice of shortcomings that could be raised by a previous owner, or which would become apparent from a reasonable examination of the record, takes free of such defects. Rael v. Cisneros, 82 N.M. 705, 708, 487 P.2d 133, 136 (1971). *462See also Leonard Farms v. Carlsbad Riverside Terrace, 90 N.M. 84, 37, 559 P.2d 411, 414 (1977). (Equity will not divest or impair the title or interest of a bona fide purchaser for value without notice of defect.)
The true rule ... is that absent actual notice, where the facts brought to the knowledge of the intending purchaser are such that in the exercise of ordinary care he ought to inquire, but does not, and his failure so to amounts to gross or culpable negligence, he will be charged with a knowledge of all the facts which the inquiry, pursued with reasonable diligence, would have revealed. Want of ordinary care alone will not charge him. The circumstances .must be such that the failure to make the inquiry suggested by ordinary care will convict the intending purchaser of gross or culpable negligence if he is to be visited with all the consequences of having made the purchase with actual knowledge of the facts.
Sawyer v. Barton, 55 N.M. 479, 485-86, 236 P.2d 77 (1951).
From an examination of the record it is clear that Security Federal had no actual knowledge that Crooks was unauthorized to do what he did. In fact, it appears to the Court that he in fact could encumber the land. Dotson, 98 N.M. at 211, 647 P.2d at 413. The Court finds no negligence on Security Federal’s part, let alone gross or culpable negligence. Security Federal is a bona fide purchaser for value under its mortgage, and its interest cannot be defeated. Summary judgment is appropriate.
Finally, one of CST’s theories of recovery is slander of title. “Malice is an essential ingredient in a claim of slander of title.” City of Hobbs v. Chesport, Limited, 76 N.M. 609, 616, 417 P.2d 210 (1966). Security Federal moves for summary judgment on the grounds that the evidence shows, at most, negligence. CST has not come forward with any additional materials to support malice, an essential element of its case. Summary judgment is proper. Celotex, 477 U.S. at 323, 106 S.Ct. at 2553.
IT IS ORDERED that Security Federal’s motion for summary judgment on the counterclaim of CST Group is hereby granted.
IT IS ORDERED that Security Federal shall prepare a form of judgment in conformity with this memorandum opinion within 10 days.
. The record is unclear why these deeds were executed. Record title had been in Margaret Chavez’ name only.
. The Court does not so find. Nafus's deposition indicates he received a power of attorney. CST’s attorney’s affidavit demonstrates that a copy of the power was sent to Security Federal in July, 1987. It is unclear whether Nafus saw another copy before July, 1987. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490893/ | ORDER GRANTING FIRST COLONY LIFE INSURANCE COMPANY’S MOTION FOR SUMMARY JUDGMENT
RICHARD L. SPEER, Bankruptcy Judge.
I. INTRODUCTION
Defendant First Colony Life Insurance Company (“First Colony”) filed a Motion for Summary Judgment in response to the Complaint filed against it by the Trustee of the Debtor, William T. Simon. For the reasons stated, the Court finds that the Motion should be granted.
II. THE UNDISPUTED FACTS
The following facts are undisputed.
In 1980, Mr. Simon, the Debtor in this case, was injured in an accident. On August 24,1983, he settled his personal injury claims against Michael Berndt and Nord-mann Roofing Company (“the Defendants”) arising out of the accident through a Settlement Agreement (the “Settlement”). Pursuant to the Settlement, Cincinnati Insurance Company (“Cincinnati”) which was the casualty insurer for the Defendants, agreed to pay Mr. Simon specified amounts over his lifetime or for thirty (30) years, whichever was longer.
Specifically, Cincinnati agreed to pay Mr. Simon $497.00 each month, beginning September 15, 1983, increasing at a compounded rate of 4% per year. In addition, Cincinnati agreed to pay the following amounts:
Date of Payment Amount
September 15, 1988 $10,000.00
September 15, 1993 $10,000.00
September 15, 1998 $25,000.00
If Mr. Simon dies before thirty (30) years have passed, any remaining payments are to be paid as they become due to Mr. Simon’s estate.
The Settlement provides that Cincinnati is the only party under any duty to make funds available to Mr. Simon. The Settlement recites that Cincinnati “reserves the right to purchase an annuity contract through First Colony,” with Mr. Simon designated as Annuitant and Mr. Simon’s Estate designated as Primary Beneficiary under the annuity contract. The Settlement *782states that Cincinnati may buy such an annuity “as a means to fund its obligation” to Mr. Simon. The Settlement states further that Cincinnati shall be the owner of any annuity bought from First Colony and that Cincinnati’s “obligation to make the periodic payments to Plaintiff ... is an unfunded and unsecured obligation to pay money in the future.”
Cincinnati elected to purchase from First Colony an annuity policy to fund its obligation to Mr. Simon. The annuity policy provides that First Colony will pay Cincinnati as Owner of the policy “or such person^) as Owner may designate, the annuity payments specified in the Schedule.” The Schedule provides for the same amounts and dates as called for by the Settlement. Mr. Simon is named the Annuitant and his Estate is named the Primary Beneficiary in the annuity policy. There is nothing in the annuity policy that would prevent Cincinnati from directing First Colony to make scheduled annuity payments to someone other than Mr. Simon or his Estate. The annuity policy expressly permits the Owner (Cincinnati) to “change the designation of Owner at any time” and “at any time to designate to whom annuity payments will be made.”
Mr. Simon began receiving payments under the Settlement in 1983. On April 10, 1986, Mr. Simon began this proceeding. Suzanne Cotner Mandross was appointed Trustee of the Bankruptcy Estate. The Debtor claimed an exemption on his Statement of Exemption Claim for “Monthly Payments of Annuity with First Colony.”
On February 10,1987, this Court rejected Mr. Simon’s claimed exemption for payments under his personal injury Settlement, 71 B.R. 65. Thereafter, the Trustee demanded that First Colony make payments under Mr. Simon’s Settlement to the Trustee, not to Mr. Simon. First Colony responded that Mr, Simon “does not own the annuity contract, nor does he possess the right to accelerate, defer, increase, decrease, or commute any payment set forth in the annuity contract.” First Colony informed the Trustee as follows:
We shall continue making the scheduled annuity benefit payments to Mr. Simon until we are instructed otherwise by the annuity contract’s owner, Cincinnati Insurance Company.
The Trustee responded by letter of September 1, 1987 that First Colony’s “position may result in your being held in contempt of court for not complying with a request of the Trustee.”
To this date, First Colony has received no instruction from Cincinnati to redirect scheduled payments under the annuity contract to anyone other than Mr. Simon. In light of the Trustee’s September 1, 1987 letter, First Colony has not made further payments under the policy to Mr. Simon or anyone else.
III. THE LAW
Based on these undisputed facts, the Trustee’s claim against First Colony must be rejected, and First Colony is entitled to be dismissed from this case. Mr. Simon’s rights under the personal injury Settlement are against Cincinnati Insurance Company. The Trustee’s rights are no greater than Mr. Simon’s rights. The bankruptcy estate is comprised of all legal and equitable interests of the Debtor in property as of the commencement of the case. 11 U.S.C. § 541(a)(1); 124 Cong.Rec. S 17,418 (October 6, 1978). Because Mr. Simon has no rights against First Colony, neither does the Trustee. First Colony must act at the direction of Cincinnati and make payments under the annuity policy to whomever Cincinnati directs.
The Trustee has commenced proceedings against Cincinnati, and this case will continue against Cincinnati until resolution. Pending that resolution and further order of this Court, First Colony has agreed to continue to withhold making past and future scheduled payments to Mr. Simon, and this Court so approves.
Subject to the foregoing, IT IS ORDERED that the Motion for Summary Judgment of First Colony Life Insurance Company is GRANTED.
It is FURTHER ORDERED that First Colony Life Insurance Company is dis*783missed with prejudice as a Defendant to this case. The Trustee and First Colony will bear their respective costs. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490895/ | ORDER DENYING MOTION FOR SUMMARY JUDGMENT WITHOUT PREJUDICE
MARY D. SCOTT, Bankruptcy Judge.
Now before the Court is a Motion for Summary Judgment filed in the above referenced adversary proceeding, a Complaint *921to Determine Dischargeability filed pursuant to 11 U.S.C. § 523(a)(4).
This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. Moreover, the Court finds that the matter before it is a “core proceeding” within the meaning of 28 U.S.C. § 157(b)(1) as exemplified in 28 U.S.C. § 157(b)(2)(I).
The Court on November 7, 1988 issued an Order directing the parties to submit to the Court letter briefs clarifying whether the pending Motion for Summary Judgment was ready for determination. They have done so and the Court now considers that Motion.
The Plaintiff asserts he is entitled to summary judgment on his Complaint contending the following:
1. As a result of hearing conducted by the Chancery Court of St. Francis County, Arkansas, on and prior to January 21,1986, the court issued its February 26, 1986, letter opinion, wherein it set out its findings and conclusions. Those findings and conclusions were incorporated by reference in a Decree entered April 4, 1986, in the civil action styled Lucille Morgan and Teresa Morgan, plaintiffs v. Randall Trent Morgan, individually, and as Trustee of the Ollie Harold Morgan Trust and as Executor of the Estate of Ollie Harold Morgan, Deceased, defendants. That decision became final when the Arkansas Court of Appeals delivered its unpublished decision on May 11, 1988.
2. The Chancery Court ruled that Defendant, while acting as Trustee of the Ollie Harold Morgan Trust, committed fraudulent acts and was guilty of defalcation which caused the trust corpus to be diminished by at least $175,255.43.
3. Plaintiff commenced this adversary proceeding to establish that the judgment-debt awarded in the Chancery Court was not dischargeable because it was within the purview of 11 U.S.C. § 523(a)(4). The elements of a cause of action under Section 523(a)(4) were before the Chancery Court where the Defendant was a party. Those issues were central to the prior determination.
4. Res judicata should preclude this court from relitigating the issues that were actually, or should have been, presented to the state court. All facts having previously been finally and judicially determined, no controversy of material facts exists.
5. In support of this motion, Plaintiff files herewith an authenticated copy of the Decree of the Chancery Court, as Exhibit A; the complete trial court record, except for the box of exhibits, which are incorporated by reference and which remain in the custody of the Clerk of the Arkansas Supreme Court, as Exhibit B; and a copy of the Abstract and Brief of Appellate, filed with the appellate court clerk on November 6, 1987, as Exhibit C.
The debtor, in opposition to the Court’s granting this motion asserts the following:
1. Defendant Morgan denies each and every allegation of the Motion for Summary Judgment unless specifically admitted herein.
2. Defendant states that the decree entered by the St. Francis Chancery Court on April 4, 1986, was entered in violation of the automatic stay of 11 U.S.C. § 362 and, thus, is null and void.
3. Defendant Morgan further states that the doctrines of res judicata or collateral estoppel are inapplicable to this case due to the fact that the decree of the Chancery Court is void, the Chancery Court did not use the appropriate standard of proof in making its determination and that there are material facts that are controverted.
Both parties attached briefs in support of their respective arguments.
The Plaintiff also filed a Reply to the debtor’s response addressing what he denominated to be the two points argued by the debtor. The Court will only address the first issue because it concludes, on that basis, that the Motion for Summary Judgment must be denied at this time and without prejudice to its being renewed at a later time as hereinafter provided.
The Plaintiff argues that the automatic stay of the Bankruptcy Code “does not extend to void the state court’s acts.” He *922asserts that when the state court Chancellor signed and filed the formal decree after the bankruptcy case was filed, he did not commit an act prohibited by 11 U.S.C. § 362(a)(1). In support of this argument the Plaintiff cites two bankruptcy court decisions for the proposition that the entry of a formal written decision post-petition is not an action which is stayed under § 362(a) of the Bankruptcy Code. These courts adopted this position because they were (1) reluctant to extend the strictures of the automatic stay over state court judicial officers (as opposed to parties to state court proceedings) and (2) the parties had concluded all activities in the cases and the court had made oral findings and/or had taken the matter under advisement. In re Wilson, 72 B.R. 956 (Bkrtcy.M.D.Fla.1987); In re Anderson, 62 B.R. 448 (Bkrtcy.D. Minn.1986).
The Court has considered the cases submitted by the Plaintiff in support of his argument that the post-petition action by the state court, i.e., entry of a formal order memorializing the informal decision of the court was not in violation of the automatic stay. This Court, however, on the facts presented in this case, does not reach the same conclusions reached by those courts. This Court is not ready to conclude as the Minnesota and Florida bankruptcy courts did that “as a matter of law” the actions by the state court did not violate the automatic stay imposed by the filing of a bankruptcy petition and hence, cannot at this juncture, grant a Motion for Summary Judgment. Further, this Court hastens to add that it is also not ready to conclude that the decree entered by the state court is null and void. The actions may be voidable, but that is a question of fact to be determined on a case-by-case basis.
It should be noted that even though this Court, under the facts presented here, rejects the conclusions reached by these other bankruptcy courts and does not grant the Motion for Summary Judgment, it is empowered to annul the automatic stay. 11 U.S.C. §' 362(d). Thus, it would be inclined to annul the stay to ratify the actions of the state court or in the alternative permit entry of this final order post-petition.
Accordingly, it is hereby
ORDERED that the Motion for Summary Judgment be and hereby is denied without prejudice and for the reasons as herein-above set out.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490896/ | ORDER
MARY D. SCOTT, Bankruptcy Judge.
Now before the Court are Motions to Dismiss the debtor’s Chapter 11 petition filed by The Equitable Life Assurance Society of The United States (“Equitable”) and Metropolitan Life Insurance Company (“Metropolitan”), creditors in these proceedings. Mankin Farms, Inc. (“Mankin”), purchaser at a foreclosure sale of one of the debtor’s tracts of land, also filed a Motion to Dismiss. These matters came on for hearing January 12, 1989.
This Court has jurisdiction pursuant to 28 U.S.C. § 1334. Moreover, the Court finds that this is a “core proceeding” within the meaning of 28 U.S.C. § 157(b)(1) as exemplified in 28 U.S.C. § 157(b)(2)(G).
In this case, the debtor and each of the creditors agreed to submit stipulated facts and briefs for the Court to consider in deciding the issues. The debtor has had two previous bankruptcy petitions filed in this district since 1985. In order to fully decide the issues, a history of the debtor’s bankruptcy record and financial history is necessary.
On February 6, 1970, the debtor issued a promissory note to Metropolitan for $16,-000.00 secured by a mortgage on real property in Desha County, Arkansas. Six years later, the debtor issued a promissory note to Equitable for $163,000.00 secured by a deed of trust on another tract of real property in Desha County, Arkansas. All deeds were properly and timely recorded.
After a period of time, the debtor developed financial difficulties and payments on the Equitable note began to fall into arrears. On March 12, 1985, the debtor filed its first Chapter 11 bankruptcy petition, case number PB 85-95 M. Operating reports for the period of March 1, 1985 through September 30, 1985 were filed with the Court only after a hearing and specific direction by the Court. On January 10, 1986, Equitable filed a Motion to Dismiss that case. The Court granted that Motion finding that the debtor “shows little interest in proposing a plan of reorganization and simply abuses the stay imposed by 11 U.S.C. § 362 while assets of the estate are consumed.” The Court further held that such use of Chapter 11 for delay constitutes a lack of good faith which constitutes cause to dismiss the Chapter 11 petition. That Chapter 11 petition was dismissed on April 9, 1986.
On April 11, 1986, two days after the dismissal of the Chapter 11 petition, Equitable filed a Complaint in Desha County, Arkansas to foreclose on its deed of trust. Summary judgment and a foreclosure decree were obtained by Equitable on September 11, 1986. Following the decree, Equitable held a public sale of the property. Tim Wargo, Jr., an officer of the debt- or corporation, was the highest bidder on the property with a bid of $300,000.00. The sale was held on October 13, 1986. Since Tim Wargo, Jr. was unable to post bond on the property purchased as required by the summary judgment and foreclosure decree, the Chancery Court of Desha County ordered a resale of the property. Another public sale was held on November 24, 1986, and the purchaser was Mankin Farms, Inc. for a price of $180,000.00. Mankin posted the required bond securing the purchase of the property.
Before the second sale was confirmed, however, the debtor, on December 22,1986, filed its second bankruptcy petition, under Chapter 12, case number PB 86-474 M. A Motion to Dismiss the Chapter 12 petition was filed by Equitable on January 12,1987. *924After a hearing June 5, 1987, the Court granted Equitable’s Motion to Dismiss because the debtor’s corporation did not qualify for Chapter 12 relief pursuant to the Bankruptcy Code’s definition of “family farmer” as required by 11 U.S.C. § 101(17)(B). On June 10, 1987, the debtor appealed the Bankruptcy Court decision to the District Court.
On May 16, 1988, the District Court affirmed the bankruptcy Court’s decision. Subsequently, the debtor filed an appeal of the District Court decision to the Eighth Circuit Court of Appeals. The debtor filed a Motion for Stay Pending Appeal of the District Court’s decision on June 10, 1988. The District Court granted this Motion upon certain conditions; namely, (1) the debtor pay in full all interest that had accrued to date; (2) the debtor pay all delinquent taxes and taxes currently due; and (3) the debtor post bond, surety, or cash for $35,100.00. The debtor was able to pay the taxes and interest, however, posted a defective bond and was unable to properly cure the defect. On August 30, 1988, on oral motion to the District Court, the debtor withdrew its Motion for Stay Pending Appeal. That same day, a report of the sale of the property purchased by Mankin Farms, Inc. was filed in Desha County.
On August 31, 1988 an Order was entered in Desha County by the Chancellor confirming the sale of the debtor’s property to Mankin Farms, Inc. at 2:30 p.m. and a Commissioner’s Deed was issued on the property at the same time. Prior to these events, however, and apparently unbeknownst to its creditors and the state court, the debtor, at 11:49 a.m., filed its third bankruptcy petition, a second Chapter 11 petition. Equitable again filed a Motion to Dismiss this new petition on November 15, 1988. Motions to Dismiss were also filed by Metropolitan on November 30, 1988 and Mankin on December 14, 1988. These Motions are now before the Court for consideration. .
In their briefs, the creditors propose several grounds as bases for granting their Motions to Dismiss. They contend that the debtor’s third bankruptcy petition is an attempt to circumvent the Orders of the District Court removing the stay pending appeal. The creditors also assert that this latest bankruptcy petition is simply an attempt to further delay the legal rights of the creditors and maintain control over the property. They assert that the Chapter 11 petition was filed simply for the purpose of invoking the 11 U.S.C. § 362 automatic stay when the debtor was unable to meet the conditions of the District Court’s Order granting a stay of the dismissal of the Chapter 12 case pending appeal to the Eighth Circuit. Also, the creditors contend that a debtor is not permitted to have two bankruptcy cases before the same court at the same time involving essentially the same debts. Their contention is that the appeal keeps the debtor’s Chapter 12 case in Court and the new Chapter 11 case involves the same debts before the same Court at the same time. Lastly, the creditors contend that the debtor is manipulating the bankruptcy system and the filing of this case constitutes an abusive filing and a fraud upon the Court and its integrity.
The. debtor counters these allegations with assertions that each of its bankruptcy cases have been filed in good faith and the debtor has always proceeded in good faith. The debtor says it believes .it has never been found guilty of proceeding in bad faith and if such is so any such actions would have been the fault of counsel. The debtor alleges that Equitable slept on its rights in the more than 180 day interim between the dismissal of the first Chapter 11 petition and the filing of its Chapter 12 petition. The debtor also states that Equitable and Metropolitan are fully secured by liens on the property, the payment of taxes and interest by the debtor, the depositing of $12,000.00 with the District Court and periodic cash payments. Additionally, the debtor states the Chapter 12 appeal is not moot until the debtor obtains a confirmed plan or reorganization and/or a discharge under another chapter of bankruptcy. The debtor contends that it has several plans which it could propose in good faith in the Chapter 11 case. By filing its Chapter 11 case, the debtor contends it was *925simply pursuing an option available to it when it filed its Chapter 12 petition. Lastly, the debtor contends Mankin has no standing to bring the Motion in the debtor’s case as Mankin is not a creditor of the debtor.
Since the briefing schedule ended on these Motions the Court set a hearing because the Eighth Circuit Court of Appeals reached a decision with regard to the issues raised by the debtor in the dismissal of its Chapter 12 petition. On March 14, 1989 in Slip Op. No. 88-1949 the District Court decision affirming the bankruptcy court’s dismissal of the debtor’s case was also affirmed, 869 F.2d 1128 (8th Cir.1989). Thus, many of the arguments raised in the briefs submitted by the parties are essentially rendered moot. The Court, after reviewing arguments of counsel, and after a hearing held April 18, 1989 concludes that it can go forward and decide the issue of whether this pending Chapter 11 case should be dismissed because this filing constitutes an abuse of the bankruptcy system by the debtor.
The creditors cite the Court to the debtor’s successive filings in support of its Motions for dismissal of this third bankruptcy petition. They note particularly the previous Order of Hon. James G. Mixon dismissing the debtor’s first Chapter 11 case. The debtor contends that it is proceeding in good faith and that the dismissal of its previous Chapter 11 was the “fault of counsel.” Further, the debtor asserts that “it has several plans .of reorganization which it could submit in good faith.” (pg. 10 of debtor’s brief)
Initially, the Court rejects debtor’s argument that the dismissal of its first Chapter 11 can be excused as the “fault of counsel.” It has long been recognized that a petitioner voluntarily chooses its attorney as its representative in a case and it cannot “avoid the consequences of the acts or omissions of this freely selected agent. Any other notion would be wholly inconsistent with our system of representative litigation in which each party is deemed bound by the acts of his lawyer-agent ...” Link v. Wabash Railroad Co., 370 U.S. 626, 633-34, 82 S.Ct. 1386, 1390, 8 L.Ed.2d 734 (1962) quoting Smith v. Ayer, 101 U.S. 320, 326, 25 L.Ed. 955 (1879).
The Court does find, however, from a review of all the stipulations, briefs and documents before it that much valuable time has been expended on technicalities essentially avoiding a hearing on the merits of whether the debtor can propose a con-firmable plan of reorganization. It says it can submit “several” plans but doesn’t elaborate. Even though the Court believes that something more than a bald assertion that “it has several plans of reorganization which it could submit” is needed to overcome a Motion to Dismiss such as the one filed, it also concludes that a dismissal at this point would not be in the best interests of judicial economy and should be denied without prejudice and upon certain conditions as follows:
(1) The debtor shall file a disclosure statement and proposed plan of reorganization within thirty (30) days of entry of this Order.
(2) The debtor shall confirm its Chapter 11 plan of reorganization no later than ninety (90) days from entry of this Order.
(3) The debtor shall continue to timely file monthly operating reports during pend-ency of these proceedings.
(4) If the debtor fails to timely perform any one of the conditions as hereinabove set out, this Chapter 11 case may be dismissed with prejudice after notice and a hearing to be set by the Court.
Accordingly, it is hereby
ORDERED that the Motions to Dismiss are denied without prejudice and upon the conditions as hereinabove set out.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490897/ | OPINION
STEPHEN J. COVEY, Bankruptcy Judge.
On February 28, 1989, a hearing was held upon the confirmation of the Plan of Reorganization (“Plan”) submitted by World Wide Inns, Inc. (“World Wide Inns”). Essentially the Plan provides for a liquidation with the payment in full of all claims due the Internal Revenue Service (“IRS”) out of the proceeds of the sale of the Debtor’s property. The IRS objected to the confirmation of the Plan on the grounds that it provided that payments made under the Plan to the IRS would be applied first to the Debtor’s trust fund liabilities. This Court confirmed the Plan with the consent of the IRS and took under advisement the issue of whether the Debt- or has a right to designate in its Plan of Reorganization that the payments to the IRS be first applied on the trust fund portion of its claim.
The evidence establishes that the Debtor owes the IRS, on prepetition taxes, in excess of $100,000.00. Seventy-two percent (72%) of this liability is a trust fund liability for social security and withholding taxes withheld from employees’ wages. The Debtor wishes the first payments to be applied to the trust fund liability because if these are paid first then the responsible officers of the Debtor would be relieved from any liability. The IRS, on the other hand, wants to apply the first payments received on the non-trust fund liability of the Debtor on the theory that if the Debt- or’s assets do not pay the claim in full any amount unpaid on the trust fund liabilities can be recovered from the responsible officers. 26 U.S.C. § 6672.
The parties all agree that the Debtor is not entitled to designate the application of the payments unless they are viewed as voluntary. If viewed as involuntary, then the IRS can determine the application of the payments. Matter of Ribs-R-Us, Inc., 828 F.2d 199 (3rd Cir.1987); In re DuCharmes & Co., 852 F.2d 194 (6th Cir.1988); In re Technical Knockout Graphics, Inc., 833 F.2d 797 (9th Cir.1987).
In Amos v. Comm’r., 47 T.C. 65 (1966) the Tax Court gave the following definition of involuntary payment:
An involuntary payment of federal taxes means any payment received by agents of the United States as a result of distraint or levy or from a legal proceeding in which the government is seeking to collect its delinquent taxes or file a claim therefore.
The issue to be decided, therefore, is whether payments of tax claims to the IRS under a confirmed Chapter 11 Plan of Reorganization are voluntary or involuntary within the definition set forth in the Amos case. This question has been a thorn in the side of many courts and there are, not unexpectedly, differences of opinion. In the case of In re Professional Technical Servs., Inc., 80 B.R. 157 (1987), the Bankruptcy Court in a very learned discussion of the issue, held that payments made under a confirmed Chapter 11 Plan of Reorganization were voluntary and that the debtor could designate how the payments were to be applied. In the case of United States v. A & B Heating & Air Conditioning, Inc., 823 F.2d 462 (11th Cir.1987), the Court held that the allocation in a Chapter 11 case should be left to judicial discretion and be decided on a case-by-case basis.
In the Matter of Ribs-R-Us, Inc., 828 F.2d 199 (3rd Cir.1987), the Court in discussing this issue stated as follows:
*1001We respectfully disagree with the approach taken by the Eleventh Circuit. It appears to us that whether a payment of taxes made by a debtor in a Chapter 11 reorganization is to be construed as voluntary for purposes of the debtor’s ability to designate to which taxes the payment is to be applied is a question of law rather than an issue for the exercise of discretion. A uniform federal rule is preferable so that debtors, creditors, and the Internal Revenue Service will be able to know in advance whether the debtor can make such a designation and guide their decisions accordingly_ We conclude for the reasons ¿stated above that payments to the IRS on pre-petition priority tax liabilities by a debtor in reorganization under Chapter 11 of the Bankruptcy Code are involuntary, and therefore cannot be allocated by the debtor or the bankruptcy court to the debtor’s trust fund liabilities. Such an allocation is in derogation of Congress’ strong policy, reflected in section 6672, to protect the government’s tax revenues by insuring an additional source from which trust fund taxes can be collected. The IRS is entitled to allocate tax payments from the Chapter 11 debtor in a manner that maximizes its ability to fully recover taxes owed.
See also In re DuCharmes & Co., 852 F.2d 194 (6th Cir.1988) where the Court stated:
Upon review of the relevant statutes and caselaw, we agree with the Third and Ninth Circuits that payments made to the IRS on pre-petition tax liabilities by a Chapter 11 debtor ought to be considered “involuntary payments” that may not be allocated to pay the debtor’s trust fund liabilities first.
See also In re Technical Knockout Graphics, Inc., 833 F.2d 797 (9th Cir.1987).
This Court agrees with the conclusions reached by the United States Courts of Appeals for the Third, Sixth and Ninth Circuits discussed above and holds that payments under a confirmed Chapter 11 Plan of Reorganization are involuntary and the debtor cannot allocate or designate that they be applied to its trust fund liability.
SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490899/ | MEMORANDUM DECISION
JOHN J. HARGROVE, Bankruptcy Judge.
At issue is whether the untimely filing of a UCC financing statement falls within the “ordinary course of business” exception to preferences of 11 U.S.C. § 547(c)(2).
The issue arises on the motion of debtor Four Winds Enterprises, Inc. (“Four Winds”) for summary judgment.
This court has jurisdiction to hear this matter pursuant to 28 U.S.C. § 1334 and § 157(b)(1) and General Order No. 312-D of the United States District Court, Southern District of California. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(F).
FACTS
In 1982, First National Bank (“FNB”) made certain loans to Four Winds. In connection with these loans, Four Winds executed promissory notes and a security agreement in favor of FNB. Pursuant to the security agreement, FNB obtained a security interest in office furniture and equipment owned by Four Winds. FNB perfected its security interest in the collateral by filing a UCC-1 financing statement.
A filed financing statement is effective for a period of five years from the date of filing. The effectiveness of a filed financing statement lapses upon the expiration of such 5-year period unless a continuation statement is filed prior to the lapse. Upon such lapse, the security interest becomes unperfected. California Commercial Code § 9403(2).
On or about October 21, 1987, FNB caused to be filed another UCC financing statement well after the initial financing statement had lapsed.
On November 3, 1987, Four Winds filed its petition for relief under Chapter 11, and thereafter the instant adversary proceed*25ing to avoid a preferential transfer and to recover property was filed on May 12,1988.
DISCUSSION
This court previously concluded that there was a § 547 transfer of the debtor’s property occasioned by FNB’s untimely October 21, 1987 UCC filing. In re Four Winds Enterprises, Inc., 94 B.R. 694 (Bankr.S.D.Cal.1988).
FNB now asserts that its untimely filing of the UCC financing statement falls within the “ordinary course of business exception” of 11 U.S.C. § 547(c)(2).
Section 547(c)(2) excepts from avoidability a transfer that is:
(A) in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the transferee;
(B) made in the ordinary course of business or financial affairs of the debtor and the transferee; and
(C) made according to ordinary business terms.
FNB argues that the loan documents executed by Four Winds and FNB allow FNB to perfect its security interest in its collateral and that the reperfection of a lapsed security interest by a bank, which is expressly authorized by California law, is within the ordinary course of business or financial affairs of both the debtor and its secured lender. The Bank also argues that “the reperfection of a lapsed security interest by a bank is certainly a transfer made according to ordinary business terms and is the sort of transfer that occurs every day in the real business world.” No authority is cited for this contention of law.
This court concludes that the attempted reperfection of a lapsed security agreement cannot fall .within the ordinary course of business exception because as a matter of law, the exception only applies to “payment of ordinary trade credit.” See, 4 Collier on Bankruptcy para. 547.10, pp. 44-45 (15th ed. 1988). Indeed, the natural reading of the phrase in § 547(c)(2)(A) speaks of the “payment of a debt incurred by the debtor in the ordinary course of business_” (Emphasis added).
The issue in this case does not involve a credit transaction. It simply involves an untimely attempt by FNB to perfect its lapsed security interest. Further, the untimely filing of a UCC statement is a unilateral act by one of the parties and cannot be characterized as being within the ordinary course of business of both the debtor and the creditor as required by § 547(c)(2).
Finally, there is nothing about a tardy filing of a UCC financing statement that can be deemed in any sense, ordinary.
CONCLUSION
This Memorandum Decision constitutes findings of fact and conclusions of law pursuant to Bankr.R. 7052. Counsel for debtor is directed to file with this court an Order in conformance with this Memorandum Decision within ten (10) days from the date of entry hereof. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490900/ | MEMORANDUM OF DECISION
JOHN K. PEARSON, Bankruptcy Judge.
This matter is again before the Court for a decision on the objection of a creditor and the trustee to the debtor, Jerome Sayler’s claim of exemption to a group of life insurance policies purchased shortly before the filing of the petition for relief in bankruptcy. The American State Bank of Great Bend, Kansas (hereinafter “ASB” or “the Bank”) and the trustee each filed a timely objection to Jerome Sayler’s claim in the life insurance policies. For the sake of ease, Jerome Sayler will be referred to as “the debtor” hereafter. Margaret Elaine Sayler is no longer involved in these proceedings although she is a “debtor” in the bankruptcy case. The debtor appears by Ernest McRae of McRae & Early, Wichita, Kansas. The Bank appears by Mark D. Calcara of Watkins, Calcara & Rondeau, P.A., Great Bend, Kansas. The trustee, Lynn D. Allison, appears personally.
The Peoples State Bank and Trust Company of Ellinwood, Kansas (hereinafter “PSB”) filed an objection to the debtor’s discharge. The objection to discharge and the objection to the life insurance policies were tried together in August of 1986. At the conclusion of the trial the Court overruled the objection to discharge and took the exemption issue under advisement. On October 10, 1986 this Court entered a detailed memorandum of decision setting out extensive findings of fact and conclusions of law. In re Sayler, 68 B.R. 111 (Bankr. D.Kan.1986). That decision was timely appealed to the District Court which, by order entered June 23, 1987 reversed and remanded stating:
This court is not in a position to reweigh the evidence. Therefore the case will be remanded to the bankruptcy court, where the court is to make findings of fact as to each of the “badges of fraud” set forth in Mueller. [In re Mueller, 71 B.R. 165 (D.C.D.Kan.1987).] The court must then determine whether the Say-lers’ circumstances give rise to clear and convincing evidence of fraud. If — and only if — the court finds an intent to defraud by clear and convincing evidence, it may sustain the objections to the debtors’ claimed exemptions of the life insurance policies.
In re Sayler, 98 B.R. 536 (D.C.D.Kan.1987) (Kelly, J.) (hereafter “the District Court *59order”). No appeal was taken from the District Court order.
Pending a determination of an appeal of the District Court’s order in In re Mueller referred to above, this Court has held the case under advisement since the District Court ruling of reversal.1 Given the posture of the case, this Court will discuss the legal analysis required before making the findings of fact required by the District Court in its order of remand. As so often is the case in bankruptcy matters, this Court is required to make findings of fact concerning the intent of the parties in taking action affecting the assets of their bankruptcy estate. Because actions often speak more clearly than words, the courts have generally developed checklists or criteria which should be considered in making determinations of intent. Generally, the trier of fact may ignore the pious protestations of innocent intent of the parties affected by the outcome when their actions demonstrate a contrary intent. In re Liming, 797 F.2d 895 (10th Cir.1986).
In its order the District Court held that the life insurance policies in Kansas are not per se entitled to state law exemption and in fact are not exempt if the debtor has a fraudulent intent in acquiring them. It went on to approve, in slightly modified form, the criteria or checklist said to evidence intent to defraud set out in Matter of Mehrer, 2 B.R. 309 (Bankr.E.D. Wash.1980). The necessary fraudulent intent may be ascertained by considering:
(1) whether there was a fair consideration paid for the life insurance policy; (2) whether the debtor was solvent or insolvent as a result of the transfer or whether he was insolvent at the time of the transfer; (3) the amount of the policy; (4) whether the debtor intended, in good faith, to provide by moderate premiums some protection to those to whom he had a duty to support; (5) the length of time between the purchasing of a life insurance policy and the filing of the bankruptcy; (6) the amount of nonexempt property which the debtor had after purchasing the life insurance policy; and (7) the debtor’s failure to produce available evidence and to testify with significant preciseness as to the pertinent details of his activities shortly before filing the bankruptcy petition.
In re Mueller, supra at 168, cited in the District Court order at 9-10. While not all items on the checklist must be present, there must be sufficient indicia of fraud to rise to the level of clear and convincing evidence. In re Mueller, supra, at 169; District Court order at 10.
Generally, as the District Court noted, simply transferring nonexempt assets to exempt status is not a basis for a creditor’s objection to the exemption. The District Court order does not state clearly that a dishonest or fraudulent motive is necessary, but rather states that the necessary intent to defraud is discerned by the application of the Mehrer criteria.2 Whether the intent necessary is a dishonest one or something less, this Court concludes that, upon application of the Mehrer criteria mandated by the District Court, the Bank and the trustee have demonstrated by clear and convincing evidence that the debtor, Jerome Sayler, intended to defraud one or more of his creditors by transferring the funds from the ERISA account to the life insurance policies at issue.
The sole issue before this Court is the debtor’s intent in withdrawing certain funds from two ERISA qualified pension plans (“the ERISA accounts”) and purchasing certain life insurance policies challenged by the Bank and the trustee. The remaining facts are not seriously disputed *60and are set out in great detail in both this Court’s prior order and the District Court’s order. They may be summarized as follows:
The debtor, Jerome Sayler, is a medical doctor, practicing in and near Great Bend, Kansas, and at all relevant times was a principal and stockholder in an entity called “Central Kansas Pathological Associates Chartered.” In 1985 he was the beneficiary and a designated trustee of two ERISA qualified plans or accounts. On June 1, 1985, pursuant to the terms of the plans, the debtor withdrew all of his vested benefits in the ERISA accounts, totaling approximately $585,000.00. At that time two lawsuits were pending against him for collection of debts that he owed to PSB and another bank with claimed damages of over $850,000.00. The debtor was hopelessly insolvent under either test of insolvency in that his liabilities substantially exceeded his assets. Furthermore he was generally not paying his obligations as they came due. As of June 1,1985 the debtor was the owner of and insured under eleven term and whole life insurance policies with a total cash value of approximately $291,-649.53 and with a face value of $1.19 million dollars. Included in those figures are two policies issued by U.S.F. & G. which the debtor had originally taken out in 1978 and which were required to be converted to whole life at or prior to the time the debtor reached the age of sixty-five. Because he reached that age in July of 1985, the debtor paid approximately $26,000.00 to convert the policies to whole life in May of 1985. The debtor was able, at trial, to account for approximately $535,000.00 of the proceeds withdrawn from the ERISA accounts. He used the proceeds to pay approximately $212,000.00 in taxes on the lump sum distribution of the ERISA funds; pay off the mortgage on his home; remodel the home; purchase two new automobiles and various household goods; pay various legal and accounting fees; pay off certain existing loans on insurance policies and at a bank; to cover the premiums necessary to convert the U.S.F. & G. term policies; and to purchase the Universal Life policy issued by Southwestern Life Insurance Company. The Southwestern Life Insurance Company policies had a face amount of $350,000.00 and a cash value of approximately $166,-000.00. The debtor’s wife, Margaret Say-ler, was the beneficiary under the new insurance policy. According to the testimony before this Court, the insurance policy would return not only its accumulated cash value, approximately $166,000.00, but also the face amount of the policy on the debt- or’s death.
The debtor’s petition for relief was filed on September 18, 1985. Although the District Court stated that the petition for relief was filed approximately five and one-half months after the issue of the Southwestern Life Insurance Company policy, in fact the premiums on that policy were paid on July 12 and July 29, 1985 in the amount of $175,000.00 and the policy was not issued until receipt of the second installment payment. While the District Court’s order suggests that the debtor was using the life insurance policies to shelter the ERISA funds from immediate tax liability, this is not the case. The debtor paid approximately $212,000.00 in taxes on the lump sum distribution of the ERISA funds and, in fact, overpaid his tax liability on the withdrawal thereof. The trustee has recovered approximately $50,000.00 through the filing of an amended tax return which is included in the funds held by the trustee at this time.
This Court held that the conversion of the existing term policies, even though U.S. F. & G. had first issued the term policies in 1978, constituted the issuance of a new policy within one year of the filing of the bankruptcy within the applicable Kansas statute. The District Court affirmed that ruling and no appeal was taken.
The question before the Court then is whether the U.S.F. & G. policies and the Southwestern Life Insurance policy were obtained by the debtor for the purpose of defrauding one or more of the debtor’s creditors. See K.S.A. 40-414(b)(l) (1984). It is absolutely clear that the debtor purchased the three policies in issue within one year of the date of the bankruptcy petition on September 18, 1985. The sole question *61is whether the policies were obtained with intent to defraud one or more of debtor’s creditors. The District Court has directed that this Court apply the Mehrer criteria in determining that intent.
The first criterion is whether there was a fair consideration paid for the life insurance policies. There are in fact three policies involved: the two terms policies which were converted by U.S.F. & G. in May of 1985 and the new policy issued in July of 1985 by Southwestern Life Insurance Company. The two term policies converted in May cost approximately $26,000.00 and have face value amounts of $100,000.00 each. The policy issued in July of 1985 cost $175,000.00 and has a face value of $350,000.00. As noted above, the District Court was apparently under the impression that all of the policies were issued five and one-half months before the petition for relief was filed in September. In fact the larger Southwestern Life Insurance policy was issued in late July 1985, approximately six weeks before the debtor filed his petition. There is no basis for concluding that the debtor overpaid for the coverage issued. By his own testimony and by the Court’s observation, the debtor is in poor health and, at age sixty-five, was being forced to convert certain term policies which expired upon his reaching that age. The first criterion is neutral or in the debt- or’s favor as there is no evidence that the debtor paid more than necessary for the policies. Had he paid more than face amount for the policies this criterion might weigh against the debtor.
The second factor for consideration is whether the debtor was solvent or insolvent as a result of the transfer or whether he was insolvent at the time of the transfer, i.e., the purchase of the life insurance policies. This Court found, and the District Court agreed, that on either a balance sheet or equity test basis, the debtor was hopelessly insolvent at the time of the purchase of the life insurance policies. The transformation of the ERISA funds into the life insurance policies took place while the debtor was involved in several state court suits and just after a Chapter 11 case before this Court failed to revive the debt- or’s farming operation.
One of the state court cases placed in doubt the debtor’s ability to claim the ERISA funds as exempt under the existing caselaw in Kansas. It is perhaps here that the necessary and proper intent is evident: had the debtor left the funds in the ERISA account they would have been exempt under the existing caselaw in this District at that time, but subject to the potential claim of the American State Bank by virtue of the pending state lawsuit. In withdrawing the funds and purchasing the life insurance policy, the debtor was clearly attempting to avoid the claim of at least one creditor to those assets. Those facts certainly suggest some motive other than simply bankruptcy estate planning. In any event the debtor was hopelessly insolvent and had virtually no remaining nonexempt unencumbered assets for the payment of his debts. This factor strongly supports a conclusion that the debtor’s intent was improper.
The third factor for consideration under Mehrer is the amount of the policy or policies. This must be considered with the fourth factor of the septet, namely whether the debtor intended in good faith to provide by moderate premiums some protection for those to whom he had a duty of support. The debtor at the time was approaching age sixty-five and had no dependents other than his wife. At the relevant times he had in force $990,000.00 in face amount of life insurance with a total cash value of approximately $266,000.00. Those figures do not include the challenged policies issued by U.S.F. & G. and Southwestern Life. The existing policies have been claimed as exempt and were not challenged by the creditors or the trustee. One of the policies had been cashed in and the cash value withdrawn and used by the debtor.
At the time of trial there was no showing by the debtor that upon his demise he had to provide the rather extraordinary sums his existing policies would pay to his surviving spouse. There was no testimony that she required extraordinary care or income which she would not have in the *62event of his death. The debtor purchased the challenged policies which have fate values totaling approximately $550,000.00 in cash values as of the time of trial of approximately $210,000.00. According to the testimony, the death benefits payable to the beneficiary, Margaret Sayler, would actually equal the face amount of the policies plus the cash values. Thus the debtor added another $770,000.00 to his existing $990,000.00 in life insurance. On the eve of bankruptcy and while insolvent the debt- or virtually doubled his life insurance coverage at a time when there was no showing that the additional coverage was necessary to provide his sole dependent support in the event of his death. Indeed the debtor testified that he considered the tax sheltered nature of the income on the cash values of an investment a factor in his decision.
The Mehrer factors suggest that while a debtor may have a duty to provide for his dependents in the event of his death, the amount of the insurance and the cost must be moderate. Under the circumstances the Court concludes that the debtor’s primary purpose in purchasing the insurance policies was not to provide a reasonable amount of insurance at a moderate premium to those dependent upon him for support, but an intent to improperly remove the ERISA funds from under the claims of ASB.
The fifth criteria in the Mehrer septet requires this Court to examine the length of time passing between the purchase of the life insurance policy and the filing of the bankruptcy petition. Again, an examination of the time frame here suggests that the debtor had an improper motive in purchasing the life insurance on the eve of his bankruptcy petition. The suggestion in Mehrer is that the shorter the time frame between the purchase of the insurance and the filing of the bankruptcy petition, the more likelihood the improper intent is involved. In In re Mueller, supra, the District Court upheld this Court’s ruling that a policy purchased on the very eve of bankruptcy — within four or five days of the filing of the petition for relief — suggested an improper motive. The amount involved in Mueller was approximately $7,500.00. The debtor had purchased the policy after consulting with bankruptcy counsel and received the policy from the same insurance salesman that testified before this Court in this case. There was extensive testimony in this case concerning the advice that the debtor received, not only from the insurance agent (who is also a lawyer), but also from his bankruptcy counsel who represented him before this Court. The debtor was fully and carefully advised and made a conscious decision to purchase life insurance with the withdrawn ERISA funds. The purchase of the insurance with literally the last remaining unencumbered nonexempt assets less than seven weeks before the filing of the bankruptcy petition, strongly suggests an improper motive. The legislature has provided that the purchase of a policy more than one year prior to the filing of a bankruptcy petition insulates the policy from the claims of creditors. Here again the length of time suggests very strongly an improper motive.
This is particularly true in considering the penultimate criteria of the Mehrer septet, namely the amount of the nonexempt property which the debtor had after purchasing life insurance policies. It would appear that the debtor used his last nonexempt, unencumbered asset to purchase the life insurance policies before the Court. As in Mueller, supra, and as mentioned above, the debtor purchased the life insurance with literally his last nonexempt, unencumbered asset. In its prior opinion this Court declined to follow an old line of Kansas cases which suggested that the transfer of assets to a relative leaving no assets to satisfy creditors’ was fraudulent per se. Under all circumstances, however, the transfer of the debtor’s last unencumbered asset strongly suggests an improper motive.
The final criterion in the Mehrer septet requires that the Court consider the debt- or’s failure to produce available evidence and to testify with significant preciseness as to the pertinent details of his activity shortly before the filing of the bankruptcy petition. Exactly what is meant by this is unclear from a review of the Mehrer deci*63sion or the District Court’s adoption thereof. The Court notes, however, that in this case the debtor was able to testify concerning the use of only $535,000.00 of the $585,-000.00 in proceeds from the ERISA accounts. The debtor was not able to testify with great precision as to the nonexempt assets that he did purchase or the use of all of the funds. On the other hand, the debt- or was able to testify in great detail about his contacts with counsel and with his insurance agent and their general discussions concerning the various purchases he made on the eve of bankruptcy. At worst the debtor’s testimony suggests that he was under some pressure to seek the shelter of this Court and could not account in any great detail for the funds dealt with on the eve of bankruptcy. The Court concludes that, again, the final factor of the Mehrer criteria really does not clearly or convincingly suggest an improper motive.
All things considered, however, the Court is satisfied that the objecting parties have, by clear and convincing evidence, shown that under the Mehrer criterion the debtor improperly intended to defraud his creditors by placing the ERISA funds in the life insurance policies.
Accordingly, the objection to the exemption of the cash values two U.S.F. & G. policies issued in May of 1985 to the debtor and to the exemption of cash value of the Southwestern Life Insurance policy issued in July of 1985 is sustained.
The foregoing constitutes findings of fact and conclusions of law as required by Fed.R.Civ.P. 52(a) and Fed.R.Bankr.P. 7052. A separate judgment will be entered giving effect to the determinations reached herein.
. This Court questions whether remand is proper here where the District Court finds the legal analysis inadequate to support this Court’s findings of fact. However, no appeal has been taken from the order of remand.
. The difficulty with the District Court ruling is that it seems to focus on some improper motive or dishonest design on the part of the debtor rather than on the recovery of improperly transferred assets which the wording of the statute suggests only the state legislature is in a position, within the limits of the state Constitution to restrict the availability of an exemption created by state statute and allow recovery of any transfer or conversion to insurance. Compare 11 U.S.C. § 548. . | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490901/ | BENCH DECISION
HELEN S. BALICE, Bankruptcy Judge.
The debtor, Paul J. Foster, has moved to enforce the automatic stay provisions of §362(a) of title 11, United States Code. The motion does not ask that any individual be held in contempt. I view the motion as asking for a declaratory judgment as to whether the automatic stay provisions of § 362(a)(1), (2) and (6) are applicable to a hearing held before Judge Poling of Justice of the Peace Court # 13 on February 2, the day following the filing of Foster’s Chapter 13 bankruptcy case.
That hearing was requested by counsel for Louise and Joseph L. Davis who filed a motion to hold Foster in contempt for failure to pay a judgment on a security deposit. The judgment in favor of the Davises entered December 12 in accordance with 25 Del.C. § 5511(f) is $660 plus court costs and interest representing a security deposit of $330 that Foster failed to return after evicting the Davises in July 1988. Foster neither appealed nor paid the judgment. His failure to pay within 20 days, absent an appeal, is considered a contempt of court as a matter of law under § 5511(f) punishable as a civil contempt by imposition of a fine not exceeding $100 or imprisonment not exceeding 170 days. If imprisoned, a person may obtain release by complying with the rule, the law or the order which has been disobeyed. 10 Del.C. § 9506.
The automatic stay provisions of § 362(a) are applicable to all “entities.” Entities defined in § 101(14) of title 11, United States Code includes person and governmental units.
Thus, § 362(a)(1) operates to prohibit persons and governmental units from continuing a judicial action or proceeding that was commenced against a debtor before a bankruptcy case was filed. Section 362(a)(2) prohibits persons and governmental units from enforcement against a debt- or or against property of an estate of a judgment obtained before the commencement of the bankruptcy case. Sections 362(b)(4) and (5) remove from this prohibition the continuation of actions or proceedings by a governmental unit to enforce its police or regulatory power and the enforcement of a judgment (other than a money judgment) obtained in an action or proceeding by a governmental unit to enforce its police or regulatory power.
The hearing scheduled for February 2 was not the continuation of an action by a governmental unit to enforce its police or regulatory power nor was there any judgment in favor of a governmental unit obtained in an action to enforce that governmental unit’s police or regulatory power.
*175The hearing scheduled for February 2 was a continuation of the action commenced by the Davises against Foster which resulted in a money judgment in favor of the Davises before Foster filed his Chapter 13 case. Therefore, any action taken subsequent to the bankruptcy filing falls squarely within the prohibition of § 362(a)(1) and (2).
Moreover, the contempt with which we are concerned in this case is an accomplished fact by operation of law and the purpose of scheduling a hearing is to impose the punishment for that contempt, not to find a contempt. The punishment provisions of 10 DelC. § 9506 which permits imprisonment for up to 170 days with the ability on the part of the individual to gain release upon compliance with the law can be utilized as a means of collecting a money judgment. That is not to say it would have been the case here but because that possibility exists, § 362(a)(6) prohibits the continuation of the Davis’ action against Foster.
The consequences of having proceeded in violation of the automatic stay provisions is that the action taken subsequent to the filing of Foster’s bankruptcy petition is void. Therefore, Foster is not in contempt for failing to appear on February 2 and the capias must be retired. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490902/ | BENCH DECISION
HELEN S. BALICK, Bankruptcy Judge.
We are here on the Trustee’s motion to amend an order entered February 9 approving two agreements in connection with the NYS & W’s continuing operation over D & H tracks.
On page 2 of the Memorandum of Understanding between the Trustee and NYS & W in the second paragraph appears the following language:
The Trustee and the proposed directed service operator have agreed to the following operating conditions which, we respectfully submit, should be incorpo*176rated by reference into a new § 11123 service order.
The terms and conditions of the agreements were approved by this court after full hearing and argument. The order stated “that such approval shall only become effective at such time as said terms and conditions are incorporated by the Interstate Commerce Commission, in its sole discretion and authority, into a service order or orders approving the continuation of service upon the D & H’s lines by NYS & W beyond February 13, 1989.” On February 13, the ICC entered an emergency order extending service by the NYS & W for 30 days.
The ICC following hearing on March 8 issued on March 15 a service order extending service order # 1506 through March 16, 1990 authorizing NYS & W to continue its operations as a substitute for D & H over all tracks over which the non-operating D & H has the right and obligation to operate. The ICC acknowledged that the parties had reached an agreement as to compensation. It declined the Trustee’s request to incorporate verbatim the terms and conditions of the agreements into the service order contending that absent a disagreement among the parties, the Commission’s authority is solely to recognize the existence of agreements. From such recognition it can be inferred that the ICC believes in the effectiveness of those agreements.
However, since the quoted portion of the February 9 order caused uncertainty among the parties as to the effectiveness of the agreements in the Chapter 11 case, the Trustee has moved to amend that order to delete the requirement of incorporation of the terms and conditions into the service order and to confirm effectiveness of the agreements. This court is not being asked to overturn the ICC decision nor to supply an order which the ICC has refused to give. This court and the ICC have statutory responsibilities in a railroad reorganization. When there are two bodies responsible for various aspects of a case, it is always difficult to draw a line and place those responsibilities on one side or the other. It is often unclear as to which body has the authority to act with respect to a specific issue and in some instances there may be interaction. The evidence presented on February 9 seeking approval of the two agreements suggested interaction of court and the ICC and that it was imperative to have an agreement as to compensation going into the ICC hearing scheduled for February 13. There were two objections to separate parts of those agreements by Guilford and RLEA. In approving the agreements, over those objections, the court noted that no part of either agreement could be separated from its other parts and based upon the evidence found that the interests of the public required approval and that the agreements reflected the Trustee’s best attempts and best alternatives for continued service.
The only issue now before the court is whether the effectiveness of the agreements should be confirmed in the absence of verbatim incorporation of the agreements in the ICC order. The agreements reflected only that the parties thought their terms should be incorporated into the ICC order. The agreements do not require incorporation nor is such incorporation a requirement of the law. The RLEA’s argument in February, as now, goes to its assertion that the Trustee with the permission of the court is abrogating the terms of the D & H collective bargaining agreements in violation of § 1167 of title 11 through, as RLEA then put it, the back door.
The agreements do not pass any operating authority to the NYS & W. The debtor gave notice of its impending cessation of service in June 1988. The operation of the railroad since that time has been by the NYS & W at the direction of the ICC under § 11125 and § 11123 of title 49, United States Code. At no time has the Trustee operated the railroad. His testimony at the February 9 hearing was to the effect that he could not undertake operation of the railroad at the expiration of the directed service order which was to expire on February 13.
*177There has been no transfer of operations by the Trustee to the NYS & W nor has he agreed to abrogating D & H’s collective bargaining agreements.
The ICC found an emergency situation on February 13, extended service under § 11123 and 30 days thereafter extended service through March 16, 1990. Section 11123(a)(3) controls this situation, that is, the former D & H employees are employees of NYS & W and NYS & W is required to hire as many of those employees as it deems possible in running that railroad.
For the reasons stated, the Trustee’s motion to amend the court’s order of February 9 to delete the requirement of incorporation of the agreements into the ICC order is granted and the agreements are effective in this Chapter 11. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490903/ | BENCH DECISION
HELEN S. BALICK, Bankruptcy Judge.
Gary C. VanLier has moved for the appointment of a trustee in Warwick Park, Inc. The evidence presented at hearing on May 11 failed to disclose any fraud or dishonesty on the part of Claudia Backus, president of Warwick Park. The court dismissed those allegations and directed counsel to present argument as to the other elements of 11 U.S.C. § 1104. Those elements as stated under § 1104(a) require the appointment of a trustee if the current management is incompetent or has grossly mismanaged the affairs of the debtor either before or after the filing of the bankruptcy case OR if the appointment is in the interest of creditors, any equity security holder and other interests of the estate.
Claudia Backus owns 75% of the stock of the corporation by virtue of an award from a Maryland Domestic Relations Court. Gary VanLier owns 25% of the stock. Michael Backus, Claudia Backus’ former husband, and Gary VanLier incorporated Warwick Park in 1987. Its business was and is the development and sale of raw land for permanent housing construction. Between 1987 and now, the relationships between *180the interested parties disintegrated. Gary VanLier and Michael Backus, former president and individual primarily responsible for the operations of Warwick Park, had a gradual falling out and VanLier’s activity in the day-to-day operations of Warwick Park diminished over time to that of an interested stockholder.
Claudia Backus became president and responsible for the day-to-day operation of the corporation after Michael Backus absconded with approximately one-half million dollars worth of corporation assets. Mrs. Backus’ previous activity with the corporation was limited to that of secretary, receptionist and aiding Mr. Backus in selling lots.
Although Warwick Park is located in Sussex County, its sales office is located in Mrs. Backus’ home in Salisbury, Maryland, approximately one hour from the site. The property is not listed with a broker. There is no one available at the site to conduct promotional activities nor is there the ability to conduct sales promotions as when Mr. Backus was on the scene. Among the missing assets of the corporation is a 50’ boat that was used for promotional activities and Michael Backus was an experienced salesman. Despite Mrs. Backus’ extensive attempts to locate Mr. Backus’ whereabouts, she failed to file any criminal charges with state or federal authorities.
During the past two years, only five lots have been sold, four in 1987 and one in 1988. Except for the payment of $2,000 to obtain a release of mortgage on a sale of a lot, no payments have been made on the first mortgage. A default judgment was entered on the boat loan. No arrangements have been made with the first mortgage holder to arrange for a release figure upon sale of lots. Despite a substantial land inventory, its value is being severely eroded by interest charges. The development is suffering from delayed maintenance despite the corporation’s receipt of boat slip rental fees and maintenance fees from the homeowners in the Park. There is no explanation as to where these funds, the cash from the sale of the lots and proceeds of a $12,000 loan, went other than to pay Mrs. Backus’ salary of $15,000 per year and other expenses of the corporation. Although Mrs. Backus has a license to sell real estate in Maryland, she lacks the understanding and experience to operate the business of Warwick Park. Her failure to seek outside assistance reflects incompetence and mismanagement.
Moreover, even if Mr. VanLier failed to establish a required element under § 1104(a)(1), the court would be required to direct the appointment of a trustee under subsection (a)(2) as it would be in the best interests of not only the secured creditors but the equity security holders, Mrs. Backus and Mr. VanLier, to speedily undertake the sell-out of the Park.
An order directing the appointment of a trustee will be entered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490904/ | OPINION
DAVID A. SCHOLL, Bankruptcy-Judge.
A. INTRODUCTION AND PROCEDURAL HISTORY
This is an adversarial proceeding in which the Debtor, BUILDERS ALLIANCE, INC., a general contractor operating as a Chapter 11 debtor-in-possession, seeks to collect an alleged account receivable from the Defendant, C. & J. CLARK RETAIL, INC., a shoe retailer on whose behalf it contracted to renovate a shopping-center store site in Moorestown, New Jersey. Although the record is somewhat scanty, the facts appear in large measure indistinguishable from those presented to us in another matter before us about a year ago, In re Temp-Way Corp., 82 B.R. 747 (Bankr.E.D.Pa.1988). Therefore, we come to the same result that we reached in the Temp-Way matter. We decline to require the Defendant to pay the Debtor for its services when the Debtor, in violation of the terms of its contract with the Defendant, has failed to pay its subcontractors. However, we condition our decision on obliging the Defendant to in fact pay these subcontractors.
The Chapter 11 case underlying this proceeding was filed by the Debtor on January 24, 1989. The instant adversary matter was one of two proceedings commenced by the Debtor against this same Defendant on February 28, 1989. The other proceeding (Adversary No. 89-0151S) was brought in connection with a similar fact-situation concerning a shopping-center site in Smitha-ven, New York. On April 3, 1989, the Defendant filed Answers and Counterclaims to the Debtor’s Complaints in both actions, contending that it was entitled to setoffs because the Debtor had failed to pay its subcontractors, and that the liability to do so would consequently fall upon the Defendant itself. It also filed a motion seeking relief from the automatic stay for permission to assert such setoffs in both of these proceedings. On April 19, 1989, this motion and both proceedings came before us for trial.
Adversary No. 89-0151S was thereupon settled by a Stipulation in which the Debtor withdrew its claims and the Defendant agreed to set aside and administer a fund to be paid to the Debtor’s subcontractors. The reason that this proceeding and not the instant proceeding was resolved was the alleged existence of a New York law, applicable to the Smithaven project, providing subcontractors with a broad right to file mechanics’ liens against an owner to collect any sum due to them. See, e.g., In re Tubular Products, Inc., 69 B.R. 582, 585 (Bankr.E.D.Pa.1987). It was apparently correctly alleged that New Jersey has no comparable law. See, e.g., Baldyga Construction Co. v. Hurff, 174 N.J.Super. 616, 617-18, 417 A.2d 110, 111 (1980).
At trial, the parties recited several Stipulations of Fact and then they each called one witness. George Pafundi, the President of the Debtor, on its behalf; and Cynthia Westphal Salvo, the Director of Store Design for the Defendant, on behalf of the Defendant. The Defendant, at trial, submitted a Memorandum of Law addressing both Adversary No. 89-0151S and this proceeding. We allowed the Debtor until May 1, 1989, and the Defendant, after a one-day extension, until May 9, 1989, to submit further briefing. Since this is an adversary proceeding, we are obliged to submit our decision in the form of Findings of Fact and Conclusions of Law pursuant to Bankruptcy Rule (hereinafter “B.Rule”) 7052 and Federal Rule of Civil Procedure 52(a). Little extended discussion of legal issues is necessary because of our adoption of our previous reasoning in Temp-Way, supra.
B. FINDINGS OF FACT
1. On November 29, 1988, the Debtor entered into a contract captioned Abbreviated Form of Agreement Between Owner and Contractor (hereinafter “the Contract”) to perform certain renovations at a total cost of $62,507.00 in a Hanover Shoes store with the Defendant, which owns over 500 *205shoe stores under various names throughout the country and planned to open in the Moorestown Mall in Moorestown, New Jersey.
2. Payments on the Contract were to be made according to the following schedule:
$18,752.10 upon signing of the contract $18,752.10 upon 50% completion of the work
$18,752.10 upon owners possession of store
$ 6,250.70 upon final completion and owner approval
3. The first two payments were made in accordance with this schedule. The Debtor seeks, in this proceeding, the last two payments totalling $25,002.80, which the Defendant has admittedly not paid to it.
4. The Contract includes, at paragraph 15, the following provisions:
15.2 Payments may be withheld on account of ... (3) failure of the Contractor to make payments properly to Subcontractors or for labor, materials or equipment, ...
15.4 Final payment shall not become due until the Contractor has delivered to the Owner a complete release of all liens arising out of this Contract or receipts in full covering all labor, materials and equipment for which a lien could be filed, or a bond satisfactory to the Owner to indemnify the Owner against such lien. If such lien remains unsatisfied after payments are made, the Contractor shall refund to the Owner all money that the Owner may be compelled to pay in discharging such lien, including all costs and reasonable attorneys’ fees_
5. The Debtor has admittedly not paid the following subcontractors on this job the following respective sums:
Larsaro (sp.?) Tile $ 1,790.00 Ellis Plumbing 488.00
Lou’s Electric 2,881.00
Rabinowitz Glass Co. 5,000.00
Engelke & Co. 19,447.50
TOTAL $29,606.50
Other small sums are apparently owed, because the Debtor admits that the total amount which it owes to subcontractors is $30,006.50.
6. The Debtor’s subcontracts all included the following provision:
THE CONTRACTOR SHALL MAKE THE LAST PAYMENT TO SUBCONTRACTOR AFTER ALL MATERIALS AND LABOR INSTALLED BY SAID SUBCONTRACTOR HAVE BEEN COMPLETED, APPROVED BY THE SAID ARCHITECT AND SATISFACTORY EVIDENCE FURNISHED TO CONTRACTOR BY SUBCONTRACTOR THAT ALL LABOR AND MATERIAL ACCOUNTS FOR USE ON THIS PARTICULAR WORK HAVE BEEN PAID IN FULL, AND FOR WHICH PAYMENT HAS BEEN MADE BY SAID “OWNER” TO SAID CONTRACTOR.
7. The Defendant accepted the store on or about January 81, 1989. The work was about ninety-five (95%) percent completed as of January 24, 1989, when the Debtor filed bankruptcy.
8. One of the subcontractors, Lou’s Electric, temporarily cut off the electric system in the store shortly after the Defendant took possession because the Debtor had remitted a payment of $2,000 to it by a check which had been returned to it for insufficient funds.
9. On March 27, 1989, Eugene A. Groves, the General Manager of the Moorestown Mall, wrote to the Defendant, advising that he had paid certain subcontractors’ invoices attached thereto, which attachments were not produced at trial.
10. Mr. Pafundi claimed that he had “properly” paid all subcontractors because of the effect of the term in their contracts quoted at Finding of Fact 6, page 205 supra, requiring that the subcontractors be paid only upon payment by the owner (the “pay when paid” clause). With respect to the sums not paid to the subcontractors, he contended that payments were not due because payments had not yet been made to the Debtor by the “owner,” i.e., the Defendant. He therefore contended that the Debtor had not violated ¶ 15.2(3) of the Contract, quoted at Finding of Fact 4, page 205 supra.
11. Mr. Pafundi further testified that all of the subcontractors had promised not *206to file mechanics’ liens in connection with their services on the project and had not, to his knowledge, done so. Therefore, he contended that the Debtor had not violated ¶ 15.4 of the contract, also quoted at Finding of Fact 4, page 205 supra.
12. The Debtor provided no assurance that the subcontractors would be paid from any remittances made to it by the Defendant. In fact, it suggested, in argument and its Brief, that it was precluded by certain unspecified provisions of the Bankruptcy Code from making any distribution to the subcontractors and, for that reason, was unable to comply with ¶ 15.2(3) of the Contract.
C. CONCLUSIONS OF LAW
1. This court has jurisdiction to hear and determine this matter.
This proceeding is properly classifiable as a “garden-variety accounts receivable proceeding” brought by a debtor. We have consistently held that such proceedings are core in nature. See, e.g., In re Jackson, 90 B.R. 126, 128-31 (Bankr.E.D.Pa.1988); and In re Windsor Communications Group, Inc., 67 B.R. 692, 694-96, 700 (Bankr.E.D.Pa.1986). Furthermore, in adherence with B.Rule 7008(a), the Debtor pleaded that the proceeding was core pursuant to 28 U.S.C. §§ 157(b)(2)(A), (b)(2)(0), and the Defendant admitted same. We believe that these pleadings constitute the requisite “express consent,” see B.Rule 7012(b), allowing us, pursuant' to 28 U.S.C. § 157(c)(2), to determine this matter, even assuming arguendo that it is noncore. We shall therefore determine it.
2. The Debtor’s violation of the Contract clauses allowing the Defendant to withhold payment because the Debtor has failed to make payments to subcontractors and providing that final payment is not due until releases of liens or receipts for payment to subcontractors in full are provided establish viable defenses for the Defendant to this proceeding.
The most effective defense articulated by the Defendant is the straightforward assertion that the Debtor has failed to satisfy the following two conditions precedent before rendering it liable for payment to the Debtor: (1) It has failed to make payments properly to subcontractors, as required by ¶ 15.2(3) of the Contract; and (2) It has delivered neither a release of all liens by the subcontractors to the Defendant nor receipts in full covering all labor, materials, and equipment supplied by the subcontractors, as required by ¶ 15.4 of the Contract.
In our decision in Temp-Way, supra, we held that clauses almost identical to those noted above were not ambiguous, were material, were not obviated by any subjective misunderstanding of their meaning on the part of the debtor-subcontractor, were not waived by a prior course of conduct of the general contractor-defendant of paying the debtor before the debtor paid its subcontractors in turn, and that such clauses were therefore totally enforceable against the debtor. None of the arguments raised by the debtor there opposing literal enforcement of the contract are even advanced here.
We find little difference in the wording of the Contract here and that in Temp-Way. If anything, the Contract here is clearer, because the requirement of full performance of payments to subcontractors is not beclouded by the argument of the debtor in Temp-Way that the contract there could read to allow the contractor to alternatively produce merely a schedule of outstanding accounts and not to necessarily require the payments to be made themselves.
The Debtor, per the testimony of Mr. Pafundi, attempted to make much of the inclusion of the word “properly” in 1115.2(3). Mr. Pafundi contended that payment to the subcontractors had been “proper” because the subcontracts did not require that payment be made to the subcontractors until payment was made to it by the owner. We are unconvinced by this contention for several reasons. First, the liability of the Defendant to the Debtor is *207established solely by the terms of the Contract, not by the terms of any subcontracts to which it is not a party. All that is relevant, for purposes of determining whether the conditions of the Contract have been met, are the terms of the Contract itself. Furthermore, in Seal Tite Corp. v. Ehret, Inc., 589 F.Supp. 701, 703-05 (D.N.J.1984), the court held that a very similar “pay when paid” clause in a subcontract was unenforceable under New Jersey Law.
Secondly, we note that, at present, the Debtor owes over $5,000 more to the subcontractors than it is owed by the Defendant. It is therefore apparent that payments already made to the Debtor by the Defendant, some of which was undoubtedly due to subcontractors for past performances of services, have been appropriated by the Debtor for expenditures other than payment in turn to the said subcontractors. Assuming arguendo that the Debtor’s responsibility to pay its subcontractors is related to whether it has been paid by the owner, we refuse to believe that it is “proper” to conclude that the owner is obliged to continue to pay the Debtor again and again indefinitely, even when the Debtor repeatedly displays no inclination to pay its subcontractors in turn.
Finally, we are not impressed with the Debtor’s admission that it will not pay the subcontractors even if it is paid by the Defendant because the Bankruptcy Code prohibits it from doing so. We are not sure that such payments would not simply be made in the ordinary course of the Debt- or’s conduct of its business, which it is allowed to continue to effect without court order. See 11 U.S.C. § 363(c)(1). Furthermore, if the Debtor had doubts about the propriety of paying the subcontractors, it could seek to obtain permission to make such payments, as the subcontractors may be entitled to same on equitable grounds. See In re Gebko Investment Corp., 641 F.2d 143, 146-49 (3d Cir.1981); Temp-Way, supra, 82 B.R. at 753, and In re Temp-Way Corp., 80 B.R. 699, 704-05 (Bankr.E.D.Pa.1987).
There is, therefore, little doubt in our mind that the Debtor has failed to “properly” pay its subcontractors. One subcontractor, Lou’s Electric, apparently became so incensed with the Debtor’s failure to “properly” pay it that it sabotaged the store’s electrical system, to the obvious detriment of the Defendant.
We also note that neither of the disjunctive conditions of 1115.4 were satisfied. No release of liens was delivered, and Mr. Pa-fundi’s glib “assurances” that no liens will be imposed is no substitute. His breach of his promise to pay them may cause subcontractors to conclude that they are no longer bound to their promises not to impose liens for their services. The alternative performance permitted in II 15.4 — providing receipts covering all payments due to subcontractors — was also not accomplished. Such receipts could not be produced because the payments were not made.
The Debtor has therefore failed to satisfy contract provisions which we construe as material conditions precedent to allowance of a recovery from the Defendant. See, e.g., American Handkerchief Corp. v. Frannat Realty Corp., 17 N.J. 12, 19-20, 109 A.2d 793, 797 (1954); Duff v. Trenton Beverage Co., 4 N.J. 595, 604-05, 73 A.2d 578, 583 (1950); and Moorestown Management, Inc. v. Moorestown Bookshop, Inc., 104 N.J.Super. 250, 262-63, 249 A.2d 623, 630 (1969). It therefore cannot prevail in this action.
3. The Defendant’s alternative defenses, grounded on a right to setoff, and the issues raised in the Debt- or’s Brief are not significant to the resolution of this matter.
Our foregoing resolution of this controversy renders any discussion of the Defendant’s alternative defenses unnecessary. We therefore shall discuss them and several other issues raised by the Debtor in its Brief in summary fashion.
The principal defense argued by the Defendant in its initial Memorandum of Law submitted at trial was that it is entitled to set off its potential liability to the subcontractors against the balance owed by it to *208the Debtor. In making this argument, it relied heavily upon In re Fulghum Construction Co., 23 B.R. 147, 151-53 (Bankr. M.D.Tenn.1982). The proceeding in Fulg-hum was in some respects similar to the instant proceeding, as it was an accounts receivable proceeding brought by a trustee of a contractor against an owner whose defense was based upon its having made payment to the debtor’s subcontractors. However, Fulghum appears distinguishable from the case at bar on several bases. First, several of the subcontractors there actually did place liens against the owner's property. Secondly, the owner had already directly paid at least some of the subcontractors. Finally, the parties’ contract specifically provided the owner with authority to pay .subcontractors who had obtained liens against the owner, as several had proceeded to do. In the absence of such compelling facts, the restrictively-applied doctrine of setoff is of doubtful pertinence. See e.g., In re New York City Shoes, Inc., 78 B.R. 426, 428-32 (Bankr.E.D.Pa.1987); and In re Lessig Construction, Inc., 67 B.R. 436, 440-43 (Bankr.E.D.Pa.1986). Compare In re J.A. Clark Mechanical, Inc., 80 B.R. 430, 433 (Bankr.N.D.Ohio 1987) (owner may not assert a right of setoff against a debtor-contractor based upon a mere assertion of potential liability to subcontractors).1
The substance of the Debtor’s Brief is a rebuttal of several “straw issues.” The mid-portion attacks the aforesaid setoff theory of the Defendant. The final portion addresses the fact that, under New Jersey law, the subcontractors have neither the right to impose a lien nor to otherwise claim any rights to payment directly against the owner without a contractual basis for doing so. The initial portion rebuts any notion that the Defendant could assert a theory that it is holding monies in trust for the subcontractors. In this portion, it is incorrectly asserted that the Temp-Way decision was based on a trust theory, which the Debtor contends we justified there by the language of that contract which permitted the general contractor to withhold payments from the subcontractor if the subcontractor failed to perform its obligations to its materialmen. As we stated at pages 206-07 supra, we consider the language of the Contract here to be, if anything, less ambiguous than the contract at issue in Temp-Way in requiring that the Debtor make payments to the subcontractors as a condition precedent to payment.
Unfortunately, the Debtor presents no effective arguments to rebut the straightforward contract analysis upon which we hold that the case should be properly decided at pages 206-07 supra. Therefore, the Debtor’s Brief does little to convince us that a judgment in favor of the Defendant can be avoided. However, in light of our reluctance to rule in the Defendant’s favor on its setoff claim and our ruling in its favor on another independent ground, the Defendant’s motion for relief from the automatic stay appears moot and therefore will be denied.
4. Our ruling in favor of the Defendant assumes that the Defendant will hold the Debtor harmless from any liability to the subcontractors up to the amount of $25,002.80, and we will therefore place an obligation to remit this amount to the subcontractors upon the Defendant.
A ruling in favor of the Defendant presumes that the sums otherwise payable to the Debtor will find their way into the pockets of the subcontractors. A somewhat shadowy issue, not addressed by either party in their briefing, is the significance of the possible direct payments to the subcontractors by the owner of the Moores-town Mall. The Defendant shied away from this issue because it apparently feared that, if payment by the Mall were *209established, the subcontractors would have been paid, and the Defendant’s ability to assert 11 s 15.2(3) and 15.4 of the Contract as defenses would have been impeded. The Defendant suggested, but failed to prove, that it would be obliged to reimburse the Mall for any such payments and, if rendered liable in this suit, would be subject to double liability. The Debtor shied away from this issue also, possibly because it feared that it would have been grossly inequitable for it to emphasize that it would then become the unintended beneficiary of the Mall’s “gratuitous” payment to the subcontractors. Clearly, it should not receive a windfall of payment in partial consideration of its responsibility to pay obligations which have already been satisfied by another party.
In Temp-Way, we directed the defendant^ to pay the sum of $42,820.59 in issue directly to the debtor’s materialmen, thereby preventing a potential windfall to the defendant from avoiding liability to the debtor and not being obligated to pay the material-men, which obligation was the basis of its successful defense. In Tubular Products, supra, 69 B.R. at 586, we similarly obligated the general contractor-defendant to hold the subcontractor-debtor-plaintiff harmless from an obligation to a sub-subcontractor which we deducted from the amount due from the defendant to the debtor. Also, in the Stipulation settling Adversary No. 89-0151S, the Defendant agreed to set aside and administer a fund used to satisfy the claims of subcontractors as a condition for the dismissal of that proceeding by the Debtor.
In similar fashion, our Order here will contain a directive that the Defendant hold the Debtor harmless from claims of subcontractors equal to the amount which the Defendant admittedly has not paid to the Debtor under the Contract, i.e., $25,002.80.
D. CONCLUSION
An Order consistent with the foregoing will be entered by us.
ORDER
AND NOW, this 23rd day of May, 1989, after trial of the above proceeding and the motion of the Defendant therein for relief from the automatic stay in order to assert a right of setoff in this proceeding on April 19, 1989, and upon consideration of the post-trial submissions of the parties, it is ORDERED AND DECREED as follows:
1. Judgment is entered in the above-captioned adversary proceeding in favor of the Defendant, C. & J. CLARK RETAIL, INC., and against the Plaintiff-Debtor, BUILDERS ALLIANCE, INC.
2. As a condition of the foregoing, the Defendant shall hold the Debtor harmless from liabilities to its subcontractors on the Contract of November 29, 1988, up to the amount of $25,002.80.
3. The Defendant’s motion for relief from the automatic stay in the Debtor’s main bankruptcy case is DISMISSED as moot.
. There are other reasons why setoff may be inapplicable here. Mutuality of the debts is questionable. See In re Balducci Oil Co., 33 B.R. 847, 851 (Bankr.D.Colo.1983); In re Virginia Block Co., 16 B.R. 560, 562 (Bankr.W.D.Va.1981); and 4 COLLIER ON BANKRUPTCY, ¶ 553.04[1], [2], at 553-17 to 553-21 (15th ed. 1988). Also, since the Moorestown contract was completed post-petition, it may not meet the "prepetition debt requirement" of § 553(a). Compare Lessig, supra, 67 B.R. at 442. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490905/ | 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 claim of nondischargeability asserted by Maureen Howard (Plaintiff) against Lawrence D. Coan and Margaret Coan (Debtors). The Complaint seeks a determination by this Court that a debt, represented by a final judgment entered in favor of the Plaintiff and against the Debtors/Defendants in state court prior to the commencement of this case, shall be declared to be nondis-chargeable. The Complaint is based on § 523(a)(6) and alleges that the Debtors willfully and maliciously injured the Plaintiff’s person or property. The facts as established at the final evidentiary hearing which are relevant and germane to the claim asserted by the Plaintiff are as follows:
The Plaintiff is the sister of Lawrence D. Coan, one of the Debtors. At the time relevant to this controversy, they both lived in New Windsor, New York and owned adjoining parcels of property. The Plaintiff moved into her property in 1966 and lived there, in the beginning in apparent harmony with her brother and his wife, until 1974. The Plaintiffs home is located in back of the home of the Debtors so her only access to the main road was through a perpetual right of way which first is passing along side the backyard of the Debtors’ house and then turning at a right angle running alongside the Debtors’ property leading to the main road. Both parcels were originally owned by their parents and when the parents passed away, the properties were divided and a ten (10) foot right of way was established between the two parcels.
Sometime during 1974, the Debtors placed some cement cinder blocks at the point when the right of way turns to the main road to keep the Plaintiff from driving across part of the Debtors’ property (Plaintiff’s Exh. No. 5). The Debtors contend that the Plaintiff was damaging their septic tank drain field and had repeatedly asked the Plaintiff not to drive across that portion of their property. The Plaintiff contends that she needed to drive across a corner of the Debtors’ property in order to have access to her carport, and that she did not, in fact, drive across the area where the septic tank was located.
Following the placement of the cinder blocks, the Debtors had the property surveyed and erected a fence along what they believed to be their property line (Plaintiff’s Exh. No. 3). The Plaintiff claims that the fence was erected well into her property and seriously limited her access to her carport. Finally, the Debtors put posts along the ten-foot right of way which was co-owned not only by the Plaintiff and the Debtors, but with other beneficiaries of the estate as well (Plaintiff’s Exhibit No. 9). The Debtors claim that they alone cared for the ten-foot right of way by planting flowers and plants, and were entitled to keep the Plaintiff from utilizing the easement. Eventually, the Plaintiff reverted to self-help and removed the fence. Subsequently, the Debtors filed a complaint against the Plaintiff for criminal mischief for removing the fence and had her arrested (Plaintiff’s Exh. No. 6). However, the Debtors voluntarily withdrew the complaint prior to trial (Plaintiff’s Exh. No. 7). Basically, a family feud ensued whereupon the Debtors called the police somewhere be-, tween six and twenty-five times to lodge complaints against the Plaintiff, and the Plaintiff retaliated by calling the police on the Debtors. As a result of this ongoing feud, the Plaintiff sued the Debtors and sought money damages based on harassment, mental distress resulting from trespass and false arrest. The suit culminated in the entry of a final judgment in the Supreme Court for the State of New York, Orange County on July 8, 1985 in the amount of $26,000 (Plaintiff’s Exh. No. 1). *574Damages were awarded as follows: (1) $1,000 for trespass to Plaintiff’s property; (2) $15,000 for mental distress resulting from trespass; and, (3) $10,000 for false arrest. To date, the debt has been reduced by $10,000.
Based on the following, it is the contention of the Plaintiff that the state court judgment is conclusive and bars relitigation of the claim represented by the New York judgment. In the alternative it is the contention of the Plaintiff that the acts of the Debtors were willful and malicious, resulting in injury, thus nondischargeable based on § 523(a)(6) of the Bankruptcy Code. In opposition, the Debtors cite Brown v. Felson, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979) and argue that this Court should look behind the state court judgment to determine the true character of the liability and make an independent determination of the dischargeability, vel non, of the debt represented by the state court judgment.
There is no doubt that the determination of dischargeability represented by the judgment is exclusively within the competence of the Bankruptcy Court and neither the doctrine of res judicata nor the doctrine of collateral estoppel prevents generally this bankruptcy court from determining the dischargeability of the debt. Brown v. Felson, supra. Although the state court judgment is recognized and accepted as a determination of the liability of the Debtors/Defendants, it does not operate as a binding and conclusive determination of the dischargeability, vel non, of the liability represented by the judgment.
The doctrine of collateral estoppel requires (1) that the precise issues in the latter proceeding have been raised in the prior proceeding; (2) that the issues actually were litigated in the prior proceeding; and, (3) that the determination of those issues were necessary to the decision of that court. In addition, the state court proceeding must determine the issues using standards identical to those applicable to dischargeability proceedings which is clear and convincing evidence rather than the mere preponderance which is generally standard in civil litigations. Spilman, 656 F.2d 224 (6th Cir.1981). If any of these requirements are not satisfied, then collateral estoppel does not bar litigation of the issues bearing on the question of dis-chargeability in the bankruptcy court.
It is well established that before the doctrine of collateral estoppel is applied, the Bankruptcy court must look at the entire record of the prior proceeding. A mere ultimate finding, if there is one, in the judgment is insufficient. Spilman, 656 F.2d 224 (6th Cir.1981).
It appears from the judgment that the money damages awarded to the Plaintiff were based on the finding of trespass, infliction of mental distress resulting from trespass and false arrest. However, this Court does not have the benefit of the trial transcript or, more importantly, the benefit of the jury instructions given by the court especially as it relates to the burden of proof. Moreover, it is clear that the suit of the Plaintiff was not litigated for the purpose of determining the dischargeability, vel non, of the Debtors’ liability and the issue of willful and malicious conduct by the Debtors was not actually litigated. Based on the foregoing, it is clear that the doctrine of collateral estoppel is no bar which could prevent this court to determine the issue of dischargeability, vel non, of the liability of the debt represented by the final judgment entered in the New York litigation. Thus, it remains for this Court to determine whether or not the facts in this case warrant the finding that the debt represented by the judgment is excepted from the general protection of the bankruptcy discharge by virtue of § 523(a)(6) of the Bankruptcy Code. This exception to the discharge provides as follows:
§ 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; ....
In order for a liability to be excepted from discharge under 11 U.S.C. *575§ 523(a)(6), the wrongful act must be both willful and malicious. The term “willful” means “deliberate” or “intentional”. H.R. Report No. 95-595, 95th Cong. 1st Sess. 363 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5787, 6319. See also, In re Giantvalley, 14 B.R. 457, 458 (D.Nev.1981). The act is malicious if the injury arises from a willful act done wrongfully and without just cause or excuse. See, McElhanon v. Greer (In re Greer), 21 B.R. 763 (D.Ariz.1982). While it is true that hatred, spite or ill will is not required to support a finding of nondischargeability under § 523(a)(6), In the Matter of Chambers, 23 B.R. 206 (M.D.Wisc.1982), it is equally true that the standard established in the case of Tinker v. Colwell, 193 U.S. 473 (1902) [24 S.Ct. 505, 48 L.Ed. 754, 11 Am.Bankr.Rep. 568] is no longer applicable thus reckless disregard of rights of others by itself would not be sufficient to sustain a claim of nondischargeability under § 523(a)(6).
It is a generally accepted proposition that exceptions to the discharge set forth in § 523 of the Bankruptcy Code must be strictly construed because the long established philosophy of all bankruptcy legislation is that the discharge provisions should be construed in favor of the debtor in order to achieve the congressional intent, which was to give financially distressed debtors a fresh start in life. Perez v. Campbell, 402 U.S. 637, 91 S.Ct. 1704, 29 L.Ed.2d 233 (1971); Lines v. Frederick, 400 U.S. 18, 19, 91 S.Ct. 113, 114, 27 L.Ed.2d 124 (1970). Thus, it is clear that the burden is on the creditor to prove any exception to the discharge. In re Danns v. Household Finance Corp., 558 F.2d 114, 116 (2d Cir. 1977); In re Hunter, 780 F.2d 1577 (11th Cir.1986). It is equally clear that the standard of proof imposed on the creditor is that of a clear and convincing evidence. In re Neumann, 13 B.R. 128, 130 (Bankr.E.D.Wis.1981); see also In re Magnusson, 14 B.R. 662, 667 (Bankr.N.D.N.Y.1981); In re Guilmette, 12 B.R. 799, 802 (Bankr.D.R.I.1981); In re Trewyn, 12 B.R. 543, 545-46 (Bankr.W.D.Wis.1981).
In light of the foregoing, the conclusion is inescapable that the matter under consideration is nothing more than a family feud between two siblings. While it is true that it takes no great imagination to conclude that there is no love lost between them, there is nothing in this record which would warrant the conclusion which would rise to the level of conduct condemned by § 523(a)(6). While there is conflict in the testimony as to whether or not a fence was placed on the Plaintiffs property or on the Debtors’ property, it is clear that this was simply nothing more than a legitimate property right dispute. This Court finds that the placing of the fence, poles and cinder blocks on or along the property of the Plaintiff might have been warranted if one accepts the Debtors’ version. Although the Plaintiff was, in fact, arrested for tearing down the fence, there is no evidence that the Debtors were not, in fact, justified in calling the police. It should be noted that the complaint filed for her arrest was voluntarily dismissed by the Debtors and that both parties admitted to calling the police on several different occasions against each other.
This Court is satisfied that under the facts of this case, the Plaintiff has failed to sustain her burden of proof and establish with clear and convincing evidence indispensable operating elements of a claim of nondischargeability under § 523(a)(6) of the Bankruptcy Code.
Based on the foregoing, this Court is satisfied that the debt allegedly due and owing by the Debtors to the Plaintiff shall be declared to be dischargeable and that the Complaint of the Plaintiff 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/8490906/ | FINDINGS OF FACT, CONCLUSIONS OF LAW
MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 case, and the matter under consideration is the dischargeability vel non of a debt allegedly owed by Ronald C. Hicks, Sr. (Debtor), to Bankers Trust Company (Plaintiff), the Plaintiff who instituted this adversary proceeding. The claim of nondischargeability is asserted in what ostensibly appears to be an amended two-count Complaint, but which is, in fact, a one-count Complaint based upon § 523(a)(6) of the Bankruptcy Code. The claim of nondischargeability is based on the allegation that the Debtor converted monies allegedly the property of the Plaintiff. The prayer for relief in Count II seeks a determination by this Court of the amount of the judgment to be entered, if one is entered in favor of the Plaintiff. The facts as developed at the final evidentiary hearing and which are relevant to the remaining issue are as follows:
At the time relevant to the matter under consideration, the Debtor applied for and obtained a loan in the amount of $20,000.00 from Barnett Bank of Southwest Florida (Barnett). In connection with this transaction, the Debtor executed a promissory note in favor of Barnett which was secured by 100 shares of stock which the Debtor owned in General Foods Corporation (Plaintiffs Exh. No. 8). In October 1985, as part of a merger agreement between General Foods Corporation and Phillip Morris Company, a tender offer was made by the Phillip Morris Company which contemplated the purchasing of the shares in General Foods Corporation for $120.00 per share. Barnett, who had possession of the shares in General Food Corporation, forwarded the shares to the Plaintiff who, as the financial conduit for the merger, ex*577changed the shares of stock, for $120.00 per share.
It appears that on October 29, 1985, Plaintiff issued a check in the amount of $12,000.00 for the value of the stock. The check was made payable to the Debtor (Plaintiffs Exh. No. 1). It is undisputed that the Debtor deposited this check in his checking account and subsequently wrote checks from this account to pay for sundry purchases and various obligations. On January 24, 1986, Barnett contacted Plaintiff and informed it that they had not received the $12,000.00 and demanded that the Plaintiff reissue another check for the same amount.
On February 20, 1986, the Plaintiff issued a check in the amount of $12,000.00 payable to Barnett and that payment was credited by Barnett to the Debtor’s commercial loan account (Plaintiffs Exh. No. 2).
It is the contention of the Plaintiff that the Debtor knew that the check payable to him was issued in error, and that he had no right to retain these funds. The Plaintiff urges that the Debtor’s conduct constituted conversion and, therefore, the alleged obligation should be declared nondischargeable pursuant to § 523(a)(6) of the Bankruptcy Code.
As intimated above, the Debtor admits that he did, in fact, apply the funds received from the Plaintiff for his own personal use, and that this use did riot include the payment on the outstanding debt he owed to Barnett on account of the previously mentioned loan. The Debtor also denies that at the time he received the check from the Plaintiff, he did not know he remained indebted to Barnett, nor was he aware that the check he received was made payable to him in error. In addition, the Debtor alleges that the Plaintiff was a third-party volunteer in making the second check payable to Barnett and, therefore, the Debtor is not liable for any monies the Plaintiff paid to Barnett.
§ 523(a)(6) of the Bankruptcy Code excepts from discharge any debt ...
(6) for willful and malicious injury by the debtor to another entity or to the property of another entity.
The drafters of this section of the Code contemplated conversion as an act which would except a debt arising from such conversion from a debtor’s general discharge. Conversion is generally defined as a wrongfully assumed “dominion over personal property by one person to the exclusion of possession by the owner and in repudiation of the owner’s rights.” In re Pommerer, 10 B.R. 935 (Bkrtcy.D.Minn. 1981) A debt is nondischargeable under § 523(a)(6) only if the conversion was both “willful”, “malicious” and not just because the conversion was intentional or merely technical. In re Kimzey, 761 F.2d 421 (7th Cir.1985). A willful and malicious injury does not follow as, of course, from every act of conversion without reference to the circumstances. There may be a conversion which is innocent or technical, an unauthorized assumption of dominion without willfulness or malice. In these cases, what is done is a tort, but not necessarily a willful and malicious one. Davis v. Aetna Acceptance Co., 293 U.S. 328, 55 S.Ct. 151, 79 L.Ed. 393 (1934). To prevail under this section, the Plaintiff must show by clear and convincing evidence that the conversion was committed willfully and maliciously. In re DeRosa, 20 B.R. 307 (Bkrtcy.S.D.N.Y.1982); In re Dean, 9 B.R. 321 (Bkrtcy.M.D.Fla.1981).
Section 17(a)(2) of the Bankruptcy Act of 1898 excepted from discharge debts “for willful and malicious injuries to persons or property of another.” The leading case interpreting the standard to be applied in that exception was Tinker v. Colwell, 193 U.S. 473, 24 S.Ct. 505, 48 L.Ed. 754 (1904) under § 523(a)(6) and that specific malice was not required. United Bank of Southgate v. Nelson, 35 B.R. 766 (Bkrtcy.N.D.Ill. W.D.1983)
Under § 523(a)(6), successor to Section 17(a)(2) of the Bankruptcy Code, the accompanying legislative history indicates that Tinker to some extent has been overruled.
Paragraph (5) provides that debts for willful and malicious injury by the debtor *578to another person or to the property of another person. Under this paragraph, “willful” means deliberate or intentional. To the extent that Tinker v. Colwell, 193 U.S. 473 [24 S.Ct. 505, 48 L.Ed. 754] (1902) [1904], held that a looser standard is intended, and to the extent that other cases have relied on Tinker to apply a “reckless disregard” standard, they are overruled, [emphasis added]
H.R.Rep. No. 595, 95th Cong., 1st Sess. 365 (1977), reprinted in 1978 U.S.Code Cong. & Admn.News 5787, 5963, 6320-21; S.Rep. No. 989, 95th Cong., 2d Sess. 79 (1978), reprinted in 1978 U.S.Code Cong. & Adm. News 5787, 5865.
To what extent Congress intended to overrule Tinker is the subject of disagreement under current case law. One line of cases read the legislative history to overrule the two holdings of Tinker. See Matter of Lewis, 17 B.R. 46 (Bkrtcy.W.D.Ark. 1981); In re Petsch, 82 B.R. 605 (Bkrtcy.M.D.Fla.1988); In re Hodges, 4 B.R. 513 (Bkrtcy.W.D.Va.1980). A second line of cases has interpreted the legislative history so as to overrule Tinker only to the extent that “willful” was considered to include reckless disregard of duty. These courts interpret “willful” to mean intentional or deliberate and “malicious” to be implied as constructive malice similar to what was required under Tinker. In re Fussell, 15 B.R. 1016 (W.D.Va.1981); In re Chambers, 23 B.R. 206 (Bkrtcy.W.D.Wis.1982)
This Court is convinced that the better line of cases are those which conclude that the plaintiff has the burden of proving by clear and convincing evidence the defendant’s conduct was willful, malicious, deliberate and intentional. To make out a viable claim of conversion, the Plaintiff would have to show that the Defendant converted its property and that such conversion was with willful and malicious intent, i.e., in conscious disregard to another’s rights.
The alleged conversion under consideration occurred when the check from the Plaintiff was deposited in the Debtor’s account rather than either endorsed to Barnett to satisfy the Debtor’s outstanding debt or returned to the maker, the Plaintiff. The evidence presented by the Debtor to vitiate the claim against him, was 1) that he did not know the payment was made to him in error as he was the legal owner of the shares of stocks notwithstanding that they had been pledged as security to Barnett, and 2) that he believed he was no longer indebted to Barnett.
This Court is satisfied that the evidence presented by the Plaintiff is sufficient to show that the Debtor willfully and maliciously converted the monies received on account of the stock transfer. The check which the Debtor received from Barnett was made payable to the Debtor and did not name Barnett as co-payee. However, it is equally clear that the Debtor was fully aware that the stocks had been pledged to Barnett as security for the loan. It is true that the records warrant the finding that the Debtor knew that his obligation to Barnett was still outstanding and the fact that Barnett was ultimately paid with a replacement check by the Plaintiff is of no consequence. The fact remains that the $12,000 which the Debtor received and used was appropriated by him with a total disregard of Barnett’s right. While the money received from the Plaintiff represented the proceeds of Barnett’s collateral, this Court is satisfied that it was the Plaintiff whose funds were wrongfully appropriated by the Debtor.
Based on the foregoing, this Court is satisfied that the Plaintiff has met its burden of proving the Debtor willfully and maliciously injured the Plaintiff’s property, and, therefore, the debt should be declared nondischargeable pursuant to § 523(a)(6) of the Bankruptcy Code.
A separate Final Judgment will be entered in accordance with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490907/ | ORDER ON MOTION FOR RECONSIDERATION OF ORDER ON MOTION FOR SUMMARY JUDGMENT
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 case and the matter presented for this Court’s consideration is in the context of an Ore Tenus Motion for Reconsideration of this Court’s Order Denying Grinnell Corporation’s (Grinnell) Motion for Summary Judgment. 94 B.R. 760. The Ore Tenus Motion for Reconsideration was brought by Grinnell, the Defendant in the above-captioned adversary proceeding and Industrial Distribution Services, Inc., the Debtor in the above-captioned Chapter 11 case. Both Grinnell and •the Debtor urged this Court to reconsider its previous Order, contending that the matter under consideration could be decided as a matter of law. The Court has considered the Ore Tenus Motion for Reconsideration and the record, and is satisfied that the Motion for Reconsideration should be granted and its previous Order Denying Grinnell’s Motion for Summary Judgment should be vacated, and the issues presented for this Court’s consideration can be decided as a matter of law. Based on the agreed undisputed facts of this case the Court now finds and concludes as follows:
Prior to the commencement of this Chapter 11 case, the Debtor entered into an agreement with Grinnell, which engaged in the business of manufacturing mechanical valves and fittings in which Grinnell agreed to manufacture and sell to the Debtor certain pipes, valves and fittings for $124,-555.65. It is undisputed that the Debtor never paid Grinnell for the goods which Grinnell did, in fact, manufacture and deliver to the Debtor. It further appears that after Grinnell unsuccessfully made demand for return of the goods, Grinnell sought and obtained an Order of Prejudgment Re-plevin from the Circuit Court in and for Polk County, Florida. Pursuant to the command of the Writ, the Sheriff of Polk County executed the Writ and took possession of the goods manufactured by Grinnell and sold to the Debtor. Three days later, *585on April 13, 1987, the Debtor filed its Voluntary Petition for Relief under Chapter 11 of the Bankruptcy Code.
On June 4, 1987, the Debtor filed this adversary proceeding seeking in Count I to recover the goods from Grinnell pursuant to § 542 of the Bankruptcy Code. The claim set forth in Count II is based on the contention that the seizure of the goods by the Sheriff was a preferential transfer, albeit involuntary, thus voidable by the Debt- or pursuant to § 547(b) of the Code.
This Court is satisfied that Grinnell’s contention that as a matter of law it is entitled to summary judgment on Count I is without merit. Grinnell claims a manufacturer’s lien on the goods by virtue of Section 713.61, Florida Statutes, which provides for a manufacturer’s lien on articles of value which are produced and delivered to a purchaser of said goods for resale. However, the fact that the goods were repossessed pursuant to the Writ of Re-plevin is of no consequence since the goods were not sold and, in fact, remain in custody of Grinnell. Clearly, these goods are property of the estate as such includes property of the debtor which has been seized by a secured creditor prepetition. United States v. Whiting Pools, Inc., 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983). For this reason, this Court is satisfied that the Debtor’s Motion for Summary Judgment as to Count I should be granted, and Grinnell’s Motion for Summary Judgment as to the same Count should be denied and the mechanical pipes should be turned over to the Debtor, albeit possibly subject to the lien claims of Grinnell.
This leaves for consideration the resolution of the Motions for Summary Judgment as they relate to the claim set forth in Count II of the Complaint which alleged avoidable preferential transfer.
The claim in Count II is based on the contention that the seizure of the pipes by the Sheriff was a voidable preference pursuant to § 547 of the Bankruptcy Code and not based on the contention directly that the lien claim of Grinnell could be avoided by the Debtor by utilizing the strong-arm clause of the Code, § 544(a)(b). Inasmuch as this Court has already determined that Grinnell must turn over the pipes and manufactured goods to the Debtor, this Court is satisfied that the claim in Count II should be dismissed as moot.
Based on the foregoing, this Court is satisfied that Grinnell's Motion for Summary Judgment as to Count I of the Complaint should be denied, and the claim presented in Count I of the Complaint should be decided as a matter of law in favor of the Debtor. Grinnell is directed to turn over the goods to the Debtor. It is further
ORDERED, ADJUDGED AND DECREED that the claim in Count II be, and the same is hereby, dismissed as moot and the avoidance of the alleged lien of Grin-nell, or any dispute over the validity vel non of the lien claimed by Grinnell shall be resolved by bringing an appropriate action either pursuant to § 547(b) of the Bankruptcy Code, or by the filing of an adversary proceeding seeking a determination from this Court of the validity vel non of Grinnell’s lien.
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/8490908/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Chief Judge.
The debtor’s mother, a creditor, seeks exception from discharge under 11 U.S.C. § 523(a)(2)(A) and (B) and judgment for treble damages under Fla.Stat. §§ 812 and 772.68[sic] for a claim in the amount of $65,000. The debtor has answered and the matter was tried on March 21. I now conclude that the claim is nondischargeable in the amount of $60,000, to account for payments made by the debtor in reduction of the note balance. Count II under Fla. Stat. § 812 is unsupported by the evidence and is dismissed.
The debtor is the oldest of four sons. The mother is a 54-year old widow. She owned a home in Massachusetts which was sold in January 1986 to provide funds to accomplish the “new life” in Florida proposed by the debtor as a solution to longstanding family problems. Sums of $10,-000 and $40,000 were advanced by plaintiff to the debtor in March and April 1986. On November 26, 1986, plaintiff loaned the debtor an additional $7,000. The debtor executed a note (Ex. 5) for $15,000 to include his obligation to repay this loan and additional sums for the mother’s salary and her contributions to the delivery service business, for which he believed she should be compensated. The note was intended to provide cash payment determined by the debtor’s sense of obligation, although he did not have cash at the time. (CP 9 at pp. 32-33).
The plaintiff claims a loss resulting from the debtor’s failure to give her any indicia of ownership in the business and his barring her from the premises since December 22, 1986.
Plaintiff relies on documents prepared by the debtor which he characterizes as “projections.” The evidence includes an undated and unsigned document captioned “Inc. Procedure” (Ex. 2) prepared by the debtor, which provides, in part:
“... Primary Share Holder & Treasurer Mary Pitts
Upon review with atty in Miami we will jointly decide to incorp. or not, or arrange an incorporation that will include a 51% interest rate with buyback beginning at a future date, as of now unspecified.
If at this time we jointly reach a decision not to incorporate any more funds allocated by Mary Pitts will only be given on an incorporated basis.” (Emphasis in original).
The debtor’s affirmative defenses are that $50,000 was a gift from plaintiff and that a portion of the monies was in consideration for services he provided. There is insufficient evidence to support either of these defenses. With the exception of evidence that the debtor made regular payments on the $15,000 note to reduce its balance by $5,000, the debtor’s oral testimony is in direct contradiction to plaintiff’s *602deposition testimony (Ex. 9), accepted in lieu of her repeating that testimony at trial. The debtor’s testimony is not credible.
The dispute concerns the intent of the debtor in inducing plaintiff to advance money for the purchase of his home in Florida and establishing the delivery service business which has been incorporated without any shares issued in the mother’s name.1 The issue, therefore, is whether the debtor’s oral and written representations that induced the mother to advance $65,000 to him constituted “false pretenses, a false representation or actual fraud.”
The family confidential relationship is the most crucial factor under these circumstances. This is a situation where a 30-year-old son took over managing the affairs of his widowed mother during a crisis. She was not unsophisticated in business, but was clearly emotionally dependent on her eldest son at the time in question and highly susceptible to his influence. The debtor is, therefore, under a special burden to show the fairness and to account for the use of his mother’s funds in accordance with a specific designated purpose. Wilkins v. Wilkins, 141 Fla. 188, 192 So. 791 (1940).
The debtor has failed to justify the actions taken by him which induced plaintiff to turn over a substantial proportion of the sale proceeds of her Massachusetts home, her most valuable asset, and resulted in the mother being excluded from obtaining a major share in the corporation later formed by the debtor and his wife. The debtor’s representations to his mother, at the outset, were fraudulent as he knowingly and intentionally took advantage of her distraught mental condition to get her property. In re Creekmore, 20 B.R. 164, 169 (Bankr.W.D.Okl.1982) (undue influence to obtain mother's property constitutes actual fraud).
So far as this record reflects, the collapse of the arrangements which the debtor induced his mother to rely upon was brought about by his self-interest and misrepresentations at her expense. The debtor admits that he never intended to make his mother a primary shareholder. (CP 8 at pp. 45 and 53). As a result of the debtor’s misconduct, the mother suffered a loss in the amount of $60,000.
As is required by B.R. 9021, a separate judgment will be entered for plaintiff against the debtor in the amount of $60,000 and that claim is excepted from discharge under § 523(a)(2)(A). Since plaintiff has established her right to relief under § 523(a)(2)(A), it is of no consequence that she has failed to do so under the alternatively pled theory § 523(a)(2)(B). The relief seeking damages under Fla.Stat. §§ 812 and 772.11 has not been established by the plaintiff. Therefore, Count II is dismissed with prejudice. Costs may be taxed on motion.
DONE and ORDERED.
. This also appears to be a family dispute involving great emotional upset and violent behavior. However, resolution of the legal issues is the focus here. Supple v. Supple, 347 So.2d 774, 775 (Fla.Dist.Ct.App.1977) (mother seeks cancellation of deed given to son). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490938/ | *808ORDER DENYING PRO SE MOTION FOR RECONSIDERATION OF PLEADINGS
THOMAS C. BRITTON, Chief Judge.
The debtor, Gherman, who is in jail and who was then under the erroneous impression that he had no attorney of record, sent this court three letters on May 25, May 31, and "June 12. These letters were returned by my office with form letters advising that this court does not consider matters presented other than by petition, application or motion as directed in the Bankruptcy Rules.
This court is now in receipt of “Defendants [sic] Motion for Reconsiderations [sic] of Pleadings” signed by Gherman, but not by his attorney of record, asking reconsideration of the letters referred to above.
The motion is denied, because it does not comply with B.R. 9011(a), which requires inter alia that every motion filed on behalf of a party represented by an attorney be signed by at least One attorney of record.
This requirement is no mere formality. One of its purposes is to avoid the expense and inconvenience to the court and other parties which generally result from pleadings not well grounded in fact or not warranted by existing law. This court will consider only those matters presented to it in accordance with this Rule.
Denial is, of course, without prejudice to any matters which may be properly presented upon the implied certificate of record counsel, which is imputed by Rule 9011(a).
DONE and ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490909/ | ORDER DENYING CONVERSION UNDER 11 U.S.C. § 1112(a)
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS MATTER came before the Court on May 3, 1989 upon a notice of conversion filed by the above named debtors, pursuant to 11 U.S.C. § 1112(a), to convert a confirmed chapter 11 case to a chapter 7 case.
The debtors filed for relief under Chapter 11 of the United States Bankruptcy Code in September, 1985 and a plan of reorganization was later confirmed in May, 1987. The debtors now seek to convert this chapter 11 case to a chapter 7 case under 11 U.S.C. § 1112(a).
Under 11 U.S.C. § 1112(a) a debtor has an absolute right to convert a case under chapter 11 to a case under chapter 7 “unless (1) the debtor is not a debtor in possession.” Accordingly, in order to qualify for the right to convert under § 1112(a) the debtor must be a debtor in possession. In re Grinstead, 75 B.R. 2, 3 (Bankr.D.Minn. 1985). The Court finds, however, that once a plan of reorganization is confirmed the debtor loses its status as a debtor in possession and is therefore no longer entitled to an automatic conversion under § 1112(a). See Alabama Fuel Sales Company, Inc., v. Newpark Resources, Inc. ( In re Alabama Fuel Sales Co., Inc.), 45 B.R. 365 (D.N.D.Ala.1985); In re Grinstead, 75 B.R. 2 (Bankr.D.Minn.1985); In re Pero Brothers Farms, Inc., 91 B.R. 1000 (Bankr.S.D.Fla.1988).
Based upon the foregoing, it is hereby:
ORDERED AND ADJUDGED that the debtors attempt to convert a chapter 11 case to a chapter 7 case post-confirmation conversion is denied under 11 U.S.C. § 1112(a).
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490910/ | MEMORANDUM OF DECISION
JAMES H. WILLIAMS, Chief Judge.
The Chapter 7 Trustee, Douglas L. Thrush, has filed a complaint against the Defendant, Sandra K. Marvin, seeking to avoid a transfer to her of $2,000.00 as preferential under the provisions of 11 U.S.C. § 547. Defendant answered denying the essential allegations of the complaint and specifically denying that she is an insider.
A pre-trial conference was held whereat the parties agreed that the issue in dispute would be submitted to the court upon stipulations of fact and briefs.
FACTS
In November, 1987, the debtor paid to Defendant, his girlfriend and future fiancee, the sum of $2,000.00 as repayment of an antecedent debt. Thereafter, on March 23, 1988, the debtor filed for relief under Chapter 7 of Title 11 of the United States Code.
DISCUSSION
11 U.S.C. § 547 provides for the avoidance of certain pre-petition transfers of the debtor’s property and provides in relevant part:
[[Image here]]
(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 a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
The sole issue in dispute is whether Section 547(b)(4)(B), quoted above, is applicable. The transfer having occurred between 90 days and one year before the petition date, there must be a showing that Defen*893dant was an insider at the time of such transfer.
The Trustee argues that Defendant was an insider based upon her relationship with the debtor and relies on In re Montanino, 15 B.R. 307 (Bankr.N.J.1981).
Defendant, in distinguishing In re Mon-tanino, urges the court to adopt a narrow interpretation of an insider. Additionally, Defendant maintains that if the court finds her to be an insider, the Trustee should only be able to recover as a preference an amount over the first $600.00. See, 11 U.S.C. § 547(c)(7).
11 U.S.C. § 101(30)(A) provides:
“insider” includes—
(A) if the debtor is an individual—
(i) relative of the debtor or of a general partner of the debtor;
(ii) partnership in which the debtor is a general partner;
(iii) general partner of the debtor; or
(iv) corporation of which the debtor is a director, officer, or person in control.
[[Image here]]
As is apparent, Defendant does not fall into one of the specific categories set forth in Section 101(30)(A). However, as 11 U.S.C. § 102(3) specifically states, the terms “ ‘includes’ and ‘including’ are not limiting.”
As the court in In re Montanino stated, “[t]he true test of an ‘insider’ is one who has such a relationship with the debtor that their dealing with one another cannot be characterized as an arms-length transaction.” Id. 15 B.R. at 310. See also, H.R. No. 95-595, 95th Cong. 1st Sess., 312 (1977); In re K & R Mining, Case No. 687-00790, Adv. No. 687-0199, Memorandum of Decision, (Bankr.N.D.Ohio 1988) (insider status based upon close relationship and ability to compel payment).
The Trustee relies upon the factual similarities of In re Montanino where the court found the debtor’s girlfriend’s parents to be insiders. However, in the Mon-tanino case, evidence and testimony as to the parties’ relationship was presented. Here, the only fact before the court is that Defendant was the girlfriend and future fiancee of the debtor at the time of the transfer. With this limited information, the court is unable to make the factual determination that the relationship of the debtor and Defendant was of such a nature as to make Defendant an insider.
As provided in 11 U.S.C. § 547(g), “the trustee has the burden of proving the avoidability of a transfer under subsection (b).” Based upon the submitted stipulations of fact, the Trustee has not met his burden in proving that Defendant was an insider at the time of the transfer. Accordingly, the court finds the Trustee’s complaint not to be well taken and such complaint will be dismissed.
An order in accordance herewith shall issue. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490911/ | MEMORANDUM OF DECISION
JAMES H. WILLIAMS, Chief Judge.
The court has before it for disposition separate motions to dismiss filed by Society Bank of Eastern Ohio, N.A. (Society) and The Gibbons-Grable Assets Disposition Trust (Trust).1 A recitation of the procedural and factual background is deemed useful to a full understanding of the issues to be decided.
The Gibbons-Grable Company (Gibbons-Grable) was a party to a series of collective bargaining agreements by which it was obligated to make certain payments to or on behalf of an employee benefit plan, an employee benefit collection agency and two labor unions — the Ironworkers Combined Fund, the Carpenters Central Collection and Administrative Agency, the Carpenters Local Union No. 69 and the Bricklayers Local Union No. 6 (collectively, the Unions). Such contributions were for pension and medical benefits, withholdings from employees’ wages of certain deductions for vacation, savings, apprenticeship and job training programs and union dues. Gibbons-Grable maintained various accounts with Society. Society, as a creditor of Gibbons-Grable, set off, on July 3, 1986, Gibbons-Grable’s indebtedness to it in an amount finally adjusted to $667,867.28.
Gibbons-Grable filed for relief under Chapter 11 of Title 11 of the United States Code on July 7, 1986. A plan of reorganization was confirmed by this court on May 20, 1988, under which the Trust was created.
The Unions initiated this case by filing, in the Common Pleas Court of Stark County, Ohio, a complaint asserting that of the funds set off by Society, $265,740.00 were held in trust by Gibbons-Grable for the benefit of the Unions and/or their members and/or benefit funds represented by *902the Unions. The Unions complain that, by its actions, Society wrongfully converted such funds to its own purposes. The Plaintiffs demand $265,740.00 in compensatory damages and $500,000.00 in exemplary damages, together with pre-judgment and post-judgment interest in the amount of 10% per annum. Additionally, the Plaintiffs demanded recovery for expenses and reasonable attorney’s fees and further demanded a trial by jury.
Society removed the action to this court on February 26, 1988 and subsequently filed its answer denying the allegations.
Various procedural motions were filed and the parties ultimately agreed, through a stipulated order, to the intervention of the Trust, to the disposition of the matter by this court and to a schedule for the filing of motions to dismiss or, alternatively, motions for summary judgment. Such motions have been filed and are now ripe for decision, supporting and opposing mem-oranda having been filed.
DISCUSSION
The Plaintiffs ground their action on Ohio Rev.Code § 4113.15(C) which provides in relevant part:
In the absence of a contest, court order or dispute, an employer who is party to an agreement to pay or provide fringe benefits to an employee or to make any employee authorized deduction becomes a trustee of any funds required by such agreement to be paid to any person, organization, or governmental agency from the time that the duty to make such payment arises.
In interpreting the above provision, the court in United Brotherhood of Carpenters and Joiners of America v. Paul Lugeer Displays, Inc., 2 Ohio App.3d 190, 441 N.E.2d 581 (Franklin County, 1981), found that Section 4113.15(C) creates a constructive trust in favor of employees. The court stated that “[ujnder R.C. 4113.15(C), any unencumbered funds of the [employer] immediately [become] subject to a constructive trust for the benefit of [employees] at the time of the employer’s obligation to T3 <N rH o o t *5 § 1 OO ft ia
The court went on to note that a potential conflict existed between employees asserting a constructive trust over certain assets and creditors of the employer.
The object of the notice requirement of Article 9 of the Uniform Commercial Code is to provide protection for creditors who may need to know whether certain property is encumbered. R.C. 4113.15(C) would appear to leave prospective creditors without any way of knowing, other than through direct inquiry, that certain funds of any employer were actually held in trust for the benefit of its employees. R.C. 4113.15(C) is apparently intended to reserve for employees the fruits of their labors. Thus, the General Assembly has sought to protect both employees and creditors without specifying which group has a priority.
United Brotherhood, 441 N.E.2d at 584.
The Trust, which has succeeded to the rights of the debtor, asserts in its motion to dismiss that pursuant to 11 U.S.C. § 544 it, not the Unions, takes priority as to any possible claim to the funds set off by Society-
11 U.S.C. § 544(a) provides:
The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by—
(1) a creditor that extends credit to the debtor at the time of the commencement of the case, and that obtains, at such time and with respect to such credit, a judicial lien on all property on which a creditor on a simple contract could have obtained such a judicial lien, whether or not such a creditor exists;
(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 *903whether or not such a creditor exists; or
(3) a bona fide purchase of real property, other than fixtures, from the debt- or, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser and has perfected such transfer at the time of the commencement of the case, whether or not such a purchaser exists.
Section 544(a), known as the strong arm clause, gives to the trustee the rights, remedies and powers necessary to secure all the debtor’s property for an equal distribution to all creditors according to the terms of the Bankruptcy Code. 4 Collier on Bankruptcy para. 544.01 (15th ed. 1988) (citations omitted).
It was said of the predecessor to [section 544(a) ] under the former Act that it conferred upon the trustee “by force of law” the status of “the ideal creditor, irreproachable and without notice, armed cap-a-pie with every right and power which is conferred by the law of the state upon its most favored creditor who has acquired a lien by legal or equitable proceedings.” If the description of the trustee’s position under former section 70c was apt, it is even more so under the broader language of section 544(a). It is evident that this hypothetical status depends for meaning upon a substantive law that is not explicitly indicated but that is incorporated by reference. Therefore, the trustee’s powers, in every case governed by section 544(a), are those which the state law would allow to a supposed or hypothetical creditor of the debtor who, as of the commencement of the case, has completed the legal (or equitable) processes for perfection of a lien upon all the property available for the satisfaction of his claim against the debt- or.
4 Collier on Bankruptcy, para. 544.01 at 544-5 (citations omitted). Accord, In re General Coffee Corporation, 828 F.2d 699 (11th Cir.1987), cert. denied, - U.S.-, 108 S.Ct. 1470, 99 L.Ed.2d 699 (1988); In re Tleel, 79 B.R. 883 (9th Cir. B.A.P. 1987).
The 9th Circuit Court of Appeals in In re North American Coin and Currency, Ltd., 767 F.2d 1573, 1575 (1985), cert. denied, 475 U.S. 1083, 106 S.Ct. 1462, 89 L.Ed.2d 719 (1986), in addressing the concept of constructive trusts in bankruptcy proceedings, stated:
While we agree that any constructive trust that is given effect must be a creature of [state] law, we cannot accept the position that the bankruptcy estate is automatically deprived of any funds that state law might find subject to a constructive trust.... A constructive trust is not the same kind of interest in property as a joint tenancy or a remainder. It is a remedy, flexibly fashioned in equity to provide relief where a balancing of interests in the context of a particular case seems to call for it. Moreover, in the case presented here it is an incohate remedy; we are not dealing with property that a state Court decree has in the past placed under a constructive trust. We necessarily act very cautiously in exercising such a relatively undefined equitable power in favor of one group of potential creditors at the expense of other creditors, for ratable distribution among all creditors is one of the strongest policies behind the bankruptcy laws. (Citations omitted).
In applying 11 U.S.C. § 545(2)2 to California Food and Agriculture Code Section 55631, which grants a farm producer a lien on his product and all processed forms of the product in the possession of the processor and which lien enjoys priority over all other liens, claims and encumbrances without any perfection requirements, the court in In re Loretto Winery Limited, 81 B.R. 573, 575 (9th Cir. B.A.P. 1987) held:
*904The Producer’s Lien held by the Seller represents a secret lien. Mere attachment of this lien cannot defeat the rights of a good faith purchaser of the wine who had neither actual nor constructive notice of the lien’s existence. Consistent with California policy, it would be unfair to enforce this lien against such innocent buyers. Therefore, we agree with the Bankruptcy Court that the Trustee, being in the shoes of a hypothetical bona fide purchaser, is authorized under Section 545(2) to avoid the Seller’s lien. (Citations omitted).
Even though the court in Loretto was concerned with Section 545, this court finds that the underlying premise of the trustee’s power in Section 545 to be applicable to Section 544. The purpose of both Sections 545 and 544 is to guarantee equal distribution to all creditors.
In the instant matter, the law of the state of Ohio will govern as to who is entitled to assert a claim to the funds set off by Society. However, as noted by the court in United Brotherhood, “the General Assembly has sought to protect both employees and creditors Without specifying which group has a priority.” The court, however, found this to be of little consequence in that the creditor in United Brotherhood had notice of the claims of the employees. Id. 441 N.E.2d at 584. In the case at bar, the Trust, pursuant to Section 544(a), is considered to be a lien creditor, deemed to be without knowledge of any purported claims of the Unions.
Additionally, the court finds it contrary to the provisions and the intent of the bankruptcy laws to construe the Ohio statute as granting a priority over the trustee’s claim as a lien creditor. Ohio Rev.Code § 4113.15(C) purports to create a constructive trust in favor of employees which trust covers any unencumbered assets of the employer. Such an incohate claim cannot be found to be superior to that of the Trust. This court, along with that in In re North American Coin and Currency, Ltd., “cannot accept the position that the bankruptcy estate is automatically deprived of any funds that state law might find subject to a constructive trust.” 767 F.2d at 1575. To hold otherwise would be to ignore the priorities established by 11 U.S.C. § 507 to the detriment of the debtor’s other unsecured creditors.
The Unions assert that the motions to dismiss should be denied and that they should be given an opportunity to conduct discovery. The Unions argue that through discovery they may be able to trace the funds due them and determine whether such funds are included in the money set off by Society. The court finds that discovery will not aid the Unions in defeating the superior claim of the Trust. The constructive trust created by Ohio Rev.Code § 4113.15(C) includes all unencumbered assets of an employer. The Unions, through discovery, cannot somehow reform this broad and general trust in such a way as to defeat the strong arm provisions of the Bankruptcy Code. Additionally, even if the Unions could establish that certain funds due them are identifiable, the Trust would still have priority to those funds in that it still would be deemed to be without knowledge of the Unions’ claim.
Accordingly, the court finds that any possible claim the Unions may have to the funds set off by Society is defeated by the Trust pursuant to Section 544(a).
In light of the court’s ruling herein, it need not address the other arguments raised by Society and the Trust in support of their motions to dismiss.
An order in accordance herewith shall issue.
. Society has moved, in the alternative, for summary judgment.
. Statutory liens.
The trustee may avoid the fixing of a statutory lien on property of the debtor to the extent that such lien—
[[Image here]]
(2) is not perfected or enforceable at the time of the commencement of the case against a bona fide purchaser that purchases such property at the time of the commencement of the case, whether or not such a purchaser exists. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490914/ | DECISION and ORDER ON DEFENDANT’S MOTION TO VACATE DEFAULT JUDGMENT
BURTON PERLMAN, Chief Judge.
This matter is before the court upon the debtor’s Motion for Leave to Answer Out of Time and Motion to Vacate Default Judgment. Plaintiff has filed a memorandum in opposition to debtor’s motion. 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 which the court may hear and determine pursuant to 28 U.S.C. § 157(b)(1) and (b)(2)(L).
Plaintiff filed a complaint commencing this adversary proceeding and served defendant by ordinary mail. Defendant failed to answer in 30 days as required by Bankruptcy Rule 7012(a). Plaintiff filed a Motion for Default Judgment and a memorandum in support. That motion was granted. Defendant then filed the motion presently under consideration, together with a memorandum in support.
Defaults are controlled by F.R.Civ.P. 55 (Bankruptcy Rule 7055 in bankruptcy adversary proceedings) which states in part:
(a) Entry. When a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend as provided for in these rules and that fact is made to appear by affidavit or otherwise, the clerk shall enter the party’s default.
[[Image here]]
(c) Setting Aside Default. For good cause shown the court may set aside an entry of default and, if a judgment by default has been entered, may likewise set it aside in accordance with Rule 60(b). ******
We must therefore look at F.R.Civ.P. 60 (made applicable in bankruptcy matters through Bankruptcy Rule 9024). It states in part:
(b) Mistakes; Inadvertence; Excusable Neglect; Newly Discovered Evidence; Fraud, etc. On motion and upon such terms as are just, the court may relieve a party or a party’s legal judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect;
[[Image here]]
The Sixth Circuit has said that in considering a motion to set aside entry of a judgment by default the court must apply Rule 60(b) equitably and liberally to achieve substantial justice. United Coin Meter v. Seaboard Coastline Railroad, 705 F.2d 839, 844-846 (6th Cir.1983). In doing so, the courts have considered the following factors:
*9681. Whether the plaintiff will be prejudiced;
2. Whether the defendant has a meritorious defense; and
3. Whether culpable conduct of the defendant led to the default.
United Coin Meter v. Seaboard Coastline Railroad, supra; Shepard Claims Service v. William Darrah & Associates, 796 F.2d 190, 192 (6th Cir.1986). We examine the dimensions of each of these factors.
1. Prejudice. Prejudice does not result from the mere delay in satisfying a plaintiff’s claim. United Coin Meter v. Seaboard Coastline Railroad, supra, at 845. It must be shown that delay will result in the loss of evidence, create increased difficulties of discovery, or provide greater opportunity for fraud and collusion. Invst Financial Group, Inc. v. Chem-Nuclear Systems, Inc., 815 F.2d 391, 398 (6th Cir.1987). There is no reason to believe that plaintiff would suffer requisite prejudice. Thus, we conclude that the plaintiff would not be prejudiced by granting the relief defendant requests.
2. Meritorious Defense. In order to establish the existence of a meritorious defense, this defendant needs only to make a presentation or proffer of evidence which, if believed, would permit either the court or the jury to find for the defaulting party, United States v. Moradi, 673 F.2d 725, 727 (4th Cir.1982). Likelihood of success is not the measure. United Coin Meter v. Seaboard Coastline Railroad, supra.
3. Culpable Conduct. Whether culpable conduct of the defendant led to the default requires that the default was willful. Id. Therefore, to be excused, the conduct of the defendant must not be culpable, that is, the conduct of the defendant must not display either an intent to thwart judicial proceedings or a reckless disregard for the effect of its conduct on those proceedings. Shepard Claims Service v. William Darrah & Associates, supra. There must be a factual showing of mistake, inadvertence, surprise, or excusable neglect. Dolphin Plumbing Co. of Florida v. Financial Corp. of N.A., 508 F.2d 1326, 1327 (5th Cir.1975).
Defendant’s memorandum admits that in the proceeding here at bar, defendant was duly served with the complaint, but did not file her answer until well after the time that answer was due. Defendant’s counsel seeks to justify the failure to timely answer, and to show compliance with the above-detailed factors, by saying in his memorandum only that the failure to answer plaintiff’s complaint within the time prescribed by the rules “is due to excusable neglect” and that defendant “has a meritorious defense” to the complaint.
Defendant’ motion thus is couched solely in conclusory language. Defendant presents nothing more than the verbatim statutory language. United States v. $55,-518.05 in U.S. Currency, 728 F.2d 192,196 (3rd Cir.1984). While there is a strong policy in favor of a trial on the merits, Shepard Claims Service v. William Dar-rah & Associates, supra, it is the court’s duty to protect the integrity of the judicial process. Dolphin Plumbing Co. of Florida v. Financial Corp. of N.A., supra. Were we to allow the setting aside of a default judgment on the mere recitation of the relevant statutory language or a phrase in the Federal Rules of Civil Procedure, we would be establishing a new right, a right to set aside any default judgment automatically if counsel is diligent enough to quote the applicable statute or rule of civil procedure. Id. Defendant’s statement alone that the failure to answer plaintiff’s complaint within the time prescribed by the rules “is due to excusable neglect” and that defendant “has a meritorious defense” to the complaint is not enough to warrant the setting aside of an entry of default judgment. What is required is a factual showing of mistake, inadvertence, surprise, or excusable neglect. Dolphin Plumbing Co. of Florida v. Financial Corp. of N.A., supra.
Defendant’s Motion for Leave to Answer Out of Time and Motion to Vacate Default Judgment is denied.
So Ordered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490915/ | MEMORANDUM OF DECISION
ALFRED C. HAGAN, Chief Judge.
Counsel for the debtor in this Chapter 11 case have filed an application for interim compensation. The motion is made under the provisions of 11 U.S.C. § 557 since the only funds available for payment of the fees are the proceeds of the beans stored in the debtor’s warehouse. Several objections to this application have been filed by bean producers.
This Chapter 11 case is in the process of an “expedited determination of interests in, and abandonment or other disposition of grain assets” pursuant to 11 U.S.C. § 557.1 The § 557 proceeding will determine the rights to the beans and bean proceeds. It has been alleged there are not enough beans and bean proceeds to cover the claims of those who have deposited their beans in the Hawkins’ warehouse. If this should prove to be the case, the Hawkins bankruptcy estate would have no interest in either the beans or the bean proceeds.2
Section 557(h)(1) allows the trustee to recover from the sales proceeds “... the reasonable and necessary costs and expenses allowable under § 503(b) ... attributable to preserving or disposing of grain ... but may not recover from such ... proceeds ... any other costs or expenses.”
According to the remarks of Representative Glickman in the Congressional Record statements to the Bankruptcy Amendments Act of 1984, the congressional intent was to limit the trustee’s fees to “... only fees necessary to cover the costs of preserving or disposing of the grain ...” I conclude the payment of fees of professional persons from the grain proceeds for work not directly related to the preservation or disposal of the grain is *233ordinarily not within the provisions of § 557(h), and an award for payment of such should be considered only in exceptional circumstances as where, at the time the estate is to close, there is no other source of payment. In the present case, the beans either belong to the producers under a bailment theory, or, at the very least, the depositors have a lien on the beans where, as here, some of the beans are being sold. Thus, only those direct expenses necessary for preserving or disposing of the grain, as opposed to general administrative expenses, should be allowed. Attorney fees are not usually payable out of cash collateral or secured assets in other Chapter 11 eases. The result should not be different in cases where section 557 is implemented.
It further appears there may be, in the future, funds available from the sale of other assets in which the debtor may have a sufficient interest to allow payment of professional fees.
The application will be denied, without prejudice under the 120 day time limitation of Section 331, by separate order.
. Beans are included within the definition of grain under 11 U.S.C. § 557(b)(1).
. First National Bank of Smith Center, Kansas v. Nugent, 72 B.R. 528, 530-31 (D.Kansas 1987). Where a deficiency exists in warehouse inventory such that the claims of all those holding ownership interests cannot be satisfied, the warehouse cannot claim any ownership interest in the inventory. Where the debtor is the warehouse, the estate can claim no interest in this inventory because the estate’s interest flows from the interest of the warehouse. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490916/ | ORDER
JOHN L. PETERSON, Bankruptcy Judge.
In this adversary proceeding, the Plaintiff, the Official Unsecured Creditors Committee for the Bankruptcy Estate of Eldon E. Kuhns, a Chapter 11 Debtor, seeks judgment against the Debtor and his wife, for turnover of assets allegedly transferred from the Debtor to his wife. After Answer, trial on this cause was held on April 18 and 19, 1989. Deposition testimony of JoAnn Kuhns and Norman C. Dean has been submitted by agreement of parties as part of the trial record. Memorandum of authorities have now been filed by the Plaintiff and Defendant, JoAnn Kuhns.
This action involves four assets, namely, (1) a promissory note dated June 30, 1984, from First National Bancorp, Inc., an Arizona bank, payable to JoAnn Kuhns in the sum of $100,000.00*; (2) a life insurance policy with a cash value of $224,000.00 issued by The Equitable Insurance Company, insuring the life of the Debtor for the sum of two million dollars; (3) deferred compensation payments due from Montana Bancsystems, Inc. (MBI), a bank holding company, payable monthly at the rate of $9,161.48 until June 30, 1996, with a total sum due of $671,541.00 plus interest2; (4) post-petition payments of interest, insurance and taxes by the Debtor on the Arizona residence of Debtor’s wife, JoAnn Kuhns. It is the contention of the Plaintiff that items 1, 2, and 3 are assets or property of Debtor’s estate, while Defendant/Debt- or and his wife claim such items were gifted by the Debtor to his wife pre-petition while the Debtor was solvent. As to item 4, the Plaintiff contends all payments were made from assets of the Debtor’s estate without authority or right to do so, while Debtor contends such payments were made in lieu of rent for the Debtor’s use of the residence while performing business of the Debtor. The Defendants also claim that all issues were resolved in another action wherein the Debtor sued and received judgment against MBI in the United States District Court for the District of Montana, Cause No. CV 86-261-Blg-JDS, entitled E. E. Kuhns, JoAnn Kuhns and Christine A. Kuhns Goodnow, Plaintiffs, v. Montana Bancsystems, Inc., et al. Judgment in that cause was entered on July 8, 1988, in favor of E. E. Kuhns and his wife, Jo Ann Kuhns, for contract and tort damages, part of which judgment included a resolution of *235the dispute between MBI and Kuhns as to the amount due Kuhns for deferred compensation noted under item (3) above.
This adversary case was brought by the Plaintiff upon authority of this Court on behalf of the Chapter 11 Debtor estate since the Debtor-in-possession was unwilling to pursue each claim. The Committee was not a party to the Federal District Court case CV 86-261, and from the findings of fact and conclusion of law entered in that case, which is now on appeal and has thus not been finally resolved, it is clear the issues raised as to the amount of deferred compensation due Kuhns from MBI did not involve the allegations made by the Plaintiff in this case as to unlawful nature of the transfer of such assets to JoAnn Kuhns. The same is true as to the transfer of ownership in the life insurance contract. Specifically, the District Court found that the Debtor was to have the right to designate the owner and beneficiary of the policy, which was to be his wife, but the policy was never timely changed. Indeed, the Federal Court found the transfer occurred in September 1986, the same month the Bankruptcy Petition was filed. The issue before the District Court did not involve voidable transfers under the Bankruptcy Code. On the deferred compensation issue, the findings of the Federal Court state the Debtor assumed there would be a transfer of that asset to his wife in January 1983, but it was not accomplished by MBI, which formed a basis of the judgment against MBI. Again, the Federal District Court applied non-bankruptcy law and had no issue before it as to the contention of the Trustee that each transfer was a preferance or voidable under bankruptcy law. In sum, issues in the case sub judice regarding ownership, dates of transfer or avoida-bility of transfer between the Debtor and his wife were simply not litigated in the Kuhns v. MBI action because there was no necessity to do so. The Federal Court tried the case on the doctrine of breach of the implied covenant of good faith and fair dealing and contract law, not on any issue dealing with what constitutes assets of the bankruptcy estate under § 541 of the Code or what may be recovered as assets of the estate.
Issue preclusion, or res judicata, has been summarized in Del Mar Avionics v. Quinton Instruments Co., 645 F.2d 832, 834 (9th Cir.1981), citing Montana v. United States, 440 U.S. 147, 99 S.Ct. 970, 59 L.Ed.2d 210 (1979):
“A fundamental precept of common-law adjudication, embodied in the related doctrines of collateral estoppel and res judi-cata, is that a ‘right, question or fact distinctly put in issue and directly determined by a court of competent jurisdiction ... cannot be disputed in a subsequent suit between the same parties or their privies ... ’ [citation omitted]. Under res judicata, a final judgment on the merits bars further claims by parties or their privies based on the same cause of action, [citation omitted]. Under collateral estoppel, once an issue is actually and necessarily determined by a court of competent jurisdiction, that determination is conclusive in subsequent suits based on a different cause of action involving a party to the prior litigation.”
I conclude the issues involved in the present case before this Court were not “distinctly put in issue and directly determined” by the Federal District Court in Kuhns v. MBI. Further, contrary to the contention of the Defendants Kuhns, the Plaintiff Committee was not a party to the prior action either directly or by privy. Del Mar Avionics, supra, also holds:
“Whether a nonparty controlled the earlier litigation is a question of fact for the trial court. Ransburg Electro-Coating Corp. v. Lansdale Finishers, Inc., 484 F.2d 1037, 1038 (3rd Cir.1973). Factors important to a finding of control include selection and payment of counsel, payment of litigation expenses, a written indemnification agreement, participation in settlement negotiations, and control over the decision to appeal. TRW, Inc. v. Ellipse Corp., 495 F.2d 314, 318 (7th Cir.1974); Troy Company v. Products Research Company, 339 F.2d 364, 367 (9th Cir.1964).” Id. at 835.
*236Preclusion of a non-party falls under the doctrine of collateral estoppel because of vicarious control of litigation. Del Mar, at 835. Here, Kuhns and the Plaintiff Committee are antagonistic to each other and not aligned on the same issues in this litigation or the previous action. Indeed, as noted above, the Debtor refused to commence this action against his wife for recovery of assets, contending all along they were not property of the estate. An element of collateral estoppel is the actual, free and fair litigation between the same parties or their privy, especially when they are or were aligned on the same side of an action. Franklyn Stainless Cory. v. Marlow Transport Corp., 748 F.2d 865, 867 (4th Cir.1984). No alignment is present under the facts shown here, and therefore, the Defendant’s contention for application of res judicata or collateral estoppel is without merit.
A. Promissory Note of June 30, 1984.
One of the Debtor’s business dealings involved the formation of a bank in Arizona called First National Bancorp, Inc. This activity involved several other investors, but the Debtor was the principal organizer of the effort. Toward the completion of the creation of the bank, the Debtor advanced to the bank from his funds the sum of $100,000.00 as “seed” money in 1984. A promissory note (Ex. 44), entitled “Convertible Promissory Note”, ostensibly dated June 30, 1984, for $100,000.00 was made out in favor of Eldon E. Kuhns and signed by the proposed president of the new bank, Norman C. Dean. Dean’s signature on the note, a two page document, was attested to by Robert Kennedy, an attorney in Arizona involved in legal matters in the forming of the bank. Dean’s testimony acknowledged that he signed the instrument and it was made out in favor of Eldon E. Kuhns. Kuhns testified he gave the note, and therefore, the right to the proceeds, to his wife in 1985 before the note came into existence. Such testimony is simply not credible because Dean, by agreement with the Federal Reserve Board, was not capable of any involvement with the Bank after December 1, 1984. JoAnn Kuhns stated that she was unaware of the existence of the note until she found it in a safety deposit or lock box kept in the Kuhns’ family home when she was responding to a discovery request in this adversary proceeding. Her sole explanation as to why the present note shows on Page 1 as payable to JoAnn Kuhns is that the note was purchased for her by her husband. She has no recollection as to when the note was placed in the lock box. Both Kuhns have access to the box, and there is no written agreement in evidence which delineates the ownership contents of the box.
The note as originally prepared has been materially changed from the time of its first execution. The present exhibit 44 states in pertinent part that “for value received, First National Bancorp, Inc.— promises to pay to the order of JoAnn C. Kuhns — the principal sum of One Hundred Thousand Dollars and no/100 ($100,000.00) Dollars”. The first page is dated June 30, 1984, as is the second signature page. In fact, the first page of the note is a substituted page. Plaintiff called an expert forensic document examiner as a witness who testified that the first page of the note was a substitution made sometime after January, 1985. His testimony and opinion, which I find credible, and were not contradicted, show from the water mark that paper of the first page of the note was not produced by the paper company until after January 1, 1985, while the second page of the note is paper produced in 1984. Different typing characteristics are also present between the two pages which indicate the first page was typed on a different typewriter than the second page, which also bears a paper clip imprint not found on the first page. Kuhns concedes the first page may have been substituted but could not explain how, when or why it was done. I find from all of the testimony concerning the creation of the note that the present note made payable to JoAnn Kuhns is a fraud for the following reasons. First, contrary to the express provision of the note, (for value received), JoAnn Kuhns never loaned the payee any money and therefore never gave any value. All value came from Eldon E. Kuhns. Second, page *237one of the note, dated June 30, 1984, could not possibly have been prepared on that date because the paper on which it was typed was not even in production in 1984. Third, Dean, the signator on the note, never signed a note payable to JoAnn Kuhns. The only note he signed was payable to Eldon E. Kuhns. Fourth, by various exhibits and testimony of an employee of United Bank of Denver, Eldon Kuhns, as late as March 1986, represented to that Bank in an effort to secure financing of the Arizona bank, that the $100,000.00 convertible note was owned by him, not his wife. Indeed, on Kuhn’s financial statement dated July 11, 1985, he personally amended the statement in his own writing to disclose a note receivable from “FN Bancorp” for “$100,-000.00”. Further, the private placement memorandum prepared by E. E. Kuhns, gives the precise and exact details of the substance of the June 30, 1984, note, including its convertible feature of 40,000 shares of stock, thus showing Debtor as the owner.
Kuhns maintains the note was a gift to his wife. The facts above stated indicate it is a bizarre manner in making a gift. I conclude the note was changed to reflect JoAnn Kuhns as the ostensible owner when in fact the true and lawful owner of the note is E. E. Kuhns, the Debtor. The Debt- or’s effort to change the note, whether either before or after bankruptcy, is sham and deceit. The Bank never made or executed a note payable to JoAnn Kuhns. In this regard, I reject Debtor’s testimony as not credible that he made the gift through a letter of July 18, 1985, to Kennedy, in which he enclosed another note, dated July 1, 1984, payable to JoAnn Kuhns for $100,-000.00 from the Bank. That note was never executed, and provides no basis for establishment of a legal contract between the parties. Indeed, the only note on which the Debtor now relies is the June 30, 1984, sham, not the note mailed in 1985, bearing a 1984 date.
Second, if in fact a gift was contemplated of the note, the gift fails under Montana law. Except for the page substitution, there is no writing to establish a gift. It has long been established in Montana that to make a gift there must be (1) an intention on the part of the donor to make the gift; (2) delivery by the donor of the subject matter of the gift, and (3) acceptance of the gift by the donee. In re Brown’s Estate, 122 Mont. 451, 206 P.2d 816, 819 (1949). Brown, and its progeny, Faith Lutheran Retirement Home v. Veis, 156 Mont. 38, 473 P.2d 503 (1970), make clear that intention to make a gift is not enough, there must be delivery so as to divest dominion and control over the property in the donor and acceptance by the donee. The elements of delivery and acceptance have not been proven by the Debt- or. I find that the note was placed in a box in the family home over which the Debtor has as much control as his wife, and therefore Debtor did not unequivocally relinquish control. In fact, the Debtor, as shown above, treated the note as his property when dealing with a third party, United Bank of Denver. And, Kuhns, the Debt- or, took the interest payments made on the note in 1985 and deposited them in his account. Further, I find the wife never accepted the gift. She had no knowledge of the note until pursued for its production upon discovery in this case. In sum, she never knew it existed. Thus, the presumption she accepted the gift has been overcome. The case authority relied upon by the Debtor, Malek v. Patten, 208 Mont. 237, 678 P.2d 201 (1984), is inopposite on the facts and legal question involved in that case, which involved creation of joint bank accounts by written instruments.
I conclude this Plaintiff is entitled to recover from JoAnn Kuhns the sum of $100,000.00 plus interest due on the promissory note issued by the First National Ban-corp, Inc. to E. E. Kuhns.
B. Deferred Compensation Due From MBI.
MBI and the Debtor entered into a deferred compensation contract in 1977. The Debtor was chief executive officer of MBI, until he resigned on December 18, 1985. On December 21, 1984, the board of directors of MBI approved a schedule for deferred compensation accruals and setoffs *238of premiums on insurance paid by MBI. Upon litigation of the matter in Kuhns, et al. v. MBI, et al., noted above, the setoff was rejected. Kuhns employment with MBI terminated as of June 30, 1986, based on his December resignation. On that date, Kuhns wrote a letter to MBI directing that his deferred compensation payments be made to his wife. In his Statement of Affairs filed with his Bankruptcy Petition, Kuhns states:
“JoAnn Kuhns, wife of the Debtor, was designated beneficiary of the Montana Bancsystem, Inc. deferred compensation plan June 30, 1986. This was not a transfer of property but is listed for the purpose of full disclosure.”
Kuhns testified in this case that the letter of June 30, 1986, was not a transfer of the funds to his wife. Nevertheless, Kuhns maintains he gave the fund to his wife in 1982 as part of his estate planning. No writing was produced in this case to verify such gift. Further, none of the minutes of MBI reflect such gift in 1982. Contrary to such oral gift, Kuhns’ March 31, 1985, Financial Report (Ex. 40) lists the deferred conpensation fund as an asset valued at $600,000.00, under the listing of Other Assets Not Recorded in Financial Statements. Also listed is a Pioneer Western Pension, which was included as an asset in Debtor’s Bankruptcy Schedules.
The letter of June 30, 1986, to MBI states:
“In accordance with Paragraph 2(b) of my employment agreement dated June 23, 1977, I do hereby appoint and designate JoAnn C. Kuhns as the beneficiary of the payments both during my lifetime and in the event of my death.”
Paragraph 2(b) of the employment contract of July 23, 1977, provides:
“(b) Deferred Compensation. As additional consideration for Employee’s agreement to enter into this Employment Agreement and his performance of services here-under, the Employer and its affiliates shall pay to Employee or a designated beneficiary as deferred compensation an amount calculated in accordance with the formula set forth in Exhibit B hereof, which amount shall be computed and paid as if Employee had continued his employment hereunder for a period of five years and notwithstanding the earlier termination of this Employment Agreement for any reason. Said amount shall be payable in equal monthly installments for such term as is determined in accordance with the formula set forth in said Exhibit B. Such payments shall begin on the first day of the month following the termination of full-time employment of Employee except that in no event shall such payments begin prior to June 4, 1983. Employee hereby designates JoAnn C. Kuhns as the person(s) to whom payment of deferred compensation shall be made in the event of Employee’s death. Employee shall hereafter be free to amend, alter or change such designation, provided, however, that any such amendment, alteration or change shall be made by a writing in a form satisfactory to the Management Committee.”
On January 9, 1986, the Debtor wrote MBI that “As of December 31, 1985, the balance in the deferred compensation account due E. E. Kuhns will total $618,-832.00”. On May 23,1986, in pleading with MBI to settle their differences, the Debtor wrote to MBI to “Coincide [his separation date] with my deferred compensation arrangement”, then he detailed various proposals for payment of “my” deferred compensation. His wife, or the gift to his wife, is not mentioned in any of such correspondence.
Under Section 541(a)(1) of the Code property of the estate is defined as “all legal or equitable interests of the Debtor in property as of the commencement of the case”, wherever located or by whomever held. What constitutes a legal or equitable interest of the estate is to be broadly construed. In re Daniel, 771 F.2d 1352, 1360 (9th Cir.1985). Kuhns conceded he has never transferred his ownership interest in the deferred compensation plan to his wife, so that the fund is evidently still owned by Kuhns, and was so owned by Kuhns on the *239date of the filing of his Chapter 11 petition. Furthermore, the findings of fact entered by the federal district court in Kuhns v. MBI, state Kuhns assumed there would be an immediate designation of his wife as owner and beneficiary of the Equitable life policy and “as beneficiary of the deferred compensation as originally planned”, but no finding is made that the ownership ever transferred to JoAnn Kuhns. Finally, under the deferred compensation provisions of the employment contract set forth above (2b), a fair reading of that provision provides the benefits are to be paid to Kuhns during his lifetime and then to his designated beneficiary (JoAnn C. Kuhns) upon his death. Clearly, the Debtor had the right to change his designated beneficiary for payments “in the event of Employee’s death”, but he never did transfer his right to receive the funds during his lifetime — and could not do so under Section 2(b).3
But could he gift to his wife, the right to receive such payments and did he so make such gift? Clearly, Kuhns could make a gift of such payments to his wife. To do so, he had to satisfy Montana law as stated in Brown, supra. The letter of June 30, 1986, is the Debtor’s evidence that the gift was made. Following such letter, Kuhns never listed the deferred compensation plan as an asset, nor did he schedule such right to payment as an asset in this case. JoAnn Kuhns herself wrote letters to MBI in July, 1986, demanding payment, and received payments from MBI, although the amount was contested. Therefore, she obviously accepted the gift and treated it as her own property. The gift to his wife of the right to payments from MBI during his lifetime satisfies the requirements of Montana law. The gift was completed. See, e.g., Faith Lutheran Retirement Home v. Veis, supra, which holds precise words of transfer are not required, and in fact a writing may not be necessary to make a gift. In this case, the writing of June 30, 1986, suffices to make the gift, and his wife’s acceptance is clear.
Any argument that the gift in 1986 was a fraudulent transfer under § 548(a)(2) (constructive fraud) must also fail for the uncontroverted testimony from the Debt- or’s expert witness, not rebutted by the Plaintiff, is that Kuhns was solvent at the time, based upon an analysis of Debtor’s balance sheet of assets and debts. In re Koubourlis, 869 F.2d 1319, 1320 (9th Cir.1989), holds:
“Inability to pay debts in the ordinary course of business is insufficient to establish insolvency — there must be evidence that assets, at fair evaluation, exclusive of exempted property, are exceeded by the debts.”
The same is true under the preference Section 547 of the Code. In re Sierra Steel, Inc., 96 B.R. 275, 277 (9th Cir. BAP 1989) (In order to prevail on a preference claim, the trustee must establish that the transfer was made while the debtor was insolvent). As to § 548(a)(1), dealing with fraudulent transfer made 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”, thereby leaving out insolvency as a test, proof of actual intent is missing on this issue. Debtor did not contemplate bankruptcy until August, 1986, when his income stream was severly eroded one month earlier, and current obligations thus went unpaid. Coupled with this fact was his inability to arrive at an agreement with MBI in August, 1986, to purchase his extensive stock holdings in that company. The test of actual fraud is set forth in In re Bell v. Beckwith, 64 B.R. 620, 628 (Bankr.N.D. Ohio 1986):
“Under these provisions, [548(a)(1) and (c) ], a trustee may avoid any transfer of a debtor’s property which occurs within one year prior to the filing of the Peti*240tion, and which was made with the intent to hinder, delay, or defraud creditors. Reiber v. Baker (In re Baker), 17 B.R. 392 (Bkcy.W.D.N.Y.1982). When seeking to avoid a transfer under this.provision, the trustee must be able to show that the transfer was accomplished with actual intent to defraud. See, Toledo Trust Co. v. Peoples Banking Co. (In re Hartley), 52 B.R. 679 (Bkcy.N.D. Ohio 1985), Varon v. Trimble, Marshall & Goldman (In re Euro-Swiss International Corp.), 33 B.R. 872 (Bkcy.S.D.N.Y.1983).”
I conclude the Plaintiff has failed to establish the requisite fraudulent intent to void the gift of the deferred compensation due from MBI. There simply is no evidence of a general scheme of the Debtor stripping himself of all assets to gain advantage over his creditors by transfer of this asset at the time it was transferred. The most that can be said is the Debtor relinquished his financial ability to pay his current debts at a time when his compensation was substantially eroded. But, all of this would have been irrelevant had he successfully negotiated a stock buy-out with MBI. By June 30, 1986, such was still possible. From the foregoing, I find the Plaintiffs Complaint to recover the deferred compensation payments due from MBI is without merit.
C. The Equitable Life Insurance Contract.
Closely aligned with the deferred compensation issue is a contract of whole life insurance issued by The Equitable Insurance Company in December of 1982. From the date of its issuance until September 16, 1986, Policy No. N82 450 926 was owned by MBI, which was also the beneficiary under the contract. MBI paid all premiums on the policy. In fact, MBI pledged the policy throughout the term of its ownership as collateral for loans of MBI, and the liens on said contract were not released until August, 1986. It is clear that MBI had intended following termination of Kuhns employment to transfer the policy to Kuhns, but such request of transfer by MBI to JoAnn Kuhns was not perfected until September 16, 1986, just one week before the Debtor filed his Chapter 11 petition. By this date, E.E. Kuhns had consulted bankruptcy counsel upon suffering loss of income which resulted in his inability to pay his obligations, and the stock purchase agreement with MBI had failed to materialize.
In the spring of 1986, MBI signed transfer documents to the insurance carrier to transfer the policy to the Debtor, and the Debtor upon learning such fact, contacted counsel for MBI demanding such transfer be made to his wife, which MBI ultimately succeeded in doing. The Debtor claims the transfer to his wife of the policy was in accordance with his estate plan of 1982, but the record is clear that no transfer in fact occurred until 1986. That estate plan never was followed through to completion by the Debtor. Delivery of the policy to satisfy the gift law in Montana was therefore not made until shortly before the Chapter 11 case was filed after bankruptcy had been contemplated in August, 1986. Indeed, MBI could not have transferred the policy in 1982 or until August, 1986, without release of the lienholders. MBI’s activities surrounding the transfer of the policy formed a basis for part of the judgment against MBI in the Kuhns v. MBI Federal District Court action. The Court there found the Debtor was to have the right to designate the policy’s owner and beneficiary, which was to be his wife, J. Kuhns but the policy was never changed to reflect such interest. As a result the Court found MBI received the benefits of the policy, and therefore rejected the claim of MBI to offset the premiums against the deferred compensation benefits. Finally, no consideration passed between the Debtor and his wife for transfer of the policy.
On this issue, I find the Plaintiff has sustained its burden of proof showing actual intent to defraud Kuhns’ creditors by transfer of the life insurance contract within one year of the filing of the Bankruptcy Petition. Under § 548(a)(1) of the Code, the policy is thus recoverable as an asset of the Debtor’s estate. Unlike the situation concerning the deferred compensation benefit, when the transfer of the policy was made just days before the date *241of bankruptcy, Kuhns knew he had to seek Chapter 11 relief. Plaintiff cannot recover under § 548(a)(2), because there is no proof that Kuhns was insolvent, or rendered insolvent, by reason of the transfer. Rather, Plaintiff is entitled to recover on the basis that there has been a showing of actual intent to defraud his creditors by reason of a transfer of property for no value within one year of the petition date. Certain “badges of fraud” described in In re Compton, 70 B.R. 60, 62 (Bankr.W.D.Pa.1987), are proof of Debtor’s actual intent in the case sub judice.
“This Court has previously relied upon various factors, referred to as ‘badges of fraud’, which indicate fraudulent intent. See Matter of Brooks, 58 B.R. 462 (Bankr.W.D.Pa.1986). These indicia of fraud include:
1) an absence or negligible amount of consideration;
2) the value which the transfer took from the estate;
3) The time in which the transfer occurred;
4) the relationship between the debtor and the transferee; and
5) the debtor’s financial condition at the time of the transfer.
Id. at 465-66. See also, In re Peery, 40 B.R. 811, 815-16 (Bankr.M.D.Tenn.1984) and In re Rubin, 12 B.R. 436, 442 (Bankr.S.D.N.Y.1981). Indeed, several courts, including this Court, have found a transfer for little or no consideration to a close relative is clear evidence of fraudulent intent. See Matter of Brooks, supra; In re Butler, 38 B.R. 884 (Bankr.D.Kan.1984); In re Nazarian, 18 B.R. 143 (Bankr.D.Md.1982); Matter of Loeber; 12 B.R. 669 (Bankr.D.N.J.1981); In re Rubin, supra.”
Of course, since the Debtor will not voluntarily testify as to fraudulent intent, the Court must rely on all of the facts and surrounding circumstances of the transfer. Matter of Brooks, supra, at 465. Actual intent is not easy to prove, so, of necessity, an inference of actual intent may be drawn from convincing evidence of extrinsic fraud. In re Butler, supra, at 888.
Kuhns argues that the policy was to be transferred to his wife in 1982 as part of his tax planning. The clear and convincing evidence shows that in 1982 Kuhns was in comfortable financial condition, with substantial income, but by September, 1986, the date of actual transfer, his financial condition had been sharply reversed both by his loss of substantial income and his inability to reach agreement with MBI on the purchase of his substantial stock holdings in that company. His tax planning developed in 1982 had thus substantially changed by late 1986. Next, no value passed between Kuhns and his wife for the insurance policy transfer. From that fact, a substantial asset of $224,000.00 in cash surrender value was lost to the creditors of Debtor’s estate. The transfer, therefore, hindered or delayed his creditors. By the end of August, 1986, Kuhns’ income was not sufficient to pay his existing debts. That is why he filed his Chapter 11 case. By September 15, 1986, he had consulted bankruptcy counsel and his income flow was restricted so his financial condition was precarious. A few days later on September 23, 1986, he filed for relief under Chapter 11. The badges of fraud are satisfied under these facts by clear and convincing evidence. I therefore conclude that the Debtor transferred the Equitable life insurance policy to his wife without fair consideration or value on September 15, 1986, with the actual intent to hinder and delay his creditors. The transfer is void under § 548(a)(1) of the Bankruptcy Code.
D. The Arizona Residence Payments.
In January, 1985, Debtor and his wife borrowed $203,000.00 from Century Bank of Phoenix, Arizona, to purchase a family residence and furniture in Scottsdale, Arizona. The home was purchased for $189,000.00. Shortly thereafter, on January 15,1985, debtor signed and recorded a “disclaimer deed” to the home, thereby divesting himself of any legal interest in the property. The home was thus titled in the name of JoAnn Kuhns, subject to the mortgage of Century Bank. The home was sold and loan retired in August, 1988, with all net proceeds passing to JoAnn Kuhns. *242The Century Bank note provided for quarterly payments of $3,609.00 for interest due on the note. The Debtor made all of such payments, including insurance and taxes up to the time the home was sold. Thus, from the date of the Bankruptcy Petition on September 23, 1986, through August 1988, the Debtors made seven post-petition payments of interest totaling $25,-263.00.
At all times material hereto, Kuhns was paid a housing allowance of $1,600.00 by First National Bancorp as a condition of his employment, to cover his expected housing or rental costs while in Arizona. The Debt- or contends that the quarterly payments to the Century Bank were equivalent value for his use of the home while on business in Arizona. Debtor testified it would have been more expensive to rent other quarters than to make the interest payments on his wife’s home. Those factors are irrelevant when § 549 is invoked by the Plaintiff.
Under § 549 of the Code, it is provided: “(a) Except as provided in subsection (b) or (c) of this section, the trustee may avoid a transfer of property of the estate—
(1) that occurs after the commencement of the case;”
Debtor never sought nor received any Court order post-petition seeking authority to make payments from the estate for the benefit of his wife. Under Section 1107 of the Code, a Debtor-in-Possession, such as E.E. Kuhns, is acting as a fiduciary for his unsecured creditors, and it was incumbent upon him as such fiduciary to seek authority to pay said funds for the benefit of his wife, when such payments are made out of the ordinary course of his business.
In re Energy Resources Co. Inc., 871 F.2d 223, 229 (1st Cir.1989), holds:
“(2) The debtor-in-possession (or other trustee) is no longer free to spend the debtor’s money, rather he must act as a ‘fiduciary’ for the benefit of the creditor, 11 U.S.C. § 1107 (1982 & Supp. IV, 1986); see, Wolf v. Weinstein, 372 U.S. 633, 649-50, 83 S.Ct. 969, 979, 10 L.Ed.2d 33, (1963), and, he must act in accordance with orders that the bankruptcy court may issue, 11 U.S.C. §§ 105(a), 1141(a), 1142(b) (1982 & Supp. IV 1986).”
In re Technical Knockout Graphics, Inc., 833 F.2d 797, 802-03 (9th Cir.1987), follows the same theme in holding:
“Once a debtor files a bankruptcy petition, the property it then possesses, as well as funds acquired thereafter, become the property of the estate. 11 U.S.C. § 541(a). The debtor-in-possession is not free to deal with the property as it chooses, but rather holds it in trust for the benefit of creditors, just as would a trustee. 11 U.S.C. § 1107; S.Rep. No. 989, 95th Cong.2d Sess. 116, reprinted in 1978 U.S. Code Cong. & Admin. News 5787, 5902.
A debtor-in-possession is required to obtain the court’s permission to make payments other than in the ordinary course of business, and notice to creditors must be given to creditors. 11 U.S.C. 363(b), (c); Institutional Creditors of Continental Air Lines, Inc. v. Continental Air Lines (In re Continental Air Lines, Inc.), 780 F.2d 1223, 1225-26 (5th Cir.1986).
The debtor-in-possession is not free to pay whomever it chooses before the plan is confirmed, as this could defeat the priority scheme established by Congress.”
In re Continental Air Lines, Inc., supra, held that proposed leasing of two aircraft was outside of the ordinary course of debtor’s business and thus required approval under § 363(b). The same is true in this case. The ostensible leasing by the Debtor of his wife’s home post-petition to be paid out of estate funds was not in the ordinary course of Debtor’s business, and required Court authorization, after notice to creditors. None of such steps were taken by the Debtor in this case.
4 Collier on Bankruptcy, ¶ 549.02, pp. 549-5 and 6 (15th Ed.), states:
“ * * * the trustee may avoid post-petition transfers of property of the estate *243that are either unauthorized or that are authorized by Section 303(f) or Section 542(c).”
Section 303(f) deals with an involuntary case and § 542(c) deals with transfers to persons without knowledge of the commencement of the case, so that both these Code Sections have no application to the case at hand.
In re Coast Trading Co., Inc., 744 F.2d 686, 692 (9th Cir.1984), holds:
“Coast, [debtor-in-possession], as trustee, could not sell or transfer any rights it had or might acquire in the grain without notice and a hearing unless such transfers were in the ordinary course of business. 11 U.S.C. § 363(b) (1982); See also, 11 U.S.C. § 549 (1982) (trustee can avoid unauthorized post-petition transfers).”
The Debtor’s unauthorized post-petition payments of $25,263.00 for the benefit of his wife are recoverable by the estate pursuant to § 549 of the Code. I reject Debt- or’s argument that such payments were made in the ordinary course of his business for fair equivalent value because the evidence fails to sustain such position. In truth, the Debtor was advancing his wife’s interest, not the business of the Debtor or his employer bank.
Conclusion
On the basis of the foregoing, the Plaintiff shall recover from JoAnn Kuhns, for the benefit of the estate, the following property:
1. All proceeds paid on promissory note of June 30, 1984, from FN Bancorp, Inc.;
2. All right, title and interest in life insurance Policy No. N82 450 926 issued by The Equitable Life Assurance Society of the United States, including the cash surrender value of said policy;
3. The sum of $25,263.00 for post-petition transfers.
The Plaintiff is denied all other relief prayed for in the complaint in this adversary proceeding.
. An offset or credit of $214,424.00 was rejected by the United States District Court in Cause CV 86-261-Blg-JDS, described in this Decision. The above sum represents the amount of the judgment entered in Cause CV 86-261.
. I reject the Plaintiffs argument that the non-assignment clause in the employment contract applies to this case. The Plaintiff argues that the Debtor could not assign his vested deferred compensation without consent of MBI. The argument fails for two reasons. First, the non-assignment clause is limited to the the entire contract, thus contemplating the personal services of the Debtor and, second, the provision expired in 1982, by the express terms of the contract. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490917/ | OPINION
PRO, District Judge.
This is an appeal of a final order (“Findings of Fact and Conclusions of Law” and *248“Writ of Restitution”) entered by the Bankruptcy Court granting a Motion for Relief from Stay under 11 U.S.C. § 362. The underlying action arose from a landlord/tenant dispute in which the landlord (Respondent, “Hughes” herein) terminated a written month-to-month lease (the “Monthly Lease”) under which the tenant (Appellant, herein “Slonim” or “Rose Jewelry” as the case may be) had rented an area within Hughes’ premises for use as a jewelry shop.
Upon Hughes’ delivery of notice of termination of the Monthly Lease, Rose Jewelry commenced a proceeding in state court to enjoin its eviction, and to seek enforcement of a written, unsigned long-term lease (the “Unsigned Lease”) in reliance upon which, Slonim asserts she established Rose Jewelry. Rose Jewelry filed a petition for relief under Chapter 11 of the Bankruptcy Code, whereupon the state court case was removed to the Bankruptcy Court.
Hughes filed a motion for relief from stay, and a hearing was held on December 22,1987, and continued on January 6, 1988. At the conclusion of the hearing, the Bankruptcy Court entered an order finding, inter alia, that the Unsigned Lease was unenforceable and granting Hughes relief from stay to terminated Rose Jewelry’s occupancy.
A Notice of Appeal (# 55), subsequently amended (# 56) was timely filed. This Court has jurisdiction pursuant to 28 U.S.C. § 158 and Bankruptcy Rule 8001. The briefs of Appellant and Respondent (## 78 and 80, respectively) as well as Appellant’s Reply Brief (# 81) have been received and considered. For the reasons discussed ■herein, the Bankruptcy Court’s final order is affirmed.
FACTUAL BACKGROUND
The Bankruptcy Court made findings of fact, which are adopted by this Court and incorporated herein by reference. See # 47. Early in 1986, Hughes and Slonim agreed that Slonim would open a jewelry store in the Sands Hotel and Casino, then owned by Hughes. Negotiations as to the terms of a long-term lease extended for the better part of the year, and in June 1986, Hughes’ representatives and Slonim reached tentative agreement on a written draft of a six-month lease with two five-year options (the “Unsigned Lease”). The Unsigned Lease was then transmitted to Hughes’ corporate offices for review. Hughes’ representatives informed Slonim that Hughes’ standard procedure required that the Unsigned Lease be formally reviewed prior to execution. Slonim asserts that she was assured that this requirement was merely a formality.
By September 1986, Rose Jewelry was incorporated to operate the store, Slonim had acquired inventory, and relocated her daughter from New York to manage the store. In late September 1986, Rose Jewelry required documentation of its leased premises, but the Unsigned Lease had not yet been formally approved by Hughes. As an interim measure, the parties executed the Monthly Lease, a month-to-month tenancy, on October 3, 1986. Commencing in October 1986, Rose Jewelry paid rent to Hughes pursuant to the terms of the Monthly Lease.
In April 1987, Hughes refused to execute the Unsigned Lease, attempted to reopen negotiations by tendering a counter proposed long-term lease. Slonim insisted that Hughes execute the Unsigned Lease, and the negotiations ended. In September 1987, Hughes announced the sale of the Sands Hotel, and delivered an estoppel certificate to Slonim which stated that the Monthly Lease constituted the only enforceable lease between Hughes and Rose Jewelry.
Consequently, Hughes delivered a thirty-day notice of termination pursuant to the Monthly Lease, effective November 30, 1987. In response, Slonim filed an action in state court seeking enforcement of the Unsigned Lease, and obtained a temporary restraining order enjoining the termination of the Monthly Lease on behalf of Rose Jewelry. The state court action was removed to this Court following Slonim’s filing of a petition for relief in bankruptcy under Chapter 11.
*249STANDARD OF REVIEW
Slonim’s counsel accurately describes the standard of review which this Court must utilize:
In reviewing questions of fact, the bankruptcy court’s findings may be set aside only when clearly erroneous. Bankruptcy Rule 8013; In re American Marine Industries Inc., 734 F.2d 426 (9th Cir. 1984). Issues of law are reviewed de novo. Rubenstein v. Ball Bros. Inc., 749 F.2d 1277 (9th Cir.1984). # 78 at 4.
Hughes’ counsel provides further assistance by quoting from the Supreme Court’s discussion of appellate review under the “clearly erroneous” standard in Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 573-74, 105 S.Ct. 1504, 1511-12, 84 L.Ed.2d 518 (1985):
This [clearly erroneous] standard plainly does not entitle a reviewing court to reverse the finding of the trier of fact simply because it is convinced that it would have decided the case differently.... If the [lower] court’s account of the evidence is plausible in light of the record viewed in its entirety, the court of appeals may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently. Where there are two permissible views of the evidence, the factfinder’s choice between them cannot be clearly erroneous.
BANKRUPTCY COURT’S FINDINGS OF FACT NOT CLEARLY ERRONEOUS; CONCLUSIONS OF LAW ARE SOUND
Slonim argued before the Bankruptcy Court that Hughes’ representatives assured her that the formal approval of Hughes corporate offices was merely a formality. Under these circumstances, Slonim asserts that she reasonably relied on the assumption that Rose Jewelry enjoyed the security of a long-term lease, notwithstanding Hughes’ refusal to execute the Unsigned Lease. Accordingly, Slonim maintains that Hughes is estopped to deny that the Unsigned Lease constitutes an enforceable agreement between the parties.
Slonim does not contest the fact that the Unsigned Lease was never executed by Hughes. Since the term of the Unsigned Lease was for a period of time in excess of one year, the Unsigned Lease falls within the statute of frauds.1 Nevertheless, contracts otherwise unenforceable because of the statute of frauds may be enforced under the doctrine of estoppel. Zunino v. Paramore, 83 Nev. 506, 435 P.2d 196 (1967);2 Alpark Distributing, Inc. v. Poole, 95 Nev. 605, 600 P.2d 229 (1979).3
After considering the evidence before it, the Bankruptcy Court found that Slonim was a knowledgeable businesswoman who knew that any lease would have to be reviewed and approved by Hughes’ corporate offices before it could be legally binding. # 47, Finding of Fact Nos. 9, 10. Accordingly, the Bankruptcy Court found that any detrimental reliance by Slonim on the assumption that the Unsigned Lease was legally binding had been unreasonable since it was undertaken prior to the execution. Id., Finding of Fact No. 14.
The Bankruptcy Court found that the Monthly Lease was intended as a temporary or interim agreement, and was not *250intended to be a final written agreement integrating all understandings between the parties. Id., Finding of Fact No. 6. It is also clear that while the parties seriously-negotiated the terms of the Unsigned Lease, it was never executed by Hughes. Id., Finding of Fact No. 11.
The Bankruptcy Court also found that Slonim would not have entered into the Monthly Lease on behalf of Rose Jewelry “had she thought Hughes was not in a position to give her a long-term lease.” Id., Finding of Fact No. 17. This does not, however, militate against the Bankruptcy Court’s finding that Slonim placed no reliance upon any agreement other than the Monthly Lease, and suffered no reasonable detrimental reliance in establishing Rose Jewelry. Hughes does not deny that it seriously negotiating several drafts of a long-term lease, nor that its corporate offices reviewed the Unsigned Lease as the penultimate step in the approval process.
Moreover, the uncontested fact remains that the Unsigned Lease was never executed, and the parties continued their business relationship in reliance upon the Monthly Lease as a binding, albeit interim legal arrangement.4
This Court has reviewed the record on appeal, and must conclude that the Bankruptcy Court’s findings of fact are not clearly erroneous, and that its conclusions of law are sound. The Bankruptcy Court found that Slonim had not relied on any agreement other than the Monthly Lease, and that Rose Jewelry’s conduct was consistent with the Monthly Lease. Id., Finding of Fact Nos. 12, 13. Hence, this Court concludes as a matter of law, that under the circumstances of this action, the doctrine of estoppel is inapplicable. As a re-suit Appellant’s appeal, as amended (# 56) must be rejected, and the Judgment of the Bankruptcy Court AFFIRMED.
IT IS SO ORDERED.
. NRS 111.205, 111.210, 111.220.
. In this regard, the Nevada Supreme Court has stated: To constitute estoppel, the party relying on it must be influenced by the acts or silence of the other and it must appear that the acts or conduct of the party estopped caused the party relying to act as he would not have acted or he cannot complain that he was deceived to his prejudice. Estoppel or part performance must be proved by some extraordinary measure or quantum of evidence. Zunino v. Paramote, 83 Nev. 506, 435 P.2d 196, 197 (1967) (Citations omitted).
.In Alpark, the Nevada Supreme Court quoted Justice Roger J. Traynor of the California Supreme Court in its determination that the doctrine of estoppel is properly invoked whenever "unconscionable injury ... would result from denying enforcement of the contract after one party has been induced by the other seriously to change his position in reliance on the contract ...” 600 P.2d at 230, citing Monarco v. Lo Greco, 35 Cal.2d 621, 220 P.2d 737, 739 (1950).
. Hughes’ counsel maintains that “the parol evidence rules constitutes an additional and sufficient basis to affirm the Bankruptcy Court’s decision.” #80 at 21-25. Hughes’ counsel is completely off the mark. The parol evidence rule applies to preclude evidence of antecedent understandings to vary or contradict the writing only when the parties to a written contract have expressed the writing as the complete and accurate integration of the contract. 3 A.L. Corbin, Corbin on Contracts § 573 (1960); accord Aladdin Hotel Corp. v. General Drapery Servs., Inc., 611 P.2d 1084 (1980); Alexander v. Simmons, 90 Nev. 23, 518 P.2d 160 (1974).
The Bankruptcy Court found that the Monthly Lease was intended as a temporary or interim agreement, and was not intended to be a final written agreement integrating all understandings between the parties. # 47, Finding of Fact No. 6. In addition, the Bankruptcy Court made "no finding on the subject of whether or not the parties reached an oral agreement inconsistent with the [Monthly Lease].’’ Id., Finding of Fact No. 7. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490919/ | FINDINGS OF FACT AND CONCLUSIONS BY THE COURT ON MOTION FOR SUMMARY JUDGMENT BY PLAINTIFFS AND ON DEFENDANT’S MOTION
L. CHANDLER WATSON, Jr., Bankruptcy Judge.
Introduction—
The above-styled case is pending before the Bankruptcy Court under title 11, chapter 11, United States Code, having been commenced November 4, 1988, by the voluntary petition under said chapter of a corporate debtor. The above-styled adversary proceeding was commenced in said case on April 5, 1989, by the plaintiffs’ complaint, seeking to have this Court declare that the contract under which the debtor obtained possession of the real and personal property which comprises a motel facility in Shelby County, Alabama, is an unexpired lease of said property by the plaintiff Industrial Development Board of the Town of Vincent, Alabama (hereinafter referred to as I.D.B.) to the debtor. The day after filing their complaint, the plaintiffs filed a motion for summary judgment upon the complaint.
The day following that, apparently without service of the complaint and a summons, the debtor-defendant filed a pleading which it titled as a motion for summary judgment. The debtor has not filed an answer to the complaint.
On April 13, 1989, this proceeding came on before the Court for a hearing upon both motions, with the plaintiffs and the defendant represented by counsel. The issues were argued to the Court as if the facts alleged in the plaintiffs’ complaint were confessed by the debtor and as if the issue was solely a question of law upon that factual basis. The parties have submitted written briefs which have been considered by the Court, and the Court has determined that the plaintiffs are entitled to have the contract adjudged, to be an unexpired lease rather than a lease-sales contract as to the realty and a security agreement (conditional-sales contract) as to the personalty. The Court also has determined, as further prayed for in the complaint, that the debtor should be required to surrender possession of the property to I.D.B.
Findings of Fact—
The Court finds the facts from the pleadings and from the implied stipulations of the parties as follows:
1. As of September 1, 1986, the I.D.B. and the debtor entered into a contract titled “LEASE AGREEMENT”, consisting of 72 type-written pages;
2. A determination that this contract is a lease of the real and personal property described therein rather than being a debt instrument to secure the purchase price of said property is the principal relief sought in the plaintiffs’ complaint, and said contract refers to and is coupled with a “Mortgage and Trust Indenture” of the same date, covering the same property, and being from the I.D.B. to the plaintiff First Alabama Bank (hereinafter referred to as the bank);
3. Essentially, the “lease term” was to run through September 1, 2016;
4. This contract was intended to form the basis for the I.D.B. to issue bonds in the principal amount of $4,400,000.00, which would be sold and the proceeds used to finance the construction by the I.D.B. of a motel facility for the use of and operation by the debtor;
5. The project proposed that the payment of the bonds would be secured by a mortgage on the real and personal property of the motel facility, which was to be executed by the I.D.B. to the bank, which in turn would be the trustee for the holders of the bonds sold;
*2876. This arrangement was intended to be made pursuant to the provisions of title 11 of the Code of Alabama, Article 4, Chapter 54 (1975) and had as its ostensible purpose the promotion of “industrial development” in Shelby County, in which is located the Town of Vincent, through the construction and operation in Shelby County of a new motel facility having in excess of 100 rooms;
7. The genius of the arrangement was to be that the project bonds would be “municipal bonds” which would offer an income tax advantage to the holders upon the interest paid to them on the bonds, thereby making the bonds marketable at an interest rate below the market rate at which the debtor could have borrowed the funds for the construction and furnishing of the motel facility and thus attracting the debtor to Shelby County for the construction and operation of a new motel facility;
8. The contract between the I.D.B. and the debtor contained provisions which would permit the debtor to purchase for the sum of $100.00 (plus the expenses of the I.D.B. in concluding a sale) the real and personal property constituting the motel facility, upon payment of the bonds and the fees and expenses of the trustee, and it further provided the right to the debtor, while the contract was not in default, to purchase portions of the real property at the site of the motel facility for no consideration, upon establishing that a sale of the the real property intended thus to be be purchased would not impair the operation of the motel;
9. The contract was substantially performed to the point that the motel facility was constructed and put into operation, the bonds were issued and sold, and the mortgage and trust agreement were executed and delivered to the bank;
10. The debtor apparently had no other purpose and no other business than the acquisition of the motel facility and its operation, and when the latter generated insufficient funds for the debtor to make biannual interest payments and annual payments of principal on the $4,400,000.00 bonded indebtedness and other payments, all required of it by the contract, the debtor became in default in its payments to the bank;
11. Faced with demands for payment under the contract, the financially-distressed debtor commenced this chapter 11 reorganization case, and being totally unable to make the payments called for under its agreement with the I.D.B., the debtor made no effort to assume the contract as an executory contract or unexpired lease within the 60 days permitted for the assumption of “an unexpired lease of nonresidential real property under which the debt- or is the lessee,” as provided in 11 U.S.C. § 365(d)(4); and
12. As “debtor in possession,” the debt- or, with supervision by the bank, has been operating the motel facility under restraints and conditions imposed by the Court at the request of the bank.
Conclusions by the Court—
In this bankruptcy case, it is obvious that the debtor neither has the means to meet the payment requirements of its contract with the I.D.B. nor has any reasonable prospect of being able to meet such payments. Subsection (b)(1) of Section 365, title 11, United States Code, conditions the assumption of a defaulted executory contract or unexpired lease of the debtor by the trustee (here the debtor in possession1) upon a cure or adequate assurance of a prompt cure of the default, compensation or adequate assurance of prompt compensation for pecuniary loss resulting from the default, and adequate assurance of future performance of the contract. It, therefore, would have been futile for the debtor to undertake an assumption of its contract with the I.D.B., as an executory contract or unexpired lease with respect to the motel facility. The motel facility, however, is the raison d’etre of the debtor, but the bank is obligated to collect the principal and interest payments falling due on the bonds but *288not being paid by the debtor. The referred-to section 365(d)(4) provides that “the trustee shall immediately surrender such nonresidential real property to the lessor” when a related unexpired lease of such property to the debtor is not timely assumed and is thereby “deemed rejected” under the terms of the statute. With the debtor in possession of the motel facility and not making the required payments on the “industrial development” bonds, it is no surprise that the bank (and the I.D.B.) have urged the Court to declare that the contract is a lease or that the debtor strenuously urges the Court to declare that the contract memorializes an agreement to sell the motel facility to the debtor, conditionally, and provides the terms of the financing agreement by which the debtor would be enabled to complete the purchase.
The motion for summary judgment by the plaintiffs is understood by the Court to be a request that the Court conclude, as a matter of law, that any agreement between the debtor and the I.D.B., having the purposes outlined and resting upon a general state of facts such as those found by the Court, must be treated by the parties and by the Court as a true lease to the debtor of the subject property and not an embodiment of a lease-sale of the real property and a conditional-sale of the personalty involved. The debtor having made no answer to the complaint, the Court construes its motion for summary judgment as being a motion for dismissal of the complaint, for “failure to state a claim upon which relief can be granted.”2
As to the personal property included in the motel facility, the debtor directs the Court’s attention to Code of Alabama § 7-1-201(37) (1975),3 which contains provisions to the effect that the inclusion in a “lease” of an option for the lessee to become the owner of the property, upon compliance with the terms of the lease and for no or for a nominal consideration, “make[s] the lease one intended for security.” A contention that the purchase option, for the motel facility at an additional price of $100.00 plus the legal expenses of the sale, would not be for a “nominal consideration” here appears to the Court to be an unsupportable proposition. The debtor further directs the Court’s attention to sundry cases holding a so-called lease to be a security agreement, covering the purchase price of property sold on credit, when the “lessee” may purchase the leased property by paying the rent and a nominal additional sum; and the debtor particularly relies upon the chief bankruptcy judge’s opinion in In re Central Foundry Company, 48 B.R. 895 (Bankr.N.D.Ala.1985), wherein an Alabama industrial-development-bond contract was held to be a contract for the sale of property on credit and not a true lease. Thus, it might very well be that, without more, the present Court could adjudicate that this contract is not a true lease, such as would be required to be assumed under the provisions of the referred-to section 365 of the bankruptcy statute. If so held, the debtor then would be in a position to propose a plan of reorganization for payment to the bank of the “value” of the motel facility in order to become the owner of this property, and undoubtedly the value of the motel facility would be determined by the Court to be several million dollars less than the sums provided to be paid by the debtor under the contract, and the debtor could begin an installment payment of this “value” (with market-rate interest added), without curing anything or giving any assurances except that the plan was feasible. If that could not be brought off, the debtor might arrange a sale to a purchase^ who would be more friendly to the debtor’ b continued business existence than aré the plaintiffs in this proceeding.
The classification by this Court of the contract as a “lease” or as a sale-financing instrument, however, is not a tabula rasa decision. Circuit Judge Clark’s opinion in In re Martin Bros. Toolmakers, Inc., 796 F.2d 1435 (11th Cir.1986) forecloses this Court from any serious consideration that this- contract is not to be treated as a lease. There, the Circuit Court affirmed a ruling *289by the district court for this district which had affirmed a determination by Bankruptcy Judge Breland that an Alabama industrial-development-bond contract was a lease, as it had been denominated.
In the Circuit Court’s opinion, it was pointed out that the I.D.B. was a party to the contract — not just the debtor and the bank or bond trustee — and that the I.D.B. was both lessor and mortgagor.' The appellate court construed the Alabama statutes as not permitting the I.D.B. to assume the status of a mortgagee and concluded that for it to do so would cause a loss of the tax-exempt status of the income from the bonds. The Court noted that the I.D. B.’s leverage for industrial development would be destroyed, and that the public policy considerations for the industrial-development statutes would be defeated. Having accepted the benefits of the industrial-development-bond arrangement, the Court found “offensive to equitable principles” 4 the debtor’s effort to rechristen the lease and held that the debtor was es-topped to treat it as a mortgage outside of the scope of 11 U.S.C. § 365.
The debtor here urges the Court to dismiss the complaint on the basis of two distinctions between the present case and the Martin Bros. case. In the latter case, the purchase option required a payment by the debtor of $5,000 for a facility which originally cost $500,000, when the “rental” payments had been completed. Also, the debtor there had not raised the lease versus mortgage (lease-sale) question at the time of a proceeding brought by the bank there to require the debtor to assume or to reject the “lease.” This tune composed by the debtor may have some appeal to the ear, but in the face of the Martin Bros. holding, it cannot hold the Court’s attention longer than the “Minute Waltz.”
Since the plaintiffs are entitled to have the debtor “immediately surrender such nonresidential real property to the lessor,” as provided in 11 U.S.C. § 365(d)(4), and since the personalty is an integral part of the motel facility, the debtor must surrender the personalty as well as the real estate — besides there is no conceivable way for the debtor to assume the “lease” as to the personal property only.
The Court, consequently, has rendered a final judgment in favor of the plaintiffs.
. See definition of “debtor in possession”, 11 U.S.C. § 1101(1), and the rights and powers of a "debtor in possession", 11 U.S.C. § 1107(a).
. See Bankruptcy Rule 7012 and Federal Rule of Civil Procedure 12(b) and (d).
. This is a part of Alabama’s Uniform Commercial Code.
. 796 F.2d 1435, at 1441. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490920/ | ORDER ON MOTION FOR SANCTIONS
ALEXANDER L. PASKAY, Chief Judge.
THIS is a Chapter 7 liquidation case, and the immediate matter under consideration is a Motion for Sanctions filed by Gary R. Froid, the Debtor in the above-captioned case. The Motion seeks the imposition of sanctions against Leslie M. Conklin, counsel for First Federal Savings and Loan Association of Largo (First Federal), for Mr. Conklin’s alleged violation of Bankruptcy Rule 9011. The alleged violation is premised on the Debtor’s contention that Mr. Conklin on behalf of First Federal filed a Complaint seeking to deny the Debtor’s discharge without conducting a reasonable inquiry as to the facts and applicable law pertaining to the claims asserted against the Debtor. In the alternative, the Debtor *315contends, assuming arguendo that the Complaint was filed in good faith, Mr. Conklin should not have continued prosecution of the action against the Debtor once he received a letter from Debtor’s counsel outlining the Debtor’s evidence to refute any claims asserted by First Federal.
In opposition to the Motion for Sanctions, Mr. Conklin contends that he conducted a reasonable inquiry and found the Complaint to be well grounded in fact and law and therefore sanctions are inappropriate under Bankruptcy Rule 9011.
The Court has considered the Motion, together with the record, and post-hearing submission by counsel, now finds and concludes as follows:
On October 7, 1987, First Federal filed a lawsuit against the Debtor in the Circuit Court for the Sixth Judicial District of Florida. The suit which sought recovery from the Debtor was based on several promissory notes executed by the Debtor in favor of the Plaintiff representing a total principal indebtedness in excess of $1.4 million. First Federal alleged in its lawsuit that between November 6, 1987 and November 12, 1987, the Debtor transferred certain property for less than fair consideration to his friends and business associates and used the proceeds obtained to pay antecedent debts owed by him to his attorneys and accountants.
On November 20, 1987, the Debtor filed his Voluntary Petition for Relief under Chapter 7 of the Bankruptcy Code and on December 20, 1988, Mr. Conklin, on behalf of First Federal, filed the Complaint in which First Federal sought the denial of the Debtor’s discharge based on § 727(a)(2)(A) of the Bankruptcy Code. The claim set forth in the Complaint alleged that the Debtor transferred several assets to his business associates and friends, that the transfers were for less than fair and adequate consideration and were done with the intent to hinder, delay and defraud creditors. As an additional ground for objecting to the Debtor’s discharge, the Complaint contained the allegation that the Debtor converted the proceeds from these sales into exempt assets for the purpose of delaying or defrauding his creditors. The Complaint was processed in due course, and the issues raised by the pleadings were tried. At the end of the Plaintiff’s presentation of its evidence, the Debt- or moved for involuntary dismissal. The Motion was based on the contention of the Debtor that the Plaintiff failed to establish a prima facie claim. The motion was granted and this Court dismissed the Complaint with prejudice.
It is the Debtor’s contention that Mr. Conklin violated Bankruptcy Rule 9011 which provides, inter alia, as follows:
The signature of an attorney ... constitutes a certificate that the attorney ...has read the document; that to the best of the attorney’s ...knowledge, information and belief formed after a reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing laws.
This contention is based on the proposition urged by counsel for the Debtor that had Mr. Conklin conducted a reasonable inquiry or investigation as to the facts surrounding the transfers involved, he would not have filed the lawsuit against the Debt- or. In addition, the Debtor argues that Mr. Conklin should not have continued prosecution of the lawsuit after he became aware of the evidence which the Debtor would produce at trial.
Bankruptcy 9011, with some modification not relevant in the present instance, adopts Federal Rule of Civil Procedure 11. The Rule is applied in two circumstances, (1) where the papers signed by the attorney are frivolous, legally unreasonable or without factual foundation or (2) if the pleading is filed for an improper purpose. Golden Eagle Distributing Corp. v. Burroughs Corp., 801 F.2d 1531 (9th Cir.1986).
This provision of Bankruptcy Rule 9011 has been interpreted by some courts to be read in the conjunctive. For instance, in the case of Buy n Save, Kash & Karry v. Underwriters Insurance Co., 56 B.R. 644 (Bkrtcy.S.D.N.Y.1986) the Court concluded that an imposition of sanctions pur*316suant to Bankruptcy Rule 9011 is warranted only if it is determined that the claim advanced “lacks any color”, i.e., legal and factual merit and was advanced for an improper purpose. However, this Court is satisfied that that provision of Bankruptcy Rule 9011 should not be read in the conjunctive and the proper standard to be used in considering a Motion to Impose Sanction is the objective standard and the “subjective good faith is not the issue”. As the Seventh Circuit stated in Thornton v. Wahl, 787 F.2d 1151 (7th Cir.1986), cert. den., 479 U.S. 851, 107 S.Ct. 181, 93 L.Ed.2d 116 (1986): “An empty head but a pure heart is no defense.” In re D.C. Sullivan Co., Inc., 843 F.2d 596 (1st Cir.1988).
As to the Debtor’s first contention that the Complaint was frivolous and filed for an improper purpose, it should be noted that the Debtor’s counsel, Mr. Forizs, in a letter addressed to Mr. Conklin, counsel for the Plaintiff, conceded that there existed probable cause to institute the adversary proceeding against the Debtor (Debtor’s Exh. E). In light of this, it is not necessary to determine whether sanctions are appropriate for the initial commencement of the lawsuit against the Debtor.
However, the question remains whether or not it was reasonable for Mr. Conklin to insist to prosecute the lawsuit against the Debtor after Debtor’s counsel tendered to Mr. Conklin his evidence in opposition of the objection to the Debtor’s discharge, and if not, whether his conduct did violate Bankruptcy Rule 9011.
The letter tendered by Mr. Forizs to Mr. Conklin outlines what Mr. Forizs characterized as unconverted facts. The following is illustrative of what was contained in Mr. Forizs’ letter:
1. That the Debtor attempted to sell the assets in question at arm’s length several months before he filed his Petition for Relief. To this end, the Debtor employed various brokers, one of which was a Mr. Curley, a licensed real estate broker.
According to Mr. Forizs, Mr. Curley would testify at the final evidentiary hearing that he was unable to sell the Debtor’s assets and that most of his assets were essentially unmarketable, i.e., a partnership interest in a partnership which he owned in real property in Crystal River, Florida.
2. That the note which the Debtor owed was also virtually unmarketable as it was secured by a second mortgage which was subordinate to a large first mortgage.
Mr. Forizs indicated that he would present expert testimony that there was no market for such a note, and the Debtor was fortunate to have received an offer for it.
The letter goes on to outline each asset which the Debtor sold prior to the commencement of his case and Mr. Forizs recites to Mr. Conklin the testimony he will elicit to show that the transfers by the Debtor were not done with the intent to hinder, delay or defraud his creditors.
Be that as it may, this Court is satisfied that this letter alone would not necessarily vitiate a cause of action under § 727 of the Bankruptcy Code.
While the letter may indicate that these assets were highly unmarketable, the fact of the matter is that the assets were in fact sold and the proceeds were used by the Debtor to selectively pay obligations. The letter does not vitiate the fact that the Debtor did, in fact, transfer these assets to friends, former counsel and various acquaintances and received the funds used by them to avoid any embarrassment or cause hard feelings which may occur if the Debt- or had filed for bankruptcy without repaying some of his debts owed to his friends and associates. This payment to selective creditors while nonpayment to others prior to bankruptcy may certainly give rise to a § 727(a)(2)(A) Complaint and, therefore, this Court is satisfied that based on the foregoing, the Debtor’s Motion for Sanctions should be denied.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Debtor’s Motion for Sanctions be, and the same is hereby denied.
DONE and ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490922/ | ORDER ON EMERGENCY MOTION TO DISMISS CHAPTER 11 PROCEEDING
ALEXANDER L. PASKAY, Chief Judge.
When Mandalay Shores Cooperative Housing Association, Inc. (Debtor) first *321sought refuge in the Bankruptcy Court on April 3, 1981, no one ever envisioned that the time would come when the Debtor itself would seek an escape from the bankruptcy courts which the Debtor used or, according to many, misused, over the years. Without reciting in detail the turbulent and sometimes convoluted history of this Debtor, it should be helpful to recite certain events which occurred since 1981 as appear from the three Chapter 11 cases in order to put the present matter under consideration in the proper focus.
As noted earlier, on April 3, 1981, the Debtor filed its first Voluntary Petition for Relief under Chapter 11. After numerous unsuccessful efforts even to undertake meaningful steps toward effectuating a plan of reorganization and to obtain confirmation of same, certain dissident members of the Debtor, led by Walter N. Smith (Smith), filed a Motion to Dismiss the Chapter 11 case on the basis that there was a total absence of a reasonable likelihood of rehabilitation of the Debtor coupled with continuing losses to the estate which, according to Smith, warranted a dismissal or, in the alternative, a conversion to a Chapter 7 liquidation case pursuant to § 1112(b)(1).
The Motion was heard in due course. On July 13, 1982 this Court entered an Order and having concluded at that time that inasmuch as the Debtor was a “non-monied”, “non-business” and “non-commercial” corporation, in the absence of a consent, the case could not be converted to a Chapter 7 liquidation case by virtue of § 1112(c) of the Bankruptcy Code. In light of this finding, this Court considered the alternative, i.e., the dismissal. Having been satisfied that the Debtor was incapable of effectuating reorganization, granted the Motion to Dismiss filed by Smith. It appears, however, that the Order suspended the effectiveness of the dismissal for thirty (30) days in order to enable the warring parties to make peace by using common sense and resolve their feuds for the benefit of all concerned. Because of this provision of the Order of Dismissal, the case remained open which in turn triggered several new plans of reorganization and disclosure statements and additional amendments and objections to same and various and sundry matters going on for years in the first case without producing any tangible result.
On October 11, 1985, Smith renewed his Motion to Dismiss. On October 25, 1985, this Court granted the Motion and entered an Order of Dismissal. The Debtor sought a rehearing of the Order of Dismissal which was denied. After some additional miscellaneous litigation which included a notice of appeal filed by the Debtor addressed to the Order of Dismissal, since no stay was obtained pending appeal, the case was closed even though the formal documentation of the dismissal, i.e. the closing report, was not entered until July 7, 1988.
On November 4, 1985, or after this Court entered the Order of Dismissal, the Debtor filed its second Voluntary Petition for Relief under Chapter 11 in the Northern District of Illinois. In this connection, it should be noted that the only nexus this Debtor ever had with that district was the fact that the funds collected by the promoter of the Debtor were placed in a banking institution located in Chicago. Counsel for Smith, who ultimately successfully killed the first Chapter 11 case in this district, promptly filed an Emergency Motion to Dismiss the Chapter 11 case or in the alternative sought an order of abstention and also moved for change of venue back to Florida. The Motion was heard in due course. On December 19, 1985 Bankruptcy Judge Eisen of the Northern District of Illinois entered an Order granting the Motion to Dismiss with prejudice on the basis that the Petition for Relief was filed in bad faith; that it was merely an improper attempt to re-litigate the issues which were fully litigated in the first Chapter 11 case in Florida. The Debtor timely filed a Notice of Appeal challenging the Order of Dismissal. On appeal, District Judge Sha-dur in an extensive and detailed opinion, In re Mandalay Shores Co-op Housing Association, Inc., 63 B.R. 842 (N.D.Ill.1986), affirmed the Order of Dismissal entered by Judge Eisen. The District Court also *322agreed that the Petition (Debtor # 2) was, in fact, filed in bad faith.
While an appeal was still pending before the District Court in the Northern District of Illinois and before the appeal was decided, lo and behold the Debtor filed its third Chapter 11 Petition on March 31, 1986. The Debtor again filed a Disclosure Statement and Plan of Reorganization which was supplemented and amended several times. In the interim, Smith also filed a Disclosure Statement and Plan of Reorganization of his own which was also amended. Due to the numerous charges and counter charges and objections, neither the Debtor’s Plan nor the Plan of Smith ever reached confirmation.
On April 7, 1989, Smith filed a Motion and sought the appointment of a trustee alleging mismanagement and fraud in conducting the affairs of the Debtor. In addition Smith also alleged repeated violations of several Orders of this Court. The Motion was heard in due course. On May 22, 1989 this Court entered an Order, deferred ruling on the Motion for Appointment of Trustee in order to permit the group represented by Mr. Borja, counsel for Smith, to file an amended disclosure statement and plan of reorganization by May 25, 1989. The Order further provided that in the event the creditors did not file an amended disclosure statement or amended plan of reorganization, this Court would reconsider the Motion and enter an appropriate order. In light of the fact that this Court is satisfied that there was amply persuasive evidence to grant the Motion to Appoint a Trustee since counsel for Smith failed to file a Disclosure Statement and a Plan of Reorganization. On May 26, 1989, this Court entered an Order and directed the U.S. Trustee to appoint a trustee in this Chapter 11 case. Shortly thereafter, Mr. Lan White was appointed by the Office of the United States Trustee and is still in charge of the affairs of the Debtor.
However, prior to the entry of this Order on May 24, 1989, the Debtor filed its Emergency Motion to Voluntarily Dismiss this Chapter 11 case. This is the Motion which is presently under consideration. The Motion is based on the following propositions urged by new counsel employed by the Debtor:
First, because of the pending appeal in the Northern District of Illinois this Court lacks subject matter jurisdiction to consider the third Chapter 11 Petition and, therefore, the filing was a legal nullity and should be dismissed.
Second, the dismissal in the Northern District of Illinois was with prejudice which, according to the Debtor, prohibited the refiling of the present Chapter 11 case.
Third, the notice of appeal filed in the Northern District of Illinois divested this Court of jurisdiction to entertain this third Chapter 11 case.
Fourth, in any event, the Debtor no longer has any desire to achieve reorganization and the only alternative is a dismissal inasmuch as by virtue of § 1112(c) of the Bankruptcy Code, the case cannot be converted to a Chapter 7 case absent the consent of the Debtor.
Considering these contentions seriatim, it is quite clear that the argument that this Court has no subject matter jurisdiction is obviously without merit. It needs no elaborate discussion to point out the obvious that once the District Court entered a general reference pursuant to 28 U.S.C. § 157(a) this Court has subject matter jurisdiction to consider all petitions filed under any and all of the operating chapters of the Bankruptcy Code including, of course, Chapter 11. Thus, to argue that the Bankruptcy Court lacks subject matter jurisdiction to maintain the Chapter 11 case is, to be charitable, is nothing short of sheer sophistry and borders on absurdity.
Next, the contention of the Debtor that once the notice of appeal was filed in the Northern District of Illinois from the Order of Dismissal entered by Judge Eisen this Court was divested of jurisdiction and, therefore, the third filing by the Debtor was a legal nullity and the case should be dismissed is equally without merit.
Ordinarily it is true that once a notice of appeal is filed, the lower court should not proceed any further and enter any orders *323which deal with the same subject matter involved in the appeal. The basis of this rule is obvious. If the lower court would modify, alter or change in any fashion the order which is challenged on appeal, it would clearly be an unseemly interference with the appeal process. This certainly would be true, of course, if the lower court’s acts occur in the same forum where the appeal is pending. In the present instance, the third petition was filed by the Debtor in this forum and not in the Northern District of Illinois. Clearly had the Debtor attempted to file a renewed Petition for Relief under Chapter 11 in the Northern District of Illinois it would have been highly improper and subject to dismissal inasmuch as the mere act of filing itself would have run afoul of the order of dismissal entered by Judge Eisen. This is so because the dismissal of the second Chapter 11 case was the very subject of the appeal which was pending before Judge Shadur. The third petition was not filed in the Northern District of Illinois but in this Court. The fact that Judge Eisen’s decision was affirmed on appeal would not necessarily bar this Debtor forever to seek relief in an appropriate forum which is clearly the Middle District of Florida. It is true that this third Chapter 11 case may also be vulnerable on the basis that it was filed in bad faith and on this basis that the decision of Judge Shadur in Chicago may conceivably operate as a collateral estoppel. In addition it also might be argued that this Court’s earlier dismissal represents the law of the case. No such contention is advanced currently before this Court. On the contrary, the entity who seeks dismissal is the Debtor itself, not Smith nor any other party of interest. The history and the background of this case leaves no doubt that the last thing the dissident members of this Association who, according to the president of the Association are no longer members, want is a dismissal, realizing that if the case is dismissed they would not get a dime of the contribution back from the Association. Based on the foregoing, this Court is satisfied, first that the Debtor was and still is an eligible entity for relief under Chapter 11 and this Court has subject matter jurisdiction; second, that the notice of appeal filed in the Northern District of Illinois did not divest this Court of jurisdiction to enter such orders as may be appropriate. The fact of the matter is if one accepts the argument of the Debtor this Court would even lack the jurisdiction to entertain the motion to dismiss filed by the Debtor.
Third, the notice of appeal filed in the Northern District of Illinois certainly had no impact on the third Chapter 11 Petition and, in this Court’s opinion, neither did the order of Judge Eisen of dismissal with prejudice nor the affirmance of the same order by Judge Shadur especially in light of the fact that currently there is a trustee in charge of the estate who certainly will be in a position either to propose a plan of its own, i.e. a total liquidation plan, or conceivably consent on behalf of the estate to converting this Chapter 11 case to a Chapter 7 liquidation case. See, In re Blanton Smith Corporation, 37 B.R. 300 (M.D.Tenn.1983).
The last argument of the Debtor is equally without merit. The argument is based on the statement that the Debtor no longer desires to effectuate reorganization. This is, of course, a non-sequitur in light of the fact that while the Debtor might not have a desire to achieve reorganization, the trustee in charge of the estate might very well do so and most likely will do so. Based on the foregoing, this Court is satisfied that the Debtor’s Motion is without merit.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Debtor’s Emergency Mo*324tion to Dismiss Chapter 11 Proceeding be, and the same is hereby, denied.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490923/ | ORDER ON MOTION FOR RELIEF FROM STAY AND MOTION TO PROHIBIT USE OF CASE COLLATERAL
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 case and the matters under consideration are a Motion for Relief from Stay and Motion to Prohibit Use of Cash Collateral both filed by Chrysler First Diversified Credit, Inc. (Chrysler First), a creditor in the above-captioned case. It appears that the Debtor, National Discount Music, Inc., and Chrysler First have stipulated that there are no disputed factual issues and the following facts as they appear from the record are as follows:
At the time relevant to the controversy, the Debtor, National Discount Music, Inc., was a Florida corporation whose President and sole shareholder was an individual by the name of Richard Eldridge (Eldridge).
In June, 1987, the Debtor entered into an agreement with Chrysler First. Under this agreement, Chrysler First agreed to finance the Debtor’s purchase of certain inventory from Rhythm Band, a distributor of musical equipment and accessories. Pursuant to the financing agreement, El-dridge executed a security agreement in favor of Chrysler First. The security agreement was signed by Eldridge, as President of the Debtor. In addition, underneath his signature, Eldridge affixed a certificate of the Debtor’s corporation which authorized Eldridge to execute the security agreement as an officer of the Debtor.
Contemporaneously with that transaction, the Debtor also executed a Financial Statement (UCC-1). However, the UCC-1, while signed by Eldridge at the designated signature line for the debtor, there was no indication as to the capacity of Eldridge who signed the UCC-1. The UCC-1 did identify the corporation as the Debtor with its proper address in the appropriate places designated. In addition, the inventory which was covered under this UCC-1 was described with reference to the Security Agreement entered into between the Debt- or and Chrysler First.
*328Between July, 1987, to March 15, 1988, the .date the Debtor filed its Voluntary Petition for Relief under Chapter 11 of the Bankruptcy Code, the Debtor purchased inventory from Rhythm Band financed by Chrysler First. Pursuant to the security agreement entered into by the parties, the Debtor was required to remit certain payments to Chrysler First when each item was sold. To date, although the Debtor purchased and sold various items of inventory, it has not made any payments to Chrysler First.
On September 12, 1987, Chrysler First filed a second Motion for Relief from Stay and Motion to Prohibit Use of Cash Collateral, the motions presently under consideration. These motions were heard and the Court granted interim relief to Chrysler and ordered the Debtor to make weekly payments to Chrysler First based on the sales of the inventory. The Court withheld final ruling and took the matter under advisement as to the ultimate relief to be granted to Chrysler First pending resolution of the Debtor’s challenge on the enforceability of the security interest claimed by Chrysler First. This challenge is based on the proposition urged by the Debtor that Chrysler First’s attempts to perfect its security interest were fatally defective because the UCC-1 was signed by Eldridge as an individual and not in his capacity as an officer of the Debtor.
In order to perfect a security interest under Florida law, a secured party must comply with § 679.402, Florida Statutes, 1987, which provides, inter alia, that the secured party file with the Secretary of State of Florida, a financing statement which contains the names of the debtor and the secured party, is signed by the debtor, lists the address of the secured party and the debtor and contains a description of the collateral which is the subject of the security interest.
§ 679.402(7) of the Florida Statutes provides that the above formal requisites are not strictly construed and a financing statement which substantially complies with the requirements of this section is effective. The reasoning behind substantial compliance is that a financing statement does not in itself create a security interest but rather serves to provide notice to others who may be interested in providing financing or security to a particular debtor.
The issue of the sufficiency of the signature of an individual to bind a corporate debtor has been addressed by several cases on point. Sherman v. Upton, Inc., 90 S.D. 467, 242 N.W.2d 666, (1976); In re A & T Kwik-N-Handi, Inc., 12 U.C.C.Rep. 765 (M.D.Ga.1973); In re Brocliff, Inc., 18 U.C. C.Rep. 1144 (W.D.Mich.1971); In re Laskin, 316 F.2d 70, 1 U.C.C.Rep. 262 (3d Cir.1963). In all of those cases, the respective courts determined that a signature of an individual was sufficient to bind the corporate debtor where there was evidence that the individual signer was, in fact, an officer of the corporate debtor or duly authorized by the corporate debtor to sign on its behalf.
This Court is persuaded by reasoning of the courts in these cases. It is undisputed that at the time he signed the UCC-1, Eldridge was, in fact, the President and sole shareholder of the Debtor and had the authority to bind the corporate debtor to the obligations incurred by the Debtor. Next, it is unlikely that a potential creditor who was searching the records of the office of the Secretary of State would be misled by Eldridge’s signing of the UCC-1 and would not be put on notice of Chrysler First’s security interest and did not intend to grant a security interest in the Debtor’s inventory. The purpose of the UCC-1 simply is to put other creditors on notice as to the existence of a security interest in the collateral described in the UCC-1, and if this is accomplished, the security interest is properly perfected.
In the present instance, this Court is satisfied that the financing statement on UCC-1 satisfied the notice requirement of § 679.402 Florida Statutes and Chrysler First has a perfected security interest in the collateral of the Debtor.
A final evidentiary hearing shall be scheduled on July 10, 1989 at 10:30 a.m., to determine what the appropriate adequate protection should be ordered in order to *329perfect the interest of Chrysler First in its collateral. Until such hearing, the Debtor shall comply with the Court’s previous Order directing the Debtor to make adequate protection payments to Chrysler First.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490925/ | FINDINGS OF FACTS AND CONCLUSIONS OF LAW
A. JAY CRISTOL, Bankruptcy Judge.
This cause came on before the court on October 7, 1988, upon the complaint of George W. McLaughlin as Trustee for Southeast Forest Products Corporation for a Complaint to Set Aside Preferential Transfers, pursuant to Title 11 of the United States Code, and the court having heard the testimony, examined the evidence presented, observed the candor and demeanor of the witnesses, considered the argument of counsel, and being otherwise fully advised in the premises, makes the following Findings of Fact and Conclusions of Law:
1. This adversary action involves transfers made by the Debtor, SOUTHEAST FOREST PRODUCTS CORPORATION (SOUTHEAST) to Defendant, A.C. DUT-TON in the form of three separate checks of $3,428.05; $7,000.00 and $11,800.05 for total alleged preferential transfers of $22,-228.10.
2. Under § 547(b) of Title 1 of the Bankruptcy Reform Act of 1978 (The Code), a preference is: (i) a transfer, (ii) of an interest of the debtor in property, (iii) to *341or for the benefit of the creditor, (iv) for or on account of an antecedent debt, (v) made while the debtor was insolvent, (vi) on or before ninety (90) days before bankruptcy, (vii) that enables the creditor to receive more than it would receive in a Chapter 7 case if the transfer had not been made.
3. The transfer of an interest of the Debtor in property is represented by the checks tendered and cashed by Defendant, A.C. DUTTON.
4. A.C. DUTTON was a trade creditor of SOUTHEAST FOREST PRODUCTS CORPORATION who sent invoices to reflect transactions between the parties. The transfers by SOUTHEAST FOREST PRODUCTS CORPORATION to A.C. DUT-TON were to or for the benefit of A.C. DUTTON as they were made directly to the Defendant. The transfers were made on account of antecedent debts which occurred as indicated by the invoice dates, but were not paid until the Defendant received the check and the check cleared the account of the Debtor.
5. SOUTHEAST FOREST PRODUCTS CORPORATION was insolvent at the time of each of the transfers on 7/1/85; 7/25/85 and 8/12/85. The sum of SOUTHEAST FOREST PRODUCTS CORPORATION’S debts as indicated in the Amended Disclosure Statement to All Creditors and Parties of Interest filed in the Chapter 11 Proceeding on April 8, 1986, indicates the total unsecured liabilities as of July 19, 1986 of $1,148,265.51 and as of August the sum of $1,100,127.84. The Trustee is aided by the presumption set forth in § 547(f) that the Debtor is presumed to have been insolvent on or during the ninety (90) days immediately preceding the date of bankruptcy. August 28, 1985, is the date that a petition for relief under Chapter 11 was filed in this Court by SOUTHEAST FOREST PRODUCTS CORPORATION. Therefore, all of the transfers occurred within the ninety (90) day period before the filing of bankruptcy. Rule 301 of the Fed.R.Evid. as incorporated by Bankruptcy Rule 9017 provides that a presumption imposes on a party against whom it is directed the burden of going forward with evidence to rebut or meet the presumption. Defendant offered no testimony to refute the insolvency of the Debtor.
6. Defendant, A.C. DUTTON received one hundred percent payment on its accounts with SOUTHEAST. There is projected to be no greater than a ten percent (10%) transfer to the creditors of the Estate based upon the current deposit and disbursement statements filed with this Court and the outstanding claims against the estate. Thus, it is clear that A.C. DUT-TON, as Defendant, would have received less in a Chapter 7 liquidation case than it received by retaining the payments.
7. Defendant did not contest the elements of the Trustee’s case under § 547(b), but instead relied upon its affirmative defense that the transfer was non-avoidable pursuant to § 547(c)(2).
8. The parties agreed that Charts No. 1, 2, and 3 attached to Plaintiff’s Unilateral Pretrial Stipulation accurately summarized the invoices which were paid by the alleged preferential payments (except Invoice No. 5406 on Chart No. 2 was corrected to reflect an invoice date of 3/13/85 and 134 days until payment); the parties further agreed that the Chart labeled, “Course of Dealings” attached to Plaintiff’s Unilateral Pretrial Stipulation accurately summarized their prior business transactions by invoice and payment dates. Defendant’s witness, Kenneth L. Miron, testified that the date of delivery of goods occurred on the same day or the day following the invoices sent from Defendant to SOUTHEAST.
9. SOUTHEAST had thirty (30) credit transactions with A.C. DUTTON in 1984 with eleven (11) payments ranging from four (4) to forty-six (46) days after the date of the invoice for the transaction. Most of the payments were made twenty (20) to thirty five (35) days after the invoice date.
10. In 1985 there were fourteen (14) credit transactions which were all paid by the three (3) checks which are alleged to be preferential payments. These payments ranged from eighty three (83) to one hundred fifty (150) days after the date of the invoice for the transaction with only one as *342short as eighty three (83) days and most over one hundred days.
11. The Accounts Payable records of SOUTHEAST showed that SOUTHEAST’S payments to its other suppliers were made in the following ranges after date of invoice:
SUPPLIER PAYMENT AFTER INVOICE Morel Michaud Lumber
Ltd.17 days through 36 days
Dantlzer Lumber.30 days through 56 days
Medford Corporation.28 days through 39 days
12. Defendant’s only witness, Kenneth L. Miron, testified that the basic wholesale terms in the industry were that payment was due five (5) days after invoicing.
13. Plaintiff’s only witness, Linda Carey, assisted in all aspects of SOUTHEAST'S business during the last few months of the business when the bookkeeper had to be let go due to financial difficulties of the firm. Ms. Carey testified that she had never heard of any special terms by any suppliers which were as long as sixty (60) days after the date of invoice. She testified that her regular practice was to prepare a purchase order to confirm the purchase of any treated lumber pursuant to the instructions of the salesman who had negotiated the purchase and she would then give the purchase order to the salesman who would sign it. The four (4) invoices numbered: 1506, 1507, 1508 and 1509 were all backed up with corresponding purchase orders prepared by Linda Carey. She testified that these purchase orders were signed by Steve Blaine and the terms were two (2%) percent discount if paid within ten (10) days with payment due on the eleventh (11th) day.
14. Mr. Miron testified that it was his practice to review purchase orders received from customers and call the customer if any terms on the purchase order were incorrect. He further testified that he had no recollection of ever calling SOUTHEAST to correct a purchase order. None of the invoices reflected any terms which contradicted the purchase orders.
15. The Court finds that the payments by SOUTHEAST to A.C. DUTTON were not made in the ordinary course of business of the parties. None of the preferential payments were made as promptly as the slowest payment during the thirty (30) previous transactions. The Court also finds that the preferential payments were not made according to ordinary business terms.
16. The testimony of Kenneth L. Miron that he had agreed to extended terms for payment for lumber purchases in 1985 up to ninety (90) days after the date of invoice does not establish an ordinary course of business of the parties nor does it establish ordinary business terms. In fact, Mr. Mi-ron testified that A.C. DUTTON was unique in the industry in offering extended payment terms throughout the entire year. Unique business terms are not ordinary by their very nature. Furthermore, the billing cycle for other customers of A.C. DUTTON such as Sherwood Lumber Co., was about thirty (30) to forty-five (45) days in May, 1985, and at one point in his testimony, Mr. Miron recalled that the terms with SOUTHEAST would have also been forty-five (45) days after invoice for lumber purchases in May, 1985. This evidence highlights the lateness of the preferential payments by SOUTHEAST which were made eighty three (83) to one hundred fifty (150) days after date of invoice.
17. Preference exceptions are affirmative defenses. Thus, the Defendant, A.C. DUTTON had the burden of proving an exception to preference avoidance.
18. The applicability of the ordinary course of business exception requires consideration of all of the circumstances of the payments and stated in In re Craig Oil Co., 785 F.2d 1563, 1567 (11th Cir.1986):
“Lateness is particularly relevant in determining whether payments should be protected by the ordinary course of business exception. As several courts have noted, this exception is directed primarily to ordinary trade credit transactions. These typically involve some extension of credit but are meant to be paid in full within a single billing cycle. It was for this reason that Congress originally required payment within forty-five days of incurring the obligation. This period represents a normal trade cycle.”
*34319. Defendant, A.C. DUTTON failed to carry its burden of proof that the payments to Defendant from SOUTHEAST which ranged from eighty-three (83) days to one hundred fifty (150) days after the date of invoice were consistent with either the ordinary course of business between the parties or with ordinary business terms in the industry.
FINAL JUDGMENT
In conformity with the Findings of Fact and Conclusions of Law of even date, it is
ORDERED,
Judgment will be entered for the Plaintiff against the Defendant in the amount of TWENTY TWO THOUSAND TWO HUNDRED TWENTY EIGHT DOLLARS and TEN CENTS ($22,228.10), plus interest from January 26, 1988, the date of Plaintiffs letter to Defendant, plus costs to be awarded, for which let execution issue.
DONE and ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490926/ | MEMORANDUM OF DECISION
JAMES A. GOODMAN, Bankruptcy Judge.
Bayside Enterprises, Inc. (“Bayside”) and Poultry Processing, Inc. (“P.P.I.”) seek by motion to dismiss Acme Engineering Company’s (“Acme”) and Cara Corporation’s (“Cara”) cross-claims asserting equitable subordination1 on the grounds that claimants have failed to state a claim on which relief can be granted. Fed.R.Civ.P. 12(b)(6). Bayside and P.P.I. additionally assert that Acme and Cara are barred from asserting their claim by the doctrine of res adjudicata. This action is a core proceeding within the meaning of 28 U.S.C. § 157.
On April 7,1986 an involuntary chapter 7 petition was filed against Medomak Canning Co. (“debtor”). An order for relief was entered on April 18, 1986. The trustee, on June 6, 1986, filed a motion to sell *400the property of the estate free and clear of liens to which Bayside and P.P.I. objected. On June 25, 1986 after notice and a hearing and after Bayside and P.P.I. withdrew their objections this Court allowed the trustee’s motion and in its order required that the proceeds from the sale be held in escrow with valid liens to attach to those proceeds. On June 5, 1987 the trustee, Bayside and P.P.I. filed a “Joint Application for the Approval of a Compromise” (“compromise”) as settlement of the dispute concerning entitlement to the proceeds of the sale of those assets. After notice and a hearing on July 1, 1987 at which cross-claimants Acme and Cara were represented by counsel, this Court entered an order granting the compromise. At no time did either Acme or Cara object to the compromise on the theory of equitable subordination of Bayside’s and P.P.I.’s claims. Acme’s objection only sought clarification that the validity and priority of their asserted secured (emphasis added) claim would be determined before the trustee disbursed any proceeds to Bayside and P.P.I. The pertinent provisions of the compromise are as follows:
1. That compromise No. 1 be and hereby is in all respects approved.2
3. That the objection of Acme Engineering Company to compromise No. 1 is overruled on the grounds that Acme Engineering Company’s objection is addressed favorably by compromise No. 1 in that compromise No. 1 does not determine the said creditors priority or right to proceeds of the sale of the debtor’s real and personal property; rather the validity, nature and extent, priority, al-lowability and amount of the claim of the various creditors shall be subsequently determined in an action to be brought by the trustee.
6.That as between the trustee, Bayside and P.P.I., Bayside shall have an allowed secured claim in the amount of $186,-573.72 as of June 2, 1987, plus attorneys fees of $15,000.00; and P.P.I. shall have an allowed secured claim for a ware-housemans’ lien for the Blake Building in Portland, Maine and Verney Mill in Brunswick, Maine in the total amount of $121,551.48; and P.P.I. shall have an allowed secured claim in the amount of $999,967.25 as of June 1,1987, plus attorneys fees of $35,000.00 based on a second mortgage on the debtor’s business real estate and a security interest in the debtor’s inventory, machinery, equipment, fixtures, accounts receivable and general intangibles.
7. Notwithstanding paragraph 6 above of this Order, the priority of the claims of Bayside and P.P.I. specified in paragraph 6 above shall be subsequently determined by this Court in an adversary proceeding to be instituted by the trustee against Bayside and P.P.I. and all other claimed secured claimants in the proceeds of the debtor’s real and personal property including those specified in paragraph III E and F of compromise No. 1.
8. Notwithstanding paragraph 7 above Bayside and P.P.I. shall pay or satisfy (which shall include a written release and withdrawal of all claims against the trustee and estate) the claims of Inger-sol-Rand (filed in the amount of $10,900), Foxboro Terminals (filed in the amount of $3,731.97) and Fore River Warehousing and Storage Company, Inc. (filed in the amount of $17,661.62).
9. That other than those claims specified in paragraph 6 above, any and all claims of P.P.I., Bernard J. Lewis and Suzanne Lewis against the trustee and estate herein shall be and hereby are allowed but subordinated to all other unsecured claims against the debtor’s estate (emphasis added).
10. Within ten (10) days of the date a judgment of this Court becomes final with reference to the complaint to be filed by the trustee determining the nature, extent, validity, priority, amount, avoidability, and/or allowability of all claimed secured claims against the proceeds of sale of the debtor’s real and personal property (now held by the trustee), the trustee shall distribute from the *401proceeds of sale of the debtor’s real and personal property, cash and accounts receivable until said funds are exhausted, secured claims as allowed by the Court in the priority fixed by the Court provided that the secured claims of Bay-side and P.P.I. as specified in paragraph 6 above shall be deemed allowed as between the trustee and the said secured claimants (emphasis added).
11. That contemporaneously with the distribution to Bayside and P.P.I. specified in paragraph 10 above, Bayside and P.P.I. shall pay to the trustee the sum of $250,00 as property of the estate free and clear of all liens, encumbrances, claims or other interests (emphasis added).
12. That Bayside, P.P.I., Bernard J. Lewis, the probate estate of George I. Lewis and Suzanne Lewis shall execute and deliver general releases which releases shall effect a release of any and all claims said parties may have against the trustee and estate herein except as may arise under the terms of compromise No. 1.
13. That contemporaneously with delivery of the releases specified in paragraph 12 above the trustee shall execute and deliver general releases which shall release any and all claims he may have against Bayside, P.P.I., Bernard J. Lewis, the probate estate of George I. Lewis and Suzanne Lewis, except as may arise under the terms of compromise No. 1 (emphasis added).
Acme asserted that it held a valid, properly perfected mechanic’s lien arising-from the installation of a boiler on the debtor’s premises during 1985. Judgment on the lien was entered in Superior Court on February 9, 1986 in the amount of $157,000.00.
By order of this Court dated August 20, 1987 the compromise was allowed and no party has appealed. That order determined the validity and amount of Bayside’s and P.P.I.’s properly perfected secured claims. The order addressed Acme’s objection by leaving open the issue as to whether there were any other properly perfected secured claims with superiority by requiring the trustee bring an adversary proceeding to determine the “validity, extent, priority, al-lowability and amount of the secured claims of various creditors.” In accordance with paragraph 7 of the Court’s order the trustee filed the present adversary proceeding on September 24, 1987 from which the issues presently before this Court arise.
In response to the trustee’s complaint, after discovering that their claims were not properly perfected or that the collateral securing the claims lacked sufficient value, Acme and Cara filed cross-claims seeking to share in the proceeds of the sale not on a theory that they had properly perfected secured claims, but upon the theory of equitable subordination.
On April 14,1989 Bayside and P.P.I. filed a motion to dismiss the cross-claims and a motion for summary judgment against Acme and Cara. In their motion Bayside and P.P.I. assert that the claimants lack standing and are additionally barred from asserting their claim by the doctrine of res adjudicata.
A motion to dismiss under Fed.R. Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted can be considered by the Court as a motion for summary judgment if matters outside the pleadings are presented and not excluded by the Court. Fed.R.Civ.P. 12(c). This Court is determining the present matter as a motion for summary judgment and is doing so by considering two matters outside the pleadings; the order allowing the sale of assets free and clear of liens dated June 25, 1986 and the order allowing the compromise dated August 20, 1986.
The proper party to assert equitable subordination is the trustee. In Re Lockwood, 14 B.R. 374, 381 (Bank.E.D.N.Y.1981). The trustee acts as the representative of all creditors and therefore may assert equitable subordination against an individual creditor. Id. As has been the law in the majority of jurisdictions for many years, unless the trustee fails or refuses to contest a creditor’s claim on grounds of equitable subordination and the Court then grants a general creditor leave to contest the claim, a general creditor does not have *402standing to assert the doctrine of equitable subordination. In Re Werth, 54 B.R. 619, 622 (D.Colo.1985); In Re Parker Montana Co., 47 B.R. 419, 421 (D.Mont.1985); In Re Charter Co., 68 B.R. 225, 227 (Bank.M.D.Fla.1986); In Re Ludwig Honold Mfg. Co., 30 B.R. 790, 792 (Bank.E.D.Penn.1983).
In the present case the trustee after negotiations, notice and a hearing entered into a compromise in dispositive settlement of all existing and potential claims and cross-claims between the estate, the trustee, Bayside and P.P.I. All issues of equitable subordination of the claims of Bay-side and P.P.I. to the claims of any other creditor were subsumed in the compromise. The only issue left open by the sale of assets free and clear of liens and by the order of compromise is whether there were other secured claims entitled to share in the proceeds.
It is clear from paragraph 13 of the compromise that the trustee released any and all claims the estate had against Bay-side, P.P.I. Bernard Lewis and others. Part of the consideration for that release, as stated in paragraph 11, was Bayside’s and P.P.I.’s payment of $250,000 to the debtor’s estate. Additionally, Bayside and P.P.I. agreed that any other claim they might assert would be subordinated to all other creditors of this debtor’s estate.
Summary judgment is entered on behalf of Bayside and P.P.I. pursuant to Fed.R. Civ.P. 56 on the cross-claims filed by Acme and Cara. Both Acme and Cara are barred by the doctrine of res judicata from relit-igating the issue of equitable subordination and equitable .estoppel. An appropriate order consistent with this opinion will be entered.
. In the memorandum accompanying Bayside’s and P.P.I.'s motion to dismiss cross-claims of Cara and Acme the movants treat Acme’s cross-claim, which alleges only equitable estoppel, as a claim grounded on equitable subordination “[s]ince the essence of this allegation appears to be equitable subordination.”
. Only compromise number one relates to these cross-claimants. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490930/ | OPINION
PER CURIAM:
The trial court issued an order which partially denied an Internal Revenue Service tax claim against Patricia S. Moseley, a Chapter 13 debtor. In re Moseley, 74 B.R. 791 (C.Cal.1987). While this appeal was pending, Moseley’s petition was dismissed because she failed to make the payments required by her plan.
When events subsequent to the filing of an appeal divest an appellate court of the power to decide questions which affect the rights of parties, as here, the appeal is moot and nonjusticiable. Sosna v. Iowa, 419 U.S. 393, 402, 95 S.Ct. 553, 558, 42 L.Ed.2d 532 (1975); Aguirre v. S.S. Sohio, Intrepid, 801 F.2d 1185, 1189 (9th Cir.1986). The general practice in such a ease is to dismiss the appeal and vacate the order from which it arose. United States v. Munsingwear, 340 U.S. 36, 39, 71 S.Ct. 104, 106, 95 L.Ed. 36 (1950).
Appeal DISMISSED and order VACATED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490931/ | ORDER
JAMES E. RYAN, Bankruptcy Judge.
On July 21, 1988, this Court conducted a hearing in the above matter regarding a Motion to Borrow Funds by Johnston Energy, Inc. (DIP) with accompanying Objections filed by creditors Hardy, Bauman, Michaud, Hudson and Abroms (Hardy, et al.) and by creditor Dayle James. Also coming on for consideration was a Motion to Dismiss by creditors Hardy, et al. with Objection made by the DIP.
Appearances were made on behalf of the DIP by Mr. Donald Shandy, for Hardy, et al. by Mr. Randy Bauman, for Dayle James by Mr. Mitchell Shamas, for First National Bank and Trust Company of Okmulgee, Oklahoma (First National) by Mr. Robert Inglish and Ms. Katherine Vance representing the United States Trustee.
Evidence was introduced and taken simultaneously for these Motions and will be considered jointly in this Order.
After review of the testimony, evidence presented and the file in this case, we FIND:
FINDINGS OF FACT
1. This is a “core” proceeding pursuant to 28 U.S.C. § 157(b). This Order is issued in compliance with B.R. 9021.
2. The DIP filed for Chapter 11 relief under the U.S. Bankruptcy Code on March 18, 1988.
3. The DIP controls, operates and retains a Working Interest in five (5) oil and gas wells located in the Okfuskee County area (i.e., Henke # 2-16, Lamar # 1, Lamar # 1A, Lamar # 2A and the Johnston # 3-16). The Johnston # 3-16 is presently a nonproducing well while the remaining four wells are engaged in minimal production at this time.
Johnston Energy retains a Working Interest in the above wells as follows:
(a) Henke #2-16 — .43282500
(b) Lamar #1 — .38829375
(c) Lamar # 1A — .40130000
(d) Lamar # 2A — .40130000
*6864. These wells were at one time yielding considerable production but as flowing well pressures diminished, a rework operation became necessary and was performed in February, 1987. This action briefly increased production but through the mismanagement of the DIP, resulting in a decreased output, the DIP was forced to seek additional cash injection to continue operations. In November, 1987, the DIP obtained a loan through First National in the amount of $25,043. In exchange, for the purpose of securing this loan, First National obtained an Oil and Gas Mortgage on the DIP’s Working Interest in the four wells. The amount of the Working Interest mortgaged is:
(a) Henke #2-16 — .4015750
(b) Lamar #1, # 1A, #2A— .3750000 each
5. Once again the DIP finds itself sorely lacking in operating capital and reduced production due to maintenance problems associated with these wells. And once again the DIP seeks a loan from First National in the amount of $17,849 to cover its interest to rework the wells with the hope that production will increase. First National, in consideration for its loan, would receive a “super priority” lien on the proceeds of production, holding a six month Note at 12.5% interest. The DIP proposes that the rework be supervised and conducted by Mr. James Wise, a geologist with some experience in production — this mostly to allay the fears of creditors and other Working Interest owners about the questionable financial practices to date of the DIP as outlined below.
The rework operation would include the immediate use of approximately $7,600 for intangible costs designed to stimulate production. The remaining $10,254 would be attributed to tangible equipment costs to be purchased from Mr. Wise on a 60-90 day trial basis, with the Working Interest holders in toto deciding whether the costs are justifiable for the return.
Mr. Wise has obtained payment from the majority of the Working Interest holders for the rework operation. He remains in possession of the uncashed checks.
6. The DIP also holds an unencumbered Oil and Gas Lease in Okfuskee County known as the Mandy Lease which expires August 19, 1988. This property is as yet an undrilled prospect. However, the DIP has offered participation in the Mandy Lease post-Petition without Court approval. To date, interests in the Mandy Lease have been sold to the extent of u/i6 Working Interests, with. the DIP retaining a 25% Working Interest. The money paid in consideration for these interests remains in the form of unnegotiated checks and in the possession of the DIP’s attorney. The moneys derived from an interest sold pre-Petition to Hamilton do not remain at the DIP’s disposal.
7. The DIP’s mismanagement of operations did not end with the filing of the Bankruptcy Petition on March 18, 1988. Rather, the transgressions continued in that:
(a) Debtor for the first time began to draw a salary from the estate post-Petition in the amount of $1,000 per month without Court approval;
(b) Debtor received reimbursements for personal expenses in the amount of approximately $3,000 since March without prior Court approval;
(c) Debtor offered participation in the Mandy Lease, an asset of the estate, post-Petition without registering said security or having obtained an exemption from the Oklahoma Securities Commission, as required by law.
(d) Debtor offered no evidence of having in effect authority from the Oklahoma Corporation Commission to drill the Mandy Lease. It is doubtful Debtor has such authority due to the Commission’s financial requirements for issuing a Drilling Permit.
CONCLUSIONS OF LAW
A. The DIP requests permission to borrow funds pursuant to 11 U.S.C. § 364. However, to grant such a request requires that this Court look to the potential benefit to the estate and the unsecured creditors. It becomes increasingly obvious that the DIP will continue some modicum of control *687over the operations and thus any funds borrowed. In considering the egregious past conduct of the DIP pre- and post-Petition, the prospect of the DIP remaining even remotely in control is unacceptable. Thus, providing additional funds at the DIP’s disposal seems equally unacceptable.
B. The worst example of the DIP’s misconduct deserves this Court’s immediate scrutiny and consideration. The Mandy Lease represents a perishable asset of the estate, with its expiration date of August 19, 1988 rapidly descending upon us. An interest in an oil and gas lease is indeed a “security” as defined by Okla.Stat.Ann. tit. 71, § 2(20)(R) (West Supp.1988), the Oklahoma Securities Act. The offering and sale of fractional interests in the lease require either registration of the security with the Oklahoma Securities Commission or the claiming of an exemption under the Oklahoma Securities Act. Day v. Petco, 558 P.2d 1163 (Okla.1977). Even if the DIP claims an exemption, the burden is on it to prove the exemption and make the claiming of such known to the Oklahoma Securities Commission. Musson v. Rice, 739 P.2d 1004 (Okla.1987).
The illegality of these actions and the necessity for this Court to act without delay in order to preserve an asset of the estate give rise to this Court’s decision today.
C. The options available to best serve this estate are limited. The appointment of a Chapter 11 Trustee to manage the operations of this estate is not a viable solution. The business of this estate is highly specialized and hypertechnical; thus, this Court finds no candidate on the Trustee’s Panel with the necessary skills and knowledge to satisfactorily perform the functions to continue this operation.
If this Court were to grant Hardy, et al.’s dismissal motion, there is little doubt that chaos would reign supreme as the various unsecured interests fought in State Court over control and satisfaction. This Court chooses not to subject the DIP and the creditors to such a fate.
D. The most viable alternative that this Court has available is the immediate conversion of this case to Chapter 7 and the appointment of a Trustee by the U.S. Trustee’s office to liquidate this estate.
Conversion from Chapter 11 to Chapter 7 is governed by 11 U.S.C. § 1112(b) which states in part:
“... On request of a party in interest or the United States Trustee, and after notice and a hearing, the Court may convert a case under this Chapter to a case under Chapter 7 of this title or may dismiss a case under the Chapter, whichever is in the best interest of creditors and the estate for cause, including—
(1) continuing loss to or dimunition of the estate and absence of a reasonable likelihood of rehabilition.”
(Emphasis added)
The ability of this Court to convert this case sua sponte to Chapter 7 is well documented and supported. In this case, an immediate and damaging loss to the estate is threatened and conversion is justified by such circumstances. Matter of Nikron, Inc., 27 B.R. 773 (Bankr.E.D.Mich.1983). Further, the allegations of wrongdoing by the DIP support this Court’s position that conversion is justified. In re Little Creek Development Co., 779 F.2d 1068 (5th Cir. 1986). Matter of Gusam Restaurant Corp., 32 B.R. 832,10 Bankr.Ct.Dec. (CRR) 1320 (Bankr.E.D.N.Y.1983). Finally, the protection sought by the Code of a hearing to determine factual issues has been satisfied as to a Motion to Dismiss and thus the same evidence was utilized to determine the viability of conversion.
E. With the conversion of this case and removal of the DIP, the appointed Trustee must immediately dispose of the Mandy Lease which expires August 19, 1988, no later than August 12, 1988, at public sale in accordance with the provisions of 11 U.S.C. § 363 for the highest and best offer.
Also, the checks which have been tendered to Don Shandy, attorney for the DIP, in payment for Working Interests in the Mandy Lease shall be returned to their respective issuers. The checks tendered to Mr. James Wise as payment by the Work*688ing Interest holders for the proportionate share of the rework are not within the jurisdiction ■ of this Court. However, we wish it to be made abundantly clear that Mr. Wise in no way has the authority of this Court to act for this estate.
IT IS THEREFORE THE ORDER OF THIS COURT that the DIP’S Motion to Borrow Funds and creditor Hardy et al.’s Motion to Dismiss are denied.
Further, this case is converted to Chapter 7 for liquidation under the terms set forth within this Order with the United States Trustee directed to immediately appoint a Trustee to perform said terms with expediency. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490932/ | ORDER
JAMES E. RYAN, Bankruptcy Judge.
On June 24, 1988, this Court received for consideration Defendant’s Motion for Summary Judgment and Brief in Support thereof in the above captioned adversary proceeding. Plaintiff’s Brief Opposing the Motion for Summary Judgment was submitted and received on July 20, 1988.
*689After review of the Motions, the file and applicable law, we FIND:
FINDINGS OF FACT
1. This matter is a “core” proceeding for purposes of 28 U.S.C. § 157(b). This Order is given in compliance with Bankruptcy Rule 7052. There is no genuine issue as to any material fact making disposition by summary judgment appropriate in accordance with Bankruptcy Rule 7056.
2. Charles Degraffenreid (Defendant) filed for Chapter 11 relief on December 30, 1987. Janice Degraffenreid (Plaintiff), Defendant’s former spouse, filed a Proof of Claim listing three obligations arising from a Divorce Decree and subsequent property settlement totaling $243,849.
3. The parties were divorced in Pottawatomie County District Court on January 11, 1985 with a consensual Divorce Decree being filed on February 28, 1985. Subsequently, an Order Vacating Property Settlement of Divorce Decree and Entering New Property Division (Vacating Order) was entered into between the parties on January 10, 1986. This settlement dealt strictly with a reallocation of property between the parties and not with the divorce itself, as demonstrated by language throughout the Vacating Order.
4. Defendant received through this agreement much of the jointly acquired real property (including their family home and the majority of the Sonic properties) as well as stock in the Sonic Drive-In businesses and his separate property.
Plaintiff received her mother’s house with house trailer, the Tecumseh rent house, the Tecumseh Sonic property, stock in the Tecumseh Sonic Drive-In, personal property and a provision for “alimony in lieu of property from Charles to Janice.”
5. The “alimony in lieu of property” provision awards $140,000 to Plaintiff to be paid over ten (10) years in 120 equal payments with 10% fixed interest beginning February 5, 1986. The Note is secured by a Second Mortgage upon the family home. This is the source of Plaintiff’s first claim of $148,600, including interest, which she claims is support alimony and thus nondis-chargeable.
6. Plaintiff's Second Claim arises from a provision in the Vacating Order as to a “hold harmless” clause which states:
“Business Liabilities. Excepting those business liabilities related to the corporation or real estate associated with Sonic Drive-In, Tecumseh, Inc., upon closing Charles covenants and agrees to hold Janice harmless from any and all business related indebtedness incurred during the course of their marriage, including, but not limited to, lease agreements, franchise agreements, and note indebted-nesses.”
Plaintiff is presently obligated, due to her prior action of co-signing on a business obligation, to the FDIC in the amount of $91,749. Pursuant to this “hold harmless” clause, Plaintiff seeks this obligation deemed nondischargeable as to Defendant.
7. Plaintiff also claims $3,500 in attorney’s fees stemming from the divorce action which she has reduced to judgment.
8. Plaintiff filed an Adversary Proceeding on April 8, 1988 for a determination by this Court as to the nondischargeability of these debts.
CONCLUSIONS OF LAW
A. In accordance with 11 U.S.C. § 523(a)(5), a Chapter 11 debtor is unable to discharge obligations to a former spouse for alimony, maintenance or support owed to such spouse when such payments are “actually in the nature of alimony, maintenance or support.” The ultimate determination of a divorce decree’s award characterization, i.e., support alimony or property settlement, is governed by federal bankruptcy law rather than state law. In re the Matter of Norman, 3 Collier Bankr. Cas.2d (MB) 2d 497 (Bankr.D.N.J.1981). However, state law remains applicable in providing guidance to the Bankruptcy Court in enunciating the considerations used by the Trial Court. In re Norman, 4 Collier Bankr.Cas.2d (MB) 1573 (Bankr.W.D.Mo.1981). The Bankruptcy Court is not expected to be forced into deciding the characterization issue in a vacuum in the *690absence of federal law concerning domestic relations. Pauley v. Spong, 661 F.2d 6 (2d Cir.1981). Since no Tenth Circuit position was presented to this Court, we chose to look elsewhere, in Oklahoma state law, for guidance.
B. The Divorce Decree and subsequent Order Vacating Property Settlement of Divorce Decree and Entering New Property Division was granted pursuant to Okla. Stat.Ann. tit. 12, § 1289 (West Supp.1988), which provides:
“(A) In a divorce decree which provides for periodic alimony payments, the Court shall plainly state, at the time of entering the original decree, the dollar amount of all or a portion of the payment which is a payment pertaining to a division of property. The Court shall specify in the decree that the payments pertaining to a division of property shall continue until completed ...
(B) The Court shall also provide in the divorce decree that upon death or remarriage of the recipient, the payments for support, if not already accrued, shall terminate ...”
The term “alimony in lieu of property,” as used in the Vacating Order, is not addressed in this section or elsewhere in Oklahoma Statutes. However, the Oklahoma Courts have defined the term in stating that:
“... there is a vital distinction between alimony for support and alimony in lieu of property division. Jointly-acquired property must be divided when a divorce is granted. A Court may divide the property in kind or set the same apart to one of the parties and require the other to pay such sum as may be just to effect a fair and just division ... Indeed, unlike payments for support, payments pertaining to a division of property are dis-chargeable in bankruptcy and do not terminate on the death of either the husband or wife.” Isenhower v. Isenhower, 666 P.2d 238, 240 (Okla.1983) citing numerous additional Oklahoma Supreme Court decisions.
It is clear in the Vacating Order that the purpose of the alimony in lieu of property clause was to convey an equitable division of property — a sum of cash in substitution for Defendant taking much of the jointly acquired real property.
Where the intent of the parties with respect to the designation of alimony as support or alimony in lieu of property division is unambiguously expressed in the property settlement agreement and consent decree, the Court is not free to look beyond the instrument to determine the parties’ intent. Batchelor v. Batchelor, 585 P.2d 1120 (Okla.1978).
This Court determines that the document executed in this case (Vacating Order) clearly conveys the intent of the parties at the time of construction. Vacating Order is first and foremost a consensual decree. All parties had the opportunity to insert or delete specific language which would have automatically engaged certain conditions outlined in the Oklahoma Statutes. The entire document is dealing solely with property division alterations from the original Decree and is labeled as a “new property division.” All language within the document is affecting only the property division and actually avoids the implication that the Order has any other effect by stating: “as to actually divorcing the parties hereto, together with issues pertaining to child custody, visitation and child support, said Decree should remain in full force and effect.”
This Court cannot ignore the Order issued by the original Court of jurisdiction nor the language the parties chose to place within that Order. Since that language is clear and unambiguous as to its meaning, this Court relies on the document itself for determining the intent of the parties.
C. The nature of the payment can also be determined through an examination of various factors set out by other jurisdictions in attempting to resolve this issue. In the case of In re Anderson, 21 B.R. 335 (Bank.S.D.Calif.1982), five factors were outlined that this Court chooses to apply to the facts in the instant case:
*6911) The label given to the award by the state Court — in this case, as discussed above, the Vacating Order used express language which the Supreme Court of Oklahoma has stated indicates a property division;
2) The context of the disputed provision in the Decree — the only interpretation which can be derived from the context is that of property division, that being the sole issue addressed in the Vacating Order;
3) Whether the obligation terminates on the death or remarriage of the recipient spouse — no provision is made within the Vacating Order for these contingencies. This is further required by the Oklahoma Statutes to be deemed support alimony;
4) Whether the obligation terminates upon the death of the donor spouse— once again, no provision is made in the Vacating Order for this occurence, thus directing this Court toward finding a property division;
5) Whether the disputed payment to balance disparate incomes — it is clear from the Vacating Order that the purpose of this arrangement was to compensate the Plaintiff for the Defendant’s receipt of a disproportionate share of the property of the estate, not a difference in incomes.
These factors only serve to reinforce the notion that property division was the sole intent of the Vacating Order. This Court chooses not to look to the Plaintiffs present need because to second guess the original State Court’s determination and the agreement between the parties would impose its specialized view in an area in which it does not belong. In re Anderson, supra.
D. As to Plaintiff’s claim that the Defendant is required to assume the FDIC obligation incurred pursuant to the Vacating Order, once again, this turns on the issue of whether the obligation as described under “Business Liabilities” in the Vacating Order is a form of support alimony or a property division. Fife v. Fife, 265 P.2d 642 (Utah 1954); In re Allen, 4 B.R. 617 (Bankr.E.D.Tenn.1980). This “hold harmless” clause, like the provisions in the entire Vacating Order, is a property division. Obviously, the purpose of this clause was to assume liability on a business entity that the Defendant had assumed in the division. As such, the obligation is dis-chargeable by the Defendant.
E. Plaintiff also seeks a determination that attorney’s fees incurred by her during the divorce are likewise nondischargeable. The case of In re Skinner, 68 B.R. 45 (Bankr.W.D.Okla.1986) is not an aberration in declaring the attorney’s fees dischargeable where they are not actually in the nature of alimony, maintenance or support as required by 11 U.S.C. § 523(a)(5). (See In re Allen, supra). In the instant case, the attorney’s fees incurred by Plaintiff in the course of the divorce do not fall into this narrow classification and thus are dischargeable.
IT IS THEREFORE THE ORDER OF THIS COURT that the debts relating to the alimony in lieu of property, the FDIC obligation, and the debt related to attorney’s fees incurred during the divorce are dis-chargeable as part of the property division, agreed between the parties, pursuant to 11 U.S.C. § 523(a)(5).
FURTHER, upon the foregoing, this Court denies the Plaintiff judgment as requested. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490935/ | ' 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 Complaint to determine the dischargeability vel non of a debt pursuant to 11 U.S.C. § 523(a)(2)(A) and § 523(a)(2)(B). The Complaint brought by James and Carol Kerno-zek (Plaintiffs) originally sounded in three counts. The claims in Counts I and II of the Complaint are based on § 523(a)(2)(A) and § 523(a)(2)(B) of the Bankruptcy Code, respectively. The claim in Count III challenges the Debtor’s right to a general bankruptcy discharge based upon § 727(a)(2)(A) of the Bankruptcy Code. At the duly scheduled final evidentiary hearing, the Plaintiffs voluntarily dismissed their claim set forth in Count III of the Complaint.
The facts as they appear from the record and established at the final evidentiary hearing are as follows.
At the time relevant, Joan Rubenstein (Debtor) was the principal shareholder of a corporation known as Essex Auto Salvage, Inc. (Essex), d/b/a Big Jim’s Auto, located in Essex, Connecticut. It appears that Essex Auto Salvage, Inc., was the owner and operator of a junkyard known as “Big Jim’s Auto” located in the same city in Connecticut. On March 6,1981, the Debtor and the Plaintiff, Carol Kernozek, entered into an agreement whereby the Debtor sold all her stock in Essex. As part of the consideration for the purchase of the stock, Carol Kernozek assumed the existing liabilities of the corporation. It appears that in connection with this transaction, the Debt- or, upon the request by the Plaintiffs, submitted a written financial statement of Essex, which was distributed to the Plaintiffs. That financial statement failed to disclose a promissory note of Essex’, i.e., a liability in the amount of $140,000 based on a promissory note executed by Essex and signed by the Debtor as president of Essex. At the time of the delivery of the financial statement by the Debtor, $80,000 of this note was still outstanding.
It appears that some significant time passed after the consummation of the sale when the Plaintiffs learned of the intention of the Bank who held the promissory note of Essex’ to sue Essex on the note. It is undisputed that the Plaintiffs in order to protect their interest in Essex satisfied the obligation of Essex’ by paying $80,000 plus attorney’s fees and court costs to the Bank.
It is the Plaintiffs’ contention that Essex’ financial statement submitted by the Debt- or to the Plaintiffs was materially false in that it failed to disclose the liability of Essex represented by the promissory note and that the Debtor never informed them of the existence of this note; never gave them a copy of the note, nor did she ever give the Plaintiffs any interest information from the Bank which Essex could have used as possible interest deductions on its corporate tax returns.
Based on this, the Plaintiffs argue that the entire conduct of the Debtor was done with the intent to induce the Plaintiffs into assuming the obligations of Essex and, therefore, the debt of the Debtor to the Plaintiffs should be declared nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A) and § 523(a)(2)(B) of the Bankruptcy Code.
In opposition, the Debtor contends that she, in fact, disclosed to Mr. Kernozek the corporate liability during her initial negotiations with Mr. Kernozek. The Debtor further argues that she told Mr. Kernozek that she would continue making payments on the demand note even after the closing and that the parties agreed to close the deal notwithstanding the existence of this liability of Essex. In fact, it is undisputed that the Debtor did, in fact, make payments on the note for several months. In addi*771tion, the Debtor also intimates that Mr. Kernozek was extremely interested and would have closed the deal in purchasing the salvage yard, notwithstanding the existence of this corporate liability.
It appears that Mr. Kernozek had been an experienced salvage yard businessman for years, and that all negotiations were done with him and not with Mrs. Kernozek. In fact, Mrs. Kernozek never spoke with the Debtor personally during these negotiations, and admitted that she relied entirely on her husband’s version of his negotiations with the Debtor. Based on the foregoing, the Debtor contends that notwithstanding the omission of the liability of the corporation to the Bank on its financial statement, Mr. Kernozek in fact knew of the liability, notwithstanding he proceeded to purchase the shares of the corporation from the Debtor. Based on these, the Debtor contends that she did not make any false representation or financial statement which in turn would warrant the debt allegedly owed by her to be declared nondis-chargeable pursuant to § 523(a)(2)(A) and § 523(a)(2)(B) of the Bankruptcy Code. As noted earlier, the claim of nondischarge-ability asserted by the Plaintiff is based on Section 523(a)(2)(A), (B) which provides as follows:
§ 523. EXCEPTIONS TO DISCHARGE
(a) A discharge ... does not discharge an individual from any debt—
(2) for money, property, services, or an extension, renewal or refinancing of credit, to the extent obtained by—
(A) false pretenses, a false representation or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition;
(B) use of a statement in writing—
(i) that is materially false;
(ii) respecting the debtor’s or an insider’s financial condition;
(iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and
(iv)that the debtor caused to be made or published with intent to deceive ....
It should be noted at the outset that it has been long recognized that exceptions to discharge pursuant to § 523 of the Bankruptcy Code should be narrowly construed against the creditor and in favor of the Debtor.' Murphy & Robinson Investment Co. v. Cross, 666 F.2d 873 (5th Cir.1982). In the instant case, the Plaintiffs seek a declaration from this Court that the $80,-000 which the corporation was required to pay to the Bank pursuant to the promissory note originally executed by the Debtor on behalf of the corporation, which was never disclosed, represents a liability of the Debtor and is a nondischargeable obligation pursuant to § 523(a)(2)(A) and § 523(a)(2)(B) of the Bankruptcy Code.
Section 523(a)(2)(A) and (B) of the Bankruptcy Code refers to money, property, services, or an extension or renewal or refinancing of credit obtained by the debtor by false pretenses, misrepresentation of or by actual fraud, or by use of a false statement in writing respecting the debtor’s financial condition. In order that a debt may come within the present exception encompassed by § 523(a)(2) of the Bankruptcy Code, the money, property or services or an extension, renewal or refinancing of credit must actually have been obtained by the debtor by the false pretenses or false representations or false financial statement. Rudstrom v. Sheridan, 122 Minn. 262, 142 N.W. 313 (1913); Barbachano v. Allen, 192 F.2d 836 (9th Cir.1951). In Rudstrom, supra, the court stated, inter alia, that *772This Court is aware that there are a line of cases which hold that it is not necessary that property be actually procured for the debtor himself. See In re Kunkle, 40 F.2d 563 (E.D.Mich.1930); Speir v. Westmoreland, 40 Ga.App. 302, 149 S.E. 422; In re Scheffler, 1 F.Supp. 582 (N.D.N.Y.1982); and In re Nowell, 29 B.R. 59 (Bankr.N.D.Miss.1982). These cases, however, can be readily distinguished from the instant case in that they all involved closely held corporations in which the debtor was the sole or majority shareholder and officer while the money was ostensibly obtained by the corporation and which received the money, property or services. The debtors received some indirect benefit from the loan obtained on behalf of the corporation.
*771Congress intended the language of the Statute for the purpose of preventing the bankrupt from retaining the benefit of property acquired by fraudulent means. In order, therefore, to bring the Statute into operation and prevent the full discharge of the debtor, it should be made to appear that property of some kind, tangible or intangible, was thus obtained by the debtor. The mere fact that the liability arose as the consequence of the debtor’s fraud is not alone sufficient.
*772Be that as it may, this Court is persuaded that the better view is that the debtor must have either received money, property, services or an extension of credit for himself, or at the very least, derived an actual benefit for himself by use of his false representations or false pretenses or the false statement in writing respecting the Debtor’s financial condition.
This was not a loan transaction but a sale and purchase of corporation stock. What the Debtor obtained was the purchase price in exchange for selling her interest in Essex to the Plaintiffs. Thus, the claim of nondischargeability under this section cannot be sustained unless the record warrants the finding that the sale to the Plaintiff was tainted with fraud.
In the instant case the Debtor arguably did receive an indirect benefit by the Plaintiffs’ payment of Essex’ obligation to the Bank which held the promissory note because the Debtor who guaranteed the note remained personally liable on the obligation and was relieved of any further liability upon a satisfaction of the debt by the Plaintiffs or by corporation.
However, even assuming the Debtor did obtain the purchase price for her share by actual fraud the Plaintiffs still must prove the other elements, that is, that the Debtor made a false representation, or caused to be published, a false financial statement upon which the Plaintiffs reasonably relied.
Without having to consider first whether or not the Debtor, in fact, made a false representation or submitted a false statement to the Court, this Court is satisfied that the Plaintiffs failed to prove with the requisite degree of proof that they relied on either the financial statement or any representations by the Debtor when they purchased the shares of the Essex corporation. It is undisputed that all the negotiations took place between the Debtor and Mr. Kernozek and Mrs. Kernozek has no personal knowledge as to what transpired during the negotiations. In fact, Mr. Kernozek never relied on any financial statement which was prepared by the Debt- or on behalf of the corporation. At the final evidentiary hearing, Mr. Kernozek, the only person who had personal knowledge of the details of the transaction under consideration, was noticeably absent, and only Mrs. Kernozek testified. It is clear from the foregoing that she had no personal knowledge and was unable to testify as to any reliance on the part of her husband on any alleged false representation or false pretenses made or published to her husband. It is equally evident that she could not have relied herself on any alleged representation simply because she was not part of any of the negotiations with the Debtor. It is a well-known legal principle that failure of a party to call a witness who has personal knowledge of the facts surrounding the controversy permits the inference that the testimony of the absent witness would be adverse to the party who is able to obtain the attendance of the witness but failed to do so. Since Mr. Kernozek failed to appear and testify it is clear that there is no competent evidence whatsoever that he relied on anything represented to him by the Debtors either in writing or orally concerning Essex’s $80,000 obligation.
Accordingly, the Plaintiffs have failed to meet their burden of proof with respect to this element, and their claims of nondis-chargeability based on § 523(a)(2)(A) and § 523(a)(2)(B) of the Bankruptcy Code cannot be sustained.
*773A 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/8490937/ | ORDER ON DEBTOR’S MOTION FOR RECONSIDERATION, REHEARING, TO ALTER OR AMEND JUDGMENT, AND FOR EVIDENTIARY HEARING
ALEXANDER L. PASKAY, Chief Judge.
THIS CAUSE came on for hearing upon the Debtor’s Motion for Reconsideration, Rehearing, to Alter or Amend Judgment, and for Evidentiary Hearing. The Debtor seeks reconsideration of this Court’s Memorandum Opinion and Order on Remand dated May 20,1988. The Debtor also seeks reconsideration of a Final Judgment entered by this Court on February 17, 1989, in connection with the above-captioned adversary proceeding. The Court has considered the Debtor’s Motion, heard argument of counsel and finds the relevant and germane facts to be as follows.
The Plaintiff, All State Publishing Company, Inc., is the Debtor involved in the above-captioned Chapter 11 proceeding, and at the time of the filing of the Petition was engaged in the business of providing advertising services, primarily to cocktail lounges through soliciting subscribers for proposed coupon books entitled, “Spirits of ’81”. The coupons entitled the bearer to one free drink at any of the subscribing establishments. In consideration for the advertisement on the coupon, the subscriber agreed to honor the coupon. It appears that on March 31, 1981, the Debtor entered into an agreement with ABC Liquors, Inc., the Defendant, whereby the Debtor agreed to print the ABC coupons and the Defendant agreed to honor them upon redemption. Subsequently, however, the coupons were dishonored by the Defendant.
It appears that subsequent to filing its Petition for Relief under Chapter 11 of the Bankruptcy Code, the Debtor filed this adversary proceeding against the Defendant, which in Count I of the Complaint alleged that the Defendant allegedly breached its contract with the Debtor and sought both compensatory and punitive damages. *780Count II was an action for breach of contract.
On August 26, 1982, this Court entered its Findings of Fact, Conclusions of Law, Memorandum Opinion and Final Judgment with respect to that adversary proceeding, which found that no contract had existed between the parties and, therefore, the claim of intentional breach of contract set forth in Count I did not need to be addressed. Therefore, the Plaintiff was denied any relief. On September 2, 1987, the Debtor filed its Notice of Appeal from the Final Judgment entered by this Court on August 26, 1982, in connection with its Findings of Fact, Conclusions of Law and Memorandum Opinion. On March 23, 1984, the District Court for the Middle District of Florida entered an Order reversing this Court’s decision and remanding it for further proceedings not inconsistent with the findings by the District Court.
On March 27, 1985, this Court entered a Final Judgment in favor of the Debtor and against ABC Liquors, Inc., and assessed damages in the amount of $14,200.00. The Final Judgment was amended on May 13, 1985, and subsequently, the Debtor appealed and ABC Liquors cross-appealed this Court’s Amended Final Judgment. On October 30, 1986, the District Court entered a Memorandum Opinion again remanding this adversary proceeding for the adjustment of damages awarded the Debtor in the May 13, 1985, Final Judgment to $11,-200.00 and that the award in favor of the Debtor included the double recovery of $3,000.00 in printing costs. In addition, the District Court directed this Court to make a factual finding with regard to whether the Debtor realized any revenues from the sale of the coupon books, and if so, to apply those revenues as a set-off to reduce the extent that it realized such as a gain.
Pursuant to the District Court’s opinion, this Court entered an Order on May 20, 1988, and found that the Debtor in fact sold at least 400 coupon books at the regular price of $19.95 per book for a total of $7,980.00 and additionally sold another 700 books for at least $5.00 per books for a total of $3,500.00. This Court further indicated that any damages that the Debtor incurred resulting from the expenditures made in reliance of a breached contract would have to be diminished by any profit realized by the non-defaulting party, i.e., the Debtor. Inasmuch as this Court found that the Debtor realized at a minimum a gain in the amount of $11,480.00 from the sale of the books, and that the Debtor’s award, which had previously been reduced in the amount of $3,000.00, should be reduced by the further amount of $11,480.00, this Court concluded that the Debtor was not entitled to recover any money from ABC.
On June 8, 1988, the Debtor filed a timely Motion for Reconsideration of this Court’s Memorandum Opinion and Order on Remand dated May 20, 1988. On August 8, 1988, this Court entered an Order denying the Debtor’s Motion for Rehearing or Reconsideration. On August 11, 1988, the Debtor filed a Motion for Reconsideration of this Court’s Ex Parte Order denying the Debtor’s previous Motion for Reconsideration during which time the Debtor filed a Notice of Appeal of the District Court’s decision and took the appeal to the Eleventh Circuit. The earlier Motion filed by the Debtor which sought reconsideration of the Court’s Ex Parte Order denying its Motion for Reconsideration was also denied on January 3,1989. On February 17, 1989, a Final Judgment was entered by this Court in favor of the Defendant, ABC Liquors, Inc. On March 6, 1989, the Debtor filed another Motion for Reconsideration, Rehearing, to Alter or Amend Judgment and for Evidentiary Hearing. This is the Motion under consideration.
The basis for the Debtor’s Motion for Reconsideration is grounded on the contention by the Debtor that there were no profits received by the Debtor which should be offset against the damages suffered by the Debtor. The Debtor contends that the Court’s findings that it sold x number of coupons at a certain price were clearly erroneous and that all sales of the booklets were forced to be refunded or rescinded and returned because of ABC’s breach. In support of its Motion for Reconsideration, the Debtor filed an affidavit signed by *781Gregg Marszalek, vice-president in charge of sales with All State Publishing Company, Inc., the Debtor, at the times relevant to this case. It appears that in his affidavit, Mr. Marszalek states that all sales made by the Debtor were refunded as a result of ABC’s failure to honor the coupon, hence rendering the coupon books worthless, and that the Debtor realized no profits whatsoever. In addition, the affidavit of Frank Severinnino, the president of the Debtor, stated the same allegation as the previous affidavit. Based on this Motion, the Court granted the Motion for Rehearing and scheduled a further hearing on the Debtor’s Motion for Reconsideration. In opposition to the Motion for Reconsideration, counsel for the Defendant argued that the Debtor’s Motion for Reconsideration should be denied because the Motion failed to allege any manifest error of law or fact, nor does it allege newly discovered material evidence which could not have been obtained by the Movant at the time the matter was heard as required under Bankruptcy Rule 9023 and F.R.C.P.Rule 59(a)(2).
Based on the foregoing, this Court is persuaded by the Defendant’s position that the affidavits filed by the former president and vice-president of the Debtor could have been discovered at the time the matter was heard, and, therefore, the Debtor now is precluded to retry this issue.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Debtor’s Motion for Reconsideration, Rehearing, to Alter or Amend Final Judgment be, and the same is hereby, denied.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490939/ | ORDER ON DEFENDANT’S POST-TRIAL MOTION
THOMAS C. BRITTON, Chief Judge.
The “Defendant’s Motion For Stay Pending Post-Trial Motions and Appeal, Motion to Amend Or Make Additional Findings of Fact, To Amend the Judgment, And For A New Trial” (CP 14) was heard May 26. The Motion is denied.
Almost all of the issues raised under this pleading have been fully and accurately answered, I believe, in the Response (CP 14a), filed by the plaintiff/trustee. I shall not repeat that analysis, but two other points, argued by defendant, merit comment.
1. Defendant correctly notes that the $7,500 paid to him in October 1988 after the filing of the involuntary petition and after the entry of the Order for Relief came from cash found in Gherman’s possession in Taiwan when he was taken into police custody in that country. I do not agree, however, with defendant’s contention that those circumstances conclusively establish that the money was Gherman’s.
The record before me reflects Gherman’s admission that since 1969, in order to hinder, delay and defraud his creditors, he deliberately avoided accumulation of any money or property in his own name. Instead he treated certain bank accounts, owned by his wife or corporations, as though they were his.
In July and August of 1988, he fled Miami with $4.4 million in cash withdrawn from the accounts of others. Only a part of this “exit money” has since been traced and accounted for. He took that money with him in suitcases when he fled. I infer, therefore, that any money found in his possession when he was apprehended in Taiwan was a part of those embezzled funds. There is no evidence before me of any other source for that money. I find, therefore, that the $7,500 was an asset of these bankruptcy estates, subject to administration for the benefit of creditors.
Though I do not know how candid Gher-man was in briefing his then prospective criminal attorney, details protected of course by the attorney-client privilege, I cannot believe Gherman could have unfolded any story plausible to an attorney of Mr. Clark’s experience, which did not reveal at least the possibility that the money was not his to give, but belonged to others. I infer, therefore, that defendant knew or should have known that the $7,500 was stolen money and not Gherman’s.
2. The central thrust of defendant’s present contention is, I believe, that § 329(b) relates solely to compensation which “exceeds the reasonable value of [an attorney’s] services”1 and that the Memorandum Decision of May 8 (CP 12 at 2) recites that defendant’s “good faith and the reasonableness of [his] charges are both conceded”. The apparently obvious inconsistency is the basis for defendant’s argument that neither the statute nor its implementing rule are applicable here.
In fact, the trustee through counsel at trial merely stated he would not contest defendant’s customary hourly charges and was not contending that defendant had a fraudulent intent.
Like the trustee’s counsel, I have long respected Mr. Clark’s distinguished record of public service and wanted this record to reflect that this case involves no charge or proof of unethical conduct. This court’s earlier recital, quoted above, should now be corrected and amplified:
“Mr. Clark is an outstanding attorney of deservedly impeccable reputation. It is neither alleged nor argued that he had any fraudulent intent in accepting payment for his services. Plaintiff has offered no proof or argument that Mr. Clark’s hourly charges for his services to Gherman as criminal counsel were exces*810sive or unreasonable. Mr. Clark was retained in mid-June 1988 by Gherman to represent him if and when Gherman were indicted.
“I find and conclude, however, that any payment by Gherman to any attorney for Gherman’s defense from criminal charges made from funds embezzled by Gherman is unreasonable and excessive, until and unless this court can find that such legal services are or were ‘in the best interest of the estate’ and until and unless this court can find that such services are or were ‘for the estate and not for the personal benefit of the debtor’. In re Duque, 48 B.R. 965, 974-75 (S.D.Fla.1984).
“I can make neither finding on this record in this case. On the contrary, it has not been in the best interest of the estates in bankruptcy that Gherman has been defended from criminal charges; and such services were for the personal benefit of Gherman and not for the estates in bankruptcy.”2
As the Legislative History recites:
“Payments to a debtor’s attorney provide serious potential for evasion of creditor protection provisions of the bankruptcy laws, and serious potential for overreaching by the debtor’s attorney, and should be subject to careful scrutiny.” (H.R. 95-595, 95th Cong., 1st Sess. 329 (1977), U.S. Code Cong. & Admin.News 1978, pp. 5787, 6285).
Accepting, as I must and do, that the potential bankruptcy estate may not be depleted for the debtor’s criminal defense, the payment to this defendant of $25,000 on the eve of bankruptcy and $7,500 postpetition from that source was as completely excessive and unreasonable as would have been the payment of a fee to institute or defend a divorce action, no matter how reasonable the attorney’s hourly charges and no matter how innocent or pure his intentions were when he took the money. Either would evade the creditor protection provisions of the Code and, for this reason, § 329(b) expressly permits the cancellation of the entire retainer agreement as excessive. I believe that defendant has construed this remedial statutory provision too narrowly.
DONE and ORDERED.
. The implementing Bankruptcy Rule 2017 similarly relates solely to "excessive” charges.
. Although I think the issue is irrelevant here, I also disagree with defendant’s contention that his services to Gherman incidentally benefitted the bankruptcy estates. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490944/ | MEMORANDUM
TIMOTHY J. MAHONEY, Chief Judge.
Debtor and IRS agree that certain income taxes, interest and penalties are due. The parties agree on the amount. However, they do not agree which taxes should be treated for bankruptcy purposes as secured, priority and unsecured.
The IRS assessed an income tax liability and filed notice of a federal tax lien on the 1983 taxes iri December of 1984. Such a lien encumbers debtors’ assets up to the value of the assets. Tax assessments were also made for the 1984 taxes in May of 1985 and for the 1985 taxes in May of 1986.
The value of debtors’ assets does not exceed the amount of taxes, interest and penalties assessed for 1983.
Debtors filed a Chapter 13 bankruptcy petition on October 30, 1987. The IRS filed a claim, as now amended, as secured on the 1983 amount due and as a priority claim under Code Section 507(a)(7) on the 1984 and 1985 taxes.
Debtors argue that such treatment is unfair because it will require debtors to pay the 1983, 1984 and 1985 taxes in full, causing financial hardship. Debtors proposed a plan which treats the 1984 and 1985 taxes as secured and the 1983 taxes as unsecured, eliminating any priority taxes.
Although such treatment would benefit debtors, they provide the Court no authority in statute or case law to justify the treatment. They simply ask the Court to exercise its equitable power to permit debtors to determine how the IRS should apply the plan payments.
The IRS classification is logical and does not offend the statutory language. It has a lien. There is no reason why such lien should be prohibited from attaching to debtors’ assets to secure the oldest taxes. It also is owed some recent taxes. The Code at Section 507(a)(7) provides for priority treatment of the recent taxes.
Debtors’ objection to IRS amended proof of claim is overruled. IRS objection to amended plan is sustained.
Debtors are granted 21 days to amend in conformance with this memorandum.
Separate journal entry to be entered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490945/ | LOUISE DECARL MALUGEN, Bankruptcy Judge.
I
INTRODUCTION
This proceeding is brought by Milton Fredman (“Fredman”), Co-Liquidating Trustee for Taylor Rig & Equipment Company (“Taylor Rig”), an affiliated subsidiary in the consolidated estates of Nucorp Energy, Inc. (the “estate”), against C.E. Machine Company (“C.E.”) to recover a purported preferential transfer. Prior to trial, the parties stipulated that the only issues in controversy are whether the estate’s prior settlement of a relief from stay action commenced by C.E. precludes the preference suit and/or whether the trans*205fer is avoidable under § 547(b)(5) such that it enabled C.E. to receive more than it would have been entitled to under a liquidation.
After trial of these issues, the Court finds in favor of C.E. and concludes that Fredman has failed to establish that C.E. received a greater dividend on its unsecured claims by retaining the payment than it would have otherwise received by sharing in the estate’s distribution to unsecured creditors under the confirmed plan. The Court further finds that it has jurisdiction to hear this matter under 28 U.S.C. § 1334(b) and General Order 312-D of the United States District Court, and that this is a core proceeding under 28 U.S.C. § 157(b)(2)(F).
II
STATEMENT OF FACTS
Nucorp Energy, Inc., and its 27 affiliates filed a Chapter 11 petition on July 27,1982. By order of this Court, on February 4, 1983, Barry J. Galt was appointed as Chapter 11 trustee (“Trustee”) to administer the estate. On July 1, 1983, C.E. filed a complaint for relief from stay against the Trustee and Taylor Rig to enforce an artisan’s lien against certain components known as “draw works” and “drilling rigs” manufactured by C.E. for Taylor Rig’s marketing of oil well machinery. Trustee answered the complaint without asserting a preference counterclaim against C.E.1
After some negotiation, the parties reached a settlement and the Court approved their Stipulation and Settlement of Adversary Proceeding (“Settlement”) on January 24, 1984. In basic terms, the Settlement provided that C.E. would retain the components subject to its possessory lien, withdraw its claims against the estate and dismiss the complaint for relief from stay. Paragraph 5 of the Settlement further provided:
This Stipulation is a complete settlement of all issues raised in the complaint, and all issues existing or which may exist in respect to any indebtedness which may be owing to C.E. MACHINE by TAYLOR for services rendered.
On February 1, 1985, more than a year after the Court approved the settlement, Trustee instituted a preference action against C.E. to recover a payment of $22,-622 made by Taylor Rig within 90 days of the bankruptcy filing.2 Fredman succeeded the Trustee as plaintiff in the action upon entry of the District Court’s order on December 20, 1985, confirming the Second Amended Joint Plan of Reorganization. The action was then stayed by order of this Court until September 3, 1987, when Fred-man filed and served his notice of intent to activate this proceeding. C.E. then filed its answer on October 20, 1987, and the case proceeded to trial.
In their pretrial order, the parties stipulated that: The payment was made within 90 days of the petition; the payment was applied to an antecedent debt; Taylor Rig was insolvent at the time of the payment; and, under the terms of the Second Amended Joint Plan, unsecured creditors were entitled to a dividend of 9.3 cents per dollar on their claims. At no time in the proceedings did Fredman contest the validity of C.E.’s claims against the estate which included a secured claim in the amount of $364,389.85, and an unsecured claim in the amount of $77,397.80. The parties also acknowledged that during the settlement negotiations, Trustee, principals of C.E. and their respective counsel never expressly discussed preferences.
The record before the Court indicates that the provable value of the components *206subject to C.E.’s artisan’s lien was $225,-000. C.E. maintained in its relief from stay complaint that the provable value of the components had been $225,000. While the settlement between Trustee' and C.E. did not set forth a valuation, Mr. Eck testified at trial that the resale value of the collateral was $225,000. This testimony was admitted over the objection of Fredman. However, Fredman offered no evidence to controvert this valuation. Each party also presented an exhibit valuing the components at $225,000 to estimate the deficiency amount of C.E.’s secured claim for purposes of performing a liquidation analysis of its total unsecured claims against the estate.
Finally, the Court heard testimony from each side as to the nature of the settlement and the intent of the settlement negotiations. The Court finds that this testimony is inconclusive in determining the intended scope of the release found in paragraph 5 of the Settlement. The testimony of Judy S. Foley, counsel for C.E. during the settlement negotiations, revealed that Trustee’s counsel drafted the Settlement. Mr. Eck testified that during the settlement negotiations, C.E. was never told that the settlement was a “partial settlement”. In short, the testimony revealed nothing more than the parties’ admission that they never had discussed preferences.
III
STATEMENT OF ISSUES
I. Whether Fredman is precluded from maintaining the preference action by virtue of the prior settlement with C.E.;
II. Whether Fredman is barred from maintaining the action on any other grounds; and,
III. Assuming that the action can be maintained by Fredman, whether the estate is entitled to recovery under § 547(b)(5).
IV
DISCUSSION
The parties devoted a substantial portion of the trial to the issue of the preclusive effect of the settlement and release upon the present action. Fredman asserts that the settlement does not bar the preference suit, since the parties never discussed preferences and the release found in paragraph 5 does not specifically mention preferences. Moreover, Fredman asserts that under California law, the release is inoperative as to preferences, since a general release does not extend to claims which are unknown or unsuspected and, at the time of the settlement, the parties were unaware of any potential preference claims against C.E. Cal.Civ.Code § 1542 (West 1989).
On the other hand, C.E. contends that the intention of the parties was to achieve a complete and final settlement of all existing and potential claims and the language in paragraph 5 evidences this intent by including a release of “all issues existing or which may exist in respect to any indebtedness” by Taylor Rig. According to C.E., such language necessarily includes preference claims since they are inextricably related to the estate’s indebtedness to C.E. Under § 502(h) of the Bankruptcy Code, the estate’s recovery of a preference would create a new debt to C.E. to the extent that C.E. is forced to surrender payments previously used to reduce its claims against the estate. Since the effect of recovering the preference is to create an indebtedness of the estate to C.E. [In re Verco Industries, 704 F.2d 1134 (9th Cir.1983) ], the Court must find that the present action falls within the scope of “issues ... in respect to any indebtedness” finally resolved by the settlement and release.
As previously indicated, the Court finds that the testimony as to the true intentions of the parties in arriving at the settlement is inconclusive. However, in hindsight, it would seem that the prospect of later having to disgorge over $22,000 in pre-petition payments would have been a material consideration to C.E. in the settlement negotiations. In addition, the record is less than clear as to the parties’ respective awareness of the estate’s potential preference claims against C.E. at the time of the settlement negotiations. In light of all this, the Court is inclined to determine first *207whether the retained payment amounted to an avoidable preference.
By virtue of the parties’ agreement that, with the exception of § 547(b)(5), all elements of a preference are attributable to the payment, the Court is left with the task of performing a distribution analysis to determine if C.E. obtained a greater return on its claims against the estate by retaining the payment than it would have otherwise received by surrendering the payment and asserting its claims against the estate. In performing this analysis, the Court must determine the actual effect of the payment at the time of the bankruptcy petition. Palmer Clay Products Co. v. Brown, 297 U.S. 227, 56 S.Ct. 450, 80 L.Ed. 655 (1936); In re Lewis W. Shurtleff, Inc., 778 F.2d 1416 (9th Cir.1985); In re X.R.X. Supply Co., Inc., 60 B.R. 284 (Bankr.W.D.Ky. 1986). This inquiry involves a comparison between the value of the transfer plus any additional dividend paid on the creditor’s claims against the estate with the estate’s projected distribution on the creditor’s entire claim (assuming that the creditor first disgorged the transfer). Lewis v. Shurtleff, Inc., 778 F.2d at 1421. In performing the analysis, the Court may also take into account the fact that the creditor has withdrawn the claim or will forfeit the claim in exchange for retaining the transfer. Id. at 1422.
In the present case, the net result from leaving the settlement undisturbed — including C.E.’s complete release of all its claims — and allowing C.E. to retain the payment is that C.E. receives marginally more than it would have received had it surrendered the payment and participated in the plan distribution. This conclusion is best demonstrated by the following analysis provided by counsel for C.E.:
Secured Claim $364,389.85
[[Image here]]
Counsel for Fredman asserts a competing distribution analysis. He argues that the Court should consider the $22,662 retained payment as a claim separate from the released, unsecured claims when performing the distribution analysis under § 547(b)(5). Accordingly, the Court should add a 9.3 percent dividend on C.E.’s released claims to the retained payment to calculate how C.E.’s recovery exceeded the expected return on its claims under the plan.
Under this approach, the analysis would be as follows:
Secured Claim $364,389.85
[[Image here]]
*208Under this analysis C.E. has received a significantly greater return by retaining the payment, since the plan calls for less than a 100 percent distribution on unsecured claims, C.E. received a sizeable partial payment prior to the petition and would receive a 9.3 percent distribution on the balance of its released claims.
The Court rejects this alternative approach since it is not sensitive to this Court’s belief that the potential for the trustee’s subsequent preference suit would have materially affected C.E.’s settlement and release of its claims. Fredman’s preference analysis completely disregards C.E.’s release of its claims and obfuscates the issue of the preclusive effect of the Settlement upon the subsequent preference suit. Without conclusive evidence of the parties’ intent in drafting the Settlement, the Court is not prepared to adopt any analysis which assumes that, at the petition date, C.E. would have agreed to a settlement providing for complete release of all its claims and yet remain exposed to a preference suit for all retained pre-settlement payments.
At the same time, the Court will not ignore the fact that as a consequence of the settlement, C.E. has withdrawn its entire claim against the estate so that, in reality, it will not share in any distribution from this estate. Therefore, the Court believes that the distribution analysis should be based on with the assumption that, at the time of the petition, C.E. still possessed its entire claim against the estate, the Settlement operated as a release of all claims and the net effect of avoiding this payment would be to reinstate C.E.’s entire claim against the estate (minus, of course, the secured portion of its claim satisfied by the retention and resale of the components).
Utilizing those assumptions, the net benefit to C.E. in retaining the payment is $318. However, given the size of the estate and class of unsecured creditors, the total amount of distributions paid on unsecured claims and the delay of Fredman and his predecessor in filing and prosecuting this action, the Court finds that this gain is de minimus. See, In re Hygrade Envelope Corp., 272 F.Supp. 451 (E.D.N.Y. 1967) (interpreting § 60 of the Bankruptcy Act), rev’d on other grounds, 393 F.2d 60 (2d Cir.1968). The Court holds that Fred-man has not shown that C.E., in fact, received more on its claims against the estate by retaining the payment and withdrawing its claims.
By holding that the payment to C.E. did not constitute a preference, the Court deems it unnecessary to discuss the remaining issues presented at trial.
V
CONCLUSION
In light of the foregoing, the Court enters judgment for C.E. This Memorandum Decision constitutes findings of fact and conclusions of law. Defendant’s counsel is instructed to present an order in conformance with this Memorandum Decision within ten (10) days of its entry.
. Because C.E. commenced the action prior to August 1, 1983, the effective date of the Bankruptcy Rules, the action proceeded as an adversary proceeding rather than by way of a contested motion under B.R. 4001(a).
. There is a discrepancy in the record over the actual amount of the payment. The Stipulated Pretrial Order indicates a total of $22,616. However, at trial, Charles C. Eck, President of C.E., testified that a payment of $22,622 was received in June 1982. His testimony is corroborated by a copy of the check executed by Taylor Rig in the sum of $22,622, presented as Defendant's Exhibit 45. This amount is also verified by an invoice summary attached at the bottom of the check. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490947/ | ORDER
JAMES E. RYAN, Bankruptcy Judge.
On March 17, 1988, RCA’s (Creditor) Motion for Relief From the Automatic Stay or in the Alternative, Adequate Protection, with WPRV-TV’s (Debtor) Response and *229Objection, came on for hearing before this Court. Debtor appeared through counsel, Donald F. Marlar of the firm Pray, Walker, Jackman, Williamson & Marlar, and Creditor was represented by and through Warren L. McConnico of Savage, O’Donnell, Scott, McNulty & Affeldt.
At the conclusion of the introduction of evidence by the parties, this Court gave each side the opportunity to submit legal position papers at their discretion outlining any authority in support of their contentions in this matter. Both parties took advantage of this opportunity and the briefs provided were taken into consideration in the preparation of this decision.
At a hearing held in this case on June 7, 1988, the parties agreed that the valuation evidence and testimony taken in the March 17 hearing could also be utilized for the purpose of determining Creditor’s secured status pursuant to 11 U.S.C. § 506. Therefore, this Order will also address and resolve this issue deriving the necessary evidence from the earlier hearing.
Upon review of the testimony, evidence and law in this case, the following Findings of Fact, Conclusions of Law and Order shall be entered herein:
FINDINGS OF FACT
1. This is a “core” proceeding as envisioned by 28 U.S.C. § 157(b).
2. Debtor operates a television station servicing the Commonwealth of Puerto Rico. Specifically, the equipment with which this Order is most concerned is located at the El Yunte transmitter site and the Fajardo antenna translator site. Debtor obtained licensing in 1983 under the auspices of WSTE-TV but began operations under its present corporate name of WPRV-TV in 1984.
3. In 1984, Debtor entered into a number of Retail Installment Sale Contracts with the Creditor as follows:
(a)RCA Contract No. BCD-30307F dated May 4, 1984 — transmitter and associated equipment
Modification to RCA Contract No. BCD-30307F dated October 5, 1985 and October 16, 1985 — Antenna and transmitter and associated equipment
(b) RCA Contract No. BCD-44075A dated August 22, 1984 — Studio technical equipment
(c) RCA Contract No. BCD-44076A dated August 22, 1984 — Antenna and associated equipment.
These contracts are the source of the obligation between the parties on the equipment at issue in this determination, resulting in an indebtedness of $841,579.91 as of filing.
4. In May of 1987, a fire destroyed the broadcasting transmitter, thereby limiting the broadcasting power of the station from 50 kilowatts to 5 kilowatts. Prior to the fire, the station had experienced substantial operating losses.
5. The insurer of the transmitter has refused to replace the equipment, resulting in litigation with the Debtor regarding enforcement of the insurance agreement. However, Creditor’s lien will attach to the proceeds of the litigation, if any, which may result from the resolution of the case.
In the meantime, the Debtor has contracted to purchase two smaller transmitters to resume full power broadcasting service at a cost of approximately $620,000.00.
6. The Debtor filed for Chapter 11 bankruptcy on December 3, 1987 to reorganize its operations.
7. At the hearing on the Motion for Relief from the Automatic Stay, expert testimony on both sides related three major categories for broadcasting equipment:
(a) Transmitter and associated equipment (Transmitter)
(b) Studio technical equipment (Studio)
(c) Antenna, transmission lines and associated equipment (Antenna).
8. The Creditor offered expert testimony concerning the value of the equipment to the effect:
(a) Transmitter — $281,639
(b) Studio — $337,981
(c) Antenna — $71,997
*230This calculation was derived by taking the replacement cost less one-third depreciation of the useful life of the equipment, and including procurement and installation costs as well as any quantity discounts.
9. The Debtor offered testimony to the effect:
(a) Transmitter — $600,000
(b) Studio — $125,000
(c) Antenna — $275,000
This is the replacement cost of modern equipment to a total of approximately $900,000 to $1,000,000.
10. Testimony from both witnesses revealed that there is no standing market for “used” technical equipment upon which to base an estimate. Also, mutual agreement was reached upon closer examination from each expert that there is negligible depreciation associated with the Antenna and the non-electronic components. Therefore, the only item of Creditor’s collateral capable of measurable depreciation is the Studio. As a result of the fire at the transmitter and the testimony in Court, it is unclear whether the associated equipment to the destroyed transmitter met with a similar fate since all were included in Creditor’s appraisal. Thus, none of this equipment will be valued or considered further in this Order.
CONCLUSIONS OF LAW
A.The determination for relief from the automatic stay in this case is governed by 11 U.S.C. § 362(d)(2) which states that relief may be granted upon request:
“(2) With respect to a stay of an act against property if—
(A) The debtor does not have an equity in such property; and
(B) Such property is not necessary to an effective reorganization.”
Obviously, the Debtor does not have an equity in the property involved in this case. However, the equipment is absolutely essential for the reorganization of the Debtor as the equipment is part and parcel to the entire business operation. At this time, reorganization is given a reasonable likelihood of success, thereby making the retention of the equipment meaningful.
B. As has been admitted in the briefs of both parties, Congress, in formulating the Bankruptcy Code, allowed the Courts considerable discretion in the value determination for adequate protection purposes pursuant to 11 U.S.C. § 361. Congress explicitly stated that “value” was to be considered a flexible concept “to permit the Courts to adapt to varying circumstances and changing modes of financing” and that such matters “are to be left to case-by-case interpretation and development.” H.R. Rep. No. 595, 95th Cong., 2d Sess. 339 (1978), U.S.Code Cong. & Admin.News 1978, 5787, 6295.
Along with this flexibility as to “value” is a corresponding flexibility as to the amount of adequate protection payments. “Because Congress intended that ‘value’ was to be determined on a case-by-case basis, that which is designed to protect value, i.e., adequate protection, must also be determined on a case-by-case basis, permitting the debtors maximum flexibility in structuring a proposal for adequate protection.” In re Martin, 761 F.2d 472, 474 (8th Cir.1985).
C. Under 11 U.S.C. § 361, adequate protection is granted to compensate the Creditor for any decrease in value which may result from the retention of property by the Debtor. The only equipment in this case subject to dimunition of value based on testimony is the Studio. The remaining equipment depreciates negligibly in the time frame that is considered in this case so will not be subject to adequate protection payments.
Also, the collateral subject to the Creditor’s security interest is already installed and in the possession of the Debtor. Therefore, any costs attributable to installation and procurement as well as any quantity discount will not be considered by this Court for valuation purposes.
D. For § 361 adequate protection purposes, valuation is viewed from the Creditor’s perspective — i.e., is he adequately protected and what would he receive for the equipment if allowed to repossess it. Nor*231mally, value would be predicated upon a “used” market value but since in this present case no evidence of a “used” value was introduced by either party, the only consistent valuation method available to this Court is replacement cost. Regardless of the labels placed on the values supplied by the parties, all of these values find their basis in replacement cost when the irrelevant or inapplicable data is removed.
Some evidence of the substantial cost' associated with the removal of the equipment was introduced into the record by the Debtor but since these costs were never reduced into a calculable form, they will not be considered.
In consideration of adequate protection, the Studio is the lone component with diminishing value computed, as brought out in testimony, by the replacement cost less one-third of the usable life of fifteen years. Through Creditor’s expert, and since Debt- or contributed little tangible evidence to dispute the calculation, this Court finds a total replacement value on the Studio of approximately $90,000.
Thus, the resulting adequate protection payment is calculated as:
$90,000 approximate replacement cost of Studio
—$30,000 depreciation of one-third usable life
$60,000
divided by 10 years remaining usable life
$ 6,000 adequate protection payment per year divided by 12 months
$ 500 adequate protection payment per month
E. For secured status determination purposes pursuant to § 506, valuation is viewed from the Debtor’s perspective — i.e., what value will be placed on the Debtor’s enjoyment stemming from the continued use of the collateral in the reorganization. The Creditor established through exhibit that at least $508,504 would be required to replace the Antenna and Studio in their entirety in a “new” condition, which Debtor does not dispute. Since the Debtor would receive a new equipment benefit and a corresponding extension in useful life, as well as any technological advances in the new equipment, the only consistent and defensible valuation method is that of replacement cost in the Debtor’s operation. The Debtor is benefiting from the use of the existing equipment in its operation no less than if new equipment were installed. Thus, replacement cost is the appropriate measure of value.
To this end, this Court attaches a total value of $508,504 to Creditor’s secured claim on the Studio and Antenna, utilizing the replacement costs stated in Creditor’s Exhibit No. 7.
IT IS THEREFORE ORDERED that Creditor’s Motion for Relief from the Stay is denied. However, Debtor is ordered to pay $500 per month in adequate protection payments beginning February, 1988. Further, the secured claim of the Creditor is adjudged to have a total value of $508,504. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490948/ | ORDER
JAMES E. RYAN, Bankruptcy Judge.
On July 15, 1988, this Court conducted a hearing regarding WPRV’S (DIP) Objection to the Proof of Claim of creditor Major League Baseball (MLB). Appearances were made by Mr. Dale Gilsinger and Mr. Don Marlar on behalf of the DIP and Mr. Terry Thomas representing MLB.
Evidence was taken in this matter at the time of the hearing. In addition, the parties were instructed to submit briefs stating the legal authority supporting their respective positions regarding the duty of MLB to mitigate damages arising from the DIP’S breach of contract. The parties proceeded to file briefs in this matter, all having been received by August 1, 1988.
After review of the evidence, the Briefs submitted and the applicable law in this area, we FIND:
FINDINGS OF FACT
1. This is a “core” matter pursuant to 28 U.S.C. § 157(b).
2. DIP operates a television station servicing the Commonwealth of Puerto Rico. The corporate headquarters of the DIP is located in Muskogee, Oklahoma, thereby conferring jurisdiction to this Court.
3. Business transactions between the parties began in 1985 when the DIP entered into a contract with MLB to purchase broadcast rights for the 1986 Major League Baseball Season. The DIP televised 55 games that season and paid for those games in full according to the terms of the contract.
At the conclusion of the 1986 Season, the parties negotiated a contract for future broadcast rights encompassing the 1987 through 1989 Major League Baseball Seasons. The terms of this agreement stated that a minimum of 40 games would be televised during prime time viewing hours under the following payment schedule:
1987 — $120,000+ (those games over 40 X $2,250)
1988 — $130,000+ (those games over 40 X $2,437.50)
1989 — $140,000+ (those games over 40 X $2,625)
4. During the course of 1987, the DIP broadcasted the required minimum number of games in compliance with the contract but failed to make full payment of the amount due and owing MLB. There remains a shortfall of $74,000 due on this amount.
*2335. Upon this breach of contract, the parties conducted negotiations between Mr. Richard Sevenoaks, the Station Manager, and Mr. David Alworth, the MLB representative in charge of international contract negotiations for baseball television rights. The result of these negotiations was an agreement, in July, 1987, setting forth a payment schedule whereby the DIP could cure the defaulted amount and continue under the terms of the contract.
6. The DIP failed to adhere to the curing agreement and remained in default. This resulted in a letter from MLB dated November 28, 1987 to the DIP terminating the agreement stating:
“We consider WPRV-TV, Inc. to have materially breached our ... agreement. We hereby terminate that agreement and reclaim our rights to sell telecasts of any Major League Baseball games in the market of Puerto Rico in future years. WPRV-TV, Inc. has forfeited its right to purchase telecasts from Baseball in 1988 and 1989.... We will immediately begin to negotiate with third parties in Puerto Rico for the sale of television rights to baseball games in future years.”
7. In December of 1987, Mr. Sevenoaks spoke with Mr. Alworth affirming that the DIP could not perform on the 1988 contract, but offered to purchase 40 games by tendering in advance payments prior to broadcasting. On December 3, 1987, the DIP sought Chapter 11 relief under the U.S. Bankruptcy Code.
8. In January, 1988, Mr. Sevenoaks, on behalf of the DIP, memorialized in a letter to Mr. Alworth the advance payment offer discussed in December, 1987. Further, in a letter dated March 3, 1988, DIP offered to purchase the 1988 Season under these “pay-as-you-broadeast” terms.
Mr. Sevenoaks-was advised that Mr. Louise Gomez ¡mad purchased those rights for the Puerto/Rico market and the right to broadcast couíd be purchased from Mr. Gomez. MLB sold these rights to Mr. Gomez for $58,000, incurring $8,000 in expenses in procuring the willing buyer. Although others showed interest in purchasing the rights, only Mr. Gomez offered a concrete dollar amount.
The lower price obtained from Mr. Gomez was attributable to the inability of purchasers to broadcast the games in prime time, when advertising rates are at a premium. Only the DIP demonstrated this ability.
9. The stated major concern of MLB in securing a buyer for the 1988 season was broadcast continuity in the market with a goal of popularizing baseball in international markets such as Puerto Rico. The DIP could not offer this assurance of continuity-
10. MLB has not negotiated for the 1989 Season but will do so at the conclusion of 1988. The Proof of Claim filed with this Court by MLB states an amount of $334,-000. However, this amount was reduced at the hearing by MLB to $294,000, taking into account the mitigated amount received from Mr. Gomez.
CONCLUSIONS OF LAW
A. A duty is placed oh an aggrieved party in a breach of a contract to mitigate or lessen the damages performed against him. Hidalgo Properties, Inc. v. Wachovia Mortgage Company, 617 F.2d 196, 200 (10th Cir.1979). However, one who is injured by the acts of another is not required to unreasonably exert himself or to incur an unreasonable expense in order to do so. Sackett v. Rose, 154 P. 1177 (Okla.1916).
In the instant case, the DIP is asking in hindsight for MLB to forget about the past transgressions which had already occurred — forget about the failure to pay according to the terms of a written contract, forget about the failure to cure past defaulted amounts pursuant to a subsequent agreement and forget about the Bankruptcy and the obvious financial difficulties which the DIP was experiencing. This does not seem to be a “reasonable” course which the DIP would require MLB to follow. The DIP did indeed offer an option to MLB. However, “reasonableness” requires the creditor to only consider viable options. Such was not presented by the DIP in this case since there was no show*234ing of the DIP’S ability to generate a scintilla of net revenue in advance of broadcasting or otherwise.
B. In a case where a defaulting buyer is offering to purchase, there is a duty upon the seller to consider such an offer. However, the crucial test in such circumstances is “did they use such care and diligence in the crisis when the breach occurred as a man of ordinary prudence and diligence would have used under the circumstances then existing?” Key v. Kingwood Oil Co., 110 Okl. 178, 236 P. 598 (1924). In the present case, this Court would answer in the affirmative. MLB immediately terminated the contract between the parties so as to enable it to sell the rights elsewhere. This was done only after first trying to negotiate with the DIP to cure and continue broadcasting. Soon thereafter, MLB diligently obtained a buyer so as to secure a broadcaster and reduce damages.
C. This Court cannot willingly dictate to a business what the wise and prudent course of action would be in making a business decision such as in this case. Further, the DIP cannot likewise second-guess the actions of MLB because:
“Where a choice has been required between two reasonable courses, the person whose wrong forced the choice cannot complain that one rather than the other was chosen.
The rule of mitigation of damages may not be invoked by a contract breaker as a basis for hypercritical examination of the conduct of the injured party, or merely for the purpose of showing that the injured person might have taken steps which seemed wiser or would have been more advantageous to the defaulter ... One is not obligated to exalt the interests of the defaulter to his own probable detriment.”
In re Kellett Aircraft Corp., 186 F.2d 197, 198-99 (3d Cir.1950).
D. The parties agree that $74,000 remains due on the 1987 contract. Also, since we find MLB’S efforts at mitigation reasonable under the circumstances, there remains $80,000 due on the 1988 contract. However, since the time for negotiations on the 1989 contract remains, MLB can still recover its lost contract amount. Thus, no damages will be allowed for this term.
IT IS THEREFORE ORDERED that Major League Baseball’s claim in the amount of $154,000 is approved. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490949/ | ORDER DENYING CONFIRMATION AND DISMISSING CASE
THOMAS C. BRITTON, Chief Judge.
A confirmation hearing was held June 21 on this debtor’s1 chapter 13 plan. The matter was taken under advisement and, regrettably, its consideration has been delayed to this date, because of the press of other matters pending and calendared before me. To mention just one category, an average of eleven chapter 11 corporate reorganizations are assigned to me each month, and chapter 11 cases comprise less than 6% of this court’s current workload. For the reasons which follow, I now conclude that the plan should be denied confirmation, and that the case should be dismissed.
Plan Not Proposed in Good Faith
Ramski is an engineer. He obtained a chapter 7 bankruptcy discharge during June 1988 in Gainesville, nine months before filing this petition. (CP 4 at 5). His average monthly income last year was $2,498 (CP 4 at 2). His monthly expenses are $1,242 including the purchase of a truck (CP 4 at 3). His plan, however, proposes to devote only 40% of the difference between his last year’s income and his estimated expenses to his plan ($506 a month) and only $460 a month (net after administrative expense) to his debts (CP 2 at 2).
The plan proposes payment for only three creditors. The IRS is owed $20,743, 99% of the total debt. The obvious purpose of the plan is to deprive the Government of all its statutory means of revenue collection, by promising delayed payment of the tax liability without interest and without a reasonable best effort to meet his obligations, and after the debtor paid his attorney $2,090 to file this bankruptcy.
The foregoing circumstances convince me that this plan has not been proposed in good faith and should, therefore, be denied confirmation under § 1325(a)(3).
*270
Priority Tax Claim
The debtor owes $18,390 to the IRS as a § 507 priority tax claim (CP 4 at 7). The plan must:
“provide for the full payment, in deferred cash payments of all claims entitled to priority under section 507 of this title, unless the holder of a particular claim agrees to a different treatment of such claim.” § 1322(a)(2).
The plan proposes payment of the priority debt over a period of more than three years. ($18,391/$460=40 months)
However;
“The plan may not provide for payments over a period that is longer than three years, unless the court, for cause, approves a longer period, but the court may not approve a period that is longer than five years.” § 1322(c).
No cause has been offered for the requested extension, and I find no cause to extend the payment of the priority tax claim (88% of the total debt treated by the plan).
This plan does not comply with the foregoing provisions of chapter 13. Confirmation must also, therefore, must be denied under § 1325(a)(1).
Dismissal
This case is dismissed under § 1307(c)(5). Dismissal is with prejudice to the filing of any bankruptcy petition by this debtor earlier than a year after this Order becomes final.
DONE and ORDERED.
. The petition (CP 1) is filed by only one debtor, although he is married (CP 4) and, presumably, his estimated expenses (CP 4 at 3) include those of his wife. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490950/ | ORDER DENYING RECOVERY OF EXPERT WITNESS FEE
THOMAS C. BRITTON, Chief Judge.
The prevailing party in this adversary proceeding, the bankruptcy trustee, has moved (CP 162) to tax $73,801 as costs against the defendants on account of the trustee’s expense in retaining accountants, whose testimony was the crux of the trustee’s case and was most persuasive to this court.
The motion, though unopposed by defendants, was questioned by the court, and movant requested “several days” to submit authority or precedent for his motion. No such submission has been received.
For the reasons which follow, the motion is denied without prejudice to taxation of witness fees pursuant to 28 U.S.C. § 1821(b) by the Clerk, if movant files an appropriate motion. The statute permits payment for witnesses’ attendance at trial, at the rate of $30 for each day. I believe that this case was concluded in one day.
Expenses incidental to or incurred in preparation for trial, including accountant’s fees connected with trial preparation are not taxable as costs. 10 C. Wright, A. Miller & M. Kane, Federal Practice and Procedure § 2677 n. 59; Union Carbide & Carbon Corp. v. Nisley, 300 F.2d 561, 586 (10th Cir.1961), cert. dism’d, 371 U.S. 801, 83 S.Ct. 13, 9 L.Ed.2d 46 (1962) (accounting firm’s fees for services in prosecution of antitrust suits not recoverable); Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S. 437, 107 S.Ct. 2494, 96 L.Ed.2d 385 (1987) (prevailing party’s expert witness fees are limited to those authorized under 28 U.S.C. § 1821).
DONE and ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490952/ | MEMORANDUM DECISION
JOHN J. HARGROVE, Bankruptcy Judge.
The plaintiffs Pacific Bancorporation (“PBC”) and P.B.C. Venture Capital, Inc. (“VCI”) and debtor/defendant Gerald A. Sears (“Sears”) have filed counter-motions for summary judgment on an action to *782determine the dischargeability of a debt pursuant to 11 U.S.C. § 523(a)(4).
Plaintiffs PBC and VCI seek summary judgment on their complaint to determine the dischargeability of a debt claiming that a prior state court judgment finding a fiduciary relationship, breach of fiduciary duty and fraud has a collateral estoppel effect in the non-dischargeability proceeding.
Defendant Sears opposes plaintiffs’ motion for summary judgment claiming that collateral estoppel does not apply because: (a) the issues presented in this adversary proceeding are completely different from the state court trial; (b) since the issues are completely different, they have never actually been decided or litigated by the state court; (c) the award of attorney’s fees is null and void because an automatic stay was in effect at the time they were awarded so there is no valid and final judgment; and (d) the different standard of proof used in state court prevents issue preclusion. Defendant seeks summary judgment in his favor arguing that even if fraud was committed by the debtor, the award of attorney’s fees in the state court action is an ancillary obligation, the dis-chargeability of which rises or falls with the underlying obligation.
This court has jurisdiction to hear this matter pursuant to 28 U.S.C. § 1334 and § 157(b)(1) and General Order No. 312-D of the United States District Court, Southern District of California. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I).
FACTS
The court finds that the following facts are undisputed by the evidence presented.
Beginning in 1981, defendant Sears was engaged in a business relationship with plaintiffs PBC, VCI, and with Community First Bank. Sears was an officer of Community First Bank, a director and officer of the subsidiary PBC Venture Capital, Inc. and a de facto officer of Pacific Bancorpo-ration. In such capacities, Sears procured the execution of two management agreements; one between Sears and VCI, and the other between Sears and PBC.
On July 30, 1982, plaintiff PBC filed its complaint with the Kern County Superior Court seeking declaratory relief with respect to the validity of certain management agreements with defendant Sears. On October 18, 1982, plaintiff VCI filed its complaint seeking declaratory relief with respect to the validity of certain management agreements with defendant Sears.
After trial on the plaintiffs’ consolidated complaints, the trial court rendered its judgment in favor of plaintiffs. Defendant Sears subsequently filed his appeal with the California Court of Appeal for the Fifth Appellate District. On February 3, 1986, the Court of Appeal rendered its decision reversing and remanding the case to the trial court.
On March 4, 1987, the plaintiffs submitted their first amended complaint in the consolidated actions. A new trial commenced April 27, 1987, and lasted approximately nine days. The court ruled in favor of plaintiffs and a hearing was held on October 6, 1987, to consider the tentative statement of decision that had been submitted by plaintiffs’ counsel. The court took the matter under submission and on October 21, 1987, issued its statement of decision declaring that the management agreements were void and awarding costs to plaintiffs. No other damages were awarded.
On November 13, 1987, plaintiffs filed their memorandum of costs seeking total costs of $237,513.79 of which $230,150 consisted of attorney’s fees. Defendant filed an objection and motion to tax the memorandum of costs, and* the matter was argued and submitted to the court on December 14, 1987.
Also, on December 14, 1987, defendant Sears filed a voluntary petition under Chapter 13 of Title 11 of the United States Code with the above-entitled court. Thereafter, on December 29, 1987, the state court denied the defendant’s motion to tax the memorandum of costs and upheld the award of attorney’s fees.
On March 10, 1988, the Chapter 13 proceeding was dismissed as a result of the *783defendant’s failure to appear at his 341(a) creditors’ meeting. On April 1, 1988, the defendant filed his voluntary petition under Chapter 11 of Title 11 of the United States Code after determining that he was ineligible for refiling a Chapter 13 petition pursuant to the provisions of § 109(e). The Chapter 11 case was converted to a Chapter 7 proceeding on December 19, 1988.
At the hearing on the cross-motions for summary judgment held January 26, 1989, this court granted summary judgment in favor of plaintiffs. The court made the following findings of fact:
1. A fraud was committed by defendant against plaintiffs.
2. Judge Condley of the Kern County Superior Court found by way of clear and convincing evidence that defendant committed fraud against plaintiffs.
3. Defendant Sears is not a credible witness.
4. Defendant Sears procured the execution on or about April 2, 1982 of a back dated management agreement with the intent to fraudulently create the color of validity to the agreement with actual and constructive knowledge that the plaintiffs in this case had not properly authorized execution of the management agreement.
5. The agreements procured by defendant were the result of a fraud perpetrated by the defendant.
6. The defendant was an officer and director of the plaintiffs and intentionally concealed the nature and extent of that relationship.
7. No contracts between defendant and plaintiffs legally existed.
8. Plaintiffs did not consent to the execution of the management agreements.
9. Defendant Sears violated a fiduciary duty owed to plaintiffs and there was complete lack of full disclosure by defendant as a fiduciary which amounts to fraud.
This court took under submission the issue of damages. At issue is whether attorney’s fees are dischargeable in bankruptcy where the state court has extinguished a contract due to the debtor’s fraud, and where the only damages sustained are the attorney’s fees incurred in litigating the state court fraud action.
Plaintiffs argue that attorney’s fees and interest are non-dischargeable where the underlying debt is found to be non-dis-ehargeable. Defendant argues that since there was no underlying debt in the declaratory relief action, that the ancillary debt has nothing to cling to and therefore is dischargeable. The parties were requested to further brief this issue.
Defendant included in his supplemental brief filed March 11, 1989, a “motion for reconsideration as to the applicability of collateral estoppel to the particular facts and circumstances of this case.” Defendant argues that collateral estoppel is inapplicable because there is no final, binding judgment from the state court due to the pending appeal; there is no legal basis under California law to award the attorney’s fees; and the award of attorney’s fees was issued in violation of the bankruptcy stay.
As plaintiffs’ counsel correctly points out, relief under Rule 60 of the Federal Rules of Civil Procedure is available only 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; (4) the judgment is void; (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; (6) any other reason justifying relief from the operation of the judgment.
This court finds that none of the Rule 60(b) grounds are present which compel relief from the granting of summary judgment in favor of plaintiffs. The issues raised in defendant’s supplemental brief were raised in the original opposition to *784plaintiffs' motion for summary judgment. No newly discovered evidence has been presented. Defendant is merely attempting to re-argue issues which were previously raised, argued, and waived by defendant’s counsel at the hearing on the summary judgment motions. The motion for reconsideration is denied.
DISCUSSION
Plaintiffs argue that the attorney’s fees incurred by plaintiffs in invalidating the management agreements were a direct and proximate result of defendant’s attempts to enforce those agreements, in that had defendant not attempted to enforce the fraudulent management agreements, plaintiffs would not have incurred the attorney's fees and costs that they did.
Defendant argues that the attorney’s fees are not a true claim as defined by the Bankruptcy Code, but are merely an ancillary obligation which must rise- or fall with the nature of the primary debt owed by the debtor. Without an underlying obligation which fits within the areas of non-dis-chargeability, there is no basis to hold the ancillary obligation non-dischargeable. Defendant further argues that the attorney’s fees are not the proximate result of defendant’s fraud.
The superior court, in its statement of decision entered October 22, 1987, held that the purported management agreements were invalid, unenforceable, void and of no force or effect; that the purported arbitration clauses contained in the purported management agreements were invalid, unenforceable, void and of no force or effect; and that plaintiffs were entitled to recover their costs of suit.
The superior court in effect rescinded the management agreements due to the fraud of defendant. It is well settled in California that attorney’s fees are recoverable in a rescission action where the contract contains a fee provision. Nevin v. Salk, 45 Cal.App.3d 331, 340, 119 Cal.Rptr. 370 (1975). The arbitration clauses in the management agreements contained an attorney fee provision which is reciprocal pursuant to California Civil Code § 1717. Further, California Code of Civil Procedure § 685.090 provides that costs are added to and become a part of the judgment and are included in the principal amount.
The two main cases cited by defendant, Klingman v. Levinson, 831 F.2d 1292 (7th Cir.1987) and In re Hunter, 771 F.2d 1126 (8th Cir.1985), for the proposition that “ancillary obligations” such as attorney’s fees and interest attach to the primary debt in determining dischargeability, are not dis-positive of the case at bar. These cases hold that the status of ancillary obligations depends upon that of the primary debt. Where the primary or underlying debt is dischargeable, so too are the ancillary obligations dischargeable.
At first glance, defendant’s literal construction of these cases would cause the attorney’s fees incurred by plaintiffs to be declared dischargeable. Since the superior court did not award damages in favor of plaintiffs the defendant argues, there is no underlying debt. If there is no underlying debt, there is nothing to which the ancillary obligations may attach resulting in dis-chargeable obligations.
However, this court finds that the attorney’s fees incurred by plaintiff in the state court litigation are not ancillary obligations but are in the nature of a primary debt.
Here the primary obligation, attorney’s fees, are a direct and proximate result of the fraud perpetrated by defendant. There is both a statutory and contractual right to the award of attorney’s fees as made by the superior court.” As California law has consistently awarded attorney’s fees in a rescission action, the attorney’s fees incurred are the damages suffered by plaintiffs and constitute the primary or underlying debt.
An ancillary obligation, including attorney’s fees, is one incurred in a proceeding to enforce the primary obligation. Matter of Chambers, 36 B.R. 42, 46 (Bankr.W.D. Wis.1984).
At issue here is not attorney’s fees awarded in a proceeding ancillary to the original state court award such as an appeal, or attempts to execute on the judg*785ment, but rather an award of fees in an original action resulting in damages suffered by plaintiff.
What is facing this court is a unique-situation not previously dealt with in the case law discussing dischargeability. It is absurd to suggest that had the superior court awarded one dollar to plaintiffs as damages their attorney’s fees would be non-dischareable, but since no dollar award was made the attorney’s fees should be dischargeable. Nor would it make sense to require a creditor to wait until a payment is made under a fraudulent contract before bringing an action for rescission. Equity requires this court to rule that the attorney’s fees incurred in the state court litigation are non-dischargeable.
The legislative history behind the fraud exception supports such a finding. “By creating the fraud exceptions to discharge, Congress sought to discourage fraudulent conduct and ensure that relief intended for honest debtors does not inure to the benefit of dishonest ones.” Birmingham Trust Nat. Bank v. Case, 755 F.2d 1474 (11th Cir.1985).
This finding is also in accord with the recent decision in Chase Manhattan Bank v. Birkland, 98 B.R. 35, 37 (W.D.Wash. 1988) where the court stated:
Fraudulent conduct is best discouraged, not only by denying discharge, but also by applying the benefit-of-the-bargain rule. That is, the creditor who has been defrauded is entitled to all of its rights under the contract, including reasonable attorney fees.
Furthermore, awarding contractual attorney fees to honest creditors serves the same policy as awarding attorney fees to honest debtors, that policy being “to insure that the honest do not forfeit their rights out of concern for the expenses of litigation.” [Cite omitted].
Further, these state approved contractually required attorney’s fees should be considered as part of the “whole” of the debt as discussed in In re Martin, 761 F.2d 1163, 1168 (6th Cir.1985) which held that the Code excepts from discharge “the whole of any debt” incurred pursuant to a debtor’s fraud.
CONCLUSION
The attorney’s fees incurred by plaintiffs in rescinding the fraudulent management agreements is a primary debt which is non-dischargeable in the pending bankruptcy proceeding. There is both statutory and contractual authority to support such an award which proximately resulted from defendant’s fraud.
This Memorandum Decision constitutes findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052. Counsel for the plaintiffs is directed to file with this court an Order in conformance with this Memorandum Decision within ten (10) days from the date of entry hereof. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490953/ | 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 involves a challenge to the Debtor’s right to a general discharge in bankruptcy. The Amended Complaint filed by State Farm Insurance Company (Plaintiff), although it appears to be a single-count Complaint, asserts a claim for relief under two separate causes of action. The first ground under which the Plaintiff objects to the Debtor’s discharge is based upon § 727(a)(2)(A) of the Bankruptcy Code and alleges that the Debtor transferred property within one year before the date of the filing of the Petition with the intent to hinder, delay or defraud the Plaintiff. The second ground for relief asserted by the Plaintiff is based on § 727(a)(5) of the Bankruptcy Code, alleging that the Debtor failed to explain the loss of certain assets.
At the duly scheduled final evidentiary hearing, the following facts have been established which are relevant and germane to the issues under consideration.
In 1984 the Debtor and her non-debtor spouse, John G. O’Neil, and their three children moved to Florida. Originally, they purchased a home which was placed in the Debtor’s name and subsequently, the deed was transferred to reflect the husband and wife as joint owners in 1986 or thereabouts.
Prior to moving to the State of Florida, Mr. O’Neil was employed as a manufacturer’s representative in the State of Illinois. The Debtor handled most of the bookkeeping and banking for a business known as, “O’Neil and Santa Claus, Inc.”, as well as other businesses that her husband engaged in throughout their marriage. In 1982 the Debtor’s husband was engaged in a business called, “C & 0 Enterprises” in Illinois where the Debtor typed invoices for the company. Other than these short bouts of working with her husband and his ventures, the Debtor has not been employed outside the home and was not working at the time the Petition for bankruptcy was filed. It appears from the record that throughout her married life, the Debtor’s husband maintained a joint checking account with his father, John L. O’Neil, and that the Debtor never questioned or objected to this financial arrangement. Upon moving to Florida, the Debtor’s husband opened a checking account in the name of “Siesta Enterprises”, which was the name that he chose in order to start a business which, in fact, never occurred, and although the Debtor maintained a checking account, it appears that the source of the funds in her account were all related to her husband’s businesses.
In September 1985 the Debtor’s son was involved in an automobile accident whereby he was charged with vehicular homicide. *845A cash bond was required for her son’s release for $40,000.00, which her husband, John G. O’Neil, posted. First, the Debtor wrote a check on her own account at First Presidential Savings and Loan Association in the amount of $14,016.00 (Exh. No. 6). This check was used to purchase two cashier’s checks totalling $14,016.00 payable to John G. O’Neil (Exh. Nos. 8 and 9). Mr. O’Neil then endorsed this check over to the Manatee County Sheriff. The check for the balance of the bond was written on the account of Siesta Enterprises and made payable to the order of Central National Bank in the amount of $26,000.00 (Exh. No. 5). This check was also used to purchase a cashier’s check payable to John G. O’Neil, which was then endorsed over to the Manatee County Sheriff (Exh. No. 7). John G. O’Neil, the Debtor’s husband, posted the bond with the Manatee County Sheriff’s office (Exh. Nos. 1, 2, 3 and 4). It is clear that the Debtor did not sign any of the four bonds of the depositor. On the contrary, the sole signer of the bonds as a depositor was John G. O’Neil, the Debtor’s husband.
Subsequently, the cash bond for Michael O’Neil was reduced from $40,000.00 to $10,000.00. In accordance with the bond reduction on January 30, 1986, the Sheriff issued a check refunding $30,000.00 of the original $40,000.00 bond amount. Since John G. O’Neil was the sole depositor on the bond, the check was made payable to his order. The reverse side of the check shows that Mr. O’Neil endorsed the check to his father, John L. O’Neil in repayment of a loan dated October 28, 1985 (Exh. No. 10). The testimony of John L. O’Neil, the Debtor’s father-in-law was consistent in that he received the money in repayment for a loan. It should be noted that the actual check issued by the Manatee County Sheriff’s office was credited to the account of John L. O’Neil, at First Presidential Savings and Loan Association, but was subsequently destroyed in a fire. Accordingly, the Sheriff’s department issued a new check payable to First Presidential Savings and Loan Association in the same amount to reimburse the bank for the monies it had previously credited to John L. O’Neil (Exh. Nos. 12 and 13). On August 14, 1986, the Sheriff’s department issued a second check payable to John G. O’Neil in the amount of $10,000.00 representing a refund of the balance of the cash bond (Exh. No. 15). This check, like the first check, was issued solely to John G. O’Neil because he was the depositor on the bond. This check was deposited into an account which he and his father had jointly at the Central National Bank. Subsequently, Mr. O’Neil wrote a check on this account to Edwin T. Mulock, his son’s attorney, for $3,658.59 (Exh. No. 21). Mr. O’Neil also wrote a check to his father, John L. O’Neil, in the amount of $10,000.00 in further repayment of monies loaned by John L. O’Neil toward expenses for the defense of the criminal case against their son, Michael (Exh. No. 22). These two payments exhausted the additional $10,000.00 refunded by the Sheriff. Prior to the commencement of this Chapter 7 case, the Debtor executed a Consent to Final Judgment making her individually liable for damages in the amount of $319,000.00 in favor of Margaret D. Harvey. On the same day, the judgment was partially satisfied, leaving an outstanding judgment of $100,-000.00. Harvey executed an absolute assignment of judgment, assigning to the Plaintiff in this adversary proceeding all of her interest in said judgment. Plaintiff has paid to Harvey $100,000.00 as underinsured motorist’s coverage. On September 28, 1988, the Debtor filed a Chapter 7 Voluntary Petition in bankruptcy listing the Plaintiff as a creditor. At the final eviden-tiary hearing, the Court took judicial notice of the Debtor’s Statement of Financial Affairs and Schedules, noting that the Debtor indicated in the first quarter of 1988 that she and her husband, a non-debtor, sold jointly owned shares of stock in two corporations, resulting in proceeds in the amount of $4,427.00 as the Debtor’s share. On April 23, 1987, prior to the bankruptcy filing, the Debtor gave a deposition in the action then pending against her by Marjorie D. Harvey (Plaintiff’s Exh. F). In that deposition, the Debtor testified that all of the stock that she and her husband had ever owned had been sold prior to the deposition. On March 31, 1989, at a deposition *846for this adversary proceeding, the Debtor once again testified that all of the stock that she and her husband had ever owned had been sold prior to January 1989. (See Plaintiffs Exh. E) In fact, Debtor and her husband retained joint ownership of three (3) stocks in the following amounts:
17.6 shares of Walgreen stock
132.0 shares of Raven Industries, Inc. stock
630.0 shares of Tonka Corporation stock
In addition, the Plaintiff alleged that the Debtor still owned 250 shares of Frank’s Nursery, Inc., stock, although evidence indicated that that stock had been sold just two weeks prior to the April 23,1987, deposition and that the proceeds of that stock were deposited to an account jointly owned by the Debtor’s husband and father-in-law. The Debtor’s bankruptcy Petition disclosed the sale of over $8,000.00 worth of stock which was owned by the Debtor at the time the depositions were taken.
It is clear that all the stock was held jointly by the Debtor and her husband. It appears that although the Debtor generally opened all mail, whether addressed to herself or her husband, she did not read the mail, but rather only slit it open. The Debtor said that she did pay the household bills and handled the third class mail, but that mail relating to the stocks was clearly her husband’s business. As to the Raven Industries, Inc., and Tonka Corporation stock, evidence indicates that the Debtor and her husband purchased the stock approximately twenty years prior to the filing of the bankruptcy Petition. After the Debtor and her husband moved from Illinois to Chicago in 1984, the certificates for the Tonka and Raven Industries, Inc., stock were kept in a safety deposit box to which the Debtor had no access. Access to the safety deposit box was exclusively within control of the Debtor’s husband, John G. O’Neil, and his father, John L. O’Neil. Due to the Debtor’s husband having sustained substantial financial difficulties in Illinois prior to moving to Florida, they had already begun to sell various assets, including approximately $100,000.00 worth of stock. In addition, less than four months prior to giving a deposition, Debtor and her husband had sold stocks which they held in Frank’s Nursery, Inc., and Walgreen Corporation (Exh. Nos. 58 and 59) Proceeds from the sale of these stocks had been received only weeks prior to the Debtor’s deposition (Exh. Nos. 75, 76, 77 and 78). In March or April of 1988, the Debtor received a newsletter from Raven Industries, Inc. (See Exh. No. 62), which gave rise to the sale of that stock as well as the Tonka stock (Exh. Nos. 60 and 61) Evidence also indicated that the Debtor and her husband participated in a dividend reinvestment program whereby the dividends from Walgreen stock were invested in the purchase of additional stock in the company, and when the Debtor and her husband sold the shares of Walgreen which they owned in •late 1986, there were fractional shares of Walgreen stock which had accumulated in the dividend investment program. These shares were not disposed of prior to bankruptcy and were listed in the Debtor’s schedules, and while the Debtor’s tax return for 1985 reflected the receipt of dividends from Raven Industries, Inc., Tonka Corporation and Walgreen Corporation, the Debtor’s 1986 federal income tax return was not filed until August 1987, four months after the deposition in which the Debtor testified that all stock had been sold.
In September 1986, the Debtor and her husband purchased real property known as, “The Grandview House”. The Debtor and her husband intended, along with a partner, Barbara Stevens, to renovate this property and to operate it as a bed-and-breakfast facility. The property was opened as a bed-and-breakfast after several months of renovating, but was eventually closed due to zoning restrictions. The house was subsequently sold in June of 1987. All of the proceeds of the sale had been disbursed by August 6, 1987. The purchase price of the Grandview House was $300,000.00 (See Exh. Nos. 54 and 55). Coast Federal Savings and Loan Association provided a purchase money mortgage in the amount of $220,000.00 (Exh. Nos. 24, 25, 26, 27 and 28). The Debtor’s husband, John G, O’Neil provided a $30,000.00 deposit toward the purchase of the property. Of the $30,000.00, $20,000.00 came from the *847account of Siesta Enterprises, Inc. (Exh. Nos. 33 and 34). The balance of $10,000.00 was drawn on the account of John G. O’Neil or John L. O’Neil at Central National Bank (Exh. No. 31). Additional funds for the purchase of the property were provided by a line of credit at Central National Bank given to the Debtor’s husband, John G. O’Neil. The Debtor’s father-in-law, John L. O’Neil placed bearer bonds with the bank as security for the line of credit granted to his son (Exh. No. 35). John L. O’Neil subsequently paid the loan to Central National Bank and received the return of his bonds. Upon the satisfaction of the line of credit by John L. O’Neil, the Debtor and her husband executed a promissory note in his favor in the amount of $60,-000.00 (Exh. No. 16). During the nine months that the Debtor and her husband owned the house, the Debtor prepared spread sheets indicating rental income from the property totalled $11,481.00. The sales price for the property at the closing on June 26, 1987, was $362,500.00 (Exh. Nos. 37 and 38). The seller’s closing statement (Exh. No. 38) reflects that after expenses of the sale and deduction of the balance due on the mortgage owed to Coast Federal Savings and Loan, there was due to the seller at closing the sum of $139,-198.11 (Exh. No. 38). The uncontradicted evidence presented at trial demonstrates these proceeds were disbursed as follows: The testimony and exhibits at trial indicated that $64,256.64 was paid to the Debt- or’s father-in-law in repayment of money that he had advanced to them. The balance of the proceeds, $74,941.47 was deposited into the Grandview House account, and the Debtor signed all the checks which disbursed the proceeds as follows: $32,-520.00 was paid to John G. O’Neil and deposited into the Debtor and her husband’s joint checking account. On the same day, a check for $25,030.80 was written on the joint account to a party holding a mortgage on the Debtor and her husband’s homestead; $17,651.97 was paid to the partner, Barbara Stevens, as reimbursement for house expenses; $24,284.92 was paid to the Debtor’s husband and deposited into the joint account of the Debt- or’s husband and his father. The $32,-520.00 was a repayment of $30,000.00 put into escrow to purchase the Grandview House, together with interest on that amount.
At the beginning of the final evidentiary hearing, Plaintiff amended its Complaint to add an allegation under § 727(a)(5) of the Bankruptcy Code concerning the disposition by the Debtor of the proceeds of a treasury bill. In August of 1985, the Debt- or and her husband purchased a $10,000.00 United States Treasury Bill through Dean Witter Reynolds, Inc. The treasury bill was redeemed one year later in August 1986. Proceeds of the treasury bill were deposited into the joint account of the Debtor and her husband at First Presidential Savings and Loan Association on September 2, 1986 (See Exh. No. 95). Proceeds from the treasury bill were deposited into the account at First Presidential Savings and used for various living expenses during the months following the deposit. There does not appear to be any specific tracing of those proceeds by the Plaintiff.
Basically, these are the salient facts as established at the duly scheduled final evi-dentiary hearing upon which Plaintiffs claim objecting to the Debtor’s right to a general discharge is based pursuant to § 727(a)(2)(A) and § 727(a)(5) of the Bankruptcy Code which provide 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, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed—
(A) property of the debtor within one year before the date of the filing of the petition; or ...
(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;....
*848Under § 727 of the Bankruptcy Code, the burden is on the objecting party to prove that a debtor should be denied a discharge by way of clear and convincing evidence. Bankruptcy Rule 4005, In re Bernstein, 78 B.R. 619 (S.D.Fla.1987). In addition, § 727 must be construed liberally in favor of the Debtor and strictly against the creditor. See In re Cutignola, 87 B.R. 702 (Bkrtcy.M.D.Fla.1988). Actual intent by the debtor to conceal his property from his creditors is an essential element under § 727(a)(2)(A). See In re Levine, 6 B.R. 54 (Bkrtcy.S.D.Fla.1980). Moreover, actual fraudulent intent requires a showing of bad faith on the part of the debtor and actual fraudulent intent as distinguished from constructive intent must be the intent of the debtor, or the intent of someone acting for him. See In re Haddad, 10 B.R. 276 (Bkrtcy.D.Nev.1981). Therefore, in order to establish an objection to the debtor’s general discharge, a concealment of assets by the debtor is not enough to deny his discharge under § 727(a)(2)(A); there must be a showing of actual intent to hinder, delay or defraud creditors. See In re Irving, 27 B.R. 943 (Bkrtcy.E.D.N.Y.1983). As to the concealment of stock, a review of the facts of this case demonstrates that the Plaintiff has not carried its burden of proving actual fraudulent intent by clear and convincing evidence. This Court is satisfied that the Debtor, who did not make any review of her assets prior to appearing for a deposition on April 23, 1987, for a state court suit, did not have the requisite intent to defraud the Plaintiff. As to the proceeds of the $40,000.00 cash bond, the Debtor has satisfactorily explained the disposition of the $40,000.00 which had been posted on behalf of her son, John Michael O'Neil, following his arrest in late 1985. Although the Debtor maintained a checking account, it is clear that the Debtor had not worked outside the home since 1984 and had no independent funds apart from her husband and her father-in-law. The Court is satisfied that the money for the cash bond came from two sources and that eventually the money was returned to those two sources, more specifically, the Debtor’s husband and the Debtor’s father-in-law.
As to the proceeds of the sale of the house commonly known as, “Grandview House”, once again this Court is satisfied that the Debtor has satisfactorily explained the disposition of the $139,198.11. Further, this Court is satisfied that the Plaintiff has failed to carry its burden of proof in relation to the $10,000.00 treasury bill in that the Debtor satisfactorily explained the disposition of those proceeds as well. For the foregoing reasons, this Court is satisfied that the Plaintiff’s Amended Complaint should be dismissed with prejudice.
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/8490957/ | OPINION
DAVID W. HOUSTON, III, Bankruptcy Judge.
The Court has under consideration the issue of whether a violation of the Truth-in-Lending Act, set forth at 15 U.S.C. § 1601 et seq., voids the consumer credit loan contract in which the violation occurred. Easy Finance of Aberdeen, Inc., hereinafter Easy Finance, maintains that it is a secured creditor in this case and has objected to the debtors’ Chapter 13 plan for the reason that the plan fails to provide any payments on its claim. A hearing on the objection was held on February 9,1989. At that time the debtors responded by asserting that Easy Finance had been relegated to the status of an unsecured creditor by failing to adequately attach or set forth, on the loan documentation retained by the debtors, a list or description of the collateral securing the loan. At the conclusion of the hearing, the Court ordered the parties to submit memoranda of law briefing this particular issue. Easy Finance submitted a memorandum, but the debtors elected not to do so. The debtors concurred, however, with the legal conclusion reached by Easy Finance. Having considered the arguments made at the hearing, as well as, the memorandum submitted, the Court hereby finds, orders, and adjudicates as follows, to-wit:
I.
The Court has jurisdiction of the parties to and the subject matter of this proceeding pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. This is a core proceeding as defined in 28 U.S.C. § 157(b)(2)(A), (B), (C), (K) and (0).
II.
On or about June 20, 1988, the debtors executed a promissory note in favor of Easy Finance wherein they agreed to repay the sum of $870.37 in eighteen consecutive monthly installments of $65.00. To secure this debt the debtors gave Easy Finance a security interest in one G.E. stereo, one Briggs and Stratton push lawn mower, one Magnavox V.C.R., and two televisions. *122The promissory note and security agreement were combined in a single page “form” document denominated as “Disclosure Statement, Promissory Note and Security Agreement.”
The disclosure statement portion of the document contains the pertinent consumer information required by the Truth-in-Lending Act.
The security agreement portion of the document provides a space where the property which serves as the loan collateral can be described. The phrase “SEE ATTACHED PERSONAL PROPERTY LIST #” was typed in this space. It is undisputed by the parties that while the original document retained by Easy Finance included an attached itemized list of the collateral, the copy of the document sent to the debtors did not.
III.
Pursuant to § 75-9-203(1) Miss.Code Ann. (1972), a security interest attaches and is enforceable when the following requirements are met:
(a) [T]he debtor has signed a security agreement which contains a description of the collateral ...
(b) value has been given; and
(c) the debtor has rights in the collateral.
Under the Uniform Commercial Code, a “description by reference” of collateral in a security agreement is permissible. A security agreement describing the collateral by referring to an attached list is valid so long as the list ;is in fact attached. J.K. Gill Co. v. Fireside Realty, Inc., 262 Or. 486, 499 P.2d 813, 11 UCCRS 202 (1972) (Security agreement describing collateral as “furniture as per attached listing” did not adequately describe the collateral where no listing was attached.) In the matter presently under advisement, the original security agreement, signed by the debtors, contained an attached list of collateral.
Easy Finance obviously gave value to the debtors and the debtors had rights in the collateral. Accordingly, it is the finding of this Court that a valid security interest attached and is presently in force, encumbering the listed collateral.
IV.
The failure to attach a list describing the collateral to the debtors’ copy of the original security agreement in no way affects the security interest which attached under Mississippi law. However, the debtors allege that the failure to attach the list describing the collateral to the debtors’ copy is a violation of the Truth-in-Lending Act which, in turn, voids the loan contract.
Section 1610(d) of the Truth-in-Lending Act expressly provides that a violation of the Act does not affect the validity or enforceability of the underlying loan transaction:
Except as specified in sections 1635, 1640, and 1666(e) of this title, this sub-chapter and the regulations issued thereunder do not affect the validity or enforceability of any contract or obligation under State or Federal law.
15 U.S.C.A. § 1610(d) (West 1982).
Section 1635, dealing with a debtor’s right to rescind a transaction secured by real property used as the debtor’s residence, is inapplicable in the present matter. Likewise, § 1666(e), dealing with the return of goods purchased with a credit card, is inapplicable.
Section 1640 specifies certain penalties that might be imposed for a violation of a disclosure requirement and is applicable in this case if a disclosure violation did, in fact, occur. However, the remedies applied by § 1640 do not supersede state law requirements applicable to the validity of the underlying contract. A contract valid under applicable state law remains valid despite a violation of the Truth-in-Lending Act. Courts have concluded that “state law determines the validity of a contract although the facts reveal Truth-in-Lending violations.” Peoples Trust and Savings Bank v. Humphrey, 451 N.E.2d 1104, 1111 (Ind.App.1983) (citing Ballew v. Associates Financial Services Co. of Nebraska, Inc., 450 F.Supp. 253 (D.Neb.1976); Cantrell v. First National Bank of Euless, 560 S.W.2d 721 (Tex.Civ.App.1978).) Section *1231610(d) provides that a disclosure violation “does not void a contract; it does not limit the application of state law.” Id.
Accordingly, this Court finds that even if a Truth-in-Lending disclosure violation occurred, the underlying promissory note and security agreement still remain valid. Easy Finance maintains a legitimate security interest in the collateral listed on the attachment to the original loan document. Easy Finance is, therefore, entitled to receive deferred payments equivalent to the value of the collateral as of the effective date of the Chapter 13 plan. The debtors are free to seek relief under 15 U.S.C. § 1640 which may well mitigate their obligation to Easy Finance.
An Order will be entered accordingly. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490958/ | MEMORANDUM OF DECISION
JAMES H. WILLIAMS, Chief Judge.
Presented are cross motions for summary judgment in the instant adversary proceeding. K & R Mining, Inc. (Mining) filed a two-count complaint in which it alleges that the transfer of certain coal mining leases to Keffler Construction Company (Keffler Construction), with a sublease back to Mining subject to royalty payments, is not a lease of nonresidential real property subject to 11 U.S.C. § 365(d)(3) but is in reality an installment payment of a previous debt. Alternatively, Mining asserts in Count II of its complaint and in a counterclaim1 that the transfer of the coal mining leases and all subsequent royalty payments are avoidable as preferential pursuant to 11 U.S.C. § 547(b). Keffler Construction answered denying the essential allegations of the complaint.
Mining has filed its motion for summary judgment only as to the preference count, whereas Keffler Construction’s motion for summary judgment is directed at both counts of the complaint and the counterclaim.
In light of the ruling herein as to whether the transfer of the coal leases constitutes an avoidable preference, the court will defer a ruling on Keffler Construction’s motion for summary judgment as to Count I of the complaint.
FACTS
Dwight A. Ensley (Ensley) and Warren E. Kelm (Kelm) in May or June, 1986 entered into negotiations for the possible purchase of Keffler and Rose Enterprises, Inc., now known as K & R Mining, Inc., and Keffler and Rose Coal Preparation Company, now known as K & R Processing, Inc. (Processing). The negotiations took place with David Keffler (Keffler) and Dean Rose (Rose), the owners of the outstanding stock of Mining and Processing, and resulted in the execution of a business purchase agreement. The business purchase agreement provided, inter alia, for the sale by Messrs. Keffler and Rose of their capital stock of Mining and Processing to E-K Industries, Inc. (E-K), a newly formed company owned by Ensley and Kelm.
The business purchase agreement also provided for the assignment to Keffler Construction of all of Mining’s rights as lessee under certain coal leases in full satisfaction of a $3,327,200.00 pre-existing debt of Mining and an $801,035.00 pre-ex-isting debt of Processing. Additionally, Keffler Construction would sublease all of the coal leases back to Mining at a royalty of fifty cents ($.50) per ton with a minimum annual royalty of $200,000.00 until a total of $4,000,000.00 had been paid at which time the royalty per ton would be reduced to twenty-five cents ($.25) per ton with no annual minimum payment.
Pursuant to the business purchase agreement, the outstanding stock of Mining and Processing was transferred to an escrow account on July 1, 1986, with E-K, Ensley, and Kelm delivering a promissory note in the amount of $40,000.00 payable on July 29, 1986 to Messrs. Keffler and Rose.
On July 29, 1986, the stock being held in escrow was conveyed to E-K. On July 31, 1986, Mining executed the Assignment of Coal Lease Interest and Contract Rights which evidenced the assignment of its interest in the coal leases to Keffler Con*138struction which in turn subleased the coal leases back to Mining.
Mining currently subleases virtually all of the real property, on which it conducts its coal mining operations, from Keffler Construction.
Prior to the implementation of the business purchase agreement, Mr. Keffler owned 50 percent of the stock of Mining and 85 percent of the stock of Keffler Construction.
Following the execution of the coal lease assignment, Keffler Construction canceled the existing indebtedness of Mining and Processing. Likewise, Mining and Processing deleted such indebtedness from their books.
The coal lease assignment was filed for record in Stark County on August 27, 1986 and in Columbiana County on September 29, 1986.
On May 26, 1987, Mining and Processing filed for relief under Chapter 11 of Title 11 of the United States Code. Thereafter, Mining filed the instant adversary proceeding.
DISCUSSION
11 U.S.C. § 547 provides for the avoidance of certain pre-petition transfers of the debtor’s property and provides in relevant part:
[[Image here]]
(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 a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
There is no dispute that Keffler Construction was, prior to the assignment, a creditor of Mining and the assignment was on account of an antecedent debt. Section 547(b)(1) and (2) supra.
A.
The central issue in dispute is whether Section 547(b)(4)(B), supra, is applicable. The transfer having occurred between 90 days and one year before the petition date, there must be a showing that Keffler Construction was an insider at the time of such transfer.
Mining argues that the transfer occurred on July 1, 1986 when the business purchase agreement was executed or at the latest on July 29 and 31, 1986 when the stock and coal leases were transferred. Mining asserts that Keffler Construction was an insider at these times. Alternatively, Mining argues that if the transfer occurred when the coal assignment was recorded, then Keffler Construction was an insider at that time by virtue of the control it exerted over Mining.
Keffler Construction maintains that the coal leases, being an interest in real estate, were not transferred until they were recorded in August and September of 1986 and it was not an insider at this time based upon the fact that Mr. Keffler possessed no stock of Mining nor was he or Keffler Construction in control of the debtor.
11 U.S.C. § 547(e)(2)(B) provides that a transfer will be deemed made when it is perfected. Under Ohio law, a lease to mine coal is an interest in real property. Crawford and Murray v. Wick, 18 Oh.St. 190 (1868); Ross v. Short Creek Coal Company, 117 Oh.St. 599, 159 N.E. 583 (1928). *139The Code further provides in Section 547(e)(1)(A) that:
[[Image here]]
a transfer of real property other than fixtures, but including the interest of a seller or purchaser under a contract for the sale of real property, is perfected when a bona fide purchaser of such property from the debtor against whom applicable law permits such transfer to be perfected cannot acquire an interest that is superior to the interest of the transferee.
Under this provision, the date a transfer is perfected turns on state law. See, Collier on Bankruptcy, para. 547.16[2] (15th ed. 1987) (citations omitted).
Under Ohio law, until an interest in real property is recorded or filed for record in the office of the county recorder wherein the real property is located, the transfer is fraudulent so far as it relates to a subsequent bona fide purchaser. See, Ohio Rev. Code § 5301.25(A).
Accordingly, the coal leases were perfected and thus transferred when the assignment was recorded. Accord, In re Lewis W. Shurtleff, Inc., 778 F.2d 1416 (9th Cir.1985).
Next for consideration is whether Kef-fler Construction was an insider when the assignment was recorded. 11 U.S.C. § 101(30) provides in relevant part:
“Insider” includes—
[[Image here]]
(B) if the debtor is a corporation—
[[Image here]]
(iii) person in control of the debtor;
[[Image here]]
(E) affiliate, or insider of an affiliate as if such affiliate were the debtor;
[[Image here]]
“Affiliate,” in turn, is defined in Section 101(2)(B) as a:
“corporation 20 percent or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by the debtor, or by an entity that directly or indirectly owns, controls or holds with power to vote, 20 percent or more of the outstanding voting securities of the debtor ... ”.
“Entity” as defined also includes a person. 11 U.S.C. § 101(14).
Based upon the above definition of an affiliate, Keffler Construction was not an insider by virtue of Mr. Keffler’s stock ownership when the coal leases were transferred. The perfection and thus the transfer of the coal leases occurred on August 27, 1986 and September 29, 1986. However, Mr. Keffler relinquished his stock in Mining, at the latest, on July 29, 1986.
Mining argues that Keffler Construction should not be permitted to circumvent the provisions of the Bankruptcy Code by engineering its exit out of Mining and by delaying the recording of the assignment. The assertion that the assignment was deliberately recorded late is not supported by the evidence. (See, Affidavit of John H. Bran-nen, Esq., former counsel to E-K, delay in filing caused by claim of title concerns). Furthermore, the clear language of Section 547(e) and Section 101(30) cannot be ignored.
However, Keffler Construction may yet be considered an insider if it can be shown that it exerted control over the debt- or. Section 101(30)(B)(iii) supra. “The control such persons exercise need not be legal or absolute. A creditor who does not deal at arms length with the debtor, but who has a special relationship with the debtor through which it can compel payment of its debt, has sufficient control over the debtor to be deemed an insider.” In re F & S Central Manufacturing Corporation, 53 B.R. 842, 848 (Bankr.E.D.N.Y.1985) (citations omitted).
Mining asserts that Keffler was an insider by the control it held over it by virtue of possessing Mining’s most important asset, the coal leases, and the fact that Mining leased a substantial portion of its equipment from Keffler Construction.
Keffler Construction disputes this assertion and states that there is no evidence of any compulsion or undue influence or that the transaction was not at arms length.
*140The court, from the limited evidence before it, cannot find as a matter of law that Keffler Construction was or was not in control of Mining when the transfer occurred. Accordingly, summary judgment is inappropriate, but the court will address the remaining issues presented so as to narrow the focus of any future hearing or proceeding.
B.
As to whether Mining was insolvent at the time of the assignment, 11 U.S.C. § 547(b)(3), supra, Mining, pointing to its balance sheet dated June 30, 1986, asserts that its liabilities exceeded the value of its assets by $3,131,541.89 and therefore it was insolvent at the time of the transfer. Keffler Construction counters that Mining’s balance sheet does not reflect fair valuation in that it does not carry a value for the coal leases; the debt owing to Kef-fler Construction, which was extinguished by the assignment, is still carried on the balance sheet; and Mining’s assets are improperly valued at cost less depreciation which is not reflective of fair value.
First, in determining the proper assets to be included, property that has been transferred for the purpose of a preferential transfer is to be considered as an asset of the debtor in determining the solvency at the time of the preference. 2 Collier on Bankruptcy, para. 101.31 (15th ed. 1988) (citations omitted).
Mining asserts, through the affidavit of Dwight A. Ensley, that the market value of its coal leases is a function of the royalties generated by ongoing strip mining operations and absent the mining operations, such leases have no value. Therefore, they are not carried on the balance sheet.
Keffler Construction argues to the contrary that based upon Mining’s assertion that the coal leases are its most important asset {See, Affidavit of Dwight A. Ensley, para. 7), they do have a market value. Also, Henry M. Schlueter, CPA, former accountant for Mining, states in his affidavit that “the failure to list the leases as an asset does not mean that said leases have no value, but merely that I had no information at that time to assign a value to them consistent with generally accepted accounting principles.” (Affidavit, para. 3).
Based upon the evidence and affidavits before the court, the court cannot find, in the context of motions for summary judgment, that the coal leases have no value or, in the alternative, have value and accordingly ascertain that value.
As to the balance sheet including the debt owed to Keffler Construction, it is plain that if the property transferred is to be considered in determining the assets of the debtor, the debt that was to be extinguished by such transfer is also to be included in determining the debtor’s liabilities. Accordingly, the inclusion of the debt owed to Keffler Construction is proper when determining the insolvency of Mining.
In regard to the valuation of the assets, 11 U.S.C. § 101(31) provides that a debtor is insolvent when “the sum of such entity’s debts is greater than all of such entity’s property at a fair valuation.” Fair valuation is determined by estimating what the debtor’s assets would realize if sold in a prudent manner in current market conditions. In re F & S Central, 53 B.R. at 849. “Asset values carried on a balance sheet, even if derived in accordance with ‘generally accepted accounting principles,’ do not necessarily reflect fair value.” Id. at 849.
In the instant proceeding, the inventory and fixed assets of Mining listed on the balance sheet were valued at cost. Additionally, depreciation was taken against the fixed assets. {See, Affidavit of Henry Schlueter, CPA, para. 5). This is clearly not “fair valuation” as contemplated by the Bankruptcy Code and accordingly, the court cannot find from the evidence before it that Mining was insolvent when the transfer occurred.
C.
Finally, as to whether Section 547(b)(5), supra, has been satisfied, a comparison must be drawn between what Keffler Construction actually received and what it would have received under the Chapter 7 *141distribution provisions of the Bankruptcy Code. Specifically, Mining must prove that Keffler Construction “received more than it would if the case were a Chapter 7 liquidation case, the transfer had not been made, and the creditor received payment of the debt to the extent provided by the provisions of the Code.” 4 Collier on Bankruptcy, para. 547.08 (15th ed. 1987) (citations omitted).
Mining asserts that if the coal assignment had not been made and this were a case under Chapter 7, the total unsecured claims of Mining, which would include Kef-fler Construction’s claim of $3,327,200.00, would be at least $7,179,791.00. Based upon its assets, Mining argues that after the payment of secured and priority claimants, unsecured creditors would receive “no more than $.087 for each dollar of claim and more probably, after inclusion of the administrative expenses of a Chapter 7 proceeding, would have received nothing.” Inherent in Mining’s analysis, as it was in its insolvency argument, is the belief that the coal leases that were assigned to Keffler Construction have no value absent the royalties generated by strip mining operations.
As the court previously concluded, supra p. 140, based upon the evidence before it and in the context of motions for summary judgment, the court can make no determination about the value, if any, of the coal leases. With such a finding, Mining’s analysis as to what Keffler Construction would receive upon liquidation must fail.2 Accordingly, summary judgment is inappropriate as to the requirement of Section 547(b)(5).
An order in accordance herewith shall issue.
. The within adversary proceeding has been consolidated with a removed state court action wherein Mining, being named as a defendant, has filed a counterclaim against Keffler Construction asserting the same cause of action as Count II of its complaint.
. The value of the coal leases must also be determined so as to determine what Keffler Construction actually received. As the court in In re Lewis W. Shurtleff, Inc., supra stated in regard to Section 547(b)(5):
In determining the amount that an alleged preferential transfer enables the creditor to receive, the creditor must be charged with the value of what was transferred plus any additional amount that he would be entitled to receive from a Chapter 7 liquidation.” (Emphasis added)
Id. at 1421. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490959/ | This appeal arises from a judgment in favor of the Debtor/appellee in which the bankruptcy court concluded that the appellant had failed to establish a “willful and malicious injury by the Debtor” for purposes of § 523(a)(6).
FACTS
The following facts are essentially undisputed. The debtor is a Board Certified Plastic Surgeon, licensed to practice in California. After various consultations and at the request of the appellant, the debtor performed reconstructive facial surgery on the appellant in March 1984. Prior to the surgery, the appellant signed a “consent form” which reads in the pertinent part as follows:
I specifically authorize Dr. Jan V. Karlin and/or his associates to take pre-opera-tive and post-operative photographs of me. I specifically authorize and grant permission to him to utilize these photographs for any instructional or professional purposes, including, but not limited to, use within his medical practice, and for demonstration purposes for the benefit of prospective patients of Dr. Karlin’s.
In 1985, the debtor hired Cheryl Hirsch, a public relations and marketing expert to help publicize his professional services. Ms. Hirsch began to prepare for publication, an article and photographs regarding the debtor’s work. In order to do so, the debtor made his patients’ charts and photographs available to Ms. Hirsch, and she selected the appellant’s photographs for publication.
Before forwarding the article and copies of the photographs to “Faces International” magazine for publication, Ms. Hirsch gave the debtor the article and photographs for his review. Ms. Hirsch then forwarded the article and photographs to Faces International for publication. Prior to publication, however, the debtor contacted the appellant to determine whether the appellant would object to the publication of his pictures. When the appellant objected, the debtor contacted Ms. Hirsch who in turn contacted Faces International. It was agreed that Faces International would not publish the article or would use other pictures. Mistakenly, however, and without the knowledge of the appellant or the debt- or, the article was published using the appellant’s pictures. In April 1986, the appellant filed an action in state court alleging various causes of action. In June 1986, however, the debtor filed a Chapter 7 petition, whereupon the appellant filed a complaint alleging the non-dischargeability of his claim. After receiving all the evidence, the bankruptcy court concluded that the debtor’s conduct was not a case of willful and malicious injury as contemplated by *238§ 523(a)(6). Although neither party has supplied a copy of the transcript, appellee’s brief sets forth the bankruptcy court’s oral ruling from the transcript as follows:
I believe what the doctor’s declaration says, happened and, in any case, I don’t think even at worst from the doctor’s standpoint, this is simply not a case of willful malicious injury as is contemplated by section 523(a)(6). At best it’s a question of negligence.
[[Image here]]
This is simply not the type of debt that was contemplated by that. If anything, even in the State Court, I think basically what you have here — and you might have a good ease — I’m not saying you wouldn’t assuming you could show injury — of negligence, and that it appears to me at best, that’s what we’re dealing with here is a question of negligence, but I don’t see that it’s willful malicious injury-
On January 4, 1988, the bankruptcy court entered Findings of Fact and Conclusions of Law which found that “[debtor] did not possess the requisite intent to harm [appellant],” and concluded that “the debt- or, Jan V. Karlin, lacking the intent required by Bankruptcy Code Section 523(a)(6), the debt is dischargeable [sic].” The instant appeal followed.
DISCUSSION
This Panel will review findings of fact under the clearly erroneous standard “and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses.” Bankruptcy Rule 8013. Conclusions of law are reviewed de novo. Anderson v. City of Bessemer, 470 U.S. 564, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985).
The essence of the appellant’s argument is that the bankruptcy court applied an incorrect standard in determining that his debt was not within the scope of “willful and malicious injury” as contemplated by § 523(a)(6) and that the debtor’s conduct amounted to a violation of the debtor’s fiduciary duty and, therefore, the debt is non-dischargeable under § 523(a)(4).
Fiduciary Duty Under § 523(a)(4).
Although the complaint alleging the non-dischargeability of the underlying claim did set forth an allegation that the debtor had breached his fiduciary duty owed to the appellant, the bankruptcy court’s findings and conclusions did not address this issue. While the debtor admitted that a fiduciary duty was owed to the appellant through their doctor-patient relationship, this fact alone is insufficient to establish the non-dischargeability of a debt under § 523(a)(4). The Ninth Circuit has set forth the recognized rule that “the broad general definition of fiduciary — a relationship involving confidence, trust, and good faith — is inapplicable in the discharge-ability context_” In re Short, 818 F.2d 693, 695 (9th Cir.1987). “Thus, constructive or implied trusts are excluded, but statutory trusts are not.” Id. (citation omitted).
California statutory law provides in the pertinent part:
No provider of health care shall disclose medical information regarding a patient of the provider without first obtaining an authurization_
Cal.Civil Code § 56.10 (emphasis added). California Evidence Code § 994 also provides patients a privilege to prevent the disclosure of “confidential communications.” Based on the above statutes, an issue arises of whether a statutorily created fiduciary duty existed under the circumstances of the instant case.
Although the above statutes were made reference to in the joint pre-trial statement under “Issues of Law,” there is no indication that this issue (whether the above statutory language creates a sufficient fiduciary duty for purposes of § 523(a)(4)), was addressed at the trial. Even assuming that a statutorily created fiduciary duty does exist, it appears from the record before this Panel that the debtor did not breach the duty since an authorization was obtained from the appellant. The appellant does not contend that the authorization obtained was invalid as set forth in *239Cal.Civil Code § 56.11 and without a complete transcript it is impossible for this Panel to determine if the appellant actually raised any of the above issues at the trial on the matter. In re Burkhart, 84 B.R. 658 (9th Cir. BAP 1988) (it is the responsibility of the appellants to file an adequate record). An issue not raised below cannot now be asserted on appeal. In re Baldwin, 70 B.R. 612, 617 (9th Cir. BAP 1987). Given the state of the record before this Panel, the appellant’s argument that his claim should be held non-dischargeable under § 523(a)(4) is without sufficient basis.
Willful and Malicious Injury Under § 523(a)(6).
The next issue is whether the bankruptcy court applied an incorrect standard in determining that the debtor’s conduct did not amount to a “willful and malicious injury” under § 523(a)(6). The Ninth Circuit has adopted the recognized notion that for purposes of § 523(a)(6), “willful and malicious” means a wrongful act done intentionally, which necessarily produces harm and is without just cause or excuse “even absent proof of a specific intent to injure.” In re Cecchini, 780 F.2d 1440, 1443 (9th Cir.1986). Given the above language, it appears that the bankruptcy court applied an incorrect standard. The only finding set forth in the Findings of Fact states “[debtor] did not possess the requisite intent to harm [appellant].” (emphasis added). Whether, the debtor intended to harm the appellant is not relevant under the rule adopted in Cecchini. Rather, the issues are 1 — whether the debt- or committed a wrongful and intentional act, 2 — whether such action produced harm, and 3 — whether such action was without just cause or excuse.
Even assuming the existence of the first two factors, the undisputed facts support a conclusion that the debtor’s action of allowing Ms. Hirseh to review the appellant’s file was justified and excusable under the circumstances, sufficient to support the bankruptcy court’s ruling. It is undisputed that the debtor had obtained a signed authorization from the appellant to use his photographs. The appellant’s failure to attack the validity or scope of the authorization supports a determination that the debt- or was justified in allowing Ms. Hirseh to view appellant’s file for purposes of preparing the article on the debtor.
With regard to the publication of the appellant’s picture in Faces International, the undisputed facts establish that once the debtor learned of the appellant's desire not to have the photographs used, Ms. Hirseh and in turn Faces International was notified not to use them.1 Accordingly, there is sufficient evidence to support the trial court’s implicit determination that the publication of the appellant’s picture was excusable under all the circumstances of the instant case and, thus, the third element of a § 523(a)(6) cause of action does not exist. Furthermore, without a transcript of the proceedings and the full oral ruling of the trial court, it is virtually impossible for this Panel to conclude that reversible error was committed.
Accordingly, the bankruptcy court’s order holding the appellant’s claim to be dis-chargeable is AFFIRMED.
. Under these circumstances, it is doubtful that the negligence of Faces International can be imputed to the debtor for purposes of establishing causation. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490961/ | *314FINDINGS OF FACT, CONCLUSIONS OF LAW
MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 liquidation case and the immediate matter under consideration involves a challenge to the right to a general bankruptcy discharge of Michael A. Ser-ritella (Debtor). The Complaint challenging the discharge was filed by Nelton J. Zuppa (Plaintiff), who contends that the Debtor should not receive his discharge based on s 727(a)(4)(A) of the Bankruptcy Code because the Debtor knowingly and fraudulently made a false oath in connection with this case. The facts as established at the final evidentiary hearing are as follows:
In November 1984, the Debtor and his wife purchased a residence located at 3260 San Mateo Street, Clearwater, Florida, and established this property as their homestead. They resided at this address uninterruptedly and continuously up to and including 1988.
Beginning in 1986, the Debtor began to experience serious financial difficulties and by early 1988 the Debtor and his wife became seriously delinquent in the mortgage payments on the San Mateo home. As a result, the mortgagee threatened to foreclose the mortgage on the San Mateo property. Thus, it became apparent that they would lose their San Mateo home, their homestead, unless they were able to promptly find a solution to their dilemma.
According to the Debtor, his financial difficulties eventually led to an estranged relationship with his wife. As a result of this development the Debtor claims that he moved out of the San Mateo home on the third week of February, 1988, and moved into the home occupied by his mother on St. Croix Street in Tampa.
It appears that in October of 1982, Carmella Serritella, the Debtor’s mother, deeded the St. Croix residence to herself and to the Debtor, as joint tenants with rights of survivorship. The Debtor listed the St. Croix residence as “homestead jointly owned with mother”. Finally, on Schedule B4, the Debtor scheduled as exempt the St. Croix home. The Schedules and Statement of Financial Affairs were verified and signed by the Debtor under penalties of perjury prior to filing.
It appears that the Debtor in mid-June of 1988, or about three weeks after the initial meeting of the creditors, moved back into the San Mateo home but shortly thereafter the Debtor, his wife, and their son moved into a leased residence on Ingrid Place in Oldsmar, Florida. The San Mateo home was eventually sold at a foreclosure sale and title to that home was transferred sometime in mid-August of 1988 to the purchaser.
On April 22, 1988, the Debtor filed his Voluntary Petition for Relief under Chapter 7 of the Bankruptcy Code. At the time of the filing, the Debtor also filed the Schedule of Assets and Liabilities, along with his Statement of Financial Affairs. Question 1(c) of the Debtor’s Statement of Financial Affairs requires the Debtor to state his current address at the time of the filing of the Petition. The answer furnished by the Debtor indicated that he resided at 2874 St. Croix Drive. The answer to Question 15(a) stated that the Debtor had not consulted with any attorney in the year prior to the bankruptcy filing. Schedule B-l indicates the Debtor owns interest in two pieces of property. One is the San Mateo home which he listed as jointly owned with his wife, the other was the St. Croix residence.
It is the Plaintiff’s .contention that the Debtor knew that he and his wife were going to lose the San Mateo home pursuant to the foreclosure, and in order to protect his interest in the St. Croix home, the Debt- or moved into the home owned by him and his mother for the purpose of establishing *315the home as the Debtor’s homestead, thus exempt pursuant to Section 4, Article X of the Florida Constitution. The Plaintiff contends that the Debtor’s claim of the home on St. Croix as his homestead was false and, therefore, constituted a false oath in connection with this case. Based on the foregoing, the Plaintiff contends that the Debtor’s discharge should be denied pursuant to s 727(a)(4)(A) of the Bankruptcy Code.
In opposition to this challenge, the Debt- or contends that at the time of the filing of his Petition, he did, in fact, live at the St. Croix address; that his claim of homestead exception of the St. Croix property was correct. In support of his contention, the Debtor produced at the final evidentiary hearing a witness who testified that he was called by the Debtor to come to pick him up and transport the Debtor, his clothing, luggage and personal belongings to the St. Croix residence.
In support of his position that the Debtor did not live at the St. Croix residence, but, in fact, still resided at the San Mateo residence, the Plaintiff produced two witnesses who indicated, inter alia, that during the period in which the Debtor claims he lived at St. Croix, they visited the Debtor at various times at the residence on San Ma-teo. In addition, one of the witnesses, an employee of the Debtor, testified that whenever she required or needed to get in touch with the Debtor concerning matters arising at the Debtor’s business, she would contact him at the San Mateo address and telephone number.
Be that as it may, this Court is satisfied that'the evidence presented in support of and in opposition to the Debtor’s right to a discharge is at best in equilibrium. It is well established that teh burden of proof is on a plaintiff who objects to Debtor’s discharge pursuant to s 727 of the Bankruptcy Code. Bankruptcy Rule 4005. In re Burke, 83 B.R. 716 (Bkrtcy.N.D.Fla.1988). In addition, the standard of that proof is by clear and convincing evidence. This record fails to warrant the conclusion that the Plaintiff did establish with the requisite degree of proof any essential elements of s 727(a)(4)(A). Based on the foregoing, this Court is satisfied that the Defendant is entitled to a general discharge of all his dischargeable debts.
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/8490962/ | *334FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE having come before the Court upon the Complaint of SEARS, ROEBUCK AND COMPANY (the “Creditor”), for non-dischargability of a debt pursuant to 11 U.S.C. Section 523(a)(2)(A) against GARY GARRITANO (the “Debtor”) 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:
Jurisdiction is vested in this Court pursuant to 28 U.S.C. Section 1334(b) and Section 157(a) and (b). This is a core proceeding in which the Court is authorized to hear and determine all matters relating to this case in accordance with 28 U.S.C. Section 157(b)(2)(I).
Beginning in 1987 and continuing over a two-year period which ended in March of 1989, the Debtor accrued a $36,000.00 balance on his credit card account with the Creditor. The Debtor had an open line of credit as he was a trusted employee of a subsidiary of the Creditor. A substantial majority of the charges were the result of a charade of gift certificate purchases in increments ranging from $100.00 to $500.00. The Debtor, on numerous occasions, would purchase several gift certificates in a single day, from various stores of Creditor.
The Debtor used some of the gift certificates as payments on his account so as to prevent his account from going into default status while the other gift certificates were used either by the Debtor or his girlfriends to purchase small ticket items. The unused portions of the gift certificates would be redeemed for cash. The Debtor spent the cash balance and did not use same to pay the Creditor.
The Creditor brings this action pursuant to Section 523(a)(2)(A) which states that:
“(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 ... financial condition.”
In order to preclude the discharge of a particular debt under Section 523(a)(2)(A), a Creditor must prove that: the Debtor made a false representation with the purpose and intention of deceiving the Creditor; the Creditor relied on such representation; his reliance was reasonably founded; and the Creditor sustained a loss as a result of the representation. In re Hunter, 780 F.2d 1577 (11th Cir.1986).
The Debtor argues that he had no intention to deceive the Creditor and that the charges never exceeded any credit limit because he had an open line of credit. Although the Debtor denies any intent to deceive, the Debtor’s conduct dictates otherwise. The requisite degree of intent may be inferred from the totality of the circumstances. Soto v. Cabrera, Sr., 71 B.R. 200 (U.S.Bey.Ct.S.D., Fla.1987). SEE ALSO McMillan v. Firestone, 26 B.R. 706 (U.S.Bcy.Ct.S.D., Fla.1982). [“Intent may be inferred despite the Debtor’s avowal to the contrary”]. The Debtor’s pattern of conduct in purchasing numerous gift certificates over the two-year period, clearly demonstrates the requisite intent to deceive the Creditor.
The evidence presented further showed that it was not possible for the Debtor to pay his Sears account, based on the Debt- or’s salary and the magnitude of his other debts. Notwithstanding same, the Debtor continued to build up his outstanding credit balance by purchasing more gift certificates. The only way that the Debtor was able to pay the account was by perpetrating the fraud. The fact that the Debtor made substantial charges, even though they were within his “credit limit” is not an acceptable excuse when the Debtor knows that he has no intention of paying. Bar*335nett Bank of Tampa v. Pitts, 10 B.R. 557 (U.S.Bcy.Ct.M.D., Fla.1981). The Debtor, through his scheme, abused his extension of credit and perpetrated an actual fraud on the Creditor.
Further, the Creditor reasonably relied on the Debtor’s representations. The Debtor, as a trusted employee, continued to pay on his account notwithstanding that the payments were made by submitting gift certificates. The means which the Debtor used to pay the account made it difficult for the Creditor to detect the Debt- or’s scheme. As a consequence, the Creditor sustained a loss of $36,000.00.
In summary, this Court finds that the Debtor, as a trusted employee of the Creditor’s subsidiary and through his scheme, committed actual fraud on the Creditor. The Creditor reasonably relied on the Debt- or’s representations to pay and sustained a loss in the amount of $36,000.00. Accordingly, the debt herein is non-dischargable pursuant to 11 U.S.C. Section 523(a)(2)(A).
A separate Final Judgment of even date has been entered in conformity herewith. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490963/ | BENCH DECISION
HELEN S. BALICK, Bankruptcy Judge.
Alvera Parks, the owner of a mobile home community known as Enchanted Acres, has moved for relief from the automatic stay provisions of § 362(a) of title 11, United States Code, for the purpose of proceeding upon a writ of execution for possession issued out of a Delaware Justice of the Peace Court. Charles and Theresa Cardone, Chapter 7 debtors, are tenants of Parks having placed their mobile home on one of the lots in the community.
Cardones’ bankruptcy case was filed April 3, one day before a scheduled eviction. The dispute between the parties arises out of Cardones’ failure to pay lot rental since April 1988 and their charges that no rent is due until Parks corrects a septic system problem.
The issues raised were, at Cardones’ request, tried before a jury which returned a verdict against the Cardones. An order of judgment dated January 19, 1989 encompassing the jury verdict was appealed and reviewed by an appellate court comprised of three Justices of the Peace who entered an order February 10 dismissing the appeal. A subsequent motion for relief from judgment was denied on March 3. On March 17, the court entered an order permitting the Cardones to appeal to Superior *505Court but limited the appeal to only non-possession issues.
Parks asks for relief under 11 U.S.C. § 362(d)(1) for cause. The Cardones contend that they are entitled to appeal all aspects of the judgment; therefore, until there is a trial de novo in Superior Court, Parks is not entitled to relief.
The Supreme Court of Delaware in Bomba’s Restaurant & Cocktail Lounge, Inc. v. Lord De La Warr Hotel, Inc., 389 A.2d 766, held that there is no right of appeal to the Superior Court on a writ of possession. In reaching that conclusion, the court noted that while this result permits the splitting of a cause of action under a lease by virtue of other statutes permitting appeal on other matters in controversy, it does not extend to an action for possession under 25 Del.C. § 5701 and following.
The evidence discloses that the Cardones’ Chapter 7 is a no asset case. They have not paid any lot rental since the filing of their bankruptcy case in April and have no intention of paying rental pending resolution of their appeal to Superior Court on the money part of the Justice of the Peace judgment.
Mellon has asked the court not to grant relief because they have not had ample time to ascertain whether they intend to enter into a reaffirmation agreement with the Cardones. The testimony as to whether reaffirmation is possible is inconsistent. Although the schedules and statements reflect such an intention, Mrs. Cardone’s testimony was to the effect that is what she wanted and intended to do and then she said they could not afford to. Moreover, that issue isn’t pertinent to a resolution of whether Parks is entitled to relief. Parks has satisfied the requirements of § 362(d)(1). That section is written in the disjunctive and there is no requirement that both subsections be satisfied.
Having so found, an order granting relief will be entered today. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490964/ | BENCH DECISION FOLLOWING HEARING ON DEBTOR’S APPLICATION FOR AUTHORITY TO ENGAGE REAL ESTATE AGENT (INDIAN RIVER LAND COMPANY, INC.)
HELEN S. BALICK, Bankruptcy Judge.
• The debtor, Indian River Homes, Inc., wants to engage Indian River Land Compa*506ny, Inc. as a real estate agent. The two entities are closely related. Historically, Indian River Land was merged into and then sold out of Indian River Homes in October 1988.
Carlton Moore, president of the debtor, is a sales employee of Indian River Land who is paid on a commission basis. The owners of Indian River Land are directors of Indian River Homes. Two of the owners of Indian River Land are relatives of Carlton Moore. Indian River Homes holds a purchase money mortgage of Indian River Land. Before, during and after the merger, Indian River Land either as a division or a separate entity acted as sales agent for Indian River Homes.
Sussex Trust Company, the Creditors Committee and the Bank of Delaware filed objections to Indian River Homes’ request. The Bank of Delaware and the Creditors Committee have indicated that they do not wish to pursue their objections.
Sussex Trust asserts that Indian River Land cannot qualify under the restrictions of § 327 of title 11, United States Code, which spells out in a negative fashion the kind of professional who may be employed by a debtor-in-possession. .That is, any such professional cannot hold or represent an interest adverse to the estate and must be disinterested. Disinterested person is defined five different ways in § 101(13). Under one of those definitions, § 101(13)(A), an “insider” is not disinterested. That term requires examination of § 101(30)(B) that speaks to who is an insider when the debtor is a corporation as is Indian River Homes. Indian River Land does not fit the description of any entity specifically stated as being an insider.
Section 101(13)(E) says that an entity is disinterested if it does not have an interest that is materially adverse to the interests of the estate by reason of any direct or indirect relationship to, connection with or interest in the debtor. There is no question but that Indian River Land is an interested party. But, that interest is not materially adverse. True, commissions payable upon the sale of Indian River Homes’ property will result in a diminution of funds coming into the estate but the amount of that commission is the standard amount any other real estate agent would charge and in addition to the sale of lots, Indian River Homes is benefiting from other services Indian River Land has performed in the past and will perform under the proposed commission arrangement. Those services would not be available without additional charge from any other real estate agent.
To go back to the insider question. Comments were made by counsel about interlocking boards of directors. There was no such evidence. The evidence is that the individuals who own Indian River Land serve as directors of Indian River Homes. Clearly, there is an interrelationship even if Indian River Land technically is not an insider. In any event, the evidence supports the practicality of approving the engagement of Indian River Land Company and I do so. An order approving the appointment will be entered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490965/ | BENCH DECISION
HELEN S. BALICK, Bankruptcy Judge.
The parties have filed cross-motions for summary judgment on the question of whether certain obligations of the debtor, Richard Ralph Geddes, are dischargeable in his Chapter 7 case.
The parties, Susan and Richard Ralph Geddes, were divorced on November 18, 1986 following 15 years of marriage which produced a son, Richard Alan, born June 20, 1970. Richard Ralph and Susan were the owners as tenants by the entireties of their marital home.
On October 28, 1986, the day before Richard Ralph filed a complaint in divorce, he and Susan entered into a property settlement and separation agreement. That agreement, drafted by Richard Ralph’s attorney, released each spouse as to the other from any obligation of support or alimony. It also provided in 1113 as follows:
13. It is fully understood and agreed between the parties hereto that in lieu of the Husband making child support payments to the Wife for the support and maintenance of said minor child:
a. The wife shall have the use and possession of the marital home of the parties hereto;
b. The Husband will continue to pay the regular monthly mortgage payments on the said marital home of the parties hereto;
c. The Husband will pay one-half (lk) of the property taxes each year on the said marital home of the parties hereto;
d. At the time the mortgage is fully paid off by the Husband, the Husband agrees to assign his one-half (V2) right, title and interest in said marital home to his son, namely: RICHARD ALAN GEDDES.
The court in its final decree incorporated the parties’ agreement.
Thereafter, Susan took Richard Ralph into court alleging his failure to comply with the court’s order. As part of a settlement of that matter, Richard Ralph on April 30, 1987 conveyed his one-half interest in the property to Susan as custodian for Richard Alan. This modification resulted in a consent to judgment and the Maryland court ruling that Richard Ralph no longer had a responsibility to pay one-half of the property taxes, but that the mortgage obligation continued as agreed to between the parties.
The mortgage obligation continues until 1995. At that time Richard Alan will be either 24 or 25 depending upon whether the final payment is due before or after June. Under the consent to judgment, Susan Geddes is to convey the full interest and title to Richard Alan when he becomes 21.
Section 523(a)(5) of title 11, United States Code, requires a court examining a support agreement to determine whether in fact it is support or a disguised property settlement. Here, the mortgage extends a considerable period of time beyond the time Richard Ralph would be legally required to support Richard Alan. Despite the obvious language that it is support for the child, the requirement to make mortgage payments beyond Richard Alan’s 21st birthday *508is more in the nature of a property settlement or a gift to Richard Alan.
Since the consent to judgment further modified the time of transfer of full title to Richard Alan at 21, it is appropriate that Richard Ralph’s obligation to support be extinguished on Richard Alan’s 21st birthday. Therefore, Richard Ralph’s obligation to make mortgage payments is discharged.
In all other respects, I adopt the well-reasoned Memorandum Opinion and Order of Judge Carter on the issue of dischargeability entered September 29, 1988. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490966/ | BENCH DECISION
HELEN S. BALICK, Bankruptcy Judge.
First National Bank of Palmerton has moved under § 362(d) of title 11, United States Code, for relief from the automatic stay provisions of § 362(a) to permit it to exercise its rights under state law. The debtor-in-possession, CPM Energy Systems Corporation, has moved under § 1121(d) of title 11, United States Code, for an extension of 120 days within which it has the exclusive right to file a plan and solicit acceptances. Such a request must be made within the original 120-day period established by statute. CPM has satisfied that requirement having filed its motion on the 119th day.
Section 362(d) is written in the disjunctive and a movant for relief need only establish (1) cause, which includes a lack of adequate protection OR (2) that the debtor lacks equity and the property is not needed for an effective reorganization. This case is no different from most in that the two become mixed and the court is required to deal with both subsections.
The Bank holds a mortgage on a warehouse property purchased by CPM in 1986 for $750,000. The current appraisal of $630,000 reflects depreciation occasioned by use of the structure for combustible material.
CPM has been in default under the mortgage terms for approximately 14 months. There is due and owing the Bank as of June 29 for principal, interest and late charges the sum of $729,055.87. In addition, the Bank obtained a policy of insurance at a cost of $3,769 for coverage of *509$650,000. The mortgage on the property also contains a provision for the assessment of attorneys’ fees. Whether that amount is reasonable or not is not necessary to the determination here but obviously a reasonable amount will increase the debt due. Further, note must be taken that interest and late charges continue to accrue.
CPM lacks equity in the property. It offers as adequate protection the desire and work of the officers and stockholders to bring to fruition one or more of three “possible” solutions to CPM’s financial difficulties. These solutions are also the cause asserted for the exclusivity extension.
CPM argues that the property is essential to a reorganization. CPM has equipment in another building for the production of refuse derived fuel or fertilizer and the warehouse is necessary to store the end product. In fact, the warehouse contains the end product produced before the cessation of business a little over a year ago. Its storage has contributed to the building’s depreciation. Obviously the property is necessary to a reorganization but the next question is whether there is a reasonable probability of a reorganization. CPM’s counsel referred to three “possible” solutions and that is what they are — possible. The Bank has established cause for relief from stay.
Having said that, I note that this case is not quite five months old, not a long time for a Chapter 11 case. In light of the three “possible” solutions, I extend the exclusivity period through September 30, 1989.
In the event CPM has not satisfied the Bank that there is a realistic prospect of presenting a plan to the court prior to September 30, 1989, the Bank is granted relief from the stay so that it may proceed with foreclosure following September 1, 1989, without further order of court.
An order to that effect will be entered today. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490968/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court after Hearing on Debtor’s Objection to Claim of State Farm Mutual Insurance Company. The Court allowed the parties Thirty (30) days to file Briefs on the issues presented. Both parties filed Briefs, and the matter is decisional. The Court has reviewed the written arguments of counsel, as well as *869the entire record in this case. Based on that review, and for the following reasons, the Court finds that State Farm Mutual Insurance Company did not receive proper notice.
FACTS
The facts in this case are not in dispute. Beginning in 1978, the Debtor, Daniel M. Wiland, had operated a chimney cleaning business under the name Chim Tech Chimney Sweeps. On March 19, 1987, State Farm filed a Complaint in the Common Pleas Court of Lucas County against Chim Tech, alleging that the Defendant’s negligence was the proximate cause of a fire at the home of Michael and Kimberly Lee. The Lees are also named Plaintiffs in the Complaint. State Farm! had insured the home against fire, and had paid the Lees the amount of Twenty-five Thousand Six Hundred Sixty-four Dollars and Four Cents ($25,664.04). The Complaint states that the Lees paid a deductible of One Hundred Dollars ($100.00).
Daniel M. Wiland filed an Answer to the Complaint on May 25, 1987. He filed his Chapter 13 Petition with this Court on October 6, 1987. In his Schedules, the Debtor lists “State Farm” with an address in Newark, Ohio. The debt is listed as “$214.03 Auto Insurance.” The Lees are not listed as creditors. The caption of the Complaint filed in Common Pleas Court reads: “State Farm Fire and Casualty Company, 12611 Eckel Junction Road, Perrysburg, Ohio 43551”. Also in the caption are the Lees’ names and address.
The Debtor’s Plan was confirmed on November 20, 1987. The Plan calls for the payment of Seventy Percent (70%) of the allowed claims over a Five (5) year period. On April 20, 1988, Debtor’s bankruptcy counsel filed a “Notice of Stay” with the Common Pleas Court. On May 12, 1988, State Farm filed a Proof of Claim in the Debtor’s Chapter 13 case. It is not disputed that the claim was untimely filed. A “Motion to Allow Additional Claims” was filed by the Chapter 13 Trustee, seeking to have State Farm’s claim allowed. Debtor’s counsel filed an “Objection to Allowance of Claim of State Farm Mutual”. Debtor’s Objection states that State Farm was listed in the Petition, but the claim was not filed until after the February 18, 1988 deadline. State Farm’s response is that they did not receive adequate notice, and therefore should be allowed to participate in the Plan, despite the lateness of their claim.
LAW
The first issue to be addressed is the adequacy of the notice provided to State Farm. In addressing the issue of what notice is required, the Supreme Court has stated:
An elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.
MulloMe v. Central Hanover Bank & Trust Company 339 U.S. 306, 318, 70 S.Ct. 652, 659, 94 L.Ed. 865, 875 (1950).
In the present case, the Creditor has argued that notice was insufficient because the Debtor failed to list the correct address for State Farm Fire and Casualty Company. Instead, the Debtor listed the address for State Farm Mutual Automobile Insurance Company, which counsel notes is a separate corporation. It appears that the office which was actually noticed was the regional office for the area.
Debtor’s counsel argues that the Debtor met the requirement of “reasonable diligence” in completing his schedules and lists. See, In re Lee & Sons, Inc., 95 B.R. 316 (Bankr.M.D.Pa.1989); In re Fauchier, 71 B.R. 212 (9th Cir.B.A.P.1987); In re Blossom, 57 B.R. 285 (Bankr.N.D.Ohio 1986); In re Gray, 57 B.R. 927 (Bankr.D.R.I.1986); In re Brown, 27 B.R. 151 (Bankr.N.D.Ohio 1983); In re Lorenzen, 21 B.R. 129 (Bankr.N.D.Ohio 1982). In support of that contention, counsel for the Debtor notes State Farm’s failure to distinguish between the “Fire and Casualty Company” and the “Mutual Automobile Insurance Company” in their Yellow Pages advertise*870ments. Debtor’s counsel also cites cases which indicate that a “less definite and more general address” may be sufficient when the entity served is well known. See, In re Robintech, Inc., 69 B.R. 663, 665 (Bankr.N.D.Tex.1987); In re American Properties, Inc., 30 B.R. 239, 244 (Bankr.D.Kan.1983).
In the usual case of this type, the Court would follow In re Lee & Sons, Inc., supra, and reject State Farm’s contention that notice was insufficient. State Farm’s failure to distribute mail to the proper entity, by itself, is a very weak defense to the discharge of a scheduled debt. However, in the present case, there are two additional facts which lead the Court to conclude that State Farm should prevail.
First, the correct address of the plaintiff was on the Complaint which had been filed in the Lucas County Common Pleas Court less than one year prior to the filing of the Debtor’s Petition. “Reasonable diligence” by the Debtor should include remembering the fact that he had been sued for over Twenty-five Thousand Dollars ($25,000.00), particularly when he had hired two attorneys to file an Answer. Moreover, a review of the Debtor's Answer to the lawsuit reflects that it was filed only Five (5) months prior to the filing of the Chapter 13. Thus, it appears that the Debtor, under these facts, failed to use reasonable diligence in completing his Schedules.
The second fact which prevents the Court from finding adequate notice is the total absence of any indication that the Debtor intended to list the lawsuit or the underlying contingent obligation. The Debtor listed “Auto insurance” as the basis for his debt to State Farm. He did not list the Lees, who were also plaintiffs in the lawsuit against Chim Tech. Further, under 12a of the “Statement of Financial Affairs For Debtor Engaged In Business”, the Debtor was asked: “Were you a party to any suit pending at the time of the filing of the original petition herein?” In answer to the question, the Debtor wrote, “None”. However, the Debtor was able to list two other lawsuits, under question 12b, that had been concluded prior to filing.
The standard for notice set forth in Mul-lane requires notice that is “reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action ...” The phrase “reasonably calculated” presupposes the noticer’s intention to actually inform the interested parties. In the case at bar, for whatever reason, the Debtor’s Schedules do not reflect an intention to inform the parties to the lawsuit of the Chapter 13 filing. The fact that the Debtor fortuitously listed a totally unrelated debt with the same organization, (or as State Farm argues, a separate corporation with a similar name) will not be deemed sufficient. Therefore, based upon the facts in this case, including the absence of an intention to notify the Creditor, and the lack of actual notice to the listed plaintiffs in the lawsuit, the Court finds that the claim of State Farm Mutual Insurance Company should be allowed.
Accordingly, it is
ORDERED that the Trustee’s Motion to Allow Additional Claim be, and is hereby, Granted. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490969/ | OPINION AND ORDER
R. GUY COLE, Jr., Bankruptcy Judge.
I. Preliminary Statement
Several common legal issues have been raised in the above-captioned adversary proceedings by the parties’ filing of the following motions: (1) defendants’ Motion[s] for Transfer and Reference of Issues to the Interstate Commerce Commission (“ICC”) and For Stay of Adversary Proceeding[s] (collectively, the “Referral Motion”); and (2) plaintiffs’ motions to dismiss defendants’ counterclaims (collectively, the “Dismissal Motion”). Jurisdiction is vested in the Court pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this judicial district. The parties disagree as to whether these adversary proceedings constitute core matters. See, generally, 28 U.S.C. § 157(b)(1) and (b)(2)(A) and (O); United Sec. & Communications, Inc. v. Rite Aid Corp. (In re United Sec. & Communications, Inc.), 93 B.R. 945 (Bankr.S.D.Ohio 1988). The parties have consented, however, to this Court’s determination of the instant motions.1
II. Factual Background
The debtor, Suburban Motor Freight, Inc. (“Suburban”), was formerly a motor common carrier which operated in interstate commerce under authority issued by the ICC. Suburban filed a case under Chapter 11 of the Bankruptcy Code with this Court on February 27, 1987. Suburban’s Chapter 11 case was converted to a Chapter 7 liquidation proceeding on May 23, 1988. Delta Traffic Service, Inc. (“Delta”) was employed by the estate to conduct an audit of Suburban’s freight bills for the purpose of determining whether the bills had been paid and/or properly rated in accordance with the tariffs filed by Subur*890ban with the ICC. The audit conducted by Delta has revealed that in a number of instances Suburban charged its customers less than the tariff rates which it had filed with the ICC. Stephen K. Yoder, the duly-appointed Chapter 7 trustee (“Trustee”), filed these lawsuits seeking recovery of such “undercharges” — i.e., the difference between the. negotiated rates paid by defendants and the tariff rates filed by Suburban with the ICC.
Defendants have raised a number of affirmative defenses and have counterclaimed against the Trustee, asserting that Suburban “induced reliance upon non-filed rates, negligently represented that the rates were filed or would be filed, negligently failed to file the rates or execute a written contract, ... negligently failed to discover that rates were not filed or contracts not executed, ... [and attempted] to retroactively impose unreasonable and unlawful rates in violation of 49 U.S.C. § 10701(a).” Memorandum Contra to Motion to Dismiss Defendant’s Counterclaims at 2. Relying on the “filed-rate doctrine,”2 the Trustee argues that defendants’ counterclaims are not legally cognizable and, therefore, subject to dismissal pursuant to Bankruptcy Rule 7012(b). Defendants, on the other hand, submit that collection of the filed rates rather than the quoted rates would constitute an unreasonable practice within the meaning of 49 U.S.C. § 10701(a), thereby requiring referral of these cases to the ICC under the doctrine of “primary jurisdiction.”3 The legal arguments advanced by the parties are examined below.
III. Legal Discussion
The parties’ motions raise two disputed legal issues:
(1) Does the doctrine of primary jurisdiction require referral of these cases to the ICC for a determination of whether collection of the undercharges would constitute an unreasonable practice under 49 U.S.C. § 10701(a)?; and
(2) Are defendants’ counterclaims barred by the filed-rate doctrine?
As discussed below, these legal issues have spawned two divergent lines of federal case law.
A substantial minority of federal courts have declined to refer undercharge cases to the ICC. See, e.g., Supreme Beef Processors, Inc. v. Yaquinto (Matter of Caravan Refrigerated Cargo, Inc.), 864 F.2d 388 (5th Cir.1989); Rebel Motor Freight v. Southern Beverage Co., 673 F.Supp. 785, 789-90 (M.D.La.1987); Feldspar Trucking Co., Inc. v. Greater Atlantic Shippers Associates, Inc., 683 F.Supp. 1375, 1378 (N.D.Ga.1987); In re Taynton Freight Systems, 76 B.R. 971, 973 (Bankr.M.D.Pa.1987); Cooper v. California Consolidated Enter., Inc. (In re Carolina Motor Express, Inc.), 84 B.R. 979 (Bankr.W.D.N.C.1988); Campbell Sixty Six Express, Inc. v. H.A. Cole Products Company (In re Campbell Sixty Six Express, Inc.), 94 B.R. 1019 (Bankr.W.D.Mo.1988). Adherence to the filed-rate doctrine is mandatory, these courts opine; hence, referral to the ICC would be a vain act. The filed-rate doctrine is derived from 49 U.S.C. § 10761(a) and judicial interpretations thereof. 49 U.S.C. § 10761(a) provides:
[A] carrier providing transportation or service subject to the jurisdiction of the Interstate Commerce Commission ... shall provide that transportation or service only if the rate for the transportation or service is contained in a tariff that is in effect under this subchapter. That carrier may not charge or receive a different compensation for that transpor*891tation or service than the rate specified in the tariff....
49 U.S.C. § 10761(a). The Supreme Court explained the filed-rate doctrine in the following manner:
The rate of a carrier duly filed is the only lawful charge. Deviation from it is not permitted upon any pretext. Shippers and travelers are charged with notice of it, and they as well as the carrier must abide by it_ Ignorance or misquotation of rates is not an excuse for paying or charging either less or more than the rate filed. The rule is undeniably strict, and it may work hardship in some cases, but it embodies the policy which has been adopted by Congress in regulation of interstate commerce in order to prevent unjust discrimination.
Louisville & Nashville Ry. v. Maxwell, 237 U.S. 94, 97, 35 S.Ct. 494, 495, 59 L.Ed. 853 (1915); Southern Pacific Transp. Co. v. Commercial Metals Co., 456 U.S. 336, 343, 102 S.Ct. 1815, 1820, 72 L.Ed.2d 114 (1982).
Thus, the ratio decidendi of the decisions in which referral of an undercharge case to the ICC was denied is that, even if the ICC would determine that collection of undercharges constitutes an unreasonable practice as defined in 49 U.S.C. § 10701(a), courts remain bound by statute and Supreme Court precedent to compel payment of the filed rate. By this reckoning, then, referral to the ICC would be a futile gesture. See In re Total Transp., Inc., 84 B.R. 590 at 595 (D.Minn.1988). Courts following this minority view also hold that the filed-rate doctrine precludes assertion of equitable defenses and counterclaims. See, e.g., Delta Traffic Serv., Inc. v. Georgia-Pacific Corp., 1988 Fed.Carr.Cas. (CCH) ¶ 58,181 (D.Conn.1988); Campbell Sixty Six Exp., Inc., 94 B.R. at 1022-23.
The majority of courts take the contrary position, holding that, where an “unreasonable practice defense”4 is raised in an undercharge action, referral of the dispute to the ICC is proper. See, e.g., Seaboard System R.R., Inc. v. United States, 794 F.2d 635 (11th Cir.1986); Maislin Indus. & U.S., Inc. v. Primary Steel, 879 F.2d 400 (8th Cir.1989); Motor Carrier Audit Collection Co. v. Family Dollar Stores, Inc., 670 F.Supp. 644, 649-50 (W.D.N.C.1987); Indiana Harbor Belt R.R. Co. v. Industrial Scrap Corp., 672 F.Supp. 1041, 1042 (N.D.Ill.1986); Delta Traffic Service, Inc. v. Marine Lumber Co., 683 F.Supp. 754, 755 (D.Or.1987); Walthout v. United Exposition Service, Inc. (In re Tucker Freight Lines, Inc.), 85 B.R. 426 (W.D.Mich.1988); Breman’s Express Co. v. H & H Distributing Co. (In re Breman’s Express Co.), 69 B.R. 356, 369 (Bankr.W.D.Pa.1987); Tobler Transfer, Inc., 74 B.R. 373, 377 (Bankr.C.D.Ill.1987). This line of authority relies heavily upon the ICC’s decision in National Indus. Transp. League — Petition to Institute Rulemak-ing on Negotiated Motor, Carrier Rates, Ex Parte No. MC-177, 3 I.C.C.2d 99, 1986 Fed.Carr.Cas. (CCH) ¶ 37,284 (1986) ("MC-177”). Prior to its decision in MC-177, the ICC had not permitted shippers to raise equitable defenses to undercharge collection actions. However, in MC-177, the Commission announced its intention to review filed motor carrier rates for reasonableness, and to determine whether collection of undercharges in cases asserting the existence of a negotiated rate, would constitute an unreasonable practice under 49 U.S.C. § 10704(a). The Commission stated:
[T]he Commission lacks initial jurisdiction to entertain challenges to the reasonableness of motor carrier rates charged in the past, or to order the waiver of undercharges. However, this does not mean that we lack authority to address the question of what rate should have been charged by a carrier (the tariff rate, the negotiated rate or some other rate) if the carrier brings an action for undercharges in district court, 49 U.S.C. §§ 10705(b)(3), 11706, and the court re*892fers the question of whether the collection of undercharges would be an unreasonable practice to us under the doctrine of primary jurisdiction.
MC-177, 1986 Ped.Carr.Cas. at 47,352. The ICC explained its change in policy in the following manner:
In our view, the filed rate doctrine was not intended to condone or reward carriers in the circumstances involved here, especially where carrier actions may constitute fraudulent business practices.
We believe, in the highly competitive motor carrier industry and economy in general, equitable defenses to rigid application of filed tariff rates should be available on a case-by-case basis and that our unreasonable practice jurisdiction authorizes such an approach....
MC-177, 1986 Fed.Carr.Cas. at 47,350-47,-351. The majority of courts, then, rely upon the ICC’s opinion in MC-177 and refer undercharge cases to the ICC under the following two-pronged analysis:
(1) the ICC has authority under 49 U.S.C. § 10704(a) to determine whether collection of undercharges would constitute an unreasonable practice; and
(2) because a reasonableness determination involves consideration of matters within the special expertise of the ICC, referral is appropriate.
The Eighth Circuit’s recent decision in Maislin is representative of the majority approach. After extensively analyzing the MC-177 decision, the Circuit Court stated:
Section 10761(a), which mandates the collection of tariff rates, is only part of an overall regulatory scheme administered by the ICC, and there is-no provision in the Interstate Commerce Act elevating this section over section 10701, which requires that tariff rates be reasonable. When conflicts between the two provisions arise, “it is not for * * * [courts] to place enforcement of one doctrine above the other.” In re Tucker Freight Lines, 85 Bankr. at 429. Instead, the proper authority to harmonize these competing provisions is the ICC. Seaboard, 794 F.2d at 638. The approach taken by the ICC does not abolish the filed rate doctrine, but merely allows the ICC to consider all of the circumstances, including equitable defenses, to determine if strict adherence to the filed rate doctrine would constitute an unreasonable practice.
Thus, the ... court is required to enforce the tariff provisions of section 10761(a), unless the ICC, upon referral by the district court, determines that a carrier’s billing practices were unreasonable and that to enforce the tariff requirement would be unlawful.
Maislin, 879 F.2d at 405. Thus, the Mais-lin court concluded that MC-177 as well as federal case law authority established the propriety of referring undercharge cases to the ICC where an unreasonable practice defense is raised.
Having reviewed the two lines of authority discussed above, as well as the arguments of the parties asserted in their briefs, the Court hereby adopts the majority view. In the interest of judicial economy, the Court will not fully restate the rationale of these cases. Suffice it to say, however, that the Court fully concurs with both the analysis and the holding of the Eighth Circuit in Maislin.5
*893Based upon the foregoing, the Court hereby rules as follows:
(1) The Trustee’s Motion to Dismiss the counterclaims of the defendants herein is hereby DENIED;
(2) These proceedings are hereby REFERRED to the Interstate Commerce Commission for determination of whether the Trustee’s collection of undercharges would constitute an unreasonable practice under the circumstances presented here; and
(3) These adversary proceedings, are hereby STAYED pending a determination by the Interstate Commerce Commission.
IT IS SO ORDERED.
. Both the Dismissal Motion and the Referral Motion were filed in Stephen K. Yoder, Trustee and Delta Traffic Service, Inc. v. PMS Consolidated, Inc. (In re Suburban Motor Freight, Inc.), Case No. 2-89-0061, and Stephen K. Yoder, Trustee and Delta Traffic Service, Inc. v. General Motors Corporation (In re Suburban Motor Freight, Inc.), Case No. 2-89-0076. However, because the defendant in Stephen K. Yoder, Trustee and Delta Traffic Service, Inc. v. Elicon A. Microdot Company (In re Suburban Motor Freight, Inc.), Case No. 2-89-0013, asserted no counterclaims against the Trustee, no Dismissal Motion was filed in that adversary proceeding. This Court’s order shall dispose of the pending motions in all of these adversary proceedings.
. See discussion, infra, at 890-91.
. Primary jurisdiction is a judicial doctrine “concerned with promoting proper relationships between the courts and administrative agencies charged with particular regulatory duties." United States v. Western Pacific R.R., 352 U.S. 59, 63, 77 S.Ct. 161, 165, 1 L.Ed.2d 126 (1956); Nader v. Allegheny Airlines, 426 U.S. 290, 96 S.Ct. 1978, 48 L.Ed.2d 643 (1976). The doctrine applies when a court must decide issues "which, under a regulatory scheme, have been placed within the special competence of an administrative body.” Western Pacific, 352 U.S. at 64, 77 S.Ct. at 165. If the doctrine applies, the proper course is for the court to suspend the action “pending referral of such issues to the administrative body for its views.” Western Pacific, 352 U.S. at 64, 77 S.Ct. at 165.
. The unreasonable practice defense is predicated on 49 U.S.C. § 10701(a), which states:
A rate ..., classification, rule, or practice related to transportation or service provided by a carrier subject to the jurisdiction of the Interstate Commerce Commission ... must be reasonable. Parties asserting this defense argue that collection of the filed tariff rate rather than the quoted rate would be unreasonable.
. On June 14, 1989, the ICC issued a decision which reopened MC-177 and clarified several of its statements therein. See National Industrial Transportation League — Petition to Institute Rulemaking on Negotiated Motor Common Carrier Rates: Ex Parte No. MC-177, 5 I.C.C.2d 623 (June 14, 1989) ("Negotiated Rates"). In Negotiated Rates, the Commission stated:
[W]e have decided ... to reopen ... \MC-177] to clarify: that we have primary jurisdiction over unreasonable practice issues; that our unreasonable practice determinations are ^thus binding and dispositive of the issue of the maximum reasonable compensation the carrier may receive for the transportation involved; and that our determinations are subject to judicial review only to determine that they are not arbitrary or capricious. Furthermore, we will modify our policy in this area to the extent that we will now entertain unreasonable practice claims based on negotiated rates without awaiting a court referral.
5 I.C.C.2d at 624. The ICC’s clarification of MC-177 in Negotiated Rates further bolsters the *893Court’s conclusion that referral of these adversary proceedings is appropriate. However, the Court expresses no opinion regarding whether an ICC reasonableness determination actually will be binding upon a federal court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490970/ | MEMORANDUM
RALPH H. KELLEY, Chief Judge.
The defendant, Salem Carpet Mills, has filed a motion to refer this proceeding to. the Interstate Commerce Commission (the ICC).
The plaintiff is the trustee in bankruptcy of Southwest Motor Freight. Before its bankruptcy, Southwest hauled cargo for Salem. The trustee’s complaint alleges that Southwest charged and Salem paid a lower shipping rate than the applicable rate on file with the ICC. The trustee seeks to recover from Salem the undercharge — the difference between what Salem paid at the rate charged by Southwest and the amount it would have paid at the higher rate on file with the ICC.
The trustee relies on the filed rate statute, 49 U.S.C.A. § 10761 (West Pamph. 1989).1 The filed rate statute says that the carrier shall charge and the shipper shall pay the rate on file with the ICC.
Over the years, the courts have interpreted the filed rate statute as allowing a shipper almost no defense to a suit to collect the filed rate. 13 Am.Jur.2d Carriers, §§ 108 & 109 (1964). In particular, the courts have held that the carrier’s negotiation of a lower rate with the shipper is not a good defense for the shipper. See, e.g., Louisville & N.R.R. v. Central Iron & Coal, 265 U.S. 59, 44 S.Ct. 441, 68 L.Ed. 900 (1924); Fry Trucking Co. v. Shenandoah Quarry, 628 F.2d 1360 (D.C.Cir.1980).
Recently, however, the ICC has decided that it can treat the collection of an undercharge by a carrier or a carrier’s bankruptcy trustee as an unreasonable practice in interstate commerce. National Industrial Transportation League — Petition to In*909stitute Rulemaking on Negotiated Motor Carrier Rates, 3 I.C.C.2d 99, 1986 Fed. Carr.Cas. (CCH) 1137,284 (Ex Parte No. MC-177, Oct. 14, 1986).
The ICC has the authority to determine not only the reasonableness of shipping rates but also the reasonableness of carrier practices, and it can prohibit unreasonable practices. 49 U.S.C.A. §§ 10701(a) & 10704(a) (West Pamph.1989).2
The defendant asks that this proceeding be referred to the ICC for it to decide (1) whether collection of the alleged undercharges by the trustee would be an unreasonable practice, and (2) whether the shipping rates on file with the ICC were reasonable. This opinion deals first with the question of whether this proceeding should be referred to the ICC for it to determine if collection of the alleged undercharges would be an unreasonable practice.
DISCUSSION
This kind of undercharge suit has become common. The shipper and the carrier negotiate a lower rate than the applicable filed rate, or the carrier at least quotes the shipper a lower rate. The shipper expects the carrier to file this negotiated rate with the ICC. The carrier never files the negotiated rate, but it completes the job, bills the shipper at the negotiated rate, and receives full payment at the negotiated rate. Later, the carrier files a bankruptcy case. The carrier or its trustee in bankruptcy then brings an undercharge collection suit against every shipper who was charged less than the filed rate, and almost every shipper files a motion for referral of the proceeding to the ICC. See, e.g., In re Caravan Refrigerated Cargo, 864 F.2d 388 (5th Cir.1989); Inman Freight Systems v. Olin Corp., 807 F.2d 117 (8th Cir.1986); In re Tucker Freight Lines, 85 B.R. 426 (W.D.Mich.1988); In re Silver Wheel Freightlines, 86 B.R. 232 (D.Or.1986); In re Campbell Sixty-Six Exp., 94 B.R. 1019 (Bankr.W.D.Mo.1988).
Some courts have held that undercharge suits involving negotiated rates should be referred to the ICC. They reason that the ICC has always had the authority to prohibit collection of undercharges as an unreasonable practice, and though the ICC has deferred and let the courts make all the law, the ICC can exercise its authority and may prohibit collection of the undercharge as an unreasonable practice in some cases. See, e.g., Orr v. I.C.C., 703 F.Supp. 676 (W.D.Tenn.1988); In re Tucker Freight Lines, 85 B.R. 426 (W.D.Mich.1988); Motor Carrier Audit & Collection Co. v. Family Dollar Stores, 670 F.Supp. 644 (W.D.N.C.1987); In re Tobler Transfer, 74 B.R. 373 (Bankr.C.D.Ill.1987). See also, Seaboard System R.R. v. United States, 794 F.2d 635 (11th Cir.1986) (question of which filed rate should apply when tariff was ambiguous and shipper relied on carrier’s interpretation).
Note how this reasoning treats the filed rate statute. Under the court decisions interpreting the filed rate statute, the general rule is that facts X, Y, and Z do not give the shipper a defense to a suit to collect the filed rate; the carrier can collect and the shipper must pay the undercharge despite facts X, Y, and Z. Are these court opinions binding on the ICC as to the meaning of the filed rate statute?
“Yes” is the obvious answer, because interpretation of the filed rate statute is the courts’ prerogative. See Federal Maritime Board v. Isbrandtsen Co., 356 U.S. 481, 78 S.Ct. 851, 2 L.Ed.2d 926 (1958); Ithaca College v. NLRB, 623 F.2d 224 (2d Cir.1980); Orr v. I.C.C., 703 F.Supp. 676 *910(W.D.Tenn.1989); Delta Traffic Service v. Georgia-Pacific Corp., 684 F.Supp. 769 (D.Conn.1987). If the courts have held that facts X, Y, and Z do not give the shipper a defense, then the filed rate statute itself says that the carrier or its bankruptcy trustee can collect the undercharge despite facts X, Y, and Z.
This presents the problem squarely. When the ICC says that facts X, Y, and Z make collection of the undercharge an unreasonable practice and bars collection, the ICC is not disobeying a binding court interpretation of the filed rate statute. No, the ICC is saying that its authority to prohibit unreasonable carrier practices includes the authority to prohibit a practice — collection of the filed rate — even though the practice is required by the filed rate statute.
The court disagrees.
The general statute giving the ICC broad power to regulate should not control over the specific statute saying that the carrier must collect and the shipper must pay the filed rate, and in this regard, the court decisions interpreting the filed rate statute are the same as the statute itself.
The rule that the specific statute controls the general statute usually applies to statutes in different acts. 2A N. Singer, Sutherland Statutory Construction, ¶ 51.05 (4th ed. 1985). Nevertheless, the rule makes sense in this situation because the filed rate statute is a specific key rule in the regulatory scheme. Congress has given the ICC broad authority to regulate carrier practices, but Congress itself has enacted a key regulation — the rule that the filed rate controls.
In Dismuke v. United States, the Supreme Court made the obvious point that an administrator could not deny a claimant an annuity to which he was entitled by statute based on the facts found or admitted by the administrator. Dismuke v. United States, 297 U.S. 167, 56 S.Ct. 400, 80 L.Ed. 561 (1936), reh’g denied, 297 U.S. 728, 56 S.Ct. 594, 80 L.Ed. 1011 (1936). In Meade Township v. Andrus, the court of appeals struck down a regulation allowing payment in lieu of taxes to be made to the primáry provider of government services when the statute provided that it should be made to the smaller unit of government. Meade Township v. Andrus, 695 F.2d 1006 (6th Cir.1982). In Regular Common Carrier Conference v. United States, the court of appeals held that the ICC could not allow freight forwarders to operate under a filed tariff which was no tariff at all because shippers and carriers could not calculate rates based on the tariff. The court of appeals reasoned that this waiver of the filed rate requirement was beyond the ICC’s authority because the filed rate requirement is central to the Interstate Commerce Act and the Act itself did not give the ICC specific authority to waive the requirement. Regular Common Carrier Conference v. United States, 793 F.2d 376 (D.C.Cir.1986). This case is not qualitatively different. The ICC under its general regulatory power cannot change a key rule established by statute. See also Texas & P. Ry. v. I.C.C., 162 U.S. 197, 16 S.Ct. 666, 40 L.Ed. 940 (1896).
The Motor Carrier Act of 1980 in no way gave the ICC authority to change the statutory requirement that the carrier must collect and the shipper must pay the filed rate. Indeed, the Motor Carrier Act of 1980 inserted in the filed rate statute specific authority for the ICC to grant relief from the filed rate requirement only for contract carriers, not for common carriers. 49 U.S.C.A. § 10761(b). Having given the ICC statutory authority to grant relief from the filed rate statute for contract carriers only, Congress must be presumed to have decided that the other changes made in the law by the 1980 Act did not justify giving the ICC the authority to alter the operation of the filed rate statute between common carriers and their customers. In re Caravan Refrigerated Cargo, 864 F.2d 388 (5th Cir.1989); Rebel Motor Freight v. Southern Beverage Co., 673 F.Supp. 785 (M.D.La.1987).
The court of appeals in Caravan Refrigerated Cargo pointed out that the Supreme Court has recently followed this same reasoning in holding that the Motor Carrier Act of 1980 did not compel abandonment of another long established interpretation of the Interstate Commerce Act. The Su*911preme Court reasoned that Congress must have been aware of the long-established rule when it passed the 1980 Act, and Congress, having refrained from specifically changing the rule, should not be presumed to have intended to change it. In re Caravan Refrigerated Cargo, 860 F.2d at 390-91 quoting Square D Co. v. Niagara Frontier Tariff Bureau, 476 U.S. 409, 106 S.Ct. 1922, 1928, 90 L.Ed.2d 413 (1985).
Likewise, the ICC has specific authority in § 10762 to depart from the statute’s requirement as to how long a rate must be filed before it is effective. 49 U.S.C.A. § 10762(d) (West Pamph.1989). The ICC has used this authority to make a rule that a reduced rate becomes effective one day after filing. 49 C.F.R. § 1312.4(e) (1988); Southern Motor Carriers Rate Conference v. United States, 773 F.2d 1561 (11th Cir.1985). The reason for shortening the notice period appears obvious. The period was shortened so that carriers and shippers can negotiate lower rates for immediate shipping and still abide by the filed rate statute.
Thus, when Congress has wanted to allow the ICC to depart from a requirement clearly established by statute, Congress has included specific authority in the statute to depart from its requirements.
In summary, since the filed rate requirement is a key part of the regulatory scheme, and it is set by a specific statute, and the statute itself does not expressly give the ICC authority to vary the filed rate requirement, then the ICC’s general power to determine the reasonableness of carrier practices does not give it authority to declare collection of the filed rate an unreasonable practice.
The Motor Carrier Act of 1980 allows another argument: since (1) the Act allowed negotiation of a rate other than the filed rate, then (2) the ICC has authority to prohibit collection of the filed rate as an unreasonable practice when the parties negotiate a lower rate. Number 2 obviously does not follow from number 1. Number 1 can be the basis for an argument on the merits that the filed rate statute now allows a defense based on the negotiation of a lower rate, but this is a question for the courts in interpreting the filed rate statute and does not mean the ICC has the power to declare collection of the filed rate an unreasonable practice.
Finally, the court sees no need for the ICC’s expert assistance in determining what facts should give rise to a negotiated rate defense — if there is one. Nader v. Allegheny Airlines, 426 U.S. 290, 96 S.Ct. 1978, 48 L.Ed.2d 643 (1975); United States v. Western Pacific R.R., 352 U.S. 59, 77 S.Ct. 161, 1 L.Ed.2d 126 (1956). The ICC’s primary jurisdiction to determine the reasonableness of carrier practices is irrelevant since collection of the filed rate, when it is required by the courts, cannot be an unreasonable practice.
The court concludes that there is no reason to refer these proceedings to the ICC. The ICC’s authority to prohibit unreasonable carrier practices does not include the authority to prohibit collection of the filed rate when it is required by the filed rate statute, as interpreted by the courts. Since the court must have the final say by interpreting the filed rate statute, the ICC can not do anything to help. Referral to the ICC will be denied. Accord, In re Caravan Refrigerated Cargo, 864 F.2d 388 (5th Cir.1989); Farley Transportation Co. v. Santa Fe Trail Transportation Co., 778 F.2d 1365 (9th Cir.1985); Delta Traffic Service v. Georgia-Pacific Corp., 684 F.Supp. 769 (D.Conn.1987); Feldspar Trucking Co. v. Greater Atlanta Shippers Ass’n, 683 F.Supp. 1375 (N.D.Ga.1987) appeal dismissed, 849 F.2d 1389 (11th Cir.1988); In re Silver Wheel Freightlines, 86 B.R. 232 (D.Or.1986); In re Campbell Sixty-Six Exp., 94 B.R. 1019 (Bankr.W.D.Mo.1988); In re Robinson Truck Lines, 89 B.R. 584 (Bankr.N.D.Miss.1988); In re Carolina Motor Express, 84 B.R. 979 (Bankr.W.D.N.C.1988).
The opposite view is very well stated as follows:
The courts have never held that the ICC lacks the authority to prohibit unreasonable collection of undercharges. Instead, the ICC has refused, in the past, to exercise that authority. The filed rate doctrine and the reasonable practices doctrine are both mandated by statute, and while they may at times conflict, it is not *912for this court or any other to place enforcement of one doctrine above the other. They must be permitted a peaceful coexistence, with each controlling in its appropriate circumstances.
In re Breman’s Express Co., 92 B.R. 636, 643 (Bankr.W.D.Pa.1988). Accord, Orr v. I.C.C., 703 F.Supp. 676 (W.D.Tenn. 1988); In re Tucker Freight Lines, 85 B.R. 426 (W.D.Mich.1988); Motor Carrier Audit & Collection Co. v. Family Dollar Stores, 670 F.Supp. 644 (W.D.N.C.1987); In re Tobler Transfer, 74 B.R. 373 (Bankr.C.D.Ill.1987). See also Seaboard System R.R. v. United States, 794 F.2d 635 (11th Cir.1986) (allowing ICC jurisdiction when shipper relied on carrier’s interpretation of unclear filed rate).
This court can correctly be accused of giving the filed rate statute supremacy over the statute which allows the ICC to prohibit unreasonable practices. So be it. The court fails to see how a carrier practice required by the filed rate statute as a key method of enforcing the regulatory scheme can be declared an unreasonable practice.
The court will enter an order denying the motion to refer to the ICC for it to decide whether collection of the filed rate would be an unreasonable practice.
This leaves the question of whether to refer this proceeding to the ICC for it to determine the reasonableness of the filed rates. The defendant may renew the motion separately by filing a brief within thirty days. The brief should address the question of the procedure to be followed when the reasonableness of the filed rate is challenged in an undercharge collection suit. See In re Caravan Refrigerated Cargo, 864 F.2d 388 (5th Cir.1989); Feldspar Trucking Co. v. Greater Atlanta Shippers Ass’n, 849 F.2d 1389 (11th Cir. 1988), aff'g 683 F.Supp. 1375 (N.D.Ga.1987).
This memorandum constitutes findings of fact and conclusions of law. Bankruptcy Rule 7052.
. (a) Except as provided in this subtitle, a carrier providing transportation or service subject to the jurisdiction of the [ICC] ... shall provide the transportation or service only if the rate for the transportation or service is contained in a tariff that is in effect under this subsection.... (b) The [ICC] may grant relief from subsection (a) of this section to contract carriers when relief is consistent with the public interest and the transportation policy of section 10101 of this title....
. A rate (other than a rail rate), classification, rule, or practice related to transportation or service provided by a carrier subject to the jurisdiction of the [ICC] ... must be reasonable.... 49 U.S.C.A. § 10701(a) (West Pamph.1989). When the [ICC], after a full hearing, decides that a rate charged or collected by a carrier ... or that a classification, rule, or practice of that carrier, does or will violate this subtitle, the Commission may prescribe the rate ... classification, rule, or practice to be followed. The Commission may order the carrier to stop the violation. When a rate, classification, rule, or practice is prescribed under this subsection, the affected carrier may not publish, charge, or collect a different rate and shall adopt the classification and observe the rule or practice prescribed by the Commission.
49 U.S.C.A. § 10704(a) (West Pamph.1989). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490973/ | MEMORANDUM AND ORDER
KENNETH J. MEYERS, Bankruptcy Judge.
The parties to this proceeding are not strangers. In fact, they have quite a history of litigation with one another. The issue this Court must decide involves litigation which began in 1975 when John R. Hieber, Frank Hieber and Leo Culligan (plaintiffs) brought suit in Cook County Circuit Court against A.A. Richey and Gladys Richey (defendants). The suit was brought against defendants both individually and doing business as Double A Oil Producers, Inc. (Double A) for allegedly inducing plaintiffs to invest money in Double A based on false representations.
The defendants were personally served and filed a special appearance, which later became a general appearance. The defendants filed an answer and participated in the pretrial proceedings. However, the defendants did not appear for trial and a *6default judgment was entered against them on July 27, 1977. The judgment order was signed May 9, 1978.
On November 27, 1979, two and one-half years from entry of the default, and one and one-half years from when the judgment order was signed, the defendants filed a pro se petition to vacate the default judgment and subsequently retained counsel. Defendants’ petition to vacate alleged that the default judgment was improperly and erroneously entered, and was void because no notice of the trial was given to defendants. The trial court denied defendants’ petition.
The defendants then appealed to the First District Appellate Court. On appeal, defendants contended that they had no notice of the July 27, 1977 trial date and that the trial court erred in denying their petition to vacate the default judgment. The Appellate Court affirmed the trial court and further denied a petition for rehearing. Review by the Illinois Supreme Court was also sought and denied.1
On January 14, 1982, defendants filed a quiet title action in Richland County, Illinois. Defendants alleged that a memorandum of the Cook County judgment had been recorded in the Office of the Recorder of Deeds in Richland County, Illinois, and that the judgment was a cloud on the real estate. Defendants further alleged that the default judgment was void because defendants were not given notice of the trial date. The plaintiffs did not answer the Richland County complaint and on May 28, 1982, a default judgment was entered in favor of defendants.
Upon entry of the Richland County judgment the plaintiffs filed a motion to vacate the default judgment. On January 4, 1983, the Richland County Circuit Court denied the motion to vacate as to John R. Hieber, but granted the motion as to Frank Hieber and Leo Culligan. John Hieber appealed the denial of the motion to vacate, but the appeal was dismissed for lack of jurisdiction. No further action has been taken in the Richland County proceedings.2
On May 28, 1987, the Cook County Circuit Court entered a judgment reviving the May 9, 1978 default judgment. The judgment of revival was entered for $101,000.00 plus 8% interest from May 9, 1978, or roughly $181,800.00.
In what seems to be a final attempt to collaterally attack the Cook County judgment, Gladys Richey filed a petition under chapter 11 of the Bankruptcy Code on November 8,1988.3 The plaintiffs filed claims based on the Cook County judgment, and debtor objected to the claims alleging once again that the default judgment was invalid because debtor did not receive notice of the trial. This cause is before the Court on debtor’s objection to claims.
The issue before the Court is what pre-clusive effect must be given to the Cook County Circuit Court order denying defendants’ petition to vacate. Determination of *7this issue requires an examination of the principle of collateral estoppel. Collateral estoppel or issue preclusion typically involves a finding of fact by a trial court which binds all subsequent proceedings as to that factual finding. Paine Webber, Inc. v. Farnam, 870 F.2d 1286 (7th Cir.1989); Telegraph Savings and Loan Association v. Schilling, 105 Ill.2d 166, 85 Ill.Dec. 322, 473 N.E.2d 921 (1984).
At the outset the court notes that 28 U.S.C. § 1738 directs federal courts to give state court orders the same effect such orders would be given by the courts of the state which rendered the order.4 Paine Webber, Inc., 870 F.2d at 1290; Jones v. City of Alton, Illinois, 757 F.2d 878, 883 (7th Cir.1985). Therefore, Illinois preclusion law will govern the effect to be given to the order denying the petition to vacate.
Under Illinois law, three elements must be met before collateral estoppel will apply. There must be a valid final judgment, the judgment must have actually decided the issue presented in the subsequent proceeding, and the party against whom estoppel is asserted must have been a party or in privity with a party to the prior litigation. Service Systems Corporation v. Van Bortel, 174 Ill.App.3d 412, 123 Ill.Dec. 833, 838, 528 N.E.2d 378, 383 (1988); Fearon v. Mobil Joliet Refining Corp., 131 Ill.App.3d 1, 86 Ill.Dec. 335, 475 N.E.2d 549 (1984); People v. Murphy, 102 Ill.App.3d 448, 58 Ill.Dec. 152, 430 N.E.2d 94 (1981).
The first essential element to the application of collateral estoppel is the presence of a final judgment. An order is considered final if it terminates the litigation between the parties and finally determines, fixes, and disposes of their rights as to the issues made by the suit. Gilbert v. Braniff International Corporation, 579 F.2d 411, 413 (7th Cir.1978). Furthermore, finality requires that the potential for appellate review has been exhausted. Ballweg v. City of Springfield, 114 Ill.2d 107, 102 Ill.Dec. 360, 362, 499 N.E.2d 1373, 1375 (1986); People v. Shlensky, 118 Ill.App.3d 243, 73 Ill.Dec. 854, 857, 454 N.E.2d 1103, 1106 (1983).
Illinois law provides by statute that an order denying a petition to vacate a default judgment is a final and appealable order. Ill.Rev.Stat. ch. 110A, ¶ 304(b)(3) (Supp. 1989).5 In addition, the denial of the petition to vacate was affirmed by the appellate court and denied further review by the Supreme Court. Thus, the potential for appellate review has been exhausted.
Secondly, the prior order must have actually decided the issue presented in the subsequent proceeding. Collateral estoppel is based on broad principles of justice and applies only when the party has had an opportunity to establish his claim. 23A Illinois Law & Practice, Judgments § 361 (1979). The argument that the Cook County judgment is void due to lack of notice was raised in defendants’ petition to vacate the default judgment. The trial court denied the petition and recited that its decision was made after hearing arguments of counsel, considering the affidavits, briefs, and exhibits filed in support of the petition.6 It is clear-from the record that defendants have had an opportunity to present their argument regarding lack of notice. One opportunity is all that is required.
Furthermore, it is of no concern that the trial court’s order denying the petition to vacate did not expressly state that notice had been sent. The principal argument raised by the petition to vacate was that the judgment was void due to lack of no*8tice. The trial court heard arguments of counsel, considered affidavits, briefs, and exhibits on this issue. Thus, when the court entered its order denying the petition, the issue of notice was decided by implication.7 An issue may be “actually decided” even without an express ruling if a court can determine that the issue in question was decided by necessary implication. Paine Webber, Inc. v. Farnam, 870 F.2d 1286, 1291 (7th Cir.1989).
The final element requires that the party against whom estoppel is asserted was a party or in privity with a party to the prior litigation. There is no dispute that the parties are the same, except for A.A. Rich-.ey, who is now deceased.
All elements necessary to the application of collateral estoppel are present and therefore debtor cannot raise the issue that the judgment is void due to lack of notice. The question of notice was determined by the Cook County Circuit Court and will not be reconsidered by this Court.
The debtor further objects to the claims of John Hieber, Frank Hieber and Leo Culligan because each claim was filed for $181,800.00, which is the full amount of the judgment after revival. Although each claim recites the judgment as a joint judgment, the debtor is correct that each claimant improperly lists the total amount of his claim as $181,800.00.
IT IS ORDERED that debtor’s objection to claim is OVERRULED in regard to the validity of the judgment.
IT IS FURTHER ORDERED that debt- or’s objection to claim is SUSTAINED as to the amount claimed. Each claimant shall file an amended proof of claim within thirty (30) days.
. Hieber v. Richey, No. 55228 (Illinois Supreme Court Oct. 19, 1981) (order denying petition for leave to appeal).
. Ill.Rev.Stat. ch. 110A, ¶ 304(a) provides:
(a) Judgments As To Fewer Than All Parties or Claims — Necessity for Special Finding. If multiple parties or multiple claims for relief are involved in an action, an appeal may be taken from a final judgment as to one or more but fewer than all of the parties or claims only if the trial court has made an express written finding that there is no just reason for delaying enforcement or appeal. Such a finding may be made at the time of the entry of the judgment or thereafter on the court’s own motion or on motion of any party. The time for filing a notice of appeal shall be as provided in Rule 303. In computing the time provided in Rule 303 for filing the notice of appeal, the entry of the required finding shall be treated as the date of the entry of final judgment. In the absence of such a finding, any judgment that adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties is not enforceable or appealable and is subject to revision at any time before the entry of a judgment adjudicating all the claims, rights, and liabilities of all the parties.
Ill.Rev.Stat. ch. 110A, ¶ 304(a) (Supp.1989). No express finding has been made by the Richland County Court. Since the Richland County proceedings have not produced a final judgment, this Court need not address the issue of competing judgments.
.The chapter 11 petition was filed individually by Gladys Richey because A.A. Richey was deceased at the time of the filing.
.28 U.S.C. § 1738 provides that:
The records and judicial proceedings of any court of any such State, Territory or Possession, or copies thereof, shall be proved or admitted in other courts within the United States ...
Such acts, records and judicial proceedings or copies thereof ... shall have the same full faith and credit in every court within the United States and its Territories and Possessions as they have by law or usage in the courts of such State, Territory or Possession from which they are taken.
. Section 304(b) was added in 1969; therefore it was effective when defendants filed their petition in 1979.
. Hieber v. Richey, No. 75 CH 5359 (Cook County Circuit Court Feb. 11, 1980) (order denying petition to vacate default judgment).
. Furthermore, the exact argument regarding notice was made on appeal, and the appellate court accepted as accurate the lower court’s finding that notice had been sent. Hieber v. Richey, 95 Ill.App.3d 1199, 54 Ill.Dec. 482, 424 N.E.2d 1385 (1st Dist.1981) (order affirming the trial court denial of petition to vacate). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490975/ | ORDER ON ATTORNEY’S FEES
LEWIS M. KILLIAN, Jr., Bankruptcy Judge.
Special counsel, the law firm of Broad and Cassel (the attorneys), moves the Court for an award of attorney’s fees in the amount of $65,300.04, and requests a charging lien on assets of the bankruptcy estate. The parties generally agree the attorneys are entitled to fees based on their contingent fee contract which was approved earlier by the Court. The United States Trustee objects to the request for a charging lien to guarantee payment of attorney’s fees. He argues administrative expenses, including attorney’s fees, must be paid by the priority set forth in Section 507 of the Bankruptcy Code. The Court conducted a hearing on April. 5, 1989.
This case was filed as a Chapter 11 on December 30, 1986, and was converted to a Chapter 7 case on December 12, 1988. On March 24, 1987, the Court approved the employment of the attorneys as special counsel to the Debtor. They filed suit to recover estate property wrongfully held by the Debtor’s former landlord under a state court order of eviction. The Court approved a contingent fee contract which provided for attorney’s fees in the amount of 33V3 % of the value of the property or other sums recovered for the estate. A judgment was entered for turnover of property valued at $197,878.90, resulting in the fee requested of $65,300.04. A portion of the property was recovered and stored in. a warehouse and a substantial part was destroyed by fire on July 3-4, 1988. The Trustee has filed a claim with the insurance carrier, but payment of the claim has not yet been made. This Court also recommended sanctions and damages against the Defendants for withholding assets of the estate. The recommendation for sanctions has not yet been ruled upon by the District Court. The attorneys also request additional attorney’s fees based on a percentage of the sanctions and damages, if awarded by the District Court.
Section 328(a) of the Bankruptcy Code, authorizes the employment of professional persons on any reasonable terms, including a contingent fee basis. After the conclusion of such employment, the Court may
... allow compensation different from the compensation provided ... if such terms prove to have been improvident in light of developments not capable of being anticipated at the time of the fixing of such terms and conditions.
The Court finds no change in circumstances indicating a contingent fee is not appropriate, and will determine the amount of attorney’s fees based on the contract.
Under the circumstances of this case, the Court will base the fee award on the amount realized by the estate after liquidation of the remaining assets recovered, collection of the insurance proceeds, and the damages and sanctions award, if any.
The attorneys argue they have a charging lien under state law which entitles them to payment of their attorney’s fees before any administrative expenses or creditors claims are paid. Florida law recognizes charging liens as
an equitable right to have costs and fees due an attorney for services in the suit secured to him in the judgment or recovery in that particular suit. It serves to protect the rights of the attorney.
Sinclair, etc. & Zavertnik, P.A. v. Baucom, 428 So.2d 1383, 1384 (Fla.1983) (citations omitted). The charging lien is based on common law, and is perfected by timely notice. Sinclair, supra, at 1385. The attorneys filed a notice to perfect their charging lien subsequent to the recovery of the estate property. They argue a perfected charging lien supercedes the payment priorities established by the Bankruptcy Code.
Numerous cases recognize an attorney’s charging lien for work performed prior to the filing of a bankruptcy petition. Matter of TLC of Lake Wales, Inc., 13 B.R. 593 (Bkrtcy.M.D.Fla.1981); In re Garcia, 69 B.R. 522 (Bkrtcy.E.D.Pa.1987); In re Sacerdote, 74 B.R. 487 (Bkrtcy.E.D.Pa.1987); In re Banks, 94 B.R. 772 (Bkrtcy.M.D.Fla.1989). Bankruptcy does not invali*413date a charging lien perfected prior to the filing of the petition. In the Matter of Armando Gerstel, Inc., 43 B.R. 925, 930 (Bkrtcy.S.D.Fla.1984).
The cases cited by special counsel do not address post-petition contingent fee contracts for work completed after the bankruptcy filing. The Court can find no authority for allowing a post-petition charging lien to displace the payment priorities of Section 507 of the Bankruptcy Code. See, In re Southern Commodity Corp., 96 B.R. 392 (Bkrtcy.S.D.Fla.1989) (court has no implied authority or equitable power to exceed statutory authority in distribution of bankruptcy estates).
Indeed, good sense and the plain language of the Bankruptcy Code advise otherwise. The Code clearly contemplates the payment of expenses incurred in collecting and distributing the assets of the bankruptcy estate. Congress specifically set forth in Section 507 the priority by which those expenses shall be paid. The attorneys provide no persuasive grounds why their claims should be treated any differently than other administrative expenses simply because they were appointed special counsel.
Accordingly, it is
ORDERED the attorneys will be awarded one-third of the value of the assets liquidated, the insurance proceeds collected, and the sanctions and damages, if any, awarded by the District Court, as a reasonable attorney’s fee. Payment of the fee will be accorded an administrative priority pursuant to Section 507 of the Bankruptcy Code. The attorneys, as administrative claimants, will be given notice of any proposed sales of assets of the estate or the settlement of claims.
ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491356/ | ORDER ON DEBTORS’ MOTION FOR SANCTIONS
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 liquidation case and the matter under consideration is the Debtors’ Motion for Sanctions pursuant to § 362(h) of the Bankruptcy Code against Daniel Pilka (Pilka), attorney for James A. Miller (Miller), a creditor in the above-captioned Chapter 7 liquidation case and Miller. The Court has considered the Motion, together with the record and comments of counsel, and finds the facts relevant to the matter under consideration to be as follows.
The Debtors filed a Petition for Relief under Chapter 7 of the Bankruptcy Code on January 11, 1991. On February 8, 1991, Pilka wrote a letter to Jackson National Life (Jackson National), a company from whom the Debtors had purchased various annuities. In the letter, Pilka advised Jackson National of the pendency of the Debtors’ bankruptcy case, and further advised that his client, a primary creditor of the Debtors, “contends that the annuities and accounts held by the Debtors with your institution, are not exempt under Florida or Federal Law_(and) should your institution disperse (sic) to the (Debtors) any assets from their accounts, your institution may be held legal culpable for such dis-bursement_” In response to the letter received from Pilka, Jackson National informed the Debtors that annuity payments to the Debtors would be suspended, and such suspension would continue until Jackson National received a release either from the Court or the attorney. Pilka was informed by Neil E. Polster, the Debtors’ former attorney, that Pilka’s letter to Jackson National clearly constituted a violation of the Automatic Stay, and he requested that Pilka inform Jackson National that Pilka’s original letter to Jackson National should be disregarded and that Jackson National should resume normal payments to the Debtors.
*477In defense of the Motion for Sanctions, Pilka contends that he never instructed Jackson National to cease annuity payments to the Debtors. Instead, Pilka simply informed Jackson National that if it distributed such proceeds to the Debtors, who then liquidated those proceeds despite Miller’s objections to the Debtors’ Claim of Exemptions, Jackson National might be held liable.
Section 362(h) of the Bankruptcy Code provides as follows.
§ 362. Automatic Stay.
(h) An individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.
It is undisputed that the Automatic Stay is one of the fundamental protections for the Debtors provided by the Bankruptcy Code. The Automatic Stay was designed by Congress to give the Debtors a breathing spell and to stop all collection efforts, harassment and foreclosure actions. 11 U.S.C. § 362(a)(1) House Report 1978. The scope of the Automatic Stay is quite broad, and is intended to enjoin any proceeding to recover a pre-petition claim. 11 U.S.C. § 362(a)(1) Senate Report 1978. The fact that Congress chose to specifically provide for sanctions for a violation of the Automatic Stay demonstrates the fundamental importance and significance of the Automatic Stay in Bankruptcy proceedings. See 11 U.S.C. 362(h).
There can be no doubt that the letter sent by Pilka to Jackson National was intended to, and in fact did, coerce Jackson National to cease making annuity payments to the Debtors. The fact that the letter was directed to Jackson National rather than the Debtors is of no import because the letter was designed to affect the Debtors’ right in the annuity. Further, Pilka’s letter to the Debtors’ attorney, which stated that he never instructed Jackson National not to disburse proceeds to the Debtors but he merely informed Jackson National that it might be held liable if the Debtors liquidated the assets, cannot serve to exculpate Pilka from the consequences of Pilka’s original letter. Clearly, Pilka’s letter was designed to coerce Jackson National to cease making annuity payments to the Debtors, and it cannot be argued that this is not a violation of the Automatic Stay. In sum, this Court is satisfied that the Debtors’ Motion for Sanctions against Pilka for violation of the Automatic Stay is well taken and should be granted. However, in light of the fact that there is no evidence that Miller took any action in violation of the Automatic Stay, the Motion for Sanctions for violation of the Automatic Stay against Miller is not well taken and should be denied.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Sanctions against Daniel Pilka be, and the same is hereby, granted. It is further
ORDERED, ADJUDGED AND DECREED that the Motion for Sanctions against James A. Miller be, and the same is hereby, denied. It is further
ORDERED, ADJUDGED AND DECREED that Debtors have ten days from the date of this Order within which to file a schedule of damages, including costs and attorney fees. Mr. Pilka shall have ten days thereafter within which to respond. If there is no objection to the schedule of damages, this Court will enter an ex parte Order awarding sanctions. If there is an objection to the schedule of damages, this Court will hold a hearing to determine the proper sanctions.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491357/ | ORDER REFERRING ADVERSARY PROCEEDING TO DISTRICT COURT
MARY D. SCOTT, Bankruptcy Judge.
This adversary proceeding was filed October 25, 1988 in the Chapter 7 bankruptcy case of debtor, Carlos Ozier. The bankruptcy case was originally filed October 30, 1985. The original Complaint filed by the Chapter 7 trustee seeks actual and punitive damages in the amount of $2,000,000.00. Trustee has made a demand for trial by jury. A Motion to Strike the jury demand has been filed by Chrysler Credit Corporation.
Both Defendants initially sought to have the trustee’s Complaint dismissed and/or moved for summary judgment contending the action was barred by the statute of limitations. Defendant’s Motions came on for hearing February 28, 1989 before the Honorable James G. Mixon, the U.S. Bankruptcy Judge then presiding over the Jonesboro Division. The proceeding memo from that hearing indicates that the Motions were taken “under advisement” on the pleadings, and no evidence was presented at the hearing. On June 28, 1989 the Defendants’ Motions were denied and they were given twenty (20) days to plead further. On July 18, 1989, separate Defendant, Chrysler Credit Corporation, filed a Motion to Reconsider the decision to deny its Motions for Dismissal and/or Summary Judgment. This Motion was set on the Court’s docket before Judge Mixon on November 21, 1989 and was also taken under advisement. Again, no evidence was presented.
Sometime in May of 1990 this adversary proceeding was transferred to the undersigned with reassignment of the Jonesboro Division. A file review revealed that the Motion to Reconsider and Response were submitted on the pleadings and otherwise ready for disposition. Because there had been no evidentiary hearing the Court, after consulting the parties, concluded that the Motion could be decided under the present assignment of cases rather than transferring it back to Judge Mixon for reconsideration. This Court denied the Motion to Reconsider on June 27, 1990 and entered its Preliminary Pre-Trial Order.
The parties filed their Joint Pre-Trial Statement on August 24, 1990. The Court then issued its standard Pre-Trial Order. *597Apparently the demand for jury trial, which appeared only in the trustee’s prayer for relief in the original Complaint, did not come to the Court’s attention because the Pre-Trial Order in September indicated that trial would be before the Court the week of July 29, 1991 through August 2, 1991. The request came to the Court’s attention pursuant to the Motion to Strike Jury Demand. No party to date has filed a motion with the district court to withdraw reference of this matter.1 The week long trial was cancelled to afford the Court an opportunity to consider the jury trial issue. The Court has now reviewed the entire file as well as the jury demand issues and concludes, for the following reasons, that the interests of judicial economy and expediency would best be served by referral of this adversary proceeding to the district court for trial.
HISTORY
A review of the background in this case is initially necessary because this is a 1985 bankruptcy case which procedurally should have been concluded some time ago.
On October 30, 1985, Carlos Royal] Ozier filed a voluntary petition under Chapter 7 of the Bankruptcy Code. November 6, 1985, A. Jan Thomas, Jr., was appointed trustee in the bankruptcy case and Order approving his bond was approved November 20, 1985. April 29, 1986, trustee’s petition for authority to employ himself as legal counsel for the bankruptcy estate was granted. May 2, 1986, Ozier’s discharge was granted.
July 15, 1986, while the bankruptcy case was still open, Ozier filed a Complaint for Money Damages against Chrysler Credit Corporation in the Circuit Court of Mississippi County, Chickasawba District, Arkansas which was assigned No. C-86-140. August 5, 1986, Chrysler filed a Petition for Removal in the United States district court for the Eastern District of Arkansas pursuant to 28 U.S.C. § 1332(a) and the removed state court action was assigned Civil Action No. J-C-86-138. August 11, 1986, Chrysler filed an Answer in the U.S. District Court and contended, among other things, that the U.S. District Court lacked subject matter jurisdiction over the cause of action. March 27, 1987, Chrysler filed a Motion to Dismiss, or In the Alternative, for Summary Judgment asserting that the U.S. District Court lacked subject matter jurisdiction and that the Plaintiff lacked standing to bring the action because of his still pending bankruptcy case. April 27, 1987, Plaintiff filed a Motion to Amend Complaint to add the bankruptcy trustee as a party Plaintiff.
June 23, 1987, the district court entered an Order denying Chrysler’s Motion to Dismiss or In The Alternative, For Summary Judgment as well as the Plaintiff’s Motion to Amend to add the trustee as a party Plaintiff basing its decision upon the fact that the bankruptcy case had been terminated. July 23, 1987, Chrysler filed a Motion to Reconsider the district court’s June 23,1987 Order, and on August 13,1987, the district court entered an Order granting Chrysler’s Motion to Reconsider, finding as follows:
The Court denied the motion [to dismiss] in large part because of its misunderstanding of the status of the bankruptcy case. In the motion for reconsideration, defendant points out that the case is still open ... The Court ... finds [therefore] that this matter is referred ... to United States Bankruptcy Judge ... for disposition in whatever manner he deems appropriate.2
The cause of action transferred to the bankruptcy court pursuant to the district court Order was assigned Adversary Proceeding No. 87-564 on August 17, 1987.
*598On September 16, 1987, Chrysler filed a Notice of Appeal from the Order denying it’s Motion to Dismiss or for Summary Judgment and transferring the cause to the bankruptcy judge. November 23,1987, 837 F.2d 479, the United States Court of Appeals for the Eighth Circuit dismissed Chrysler’s appeal as premature finding that the district court’s Order denying Chrysler’s Motion to Dismiss and transferring the matter to the bankruptcy court was an interlocutory Order and therefore not appealable. Mandate issued December 14, 1987. As a result of the Court of Appeals ruling, the bankruptcy court entered an Order January 26, 1988 reinstating AP No. 87-564, which had been administratively closed December 24, 1987, and indicated that a status hearing would be set by subsequent Order of the Court.
On January 25,1988, Chrysler again filed a Motion to Dismiss Or In The Alternative For Summary Judgment in the adversary proceeding. In support of its Motion Chrysler argued that (1) the Court lacked jurisdiction over the subject matter of debt- or’s claim; (2) debtor’s Complaint failed to state a claim upon which relief could be granted in that debtor’s cause of action was extinguished by operation of law by debtor’s failure to list the instant action as an asset of his bankruptcy estate; and (3) Plaintiff lacked standing to prosecute the instant action. The debtor filed a responsive memorandum brief arguing that (1) the Court did have jurisdiction because the state court action was filed after the debtor received a discharge and then removed to federal court by Chrysler; (2) his claim against Chrysler should not be extinguished because he failed to list it on his original bankruptcy schedules because it was not known to him at the time; that he filed an amendment to his bankruptcy schedules listing the claim remedying the defect; and (3) he filed a Motion to Substitute A. Jan Thomas, Jr., Trustee as the Plaintiff in this cause of action which, if granted, would remedy the problem of standing.
The bankruptcy court, in an Order entered April 25, 1988, concluded that the action should be dismissed because it lacked subject matter jurisdiction. The Court found that 28 U.S.C. § 1334(d) grants “The District Court in which a case under title 11 is commenced or is pending ... exclusive jurisdiction of all of .the property, wherever located, of the debtor as of the commencement of such case, and of the property of the estate.” [emphasis added] At the time the lawsuit was filed in the state court by Ozier, July 15, 1986, the administration of the bankruptcy case was still pending. Although the debtor received a discharge May 2,1986, the trustee, at the time the state court action was filed, had not yet filed a report with the bankruptcy court closing the administration of the case. In other words, he had not abandoned any claims or actions which could properly be considered property of the bankruptcy estate. Since there appeared to be no disagreement that the cause of action, subject of the adversary proceeding, was property or a potential asset of the debtor’s estate, pursuant to 28 U.S.C. § 1334(d), the U.S. District Court with exclusive jurisdiction over these matters, was the only court wherein this cause of action could have been commenced. It was not filed there, but in a state court. The bankruptcy court noted that even though Chrysler caused the state court action to be removed to federal court, that action did not cure the jurisdictional defect. Leach v. Federal Crop Insurance Corporation, 741 F.2d 200 (8th Cir.1984).3
*599The bankruptcy court concluded that the holding and reasoning in Leach was determinative and that the cause of action should be dismissed without prejudice for want of jurisdiction. The Court found that the federal courts alone have exclusive jurisdiction in bankruptcy matters pursuant to 28 U.S.C. § 1334(d). The state court, in which the cause of action was originally filed by Ozier acting on his own behalf, never had jurisdiction of the subject matter, and the federal courts did not acquire jurisdiction derivatively by removal. It did not matter that the cause of action haphazardly found its way to the proper court or that the trustee could be added as a party plaintiff.
The bankruptcy court also noted that the bankruptcy case was still open, and that during pendency of the state court proceedings as well as the proceedings in the district court the trustee had not initiated a new action. Whether he could still timely initiate an action on behalf of the bankruptcy estate was not an issue raised by the parties. The Court noted that the trustee was aware of the parties' dispute and arguments. Chrysler’s Motion to Dismiss was granted. No appeal was taken. Chrysler filed two proofs of claim against the estate August 5, 1987; one for $45,390.99 and the other for $94,174.60.
THE PENDING LAWSUIT
Some six months after the removed matter was dismissed the trustee finally filed this lawsuit against Chrysler which, as noted, essentially tracks Ozier’s original state court allegations. The trustee has made demand for trial by jury which, in the bankruptcy context as outlined hereinafter, is unusual.
Chrysler contends that the trustee does not have a right to a jury trial because he has submitted this matter to the equitable powers of the bankruptcy court. Since the trustee chose the forum, Chrysler asserts he has waived any arguable claim he may have for trial by jury.
The trustee, citing Germain v. Connecticut Nat’l Bank, 112 B.R. 57 (Dist.Ct.Conn.1990), argues he is entitled to a jury trial because he can meet the Supreme Court’s test enunciated in Granfinanciera v. Nordberg, 492 U.S. 33, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989).
DISCUSSION
This Court initially undertook to review all of the above in an effort to resolve the entitlement to jury trial issue. Resolution of this question, however, is not easy because of the underlying nature of this lawsuit. Case authority, including cases decided by the Supreme Court are not helpful because they are not precisely on point. One or another of the factors courts have considered is not the same in this case. A review of the bankruptcy court’s jurisdiction may be helpful, and, although lengthy, is usually the starting point in resolution of these issues because bankruptcy court jurisdiction or lack of jurisdiction always seems to be the stumbling block. It is particularly so, where as in this case, the matter before the Court is not a “core proceeding” and this Court cannot enter a final judgment.
Under the Bankruptcy Code passed in 1978 Congress enacted an expansive bankruptcy jurisdictional provision. 28 U.S.C. § 1471. It conferred exclusive jurisdiction on the district courts over “all cases under title 11” and nonexclusive jurisdiction over “all civil proceedings arising under title 11 or arising in or related to cases under title 11.” Although this jurisdiction was technically conferred on the district courts, the bankruptcy court for the district in which a bankruptcy case was commenced was directed to “exercise all of the jurisdiction conferred by this section on the District Courts.” 28 U.S.C. § 1471(c). In 1982, however, the U.S. Supreme Court held the broad grant of jurisdiction to the bankruptcy courts under 28 U.S.C. § 1471(c) unconstitutional, because the provision “removed most, if not all, of ‘the essential attributes of the judicial power’ from the Article III district court, and vested those attributes in a non-Article III adjunct.” Northern Pipeline Construction Co. v. Marathon Pipe Line Company, 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982).
*600For a period of time after the Supreme Court’s decision, the effect of which was stayed twice, the bankruptcy court jurisdictional gap was filled by an Emergency Rule. Finally, in 1984, Congress amended the Bankruptcy Code and relevant statutes. Under 28 U.S.C. § 1334, bankruptcy jurisdiction is conferred upon the district courts in the same broad language as under the 1978 Act. In response to the Marathon case, Congress retained the Article I status of bankruptcy judges, but reduced their authority. Under section 1334 the district court is authorized to refer “any or all” bankruptcy cases and proceedings falling within bankruptcy jurisdiction to the bankruptcy judges for the district. 28 U.S.C. § 157(a).
What a bankruptcy judge may do with a referred bankruptcy matter depends upon whether it is a “core” proceeding or a “non-core” (or related) proceeding. In core proceedings, the bankruptcy judge may hear and determine the case and enter a final judgment. In non-core proceedings, the bankruptcy judge may only hear and submit proposed findings of fact and conclusions of law to the district judge unless the parties consent to entry of judgment. Congress also limited the authority of bankruptcy judges over particular categories of cases: personal injury tort and wrongful death claims (id. at section 157(b)(5)) and proceedings requiring consideration of “both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce.” Id. at section 157(d).
Upon reference by the district court, which is now automatic in all districts, a bankruptcy judge may hear and determine all cases under title 11 and all core proceedings arising under title 11 or arising in a case under title 11. See, in this regard, Wood v. Wood (In re Wood), 825 F.2d 90 (5th Cir.1987).
In addition, the bankruptcy judge has authority to determine whether a particular proceeding is core or non-core. 28 U.S.C. § 157(b)(3). If the proceeding is core, the bankruptcy judge has authority to adjudicate it unless the district court withdraws the reference. 28 U.S.C. § 157(d). Congress, unfortunately, did not define “core proceeding”; rather it provided a nonexclusive list of matters included within the category. 28 U.S.C. § 157(b)(2). Courts have experienced difficulties in determining what non-listed matters are also included, as well as determining the proper scope of those matters that are listed. There is support in the legislative history for a broad interpretation of the core proceedings category, yet constitutional concerns mandate a cautious approach. One example of the difficulties encountered in interpretation can be found in the instant case; suits by the debtor or trustee on contract claims based on state law. See, In re Castlerock Properties, 781 F.2d 159 (9th Cir.1986) wherein the court found that state law contract disputes may not be core proceedings even if they fit within the literal terms of one of the section 157(b)(2) catchall provisions.
A bankruptcy judge may hear a non-core proceeding referred by the district court but may not enter a final judgment or order. Instead the bankruptcy judge is authorized to submit proposed findings of fact and conclusions of law to the district court. The district court enters the final judgment after considering the bankruptcy judge’s proposed findings and conclusions and reviewing de novo any matters to which a party has properly objected. 28 U.S.C. § 157(c)(1). Rule 9033 of the Federal Rules of Bankruptcy Procedure.
Non-core proceedings are matters falling within the third category of non-exclusive bankruptcy jurisdiction; civil proceedings related to cases under title 11. While there is general agreement that “related to” jurisdiction extends only to those proceedings that could have an impact on the bankruptcy estate, courts vary in how broadly they interpret this jurisdictional category. The Eighth Circuit has provided a standard for determining whether a proceeding is “related to” a bankruptcy case in In re Dogpatch U.S.A., Inc., 810 F.2d 782 (8th Cir.1987). The Eighth Circuit there stated:
[T]he test for determining whether a civil proceeding is related to a bankruptcy is *601whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy.... An action is related to bankruptcy if the outcome could alter the debtor’s rights, liabilities, options, or freedom of action ... and which in any way impacts upon the handling and administration of the bankrupt estate.
Dogpatch, 810 F.2d at 786 (citations and internal quotations omitted); see also, National City Bank v. Coopers and Lybrand, 802 F.2d 990, 994 (8th Cir.1986).
The Complaint filed by the trustee in this adversary proceeding is not a core proceeding. However, under the Eighth Circuit standard, it is clearly related to the bankruptcy case because any recovery by the trustee would result in funds which would be distributed to the as yet unpaid creditors of Mr. Ozier. The bankruptcy court, thus, can hear the matter but must confine itself to submitting findings and recommendations to the district court. The district court as noted above considers these findings and conclusions and reviews de novo any matters to which a party has properly objected. 28 U.S.C. § 157(c)(1).
The determination that this adversary proceeding is a non-core matter is not a particular problem because a method of hearing and deciding the case satisfactorily under the Supreme Court’s Marathon decision has been established. 28 U.S.C. § 157(c)(1). Unfortunately resolution of this case under the accepted scheme of things has been complicated not only by the fact that a jury trial is requested, but also by the fact that the demand has been made by the bankruptcy trustee.
The only statute that addresses the question of jury trial rights in bankruptcy is quite narrow.4 28 U.S.C. § 1411 apparently preserves the right to jury trial only with respect to personal injury and wrongful death tort claims. In all other bankruptcy proceedings, the parties must look to the constitution for jury trial rights. The U.S. Supreme Court has considered the issue twice since 1989. In Granfinanciera v. Nordberg, 492 U.S. 33, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989), the Supreme Court held that the Seventh Amendment entitles a person who has not submitted a claim against the bankruptcy estate to a jury trial when sued by the bankruptcy trustee to recover an allegedly fraudulent monetary transfer. Subsequent to that decision the Court held that creditors who filed claims against the bankruptcy estate “bring themselves within the equitable jurisdiction of the bankruptcy court” and, therefore, have no constitutional right to a jury trial. Langenkamp v. Culp, — U.S. —, 111 S.Ct. 330, 112 L.Ed.2d 343 (1990). These decisions indicate that the question of full extent of entitlement is left open to future interpretation. What is also apparent from these decisions is that Congress cannot by legislation create a non-jury Article I court and abrogate an inherent constitutional right. See, also In re Kaiser Steel Corp., 109 B.R. 968, 973 (D.Colo.1989).
Another issue that has developed and resulted in a split of authority in the circuits concerns the bankruptcy judge’s authority to conduct jury trials. Relevant to this Court and this case is the determination by the Eighth Circuit Court of Appeals that bankruptcy judges cannot conduct jury trials. In re United Missouri Bank of Kansas City, N.A., 901 F.2d 1449 (8th Cir.1990). A contrary result was reached by the Second Circuit. In re Ben Cooper, Inc., 896 F.2d 1394 (2nd Cir.1990). On May 13, 1991 the Supreme Court denied certio-rari in the Ben Cooper case and declined to resolve the split in the circuits. See, also Kaiser Steel Corp. v. Frates, 911 F.2d 380 (10th Cir.1990) (agrees with Eighth Circuit).
Even if the Eighth Circuit concluded bankruptcy judges could conduct jury trials, it would not help resolve questions in *602this case because the bankruptcy judge’s authority over non-core proceedings is incompatible with the conduct of a jury trial. 28 U.S.C. § 157(c)(1) authorizes a bankruptcy judge to hear and submit proposed findings of fact and conclusions of law. Judges, not juries, make proposed findings of fact. See Pied Piper Casuals v. Insurance Co., 72 B.R. 156, 159-60 (S.D.N.Y.1987). Subjecting the factual findings of a bankruptcy court jury to de novo review by a district court would violate the reexamination clause of the Seventh Amendment. (“No fact tried by a jury shall be otherwise reexamined by any Court of the United States, than according to the rules of the common law.”) Thus, if a right to a jury trial exists in a non-core proceeding, it must be conducted in either district court or state court.
This review of bankruptcy court jurisdiction and the relatively recent Supreme Court and Circuit Court rulings regarding when, where, and by whom jury trials are to be conducted in bankruptcy matters reveals the dilemma this Court faces in resolving the pending Motion to Strike the trustee’s jury demand. The trustee has filed a non-core proceeding and demanded trial by jury. This bankruptcy court cannot conduct a jury trial, and, even if it could, a non-core proceeding is incompatible with the conduct of a jury trial.
Since the ruling by the Eighth Circuit that bankruptcy judges may not conduct jury trials, these cases have been routinely referred to the district court if the party requesting trial by jury is entitled to one. This matter, however, is not routine. Its facts cannot easily be applied to the recent Supreme Court standards enunciated in Granfinanciera and Langenkamp. The Supreme Court has not addressed the issue of whether a trustee, or for that matter, whether a debtor or debtor-in-possession would ever be entitled to a jury trial. Most of the cases dealing with the issue of entitlement to jury trial involve a non-debt- or/non-trustee party.5
Many lower courts addressing the question of whether a debtor or debtor-in-possession is entitled to a jury trial have rather consistently denied those requests either because the debtor chose the forum (equitable, non-jury) or the proceedings were equitable rather than legal in nature. These courts first considered whether the debtors voluntarily submitted to the equitable jurisdiction of the bankruptcy court (i.e., the debtor started the whole thing). Then, after finding the debtors’ situations comparable to those of the creditors in Langenkamp and Granfinanciera, denied their right to a jury trial. Matter of Hallaban, 936 F.2d 1496 (7th Cir.1991); In re McLaren, 129 B.R. 480 (Bankr.N.D.Ohio 1991); In re Shih, 125 B.R. 812 (Bankr.D.Hawaii 1991); In re Lion Country Safari, Inc. California, 124 B.R. 566 (Bankr.C.D.Calif.1991); In re Malkove & Womack, Inc., 122 B.R. 444 (Bankr.N.D.Ala.1990); In re K Lazy K Ranch, Inc., 117 B.R. 521 (Bankr.D.S.D.1990); and In re Edwards, 104 B.R. 890 (Bankr.E.D.Tenn.1989).
Whether a trustee may demand a jury trial, as noted earlier, is an unusual question, but such demands have been made and challenges filed. Some courts found that if an action is brought by or against a trustee in a state court where the trustee has a common law right to a jury trial and, in fact, demands a jury trial, this right will be preserved even if the action is subsequently removed to the bankruptcy court. Germain v. Connecticut Nat’l Bank, 112 B.R. 57 (D.Conn.1990); In re O’Sullivan Fuel Oil Co., 103 B.R. 388 (D.Conn.1989). But, see, In re McCorhill Publishing, 90 B.R. 633, 637 (Bankr.S.D.N.Y.1988) (trustee waived any right he may have had to trial by jury by raising state law conversion and unfair competition claims as counterclaims *603against creditor who had filed claims against the estate).
The answer to the question of whether a trustee waives a right to a jury trial, given that waivers of constitutional rights are not lightly to be entertained, and that there can be no effective imputation of waiver to the trustee prior to the Supreme Court’s 1989 Granfinanciera decision, however, is not firmly established.6 In re Jackson, 118 B.R. 243, 248 (E.D.Pa.1990).
In addition, a few courts have recently questioned whether a debtor or creditor waives the right to a jury trial solely on the basis of submitting to the equitable jurisdiction of the bankruptcy court. In re Marshland Development, Inc., 129 B.R. 626 (Bankr.N.D.Ca.1991). See, also, In re Washington Mfg. Co., 128 B.R. 198 (Bankr.M.D.Tenn.1991) wherein the court stated pertinently as follows:
Neither Langenkamp nor Lion Country suggests that the act of filing a bankruptcy petition or removing an action to the bankruptcy court constitutes waiver of the right to a jury trial. In Granfi-nanciera the Supreme Court made clear that submitting oneself to the jurisdiction of the bankruptcy court, which can lead to the loss of the right to a jury trial, is a concept differing from waiver.
It warrants emphasis that this rationale [i.e., that an appearance in bankruptcy court is deemed consent to jurisdiction] differs from the notion of waiver ... [I]n the context of bankruptcy proceedings ... creditors lack an alternative forum to the bankruptcy court in which to pursue their claims.
Granfinanciera, 109 S.Ct. at 2799, n. 14.
Similarly, the court concludes that a debtor lacks an alterative forum in which to reorganize or obtain a fresh start. Thus, neither a creditor nor debtor waives its right to a jury trial solely on the basis of having submitted itself to the equity jurisdiction of the bankruptcy court.
The Washington Mfg. court also noted with interest, but did not find necessary to decide, the question of whether a trustee is ever entitled to a jury trial. Washington Mfg. at 202.
The trustee is a disinterested person appointed to liquidate the bankruptcy estate. 11 U.S.C. §§ 322(a) and 701(a)(1). The trustee becomes the hypothetical perfect lien creditor. 11 U.S.C. § 544(a)(1). As such the trustee does not represent the debtor, but acts instead for the estate as a fiduciary for all the unsecured creditors who may or may not have filed claims against the estate. The trustee did not choose the bankruptcy court in the sense of filing the case and, in fact, lacks any other forum to administer a bankruptcy estate. Under the circumstances, it would be difficult to conclude that the trustee waived the right to a jury trial relying upon similar theories used by courts to deny a debtor a right to a jury trial; that he or she voluntarily submitted to the equitable jurisdiction of the bankruptcy court by filing the case. This is particularly so given that “waivers of constitutional rights are not lightly to be entertained.” Jackson, 118 B.R. at 248.
Suffice it to say, there is no clear answer to the one before the Court; whether the trustee is ever entitled to a jury trial. A court might decide this issue either way and find support, as is evidenced by the myriad decisions all purporting to follow dictates from the highest court. What is clear, however, is that the pending matter is a non-core proceeding and the bankruptcy court, with or without a jury, cannot decide or preside over any final decision. A practical solution suggests itself. The interests of judicial economy will best be served by referring the matter to the Article III district court. It is true that no party has sought this solution by filing a motion to withdraw reference with the district court. However, the 1984 amendments to the Bankruptcy Code providing for referral to the district court, anticipated that there could be just this kind of case; *604one needing to be finally decided on the merits absent the jurisdictional problems which continue to plague the bankruptcy court.
CONCLUSION
The Court finds that the above captioned adversary proceeding, including this Order, should be transmitted to the U.S. District Court for such further proceedings as it deems appropriate.
IT IS SO ORDERED.
. See 28 U.S.C. § 1334(c) and Rule 5011 of the Federal Rules of Bankruptcy Procedure.
. 28 U.S.C. § 157 provides that each district court may provide that any or all cases under Title 11 and tiny or all proceedings arising under Title 11 shall be referred to the bankruptcy judges for the district. In Arkansas, the district courts for the Eastern and Western districts have, pursuant to General Order 32, provided an automatic referencing mechanism for cases filed under Title 11. Other matters may be specifically referenced for disposition to the bankruptcy court as has been done in this pending matter.
. In Leach, the original cause of action was brought in the Arkansas state court against the Federal Crop Insurance Corporation for breach of contract. The case was removed to the United States District Court for the Eastern District of Arkansas, it was dismissed for want of jurisdiction. The Eighth Circuit Court of Appeals affirmed the district court’s holding finding at 201:
The Supreme Court has declared that removal jurisdiction is
a derivative jurisdiction. Where the state court lacks jurisdiction of the subject matter or of the parties, the federal court acquires none, although in a like suit originally brought in a federal court it would have had jurisdiction.
Minnesota v. United States, 305 U.S. 382, 389, 59 S.Ct. 292, 295, 83 L.Ed. 235 (1939).
. This was in large measure due to Congressional policy which established that bankruptcy proceedings were to be decided quickly, efficiently and fairly. In addition, it was felt that jury trials in core matters add a level of expense and delay that is inimical to the Trustee’s essentially equitable duty to assemble, account for and apportion the estate. See Gibson, Jury Trials and Core Proceedings: The Bankruptcy Judges Uncertain Authority, 65 Am.Bankr.L.J. 143, 157-63 (1991).
. Then a court’s inquiry follows the two-step analysis outlined by the Supreme Court,in Gran-financiera and Langenkamp. First the court must determine whether the cause of action would have been tried to a jury at common law and if so, whether the remedy sought is legal rather than equitable in nature. Second, the court must consider whether Congress may assign and has assigned resolution of the relevant claim to a non-Article III adjudicative body that does not use a jury as fact finder. See, also Granfinanciera, 109 S.Ct. at 2797 at n. 10.
. The trustee filed this adversary proceeding and demanded a jury trial October 25, 1988 well before the Granfinanciera decision. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491358/ | JOURNAL ENTRY
JOHN C. MINARAN, Jr., Bankruptcy Judge.
This matter comes before the court to consider the State of Nebraska’s attempt to withdraw its proof of claims from these bankruptcy proceedings in order that it may then rely on its sovereign immunity under the Eleventh Amendment.
The State of Nebraska filed proof of claims in this bankruptcy case on October 2, 1986, in the amount of $113,333.87, on November 5, 1986, in the amount of $3,436.53, and on June 28, 1988 in the amount of $138,364.84. The State objected to confirmation of debtors’ plan (Fil. # 103), participated in the preparation and filing of a pretrial statement (Fil. # 170), participated in a settlement conference held by the court, and otherwise actively participated in this bankruptcy case. In October, 1990, the State of Nebraska unilaterally announced that it had withdrawn its proof of claims and that it was asserting its sovereign immunity. See the Court’s order dated October 9, 1990 (Fil. #254). In March 1990, the State filed Withdrawal of Claims (Fil. # 223, # 224, # 225). The debt- or filed a Motion for Status Hearing on Withdrawal of Claim (Fil. # 263) by which it objects to the State of Nebraska withdrawing its claims and asserts that the attempted withdrawal was not in accordance with Bankruptcy Rule 3006. A hearing was held on December 18, 1990, at which time the State and the debtor were given time to file supporting briefs.
Based on the briefs filed, it appears that the parties may have misinterpreted the legal consequence of their respective positions. The State of Nebraska appears to believe that unless the State files a proof of claim, the bankruptcy court lacks jurisdiction to determine the amount of its claim for taxes and to grant an order discharging its tax claim. The State thus concludes, that by withdrawing its proof of claims and objection to confirmation, it will deprive the bankruptcy court of jurisdiction and the State will not be bound by the terms of debtors’ plan, if confirmed. Debtor seems to agree with the State’s theory and opposes withdrawal of the State’s proof of claims.
In Hoffman v. Conn. Dept. of Income Maintenance, 492 U.S. 96, 109 S.Ct. 2818, 2823, 106 L.Ed.2d 76 (1989), the Supreme Court stated that under 11 U.S.C. § 106(c), “a State that files no proof of claim would be bound, like other creditors, by discharge of debts in bankruptcy, including unpaid taxes, ... but would not be subjected to a monetary recovery.” See also, Neavear v. Schweiker, 674 F.2d 1201, 1204 (7th Cir.1982). Explaining this point, the Supreme Court stated that § 106(c)
“echoes the wording of sections of the Code such as § 505, which provides that ‘the court may determine the amount or legality of any tax,’ 11 U.S.C. § 505(a)(1), a determination of an issue that obviously should bind the governmental unit but that does not require a monetary recovery from a State. We therefore construe § 106(c) as not authorizing monetary recovery from the States.”
Hoffman, supra. The Eleventh Amendment only precludes a debtor’s affirmative monetary recovery against a State that has not filed a proof of claim. The Eleventh Amendment does not prevent a State’s claim from being disallowed and discharged under the Bankruptcy Code, even in the absence of the State having filed a proof of claim. See Brooks Fashion Stores, Inc. v. Michigan Employment Security Commission (In re Brooks Fashion Stores, Inc.), 124 B.R. 436 (Bankr.S.D.N.Y.1991).
Accordingly, if the State of Nebraska’s proof of claims are withdrawn, the bankruptcy court still has jurisdiction to *628determine the amount of the tax claims, and the debtors obligations to the State of Nebraska could be discharged under the Bankruptcy Code. See Agnew v. Franchise Tax Board (In re Sharon Steel Corp.), 119 B.R. 502 (Bankr.W.D.Pa.1990) (bankruptcy court may determine the amount and dischargeability of liabilities whether or not the governmental unit files a proof of claim). Thus, the State of Nebraska will be bound by a confirmed plan of reorganization and its tax claim is subject to discharge under 11 U.S.C. § 1141.
I conclude that the parties should be provided an opportunity to reconsider their respective positions de novo.
IT IS THEREFORE ORDERED, that:
1. The proof of claims of the State of Nebraska shall be deemed as still pending.
2. If the State of Nebraska still desires to withdraw its proof of claims, it must do so in accordance with Bankruptcy Rule 3006, by filing a new motion within thirty (30) days hereof.
3. The trial under § 505 to determine the amount of tax liability is still pending. If the State of Nebraska does not withdraw its proof of claims, the Clerk of the Bankruptcy Court shall schedule the § 505 issue for status hearing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491359/ | PEDER K. ECKER, Bankruptcy Judge.
On October 8, 1991, the Court heard and took under advisement objections regarding the Notice of Proposed Action and Motion and Stipulation for Sale of Secured Property Free and Clear of Claims, Interests, and Liens. Two other matters consisting of a Motion for Relief From Stay and a Motion to Convert to Chapter 7 were also included at this time. The only objection in connection with these matters was filed by the United States Trustee. The objection stems from the fact that the Motion and Stipulation for Sale constitutes an impermissible appearance of the corporation by a person who is not an attorney. The motion was signed by the company’s president, rather than by an attorney licensed to practice law in this district.
The U.S. Trustee cites Carr Enterprises, Inc. v. United States, 698 F.2d 952 (8th Cir.1983), in support of its argument. Carr, however, involves a tax dispute, and the individual representing the corporation was not the sole or majority shareholder of the corporation. The present dispute is distinguishable from Carr. This closely-held corporation is represented by the president, its alter ego, and both the company and the president are obtaining relief under the provisions of the Bankruptcy Code. While the U.S. Trustee has cited other cases stating that a corporation may not be represented by an unlicensed person in an area that constitutes the practice of law, it is also recognized that circumstances may exist to create exceptions to this rule. In appropriate circumstances, “[t]he traditional rule is unnecessarily harsh and unrealistic when applied in bankruptcy to small, closely-held corporations.” Matter of Hol-*632liday’s Tax Services, Inc., 417 F.Supp. 182, 184 (E.D.N.Y.1976).
In this case, various circumstances allow the Court to recognize an exception to this rule. A corporation is a fictitious entity, represented by its agents. The motion at issue has been signed by the corporation’s agent, along with three licensed attorneys representing creditors and other parties in interest. The proposed action was noticed to all parties, and the sale was properly noticed as well. The proposed buyer submitted the highest bid, and the proposed sale appears to be an arms-length transaction. The corporation is impecunious and has no assets with which to make payment of legal services, all remaining assets being collateral of secured creditors participating by counsel in the disposition of the corporate collateral. These facts taken together provide sufficient grounds to allow the corporation to be represented in this proceeding by its president, rather than a licensed attorney.
True, “[t]he Bankruptcy Court system was not designed for paupers,” as stated by the court in In re Jean F. Frottier, Pro Se, 130 B.R. 614 (Bankr.S.D.Fla.1991), and a corporation with available resources should, in most situations, be required to retain competent counsel for representation in legal matters. But as a practical matter, the increased time and expense that would result from this objection would not serve any justifiable purpose. The absolute rule and the ability to recognize exceptions to that rule “rests on the inherent power of a court to supervise the proper administration of justice.” Holliday, 417 F.Supp. at 184.
A general provision of the Bankruptcy Code also authorizes modification to this rule. 11 U.S.C. § 105 states that “[t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.” 11 U.S.C. § 105(a). The decision to grant the Motion and Stipulation for Sale of Secured Property Free and Clear of Claims, Interests, and Liens is based upon the facts of this case, the equitable authority available to this Court, and the practical need to modify rather than strictly adhere to the rule in this proceeding.
Since no other objections were filed, the Motion for Relief From Stay and Motion to Convert to Chapter 7 are also granted.
Counsel for the SBA shall submit the appropriate orders. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491360/ | MEMORANDUM OPINION
MARK B. McFEELEY, Bankruptcy Judge.
This matter came before the Court on the trustee’s objection to the debtor’s claim of homestead exemption. Having considered the facts, the applicable law, and being otherwise fully informed and advised, the Court finds the objection is not well taken and will be overruled. The debt- *967or will be allowed her homestead exemption.
FACTS
The facts are not in dispute. The debtor physically moved from the property in which she seeks to claim a homestead exemption approximately 4 to 5 months prior to the filing of the bankruptcy petition. She moved because creditors had taken judgments against her, transcribed those judgments, and told her she was going to lose the house. Since her move she has been living in rented quarters. The house has remained vacant, been vandalized, and is not presently habitable. The debtor has been unwilling to invest the funds necessary to repair the house until her entitlement to the exemption is allowed. She asserts that if the exemption is allowed she will repair the house and move back in.
The trustee asserts that she is not entitled to the homestead exemption because she was not physically occupying the premises on the date of the filing of the bankruptcy petition. In all other respects the debtor’s entitlement to the exemption is unchallenged. The debtor asserts that she never abandoned the home as her residence, and that her intention to return qualifies her for the exemption.
DISCUSSION
The issue for the Court to determine is whether actual physical occupancy on the date of filing the petition1 is necessary in order to be entitled to a homestead exemption. New Mexico’s homestead exemption statute provides:
Each spouse, widow, widower or person who is supporting another person shall have exempt a homestead in a dwelling house and land occupied by him....
N.M.S.A. § 42-10-9 (1991 Supp.). The trustee argues that despite the principle of construing exemption statutes liberally,’ the statute is clear that the house must be occupied by the person claiming the exemption.
Exemption statutes are to be liberally construed in favor of the debtor. Ruybalid v. Segura, 107 N.M. 660, 763 P.2d 369 (Ct.App.1988). This Court, strictly construing a New Mexico exemption statute, sustained the trustee’s objection to the debtors’ stacking of automobile exemptions. The district court reversed, stating that the statute does not contain a limitation that two debtors may not each claim an exemption in the same vehicle. Byron and Janice Jones v. David F. Boyd, Jr., Trustee, Civ. No. 89-0889-JB (D.N.M. June 18, 1991). Following the general principle of liberal construction, the word “occupied” must be examined.
This is a case of first impression in New Mexico. A New Mexico case decided under a former law which did not require occupancy held that even where the debtor moved to another house and voted in another precinct a homestead exemption in the unoccupied house may be claimed. Corn v. Hyde, 26 N.M. 36, 188 P. 1102 (1920). The court focused on whether the debtor intended to abandon the homestead. Finding that the debtor did not evince an absolute and unequivocal intent to abandon, the court sustained the debtor’s claim of exemption. Id. at 41, 188 P. at 1107.
In In re Chalin, 21 B.R. 885 (Bankr.W.D.La.1982), the trustee objected to the debtor’s homestead exemption on the sole ground that the debtor was not occupying the premises as a residence. Louisiana’s homestead exemption statute requires a homestead to be occupied in order for the exemption to apply. The court allowed the exemption, stating that the only issue was whether the debtor had abandoned the homestead. Whether the debtor abandoned the homestead is a question of intent. Id. at 886. In In re Grindal, the Court stated:
The primary factor is the debtor’s intention on the filing date. A debtor who does not actually occupy the homestead on the filing date, but who intends to return when circumstances permit, may qualify for the exemption. Conversely, a *968debtor who actually occupies the homestead on the filing date, but who intends to sell it and not purchase another home, may not qualify for the exemption.
30 B.R. 651, 653 (Bankr.Me.1983) (citations omitted).
This Court believes that “occupied” must not be construed so narrowly as to deprive a debtor of a homestead exemption she would be entitled to but for actual physical occupancy. The facts show that the debtor never abandoned the home as her residence. There is no question that the debtor left the home because creditors told her that she was going to lose the house. She did not establish a new homestead. She did not show an absolute and unequivocal intent to abandon. It is undisputed that she intends to return to the house, if allowed the exemption. The Court finds that the debtor never abandoned her homestead and that her intent to occupy the homestead entitles her to claim an exemption.
This memorandum opinion constitutes the Court’s findings of fact and conclusions of law. Bankruptcy Rule 7052. An appropriate order shall enter.
ORDER
This matter came before the Court on the trustee’s objection to the debtor’s claim of homestead exemption. For the reasons stated in the memorandum opinion entered herewith,
IT IS ORDERED that the trustee’s objection is overruled. The debtor’s homestead exemption is allowed.
. When determining exemptions, the date of the filing of the bankruptcy petition controls. 11 U.S.C. § 522(b)(2)(A); In re Tardiff, 38 B.R. 974 (Bankr.Me.1984). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491361/ | OPINION AND ORDER DENYING MOTION TO DISMISS
WALTER J. KRASNIEWSKI, Bankruptcy Judge.
This matter is before the court upon motion of Dennis E. Laube and John P. Laube, unsecured creditors to dismiss chapter 11 reorganization to which Debtors are opposed. Upon consideration thereof, the court finds that said motion is not well taken and should be denied.
FACTS
On October 31, 1990, Debtors filed their voluntary petition under chapter 11 of title 11. Thereafter, on January 23, 1991, Debtors filed their disclosure statement and plan of reorganization. On February 24, 1991, movants, Dennis E Laube and John P. Laube, unsecured creditors, filed the instant motion to dismiss claiming that Debtors fail to qualify for relief under chapter 11 as they filed their petition for the “sole purpose of preventing creditors from recovering upon their lawful judgments without a business to rehabilitate.” Debtors oppose this motion claiming that chapter 11 does not require by explicit terms that Debtors be engaged in business in order to effectuate a plan. Additionally, Debtors state that they are ineligible for relief under chapter 13 as a result of their outstanding debts and that liquidation under chapter 7 would not be in creditors’ best interest.
Debtors acknowledge that the underlying problem regarding their chapter 11 is that “Debtors organized a corporation known as Wheelin’ Works U.S.A., Inc. for the purpose of buying a motorcycle sales and repair business.” Memorandum in Opposition at 3. Debtors personally guaranteed certain debts on behalf of that corporation. After the private liquidation of the company, Debtors remained obligated on the personal guarantees; cognovit judgments were subsequently taken against Debtors. Debtors claim that they have offered movants more than they would receive in a liquidation in order to resolve this matter, but, to date, an amicable resolution of this matter has not been successful.
At the hearing held on March 21,1991, to consider approval of Debtors’ disclosure statement, and the merits of movants’ motion to dismiss, the parties stipulated that movants would notify the court regarding a possible settlement of this matter. On May 20, 1991, movants filed a request for ruling on motion to dismiss chapter 11 reorganization. The court will now consider dismissal of Debtors’ chapter 11 case.
DISCUSSION
A recent United States Supreme Court case is dispositive of the issue before this court, whether Debtors are eligible for relief under chapter 11 as they have no ongoing business to rehabilitate. In Toibb v. Radloff, — U.S. —, 111 S.Ct. 2197, 115 L.Ed.2d 145 (1991), the Court held that:
[t]he plain language of the Bankruptcy Code permits individual Debtors not engaged in business to file for relief under Chapter 11. Although the structure and legislative history of Chapter 11 indicate that this Chapter was intended primarily for the use of business debtors, the Code contains no “ongoing business” requirement for Chapter 11 reorganization, and we find no basis for imposing one.
— U.S. at —, 111 S.Ct. at 2197-98. The Court accepted certiorari in order to resolve the conflict between the eighth and eleventh circuits. See In re Toibb, 902 F.2d 14 (8th Cir.1990) (Debtor not engaged in an ongoing business does not qualify for relief under chapter 11) and In re Moog, 774 F.2d 1073 (11th Cir.1985) (chapter 11 bankruptcy was not exclusively for business Debtors and could be utilized by consumer Debtors in certain circumstances). In resolving this conflict, the Court stated *996that the “plain language of the Bankruptcy Code” defines who may be a Debtor and does not contain an “ongoing business requirement for reorganization under Chapter 11.” — U.S. at —, 111 S.Ct. at 2197. Because the plain language is “not unclear,” the court need not look to legislative history to resolve an ambiguity. Id.
Debtors admit that Wheelin’ Works U.S.A., Inc. “went ‘bust’ ” and that they are attempting to resolve their personal guarantees. Memorandum in Opposition at 3. Following Toibb, although Debtors do not represent an ongoing business they are eligible for relief under chapter 11. It is therefore
ORDERED that motion of Dennis E. Laube and John P. Laube to dismiss chapter 11 reorganization be, and it hereby is, denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491362/ | OPINION AND ORDER GRANTING MOTION TO LIFT STAY AND TO ABANDON PROPERTY
WALTER J. KRASNIEWSKI, Bankruptcy Judge.
This matter came on for hearing upon ITT Commercial Finance Corp.’s motion to lift stay imposed by 11 U.S.C. § 362 and to abandon property to which the trustee and Central Trust Company of Northern Ohio have objected. Upon consideration of the evidence adduced at trial and the parties’ post-trial briefs, the court finds that said motion should be granted.
FACTS
On October 2, 1990, Debtor filed its voluntary petition under chapter 7 of title 11. Debtor was, formerly, engaged in the business of retail sales of boats, motors and trailers. In 1985, Messrs. William Fannin and Robert E. McCoy, partners of Debtor, executed an agreement for wholesale financing with ITT Commercial Finance Corp. (ITT). ITT’s Exhibit 1. The financing arrangement provided by this document is commonly referred to as a “floor plan”. That is, pursuant to the agreement for wholesale financing between the parties, ITT financed Debtor’s acquisition of inventory. Id. In exchange for this extension of credit, Debtor gave ITT a security interest in the inventory financed by it. Id. ¶ 3. Upon sale of the inventory items, Debtor agreed to remit the proceeds. Id. After ITT’s advancement of funds, ITT “may” send Debtor “a Statement of Transaction or other statement” if it chose. Id. Debtor was permitted “ten days” after its mailing to notify ITT of any correction or objection. Id.
Debtor and ITT, subsequently in 1990, executed another agreement for wholesale financing. ITT’s Exhibit 1. The provisions of this later agreement also included Debt- or’s desire that ITT finance Debtor’s acquisition of inventory, in exchange for which a security interest would be extended ITT in its inventory. Additionally, Debtor was permitted seven days, not the previous ten day period, in which to question or object to ITT’s advancement of funds after its mailing, if any, of a statement of transaction. Id.
On November 17, 1990, ITT filed the instant motion to lift stay and to abandon property, claiming a valid and perfected security interest in certain inventory, to-wit: 42 boats of the Debtor. The trustee *100objected to said motion claiming that ITT had failed to perfect its security interest in this inventory and that, as a result, the trustee could avoid ITT’s security interest in the inventory. At the preliminary hearing held upon ITT’s motion on December 11, 1990, at which the following appearances were made: Perry Newman, attorney for ITT, Louis Yoppolo, trustee; Vaughan Hoblet, attorney for Debtor, and Kenneth Stumphaizer, attorney for Central Trust, the parties agreed that ITT’s motion should be granted as to 32 items of Thompson boat inventory. However, the parties could not agree as to disposition of the remaining 10 boats.
Central, an unsecured creditor of Debt- or’s estate, filed a brief in opposition to ITT’s motion claiming that Debtor did not authorize or consent to ITT’s extension of credit on ten boats delivered to Debtor from Thompson Boat Co., the manufacturer of the boats in issue. See ITT’s Exhibit 5 (copies of MSO’s of boats in issue). Rather, Central claims it advanced funds directly to Debtor, at Debtor’s request, to finance these ten boats; Central does not, however, claim a security interest in these boats. Central asserts that because Debt- or did not consent to the extension of funds for payment of the ten boats in issue, a necessary element for attachment pursuant to O.R.C. § 1309.14(A), no attachment of ITT’s security interest occurred. At the final hearing, the parties stipulated that the remaining issue for the court’s determination was whether, initially, a valid security interest was created and attached to the ten boats.
Mr. Tim Bowen, regional branch manager for ITT, testified that his responsibilities include managing branch operations in the credit collection and sales areas. Mr. Bowen stated that ITT financed inventory for Debtor by first being contacted by the product manufacturer, Thompson Boat Company, for approval authorization. If approved, the manufacturer would deliver the product to Debtor, Debtor would then review the product to ensure that its condition was acceptable. Mr. Bowen testified that pursuant to the parties’ underlying documents, Debtor had the opportunity within seven days after ITT sent a statement reflecting the floor planning of certain inventory, to object to the transaction, thus protecting Debtor from any unwanted inventory or defective inventory. Additionally, pursuant to a repurchase agreement between ITT and Thompson Boat, and as a result of Debtor’s default, Thompson was responsible for repossession of the ten boats in issue. See Central’s Exhibit E. Lastly, Mr. Bowen testified that ITT received certain FAX communications from Debtor, specifically Mr. Fannin, requesting that ITT not “floor” certain boats. See Central’s Exhibits A, B, C, and D. Mr. Fannin did not testify at the final hearing on ITT’s motion.
Mr. Dale Anderson, president of Thompson Boat Company, confirmed Mr. Bowen’s testimony that this procedure was followed by Thompson in manufacturing and distributing a boat to Debtor for resale. Deposition of Dale Anderson of February 7, 1991 at 11-17 (February 13, 1991). That is, after verbal request for production of boats, Thompson would contact ITT for a credit approval number. Mr. Fannin, at his § 341 meeting, identified this same procedure as that followed by the parties. Post-Hearing Brief of ITT, Fannin at 66.
Specifically, regarding the ten boats in issue, Mr. Steve Wandschneider, employed by Thompson Boat Company as vice president of finance, reviewing a boat order form used by Thompson in its ordinary course of business, testified that an order was phoned in by the dealer on or about February 20, 1990. Deposition Transcript of Steve Wandschneider of February 7, 1991 at 24 (February 14, 1991); Post-Hearing Brief of ITT, Wandschneider at 24. Because no special financing arrangements about these ten boats had been made, Mr. Dale Anderson, president of Thompson Boat Company, stated that Thompson then contacted ITT for a credit approval number. Deposition Transcript of Dale Anderson of February 7,1991 at 13 (February 13, 1991); Post-Hearing Brief of ITT, Anderson at 13. After delivery and inspection of these boats, Mr. Fannin on behalf of Debtor requested they be returned as they *101were not in a saleable condition. Post-Hearing Brief of ITT, Fannin at 181. Subsequently, Thompson removed the boats from Debtor’s place of business and sent them to Collins Marine. Deposition Transcript of Dale Anderson at 57-60.
Admitted into evidence were copies of three FAX transmissions signed by “Bill Fannin”, “Bill” and from “Bill Fannin”, a partner of Debtor. Central’s Exhibits A-3. These transmissions list serial numbers, including those of the ten boats in issue, requesting that these inventory items not be floored by ITT. Id. The reasons given for this request is that repairs were necessary for these boats.
Mr. Vaughan Hoblet, legal counsel employed by Debtor for partnership purposes, prior to filing its petition, testified that he recalled speaking to Mr. Jeff Pike, an employee of ITT, regarding ITT’s removal of certain inventory items from Debtor’s floor plan financing. Mr. Hoblet recalled that he requested that the ten boats in issue be removed from ITT’s financing, and that Mr. Pike indicated these items would be removed. However, Mr. Hoblet also stated that it could be possible that Mr. Pike said these items “would” be taken off. Mr. Hoblet testified that he advised Mr. Fan-nin, to contact Mr. Pike regarding the condition of the boats in issue, and to indicate that certain repairs were necessary before those boats would be saleable. Mr. Hoblet admitted that he advised Mr. Fannin to return those boats that had not been repaired.
Mr. Jeff Pike, an account manager employed by ITT and supervised by Tim Bowen, testified that he had been contacted by Mr. Hoblet in August and that he seemed “aggressive” in requesting the removal of the ten boats from the floor plan arrangement. Furthermore, Mr. Pike stated that he understood, at the time of the conversation, that Debtor did not want these inventory items included on the floor plan financing as they were to be returned to, or repaired by, Thompson.
DISCUSSION
The sole issue for the court’s determination is whether Debtor consented to ITT’s financing of the ten boats as part of its inventory, that is, whether “attachment” occurred. O.R.C. § 1309.14(A) contains the necessary elements for attachment, of which all three must be met. O.R.C. § 1309.14(A). These elements are, that,
(1) The collateral is in the possession of the secured party pursuant to agreement, or the Debtor has signed a security agreement which contains a description of the collateral ...;
(2) Value has been given; and
(3) The Debtor has rights in the collateral.
O.R.C. § Í309.14(A)(1), (2) and (3).
Pursuant to the Agreement for Wholesale Financing executed by Messrs. William Fannin and Robert E. McCoy, partners of Debtor, a security interest in Debtor’s inventory was extended to ITT in exchange for ITT’s financing. ITT’s Exhibit 1. Although the parties do not dispute the provisions of the writings between the parties, the court must, based upon the writings, determine whether the parties intended to create a security interest in the ten boats. See In re Data Entry Service Corp., 81 B.R. 467, 469 (Bkrtcy.N.D.Ill.1988) (this court must decide whether the writing objectively indicates that the parties intended to create a security interest (citing In re Bollinger Corp., 614 F.2d 924 (3rd Cir.1980)). A writing reflecting the first element of “attachment” is evident. However, Central asserts that Debtor did not authorize ITT to extend financing on its behalf for the ten boats in issue and that, therefore, the boats are now estate property, free and clear of ITT’s lien. The court is not persuaded by this argument.
Central contends that because Debtor did not authorize ITT to floor the ten boats in issue, as evidenced by the FAX transmissions, see supra pp. 100-01, that a necessary element of “attachment” has not Occurred. The content of these FAX transmissions is consistent with Mr. Pike’s testimony stating that Debtor requested that certain inventory items not be included on ITT’s floor plan financing as the items were to be returned or repaired. See su*102pra p. 101. Furthermore, as discussed, the documents underlying the parties’ financing arrangement permitted Debtor to object to the placement of inventory items on the floor plan financing. See supra pp. 99-100. Lastly, Mr. Fannin, at his § 341 meeting, testified that ten boats were returned to Thompson due to damage, unacceptable to Debtor.
The court finds that Mr. Fannin in transmitting the FAX messages to ITT was exercising Debtor’s opportunity to object to financing for various reasons. These FAX transmissions do not request removal from the “floor plan” stating that the inventory items were not ordered; rather, removal is requested due to the damaged conditions of the items. To that end, the court finds that the transaction involving the ten boats in issue is representative of the normal course of dealing between the parties. That is, Debtor ordered the boats; Thompson received credit approval for production of the boats; the boats were manufactured; the boats were delivered to Debtor and the MSO’s, to ITT; Debtor inspected the boats and rejected those that were not saleable. After Debtor's rejection, the boats were removed from Debtor’s inventory. Apparently, but for the intervening bankruptcy petition, the necessary paperwork to remove these items from the floor plan financing would have subsequently been processed.
The court finds that the first element necessary for attachment occurred as the parties executed a security agreement evidencing their intent that ITT finance collateral in Debtor’s possession. Value was, obviously, given as ITT paid Thompson for these boats. Debtor obtained rights in this collateral as, upon receipt of the inventory, Debtor could retain the items for resale or reject the nonsaleable items.
ITT has submitted copies of its financing statements evidencing compliance with the filing requirements for perfection of Debt- or’s inventory. ITT’s Exhibit 2. Although initially, the trustee objected to ITT’s security interest for the reason that it failed to maintain actual and continued possession of the MSO’s, as required by O.R.C. § 1548.20, the parties have presented no evidence to the contrary. Additionally, Mr. Bowen testified that ITT maintained continuous possession of the MSO’s. The court finds that ITT has a valid and perfected security interest in the boats.
Finally, no evidence has been presented reflecting equity in these boats for the benefit of the estate. 11 U.S.C. § 362(d)(2)(A). Because no objection to ITT’s request for abandonment has been made, the court finds that ITT’s motion to lift stay and to abandon property is well taken. It is therefore
ORDERED that motion of ITT Commercial Finance Corp. to lift stay imposed by 11 U.S.C. § 362 and to abandon property be, and it hereby is, granted. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491363/ | OPINION
DAVID W. HOUSTON, III, Bankruptcy Judge.
On consideration before the court is a motion to dismiss filed by the defendants, Commodity Credit Corporation (CCC), a corporation wholly owned by the United States of America, and Agricultural Stabilization & Conservation Service (ASCS), an agency of the United States Department of Agriculture; response to said motion having been filed by the plaintiff, Mrs. Juanita C. Winchester, individually, and as the Executive of the Estate of Clarence E. Winchester, Deceased; and the court having heard and considered same hereby finds as follows, to-wit:
I.
The 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.
That portion of the plaintiff’s complaint seeking redress for the defendants’ alleged violation of the automatic stay is a core proceeding as defined in 28 U.S.C. § 157(b)(2)(A), and (0).
The balance of the plaintiff’s complaint, dealing with the defendants’ decision to disallow the 1988 rice disaster payment allegedly owed to Clarence E. Winchester, is also a core proceeding as defined in 28 U.S.C. § 157(b)(2)(A), (E), and (0). This portion of the complaint asserts a cause of action against two federal agencies which is not based on state law, but rather on federal statutes and regulations that are applicable to said agencies.
II.
The defendants contend through the motion to dismiss that the plaintiff has not exhausted her administrative remedies as required by law. The plaintiff takes the position that administrative remedies are not applicable to this proceeding, or, alternatively, that she falls within one of the exceptions to the theory that administrative remedies must be exhausted before proceeding in a judicial forum. These exceptions are set forth as follows:
1. The futility of the administrative processes.
2. The irreparable harm caused to the plaintiff, a Chapter 12 debtor in bankruptcy, as a result of being required to exhaust her available administrative remedies.
3. The unreasonable delay in the administration of the bankruptcy case caused by the debtor having to exhaust administrative remedies.
4. The agency’s callous disregard of the debtor’s Constitutional rights.
5. The inadequacy of the debtor’s remedies at law.
(See, Susquehanna Valley Alliance v. Three Mile Island Nuclear Reactor, 619 F.2d 231 (3rd Cir.1980) and Baldwin Metals Co., Inc. v. Donovan, 642 F.2d 768 (5th Cir.1981)).
*370III.
FACTUAL BACKGROUND
The factual scenario related to this proceeding essentially involves two farms which are located adjacent to each other in Quitman County, Mississippi:
Farm No. 738 — Operated by C & B Farms, Inc., a corporation owned by Clarence E. Winchester and his son, Bradley Winchester.
Farm No. 425 — Operated exclusively by Clarence E. Winchester, individually.
Both farms were leased during calendar year 1988, either directly or indirectly, from the Mississippi Department of Corrections.
On May 16, 1988, pursuant to an application filed by Clarence E. Winchester (Mr. Winchester), the defendants made an advance payment under the 1988 Rice Disaster Program to Mr. Winchester in the sum of $6,449.00.
On August 17,1988, the Quitman County ASCS Committee (County Committee) met and rendered a decision reducing the yields on both farms, for purposes of calculating the rice disaster payments, to the actual production realized during 1988, which was zero. This decision effectively meant that neither Mr. Winchester nor C & B Farms, Inc., would receive any funds from the 1988 Rice Disaster Program. Also because of this action, the defendants took the position that the advance payment in the sum of $6,449.00 should be refunded by Mr. Winchester.
On September 15, 1988, J.R. Boyd, Jr., the ASCS County Executive Director for Quitman County, mailed a letter to Mr. Winchester, at an incorrect mailing address, purporting to advise him of the County Committee’s decision relative to both his farm and the farm operated by C & B Farms, Inc. Pertinent excerpts from this letter, attached as an exhibit to the defendants’ motion to dismiss, are set forth as follows:
Due to numerous reports from the public, I made a visit to your farms b25 and 738 on July 18 and inspected your rice crop, (emphasis added)
The following observations were made: Farm 425
1. Weeds and vegetation were 4 to 5 feet tall and rice could not be identified without getting in the field.
2. All fields were dry. No water was being pumped. Fields on the south end did not appear to have had any water at any time this year.
3. There was no evidence that any herbicides had been applied.
Farm 738
1. Vegetation was not as large on this place but it had not been controlled.
2. There was evidence that some kind of herbicide had been applied on some of the area.
3. I did not see a single levee that had been butted up.
4. There was no evidence of any water having been applied all year to any fields.
This information was presented to the County Committee on August 17, 1988. Donald Respess, Vice Chairman of the committee, stated that he sees some of your rice crop every day. He has also seen the rice on farm 738. He verified the conditions that I reported to the committee.
After reviewing the above information, the committee determined that normal cultural practices for the production of rice has not been carried out on your farms. ASCS procedure requires that when normal cultural practices have not been performed, the farm payment yield must be reduced to the yield that could be expected from practices actually performed. Therefore, this is to inform you that the committee determined that your 1988 rice payment yield will be reduced to the actual yield that you produce. Please submit your rice production immediately after harvesting, (emphasis added)
After protracted negotiations between the parties concerning a request for reconsideration, the following events occurred, all subsequent to Mr. and Mrs. Winchester’s bankruptcy filing on June 9, 1989:
*371A. By a letter dated September 5, 1989, (Plaintiff’s Exhibit 4) the County Executive Director advised Mr. Winchester that on August 16, 1989, the County Committee had again conducted a meeting, reviewed his appeal, and denied his request as to both farms. The letter further indicated that a hearing would be set to reconsider Mr. Winchester’s appeal on September 20, 1989, at 2:00 p.m.
B. On September 19, 1989, one day earlier than set forth in the aforementioned notice, the County Committee conducted another hearing relative to both farms. Through a letter dated October 5, 1989, (Plaintiff’s Exhibit 6) Mr. Winchester was advised of the results of this hearing. Certain excerpts from this letter are significant, to-wit:
1. There were several reports from the public that the crop on farms,425 and 738 were not being cared for in a normal manner, (emphasis added)
4. An official farm visit was made by the CED on July 18, 1988, and found that the entire crop on both farms had been abandoned.
5. The only evidence of water being applied was on farm 425, fields 14 and 16. If water had been put on any other fields on either farm, there was no evidence of it on July 18.
6. There was some evidence that a herbicide had been applied to fields 2 and 3 on farm 738 but the vegetation on both farms was so bad that rice could not be identified without walking into the field, (emphasis added)
9. There were 107 rice farms in Quit-man County in 1988 with 16,400 acres planted and only 237 acres failed on the other 105 farms. Mr. Winchester had the only rice farm that had no harvested production and the failed rice on these farms totals 593.8 acres.
10. 1988 was one of the best rice crops that Quitman County has ever had.
Based on these ten items, the county committee determined that the reason Mr. Winchester did not get a stand of rice was because he did not flush the fields. The failure was due to lack of management. The committee determined that the rice payment yield should remain at the actual yield on these farms which was zero, (emphasis added)
If you feel that the committee has not properly considered the facts in the case, you may appeal this decision to the State Committee within 15 days of the date of this letter. The address is Mississippi State ASC Committee, 6310 1-55 North, P O Box 14995, Jackson MS 39236-4995. If you appeal this decision to the State Committee, you should furnish factual information and state why you believe the county committee’s determination is wrong.
C. By a letter dated October 18, 1989, (Plaintiff’s Exhibit 7) the attorney representing Mr. Winchester submitted an appeal applicable to both farms to the Mississippi ASCS State Committee (State Committee). This letter advised the State Committee that the County Committee decision had possibly occurred in violation of the automatic stay set forth in 11 U.S.C. § 362(a). On October 25, 1989, the ASCS State Executive Director, C.R. Hull, responded to Mr. Winchester’s appeal and indicated that the case file would be referred to the Regional Attorney for review. (Plaintiff’s Exhibit 8) Apparently because of the bankruptcy filing, the State Committee was unsure as to how to proceed.
D. By letter dated August 17, 1990, (Plaintiff’s Exhibit 9) the County Executive Director advised Mr. Winchester’s attorney that the request for reconsideration filed by C & B Farms, Inc., would be heard on September 12, 1990, at 2:00 p.m. On that date, a hearing was conducted before the County Committee and a transcript of the proceeding was prepared. (Plaintiff’s Exhibit 5) The transcript indicates that the County Committee discussed the farming operation of not only C & B Farms, Inc., but also that of Mr. Winchester. Evidencing that there was little distinction between the two farming operations) the transcript at page 12 reveals the following:
ASCS-JB (Indicating J.R. Boyd, Jr., ASCS County Executive Director) David, you said you hate to be an *372adversary. We have to look at the overall county, that if you’ve got rice adjoining on the east, you've got rice adjoining on the north, you’ve got rice joining on the west, you’ve got rice adjoining on the south. All those folks made one of the best rice crops that had ever been made in the county. And we have to try to figure out what happened to Mr. Winchester’s rice, why he didn’t make any rice. He makes absolutely nothing. On all four joining farms and all four directions— one of them worked by Don — made a good rice crop that year. And this farm didn’t make any rice on any field. (See also transcript pages 6, 9, 10, 15, and 16.)
E. By letter dated September 18, 1990, (Plaintiff’s Exhibit 10) the County Executive Director informed Mr. Winchester’s attorney that the reconsideration request had been denied by the County Committee and, that insofar as C & B Farms, Inc., was concerned, the rice yield on farm 738 would remain at zero.
F. The decision of the County Committee was appealed to the State Committee and a hearing was conducted on December 13, 1990. Evidenced by a letter dated December 18, 1990, (Plaintiff’s Exhibit 12) the State Committee affirmed the County Committee’s decision. Two paragraphs from this letter, written by the State Executive Director, are set forth as follows:
After hearing the testimony presented by you, the committee understands your position to be that C & B Farms, Inc., had done everything that would normally have been expected to obtain a stand and produce a crop of rice. The committee noted that the rice fields on the farm were not flushed. The committee noted that the flushing of rice was a normal management and cultural practice in rice production and that other farms in the area flushed their rice fields several times in 1988 in order to obtain a stand of rice. The committee further noted that Quitman County farmers produced approximately 16,000 acres of excellent rice in 1988.
After consideration of the information presented by you and a review of the case file, the committee determined to sustain the action of the Quitman County ASC Committee and to deny the appeal. The committee concluded that the failure of the rice crop was not due to weather or disaster-related conditions and in fact was due to the management decisions of the producers.
These are the identical reasons given earlier by the County Committee for the denial of Mr. Winchester’s individual claim.
G.By letter dated December 28, 1990, (Plaintiff’s Exhibit 13) C & B Farms, Inc., appealed the decision of the State Committee to the Deputy Administrator, State and County Operations, Agricultural and Stabilization Conservation Service, United States Department of Agriculture, Washington, D.C. (DASCO). The DASCO hearing was conducted telephonically. Thereafter, by a letter dated in July, 1991, (Plaintiff’s Exhibit 14) DASCO advised that the C & B Farms, Inc., appeal had been denied. This letter contains a detailed summary of the factual findings and conclusions of DASCO which could largely be applicable to Mr. Winchester’s individual operation. The letter ended by stating that the administrative appeal rights afforded by 7 CFR Part 780 had been concluded.
IY.
CONCLUSIONS
At the hearing on the defendants’ motion to dismiss, the County Executive Director, J.R. Boyd, Jr., testified that the facts presented during the C & B Farms, Inc., administrative proceeding would be no different from an administrative proceeding pursued on behalf of Mr. Winchester individually. He also indicated that he had stated at the conclusion of the ASCS County Committee hearing regarding C & B Farms, Inc., that the results regarding Mr. Winchester would “probably” be the same. The court concurs wholeheartedly with this comment.
Even though the bankruptcy had been filed, the ASCS County Committee conduct*373ed a hearing regarding both farm 425 and farm 738 and rendered unfavorable decisions against not only C & B Farms, Inc., but also Mr. Winchester. Subsequently, because of the legal effects of the automatic stay, the ASCS Regional Attorney or the State Executive Director concluded that the hearing regarding Mr. Winchester was a nullity. Regardless, the fact that such a hearing was conducted with an unfavorable decision is evidence that revisiting this “stop” in the administrative processes would be an inevitable waste of time.
As a result of the three unfavorable decisions rendered in the C & B Farms, Inc., proceeding, the County Committee, the State Committee, and DASCO clearly implied that Mr. Winchester’s claim would likewise be rejected. The exhibits conclusively establish that the arguments previously offered on behalf of C & B Farms, Inc., would be identical to the arguments that would be offered on behalf of Mr. Winchester. Indeed, in order to render a decision favorable to Mr. Winchester, the decisions rendered against C & B Farms, Inc., at each rung of the administrative ladder, would have to be reversed. This court does not perceive this to be even a remote possibility. The DASCO conclusion underscores this point: (Plaintiffs Exhibit 14)
You implied the letters by experts from the Extension Service and the Mississippi State Seed Testing Laboratory (identified in facts 2 and 3) support the management practices followed by C & B Farms, Inc. This implication ignores the obvious fact that the writers of both letters considered the rice fields had been flushed and reflushed when they had not.
You acknowledge the flushing of rice fields is a normal management and cultural practice, yet imply it is not necessary in a year acknowledged by your client as being a drought year. In the memorandum attached to your April 12, 1991, letter (page 5) you wrote “The intensive land preparations required of C and B depleted the soil of moisture more than normally would have resulted from land preparation.” You continued referencing 3 weeks of additional drought with soaring temperatures resulting in different conditions than those experienced by neighbors. The combination of depleted soil moisture, drought and soaring temperatures strongly indicates the need to flush the rice to achieve germination.
The October 5,1989, reconsideration decision letter to C.E. Winchester stated in item number 9, “There were 107 rice farms in Quitman County in 1988 with 16,400 acres planted and 237 acres failed on the other 105 farms. Mr. Winchester had the only rice farms that had no harvested production and the failed rice on these farms totals 593.8 acres.” The fact flushing is a normal management practice and indeed necessary in 1988 is also confirmed by finding of fact numbers 6 and 7. Other farms in the area flushed their rice crops and were successful in rice production in contrast to your client’s failure to flush the crop and unsuccessful efforts to produce, a crop, (emphasis added)
The October 5, 1989, letter in addition to the flushing issue indicated in item numbers 4 and 6 (in reference to the July 18, 1988, field visit) that the entire crop had been “abandoned” and “vegetation on both farms was so bad that rice could not be identified without walking into the field.” (emphasis added)
DECISION
The appeal is denied. C and B Farms, Inc., failed to follow the management practices necessary to produce a rice crop; therefore, the yield reduction for 1988 program purposes will remain as established. We have determined that the loss in 1988 rice crop production was the result of causes other than disaster conditions and that the yield reduction was appropriate and in accordance with regulations.
Mr. Winchester is now deceased, so the prosecution of his claim, whether through the administrative processes or in a judicial forum, must be undertaken by his widow. To require her to go through the administrative processes at this juncture would literally add insult to injury. For all practical purposes, the administrative pro*374cesses, which would be applicable to Mr. Winchester’s claim, have been exhausted as a result of the various hearings and appeals in the C & B Farms, Inc., proceeding.
Requiring Mrs. Winchester to again work through the administrative “hoops” is a meaningless exercise. The outcome of these processes is a foregone conclusion. Urging that this cause of action be dismissed until Mrs. Winchester has exhausted her administrative remedies is a tactic, albeit within the law, employed to frustrate and/or discourage her effort.
Mrs. Winchester is a debtor in bankruptcy. The proof is uncontradicted that she has no funds to support a revisitation of the administrative processes, particularly when the “bottomline” of such a revisitation is so predictable. In the parlance of the ballplayer ... it’s time now to place these parties on a level playing field.
Therefore, the court is of the opinion that Mrs. Winchester has established beyond peradventure that this proceeding falls within at least two of the exceptions to the doctrine that administrative remedies must be exhausted before proceeding in a judicial forum, i.e., (1) the futility of the administrative processes; and (2) the irreparable harm caused to the debtor as a result of being required to exhaust her available administrative remedies. As such, the motion to dismiss filed by the defendants is not well taken and will be overruled by a separate order to be entered contemporaneously herewith. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491364/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court upon Plaintiff’s Complaint for Turnover of Assets and for Denial of Discharge. A Trial was held at which time 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, the documents admitted at Trial, the arguments of counsel, as well as the entire record in this case. Based upon that review, and for the following reasons, the Court finds that the Debt- or should turn over the assets in question and that the Debtor's discharge should be denied.
*400FACTS
On June 29, 1989, William Earl Blankenship (hereinafter “Blankenship”), Defendant/Debtor, filed for protection under Chapter 7 of the Bankruptcy Code. Soon after the petition was filed, the following events were unearthed which resulted in the filing of the Complaint for Turnover of Assets and Denial of Discharge by Plaintiff/Trustee, Bruce C. French. The Trustee employed Mari Taoka (hereinafter “Tao-ka”) to represent him in this matter.
In the Complaint against the Debtor, Maxine Hancock (hereinafter “Hancock”), Lloyd Smith, and Mary LaGore, the Trustee listed several items which were believed to be property of the estate, and as such, should have been turned over to the estate. Those items included (1) three parcels of real estate identified as 28 North Main Street, Dunkirk, Ohio; 130 West Walnut Street, Dunkirk, Ohio; and Inlot 28, Packer’s Eastern Addition, Dunkirk, Ohio; (2) money in the amount of Nine Thousand Three Hundred Twenty-two Dollars and Ninety-five Cents ($9,322.95) from Mr. Smith and Ms. LaGore; (3) money in the amount of Four Thousand Dollars ($4,000.00) from Hancock; (4) stock certificates; (5) life insurance policy; (6) rental receipts from 283 North Main Street, Dunkirk, Ohio; and (7) money transferred to the Debtor’s son prior to filing the petition. After initial discovery, the Trustee dismissed the action against Mr. Smith and Ms. LaGore because the Trustee determined that they did not have any assets of the estate in their possession. That dismissal also involved the property located at 28 North Main Street, Dunkirk, Ohio.
LAW
The Trustee brought this action for turnover of assets and for denial of Discharge. Section 542 of the Bankruptcy Code provides that:
an entity, other than a custodian, in possession, custody, or control, during the case, of property that the trustee may use, sell, or lease under section 363 of this title, or that the debtor may exempt under section 522 of this title, shall deliver to the trustee, and account for, such property of the value of such property, unless such property is of inconsequential value or benefit to the estate.
11 U.S.C. § 542 (1989).
At a pre-trial conference, a dispute arose as to the Debtor’s marital status. The Debtor denied the Trustee’s allegations that he was married to Hancock. Therefore, a threshold issue which this Court must address is whether Blankenship and Hancock are, or ever were, married. Despite Blankenship’s protests to the contrary, this Court believes that Blankenship and Hancock are married.
Because the power to regulate domestic relations belongs to the state, the Court must look to state law to determine the marital status of Blankenship and Hancock. Butner v. United States, 440 U.S. 48, 55-57, 99 S.Ct. 914, 918-19, 59 L.Ed.2d 136 (1979).
In Ohio, persons wishing to marry must apply for a license and then, once the application is approved, have the marriage solemnized. See, O.R.C. § 3101.01, et seq. (Baldwin 1988). Generally, there is a five (5) day waiting period between application and issuance of the marriage license. This can be waived by the Probate Judge. O.R.C. § 3101.05 (Baldwin 1988). Ohio does not authorize the performance of proxy marriages due to the statutory requirements of personal presence of the parties at the ceremony, although it will recognize proxy marriages when performed in a state where such marriages are valid. Hardin v. Davis, 30 Ohio Op. 524, 16 Ohio Supp. 19 (1945).
When the validity of a marriage is questioned, factors other than statutory compliance may be considered. One such factor is cohabitation. In Lester v. Lester, the court held that “cohabitation means the act of living together” and that “cohabitation can be based entirely on acts of living together without sexual relations.” Lester v. Lester, 1981 WL 3186 page 1 (Franklin County Court of Appeals, May 14, 1981). A review of Hancock’s interrogatories filed with the Court reflects that *401she resided at 130 South Walnut Street, Dunkirk, Ohio, and that she admitted that she cohabitated with Blankenship and shared expenses with Blankenship. However, she denied being married to him when such a question was posed in the interrogatories. Blankenship’s pre-trial memorandum filed with the Court reflects that he resided with Hancock at 130 South Walnut Street, Dunkirk, Ohio. Based upon all the evidence, the Court believes that Blankenship and Hancock live together and are married.
Further evidence upon which the Court relies in making this finding include the fact that Blankenship named Hancock as his primary beneficiary on his life insurance policy with Western-Southern Life. The policy date was March 1, 1985, and Hancock was listed as Blankenship’s wife. On, or about, February 13, 1987, Blankenship filed with Western-Southern a notice of change of beneficiary to include his daughter as a secondary beneficiary. He retained Hancock as his primary beneficiary without changing her relationship as his wife.
The Court also takes note of the fact that Blankenship and Hancock had a joint checking account. One exhibit to Hancock’s pre-trial statement filed with the Court is a copy of a check reflecting both Blankenship and Hancock as named drawers on the account.
Additional evidence is the deed dated September 23, 1988, conveying real estate known as Inlot 28, Packer’s Eastern Addition in Dunkirk to Blankenship and Hancock as husband and wife. At the trial, Blankenship testified that this transfer was a mistake on the part of the grantor. Blankenship also testified that he attempted to rectify the situation by transferring his portion of the parcel to Hancock on April 13, 1989. The Court places little credence in this story as Blankenship signed the deed without reference to the fact that he was not Hancock’s husband. Additionally, his transfer to Hancock occurred approximately seven (7) months after the original deed was executed and two months before his Bankruptcy petition was filed.
At trial, the Debtor testified that he wanted to protect Hancock from her children who were threatening to place her in a mental institution and that he thought that if he married Hancock, he would prevent such actions by her children. Blankenship testified that on or about January 14,1985, he, Hancock, and Kathryn Robinson, a friend, went to Marion, Ohio, so that Blankenship and Hancock could be married. The Defendant/Debtor admitted that both he and Ms. Robinson had been drinking heavily and that Hancock was under the influence of drugs prescribed for her mental health. Blankenship testified that Hancock volunteered the information needed and signed the marriage application. Both Blankenship and Hancock signed an oath that they were not under the influence of any intoxicating liquor or controlled substance, despite the Debtor’s testimony to the contrary. However, Blankenship further testified that it was Ms. Robinson who stood and took the vows before the minister solemnizing the marriage and that Ms. Robinson did not reveal to the minister her true identity. Blankenship asserts that he did not marry Hancock because she was not physically present and did not take the vows before the minister. The Court is chagrinned at the fact that Blankenship would take such steps to defraud another court. The Court places little weight on the Debtor’s contentions and accordingly makes the finding that Blankenship and Hancock are married.
As Bankruptcy courts are primarily courts of equity, this Court can rely on the equitable remedy of estoppel to further buttress its position of the Debtor’s marital status. Blankenship intended to marry Hancock and she consented as indicated by her application for marriage. Hancock knew of the marriage ceremony and yet, years later, has done nothing to nullify its effects. Essentially, she ratified the marriage by her conduct. Therefore, both Blankenship and Hancock are estopped from denying their marriage.
The Debtor failed to present any evidence that he and Hancock resided together for purely economical purposes. The *402Court notes that no evidence was presented to indicate that a divorce was had and therefore Blankenship and Hancock are still married. [For continuity, the Court will continue to refer to the Debtor’s wife as Hancock.]
Finding that Blankenship and Hancock are married, the Court now turns its attention to the various transfers between the couple. The Trustee requests a turn-over of all real estate transferred between them which are not in the statutory guidelines of Section 547(b) of the Bankruptcy Code. That Section deals with preferential transfers and provides, in pertinent part, that:
(b) 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 the transfer was an insider; and
(5) that enable such creditor to receive more than such creditor would receive if—
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
11 U.S.C. § 547(b). Hancock qualifies as an insider as she is the Debtor’s wife. See 11 U.S.C. § 101(30)(A)(i). The trustee has the burden of proof in an allegation of preferential transfer. See 11 U.S.C. § 547(g).
On, or about, April 18, 1989, the Debtor transferred to Hancock a parcel of real estate identified as 130 West Walnut Street, Dunkirk, Ohio. This transfer was made without consideration on behalf of Hancock. At trial, the Debtor testified that this transfer was made in lieu of a monetary obligation which the Debtor owed to Hancock’s former husband. The Court finds that the real estate transfer of 130 West Walnut Street to Hancock was one on account of an antecedent debt and as such can be avoided under Section 547(b).
The Trustee seeks to avoid the transfer of real estate known as Inlot 28, Packer’s Eastern Addition, Dunkirk, Ohio. As discussed earlier, this parcel was conveyed to both Blankenship and Hancock on September 23, 1988. On April 13, 1989, two months prior to bankruptcy, Blankenship transferred his interest to Hancock. The Court holds that this transfer cannot be avoided as the Trustee presented no evidence that this was done with the intent to defraud Blankenship’s creditors.
The Trustee requested the turn-over of Four Thousand Dollars ($4,000.00) which was given to Hancock by the Debtor within one year of bankruptcy. At trial, the Debt- or testified that the transfer of the Four Thousand Dollars ($4,000.00) was made so that Hancock could purchase the B & M Bar and Grill located at 283 North Main Street, Dunkirk, Ohio. The Debtor denied that the money was a gift. The Court also finds that the money should be turned over as a constructive trust was created when Blankenship transferred money to his wife for the purpose of obtaining an interest in the B & M Bar and Grill. Since the Debtor denied that the money was a gift and yet offered no positive evidence that valuable consideration was given in exchange, the money can be declared as being in a constructive trust for the benefit of the Debt- or. Second National Bank of Greenville v. Hoblit, 41 Ohio App. 126, 11 Ohio L. Abs 458, 179 N.E. 812 (Darke Co.1931). Since the trust is for the benefit of the Debtor, the Court finds that the money is to be turned over to the estate for distribution as it is property of the estate. See 11 U.S.C. § 541. Blankenship obtained an interest in the B & M Bar and Grill as indicated by his name being on the savings account signature card. The signature card reflects that the account was opened on May 12, 1986. *403At Trial, Blankenship testified that he made a deposit, consisting of his own money, of Ten Thousand Dollars ($10,000.00) into the B & M Bar and Grill account on March 12, 1989. Despite this admission, Blankenship testified that he did not include the B & M Bar and Grill savings account on his petition because he believed that the money in the account was not his. Blankenship’s belief is not well founded and this Court frowns upon those debtors who knowingly fail to fully disclose assets to the Bankruptcy Court. From Blankenship’s testimony, it appears that he attempted to do just that. Accordingly, the Court holds that Blankenship must turnover his interest in the B & M Bar and Grill to the Trustee.
The next issue with which the Court is faced is Blankenship’s interest in the Checkered Lounge, Co., Inc., located as 297 North Main Street, Dunkirk, Ohio. The Debtor’s amended B-2 Schedules reflected that he owned no stocks, bonds, nor any interest in any corporation or partnership. However, at Trial, the Trustee entered into evidence a set of documents from the Ohio Department of Liquor Control which reflect Blankenship’s ownership interest: (1) a certification from the Director of the Ohio Department of Liquor Control that as of March 7, 1990, departmental records indicate the owner and sole stockholder of Checkered Lounge Co., Inc., to be William Blankenship; (2) a corporation/stock data verification card reflecting that William Blankenship was issued One Hundred (100) Shares of stock on the Checkered Lounge Co., Inc.; (3) a letter of November 14,1986, from Gary L. Ufferman, Supervisor of the Permit Division of the Ohio Department of Liquor Control, reflecting that William Blankenship owns 100 shares of stock in the Checkered Lounge Co., Inc.; (4) an agreement of sale of One Hundred (100) Shares of stock in the Checkered Lounge Co., Inc. dated July 26, 1983, to which William Blankenship signed as a guarantor; and (5) an amendment to the agreement of sale, dated September 30, 1985, in which William Blankenship became the principal buyer of One Hundred (100) Shares of stock in the Checkered Lounge Co., Inc. When asked about the ownership, the Debt- or testified that he has no ownership interest in the Checkered Lounge Co., Inc. Upon further questioning, however, he recanted and testified that he owns One Hundred Dollars ($100.00) of stock and not One Hundred (100) Shares of stock. He testified that the corporation/stock verification card reflects that he was “present manager” and not “manager president” as it purports to say. (See Exhibit “A”) The Debt- or testified that he was a guarantor on the sale of the shares; but he would not explain the document wherein he was identified as the buyer of the shares of stock. When asked about the Checkered Lounge Co., Inc. checking account, the following transpired:
Ms. Taoka: In fact, weren’t you a signa-: tory on the account at the Checkered Lounge?
Debtor: Yes, ma’am, I was.
Ms. Taoka: And didn’t you have the ma-' jority of control over the checking account for the Checkered Lounge?
Debtor: Yes, ma’am, I did.
Ms. Taoka: Why was that interest not disclosed on your bankruptcy petition?
Debtor: Checkered Lounge wasn’t being questioned there, it was W.E. Blankenship being questioned, the discrepancy of the Checkered Lounge wasn’t up there.
Trial Transcript p. 33. An interesting twist occurred when Blankenship testified that he had tried to sell the Checkered Lounge. Ms. Taoka then asked how he could sell the Checkered Lounge if he had no ownership interest. The Debtor did not have an answer. The Court, based upon all of the evidence, finds that the Debtor owns One Hundred (100) Shares of stock in the Checkered Lounge Co., Inc. and that said stock should be turned over to the Trustee for proper distribution.
The Trustee requested a turn-over of rents received from June James in connection with the Debtor’s rental property located at 283 North Main Street, Dunkirk, Ohio. When asked about this income, the Debtor testified that he had not received any rental income from this property. He *404testified that he had the right to receive such income, but never collected it. The Trustee was unable to present evidence that such income was collected. Therefore, the Court must deny the Trustee’s request.
At Trial, facts were divulged that Blankenship gave Eight Thousand Dollars ($8,000.00) to his son subsequent to March 30, 1989, which was not disclosed in his petition. Furthermore, the Debtor testified that he took a vacation with his son and that during this time he gambled away money “on horses, and cards, and fast women.” Trial Transcript p. 57. He testified that he suffered an Eighteen Thousand Dollar ($18,000.00) loss due to gambling within three months prior to filing for bankruptcy. This loss was not included on his petition, either. Accordingly, this Court finds that the transfer to the Debt- or’s son should be turned over to the estate, and that the Debtor’s petition should be amended to include the gambling loss.
Testimony revealed that the Debtor had a safe deposit box at the Village Bank in Dunkirk, Ohio, which was not listed on his petition. Mr. Blankenship testified that he had the box at the time of filing, and that the box contained, “[s]ilver coins, silver-head dimes and [coins] such as that.” Trial Transcript p. 90. When asked why the box was not disclosed, the following question and answer resulted:
Trial Transcript, p. 91.
Ms. Taoka: Mr. Blankenship, why was that safe deposit box ... not disclosed on your bankruptcy petition?
Debtor: Well, that’s a good question, I didn’t figure there was enough in it to even fool with.
Ms. Taoka: Mr. Blankenship, why were the coins not disclosed on your B-2 schedules?
Debtor: Well, you want them, you can have them, I’ll give you the key to go and get them.
Ms. Taoka: Mr. Blankenship, that is not my question, why were these coins and safe deposit boxes—
Debtor: Because they weren’t of any great value as far as I’m concerned, they were more or less keepsakes.
Ms. Taoka: Because they were not of any value as far as you were concerned, you didn’t feel an obligation to disclose them in your bankruptcy petition?
Debtor: No, no, I didn’t.
Trial Transcript, p. 91.
During Trial, Ms. Taoka noticed that the Debtor was wearing two rings and inquired as to their existence. Blankenship testified that he had both rings at the time of filing his petition, but had no justifiable explanation as to why they weren’t included in his petition. The Court holds that these rings should be turned over to the Trustee.
This Court is distressed at Blankenship’s obvious efforts to misconstrue or narrowly construe facts in a light most favorable to him in his efforts to obtain relief from his debts. At Trial, Blankenship testified as to various assets and facts that he had not included on his Bankruptcy petition, for whatever reasons. The Debt- or blamed his former attorney for not including these assets, contending that he had disclosed all to his former attorney. The Court questions that Blankenship disclosed all to his former attorney as he was continually evasive to Ms. Taoka’s questioning, viewed situations in an illogical manner, and was not even honest with the Court during Trial. From his testimony, Blankenship has a background for business, and yet continually claimed ignorance as to legal proceedings. The Court notes for the record that Blankenship had filed for Bankruptcy protection in 1963 and thus should know what is involved in filing for Bankruptcy.
The Court does not believe that Blankenship is an honest debtor to which the Code was enacted to protect. His failure to include assets is a blatant attack on the Bankruptcy system. Bankruptcy is based upon forgiveness rather than retribution, but with forgiveness comes the duty of following rules. One of the rules is to list all debts and assets, not just the ones the petitioner decides are important. This rule effectuates the fresh start policy; but, if all the assets are not listed, the debtor *405receives more than a “fresh start.” Thus, the Bankruptcy system becomes a farce.
In judging the credibility of the Debtor and the weight given to his testimony, this Court has taken into consideration the Debtor’s intelligence, age, memory, his demeanor while testifying, the reasonableness of his testimony in light of all the evidence of the case, and any interest, bias, or prejudice he may have. In reaching the conclusions found in this Opinion, 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, it is
ORDERED that the Debtor turn over to the Trustee for proper distribution, the following:
1. The Four Thousand Dollars ($4,000.00) transferred to Hancock;
2. The stock certificates evidencing the One Hundred (100) Shares of stock in the Checkered Lounge Co., Inc., as well as any other interest he may have therein;
3. The safe deposit box, as well as the contents therein;
4. The rings which were not listed on the petition;
5. The parcel of real estate known as 130 West Walnut Street, Dunkirk, Ohio;
6. The Eight Thousand Dollars ($8,000.00) given to his son.
It.is FURTHER ORDERED that the Debtor amend his petition to include the Eighteen Thousand Dollar ($18,000.00) loss due to gambling.
It is FURTHER ORDERED that the Debtor’s Discharge be, and is hereby, DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491365/ | DECISION ON ORDER GRANTING SUMMARY JUDGMENT TO DEFENDANT FIFTH THIRD BANK
WILLIAM A. CLARK, Bankruptcy Judge.
This matter is before the court on the motion of defendant Fifth Third Bank 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 matter is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (O).
*418PLAINTIFFS’ COMPLAINT
The complaint of plaintiffs/debtors, James M. Hicks and Tina L. Hicks, contains the following allegations:
1) Debtors filed a petition in bankruptcy pursuant to chapter 13 of the Bankruptcy Code on September 28, 1990;
2) The defendant, Fifth Third Bank, was scheduled by the debtors as an unsecured creditor in the amount of $1,833 for a Visa card debt, and the defendant filed a proof of claim for the same amount;
3) A significant portion of the debt owed to the defendant consisted of charges for groceries and goods at Krogers, James M. Hicks’ place of employment;
4) After the debtors filed their petition in bankruptcy, the defendant notified Krogers that it was refusing to honor certain credit card charges (totaling $499.65) incurred at Krogers by James M. Hicks;
5) Subsequently, Mr. Hicks was approached by his employer for payment of $499.65 and is continually “pressured” for payment of that amount;
6) Such conduct on the part of the defendant constitutes a violation of the automatic stay of § 362(a), as well as a willful and malicious violation of the stay.
Plaintiffs/debtors pray for a judgment against the defendant in the amount of $499.65 plus punitive damages in the amount of $2,500 and attorney fees.
DEFENDANT’S ANSWER
As part of its defense, the defendant answers that it “took no action against the debtor or property of the debtor” in contravention of § 362(a). In addition, the defendant asserts that:
This creditor has not committed any act which constitutes an exercise of control over the property of the debtor’s estate pursuant to 11 U.S.C. § 362, because the subject Visa charges totalling $499.65 which creditor charged back to the Kroger account were the property of Kroger’s and not the property of the debtor’s estate (Doc. #3).
MOTION FOR SUMMARY JUDGMENT
Presently before the court is the defendant’s motion for summary judgment, accompanied by the affidavit of Kathy Ferry, who is a recovery manager for the defendant. In her affidavit, Ms. Ferry states that:
1) She is employed with Fifth Third Bank in the capacity of a recovery manager.
2) In her employment capacity she has custody and control of the Visa account of the debtors, James M. Hicks and Tina L. Hicks.
3) On August 25, 1990, she was notified that the debtors’ Fifth Third Visa account ... was placed on the Visa Warning Bulletin pursuant to the National Visa Regulations.
4) According to the Visa regulations ... the fact that the debtors’ account had been placed on the warning bulletin gave rise to Fifth Third Bank’s right to charge back certain amounts charged to the debtors’ Visa account.
5) Subsequently, several charge back request forms were completed between the dates September 4, 1990 and September 24, 1990, requesting that various amounts be charged back to the appropriate bank account maintained by the merchant, Kroger Company.
6) Each charge back request was made prior to the debtors filing their chapter 13 bankruptcy petition, which to the best of affiant’s knowledge and belief occurred on September 28, 1990.
Attached to the affidavit are fourteen copies of separate “Request for Charge-back” forms which list Kroger as the merchant and “Warning Bulletin” as the reason for the chargeback.
The debtors have filed nothing in response to the defendant’s motion for summary judgment.
CONCLUSIONS OF LAW
Summary judgment is appropriate when there is no genuine issue of material fact, and the party moving for summary judgment is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56. For their *419claims to withstand a motion for summary judgment, the plaintiffs must do more than merely rest on their pleadings. Boze v. Branstetter, 912 F.2d 801, 807 (5th Cir.1990). Instead, they must present some “specific facts showing that there is a genuine issue for trial.” Celotex Corporation v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). Here, the plaintiffs haye filed nothing in response to the defendant’s motion for summary judgment, and the court finds that the affidavit of Kathy Ferry establishes the undisputed material facts in this adversary proceeding.
The filing of a petition in bankruptcy operates as a stay against a variety of actions by creditors. 11 U.S.C. § 362(a). Obviously, there is no automatic stay until the petition is filed. Therefore, because it is undisputed that all of the acts of Fifth Third Bank, i.e., the chargebacks to the Kroger account, occurred prior to the debtors’ filing of their bankruptcy petition, the actions of the defendant could not have violated the automatic stay.
For the foregoing reasons judgment will be entered in favor of the defendant. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491366/ | *420DECISION ON ORDER GRANTING SUMMARY JUDGMENT TO HOME FEDERAL SAVINGS BANK
WILLIAM A. CLARK, Bankruptcy Judge.
Before the court are motions for summary judgment filed separately by the defendants, Donald M. Farra and Home Federal Savings Bank. The court has jurisdiction pursuant to 28 U.S.C. § 1334 and the standing order of reference entered in this district. This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(K) — determination of the validity, extent, or priority of liens.
FACTS
Plaintiff/debtor, Zakiyya Hafeez, filed this adversary proceeding against the defendants, Donald M. Farra and Home Federal Savings Bank (“Home Federal”), to determine the priority of two judgment liens on her real estate. Subsequently, the defendants filed stipulations of facts and both moved for summary judgment. The agreed facts are as follows:
1) Defendant Home Federal filed a certificate of judgment against Mahboob Haf-eez and the debtor, Zakiyya Hafeez, with the clerk of the Common Pleas Court of Montgomery County, Ohio, on February 27, 1990, in the amount of $ 38,572. The certificate of judgment, with respect to the debtor, contained the name “Zakiyya Haf-eez”;
2) On April 19, 1990, defendant Donald M. Farra filed a certificate of judgment against Mahboob Hafeez and Zakiyya Haf-eez in the clerk of the Common Pleas Court of Montgomery County, Ohio, in the amount of $ 25,009. Although the promissory notes underlying Mr. Farra’s judgment contained only the signature of Zakiy-ya Hafeez, the certificate of judgment contained the name “Zakiyya Hafeez aka Doris J. Miller”;
3) The debtor had previously obtained a change of name from Doris J. Miller to Zakiyya Hafeez on April 20, 1981, in the Probate Court of Montgomery County, Ohio;
4)The real property, which is the subject of this adversary proceeding, was acquired by the debtor in 1973 and remains titled in the name of Doris J. Miller.
CONCLUSIONS OF LAW
Although Home Federal was the first party to file its certificate of judgment, Mr. Farra takes the position that:
[T]he judgment lien of Home Federal has not attached to any real estate titled in the name of Doris J. Miller since the specific name of Doris J. Miller was not set forth as judgment debtor. For this reason, it is the position of Farra that his judgment lien should be accorded priority since his lien specifically lists Doris J. Miller as judgment debtor and the real estate is titled in that name (Doc. #9).
Mr. Farra also maintains that:
The [Ohio] statute requires that judgment liens be indexed under the name of the judgment debtor in order to validly attach to any real property owned by the judgment debtor (Id.).
The initial inquiry, then, is whether the judgment lien of Home Federal attached to the real estate owned by the debtor. The relevant Ohio statute reads, in part, as follows:
Any judgment or decree rendered by any court of general jurisdiction ... within this state shall be a lien upon lands and tenements of each judgment debtor within any county of this state from the time there is filed in the office of the clerk of the court of common pleas of such county a certificate of such judgment, setting forth the court in which the same was rendered, the title and number of the action, the names of the judgment creditors and judgment debtors, the amount of the judgment and costs, ... the date of rendition of the judgment, and the volume and page of the journal entry thereof.
When any such certificate is delivered to the clerk of the court of common pleas of any county in this state, the same shall be filed by such clerk, and he shall *421docket and index it under the names of the judgment creditors and the judgment debtors in a judgment docket, which shall show as to each judgment all of the matters set forth in such certificate as required by this section....
Ohio Rev.Code § 2329.02.
Upon reading the statute and Ohio case law, the court does not agree with Mr. Farra’s assertion that indexing under the name of the judgment debtor must occur for a lien to validly attach. The statute provides that the judgment is a lien “from the time there is filed in the clerk of the court of common pleas of such county a certification of such judgment....”
The only possible construction that can be drawn from this section is that the judgment becomes a lien from the moment that it is delivered and filed with the clerk, regardless of the time when it is docketed and indexed. Where, as here, there is no intention on the part of the legislature in the first paragraph of R.C. 2329.09 [sic] to make the docketing and indexing a condition to the existence of a lien, the filing alone is sufficient. Maddox v. Astro Investments, 45 Ohio App.2d 203, 207, 343 N.E.2d 133, 136 (Ohio Ct.App.1975) (emphasis in original).
The law in Ohio is quite clear that when a certificate of judgment is filed with the office of the clerk of the court of common pleas, a lien is immediately created upon the lands of the judgment debtor. Tyler Refrigeration Equipment Co. v. Stonick, 3 Ohio App.3d 167, 169, 444 N.E.2d 43, 45 (Ohio Ct.App.1981).
The more difficult question is whether the name of the judgment debtor on the certificate of judgment must be identical to the name on the real estate deed. The statute, above, requires that the “names of the judgment debtors” be set forth on the certificate of title and provides for a lien upon “lands and tenements of each judgment debtor.” Significantly, it does not say that the certificate of judgment will be a lien on all real estate in the name of the debtor; instead, the statute is simply concerned with land and tenements of the debtor. There is nothing in the statute to indicate that the technicalities of record title should be controlling in determining the effect of a certificate of judgment. Nor does the statute require the judgment creditor to affix other names used by a. debtor.
The judgment liens herein were acquired under the provisions of Section 2329.02 et seq., Revised Code. The first of these sections, at all times when these liens were acquired, provided that the judgment should be a lien “upon lands and tenements of each judgment debtor.” Section 2329.03, Revised Code, provides that “lands and tenements of a judgment debtor shall be bound with a lien.” Section 2329.07, Revised Code, dealing with dormancy of judgments, provides that under certain circumstances “such judgment shall be dormant and shall not operate as a lien upon the estate of the judgment debtor.” These statutory provisions confine the judgment lien, in each case, to that which actually belongs to the judgment debtor. There is nothing which extends this lien to that which belongs to anyone else, or to that which appears of record to belong to the judgment debtor. The judgment creditor’s rights are limited to those provided by statute and a judgment creditor’s rights as to a lien on real estate do no rise to those of a bona fide purchaser. Sinclair Refining Co. v. Chaney, 114 Ohio App. 538, 547, 184 N.E.2d 214, 220 (Ohio Ct.App.1961).
There is no dispute that Zakiyya Hafeez is the name of the debtor, that the debtor— by either name — is the owner of the real estate in this proceeding, and that Home Federal complied with the statutory requirement of naming the judgment debtor. This court is of the opinion that Home Federal fulfilled the literal requirements of Ohio Rev.Code § 2329.02 and would be accorded first priority by the Ohio courts unless an equitable reason exists to subordinate Home Federal’s lien to that of Mr. *422Farra.1
A common ground to subordinate the interest of Home Federal would be the subsequent purchase of the property by a bona fide purchaser without knowledge of the true state of affairs. As mentioned above, however, in Ohio “the law is clear that judgment lien creditors are not bona fide purchasers for value.” Basil v. Vincello, 50 Ohio St.3d 185, 190, 553 N.E.2d 602, 607 (Ohio 1990). See also University Associates v. Sterling Finance Co., 37 Ohio App.2d 17, 305 N.E.2d 924 (Ohio Ct.App.1973). Not only does Mr. Farra not possess the status of a bona fide purchaser, there is nothing in the record to indicate he detrimentally relied on the absence of a certificate of judgment in the name of Doris J. Miller (e.g., by advancing funds and taking a mortgage as security) or was misled in some manner. As is evident from his own certificate of judgment, Mr. Farra knew the debtor’s current name. Aside from the timing of the filings, all that differentiates the two certificates of judgment is that one party included the designation “aka Doris Miller.” The court is of the opinion that this extra detail does not legally or equitably provide a sufficient basis to place the lien of Mr. Farra ahead of Home Federal’s lien.
For the foregoing reasons the motion of Home Federal for summary judgment will be sustained and the motion of Donald M. Farra will be denied.
. As part of his argument that Home Federal should "not be rewarded for its failure to properly and exactly identify the judgment debtor,” Mr. Farra cites the unreported case of Fairfield Ready Mix v. Walnut Hills Associates, Ltd., 60 Ohio App.3d 1, 572 N.E.2d 114 (Ohio Ct.App., 1988). Mr. Farra states that:
[T]he court held that a mechanic’s lien must exactly set forth the name of the owner of the property in order to create a lien on that property. Failure to strictly adhere to this statute renders a mechanic’s lien invalid. The same rule should hold true for judgment liens (Doc. #9).
In that case, however, the affidavit for a mechanic’s lien did not set forth an additional name for the property owner. Instead, it listed the name of a completely different entity from the owner of the real estate. Here, there are not two separate entities that could have been named as the judgment debtor, but merely one person who has had two names. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490976/ | ORDER DENYING INTERIM COMPENSATION
LEWIS M. KILLIAN, Jr., Bankruptcy Judge.
This Chapter 11 case is before the Court on the applications for interim compensation filed by the Debtor’s attorneys, accountant, and special counsel. At the May 25, 1989, hearing, the United States Trustee appeared and objected to an award of fees at this time. The parties were orally advised at the close of hearing, the Debt- or’s applications for interim compensation are denied, without prejudice to seek compensation at a later time.
*414This case has proceeded in an irregular fashion. The case was filed on January 8, 1987. On September 30, 1987, the Court ordered the Debtor to file a plan and disclosure statement within sixty days. The plan of reorganization was filed on November 23, 1987, but no disclosure statement was filed until March, 1988. An amended plan of reorganization was also filed in March, 1988. At the hearing on the sufficiency of the disclosure statement in May, 1988, the Debtor was directed to file a supplemental disclosure statement within thirty days.
In July, 1988, a creditor moved to dismiss or to convert the Debtor’s case to one for liquidation under Chapter 7. The motion was heard in September, 1988, at which time the Debtor was allowed an additional forty-five days to file an amended plan and disclosure statement. In November, 1988, the Debtor requested additional time to file his amended plan and disclosure statement. To date, no amended plan and disclosure statement have been filed.
At the May 25, 1989, hearing the United States Trustee objected to any award of fees based on the above chronology — that this case has been pending for over two years and there is s.till no confirmed plan of reorganization. In addition, the Debtor has not filed monthly reports with the Court since June, 1988. Neither the Court nor the creditors can determine the financial status of the debtor, or whether there are any funds available for the payment of any fees awarded.
Section 331 of the Bankruptcy Code provides “[a]fter notice and a hearing, the court may allow and disburse [interim compensation]_” (Emphasis supplied). An award of interim fees is within the court’s discretion.
Due to the continued failure of the Debt- or to follow the Court’s orders and to promptly proceed with reorganization, interim compensation is denied, without prejudice, to make application at a later time.
ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490977/ | MEMORANDUM OF OPINION
LEWIS M. KILLIAN, Jr., Bankruptcy Judge.
THIS MATTER was tried on August 9, 1989, on the complaint of Robert E. Gibson as trustee of this Chapter 7 estate of Christina Ann Banks, the debtor, to avoid an allegedly preferential transfer by the debtor of a lien on an automobile to GMAC. The case was tried on stipulated facts and thus resolution of the issues is based solely on the application of the law to the facts.
This case follows in a string of cases with somewhat similar facts involving automobile purchases by Chapter 7 debtors in which perfection of the purchase money lien occurred within ninety (90) days prior to the debtor filing a Chapter 7 petition for relief. See, In re Perkins, 73 B.R. 317 (Bankr.N.D.Fla.1987); In re Scoviac, 74 B.R. 635 (Bankr.N.D.Fla.1987); In re Wommack, 74 B.R. 638 (Bankr.N.D.Fla.1987); In re Witschy, (unpub. opn), Case No. 88-9010 (Bankr.N.D.Fla.1988); and In re Cleveland, (unpub. opn), Case No. 86-07202 (Bankr.N.D.Fla.1987). While all of these cases have similar patterns, each case has had its own unique factual twist which makes the simple application of the provisions 11 U.S.C. § 547 difficult.
In this case, the debtor Christina Banks, filed her petition for relief under Chapter 7 on November 20, 1987. On August 28, 1987, within ninety (90) days of her petition, the debtor purchased from Bill Thomas Chevrolet a 1987 Chevrolet automobile and took possession of the automobile. At the time of purchase, the debtor executed an installment sales contract whereby she financed the purchase of the vehicle giving a security interest to Bill Thomas Chevrolet, Inc. On September 3, 1987, the installment sales contract was assigned to defendant GMAC.
At the time the automobile was sold to the debtor, Bill Thomas Chevrolet did not have title to it. The title history on the automobile maintained by the Department of Motor Vehicles for the State of Florida reflected that on the date of the purchase, record title to the automobile was in H.R. Bentley Company, Inc. of Orlando and that the automobile was encumbered by a lien in favor of GMAC. Record title was transferred by Bentley to Camaro Enterprises of Tampa, Florida on September 30, 1987. Camaro Enterprises is a licensed automobile dealer under the laws of the State of Florida. On October 5, 1987, the lien of GMAC was satisfied and on October 7, 1987, Camaro Enterprises reassigned the title to Bill Thomas Chevrolet. On October 9, 1987, Bill Thomas Chevrolet assigned title to the automobile to the debtor and pursuant to a power of attorney appointing Bill Thomas Chevrolet as her attorney-in-fact, Bill Thomas Chevrolet executed an application for title by purchaser which also contained a notice of lien, and delivered the documents to the Leon County Tag Agency for processing. Pursuant to Florida Statute § 319.27, receipt of this documentation at the local tag office perfected the lien given by the debtor to GMAC. In re Perkins, supra.
The trustee contends in this action that the delay in perfection of the lien given by the debtor, which perfection was accomplished within ninety (90) days prior to the filing of the petition for relief brings the transfer within the avoidance provisions of § 547 of the Bankruptcy Code as a preferential transfer. General Motors’ position is that the lien given by the debtor Ms. Banks to GMAC and perfected on October 9,1987, *434merely replaced the pre-existing GMAC lien that encumbered the vehicle when Ms. Banks purchased it and .that therefore there was in effect no transfer of an interest at the time of the perfection of the lien given by Ms. Banks.
While the issue of whether the lien of GMAC given by H.R. Bentley Co. survived the sale of the vehicle to Ms. Banks presents a very interesting and somewhat complex question, resolution of that question is not necessary to resolution of this case. Rather, this case involves purely an application of the provisions of § 547 of the Bankruptcy Code to the facts as set forth herein. Section 547(b) of the Bankruptcy Code (11 U.S.C. § 547(b)) provides as follows:
(b) except as provided in subsection (c) of this section, the trustee may avoid any transfer of an interest of the debtor and 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 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 a case under chapter 7 of this title;
(B) the transfer had not been made; and
, (C) such creditor received payment of such debt to the extent provided by the provisions of this title.
In this case the creditor, GMAC, is not an insider and accordingly the ninety (90) days is the applicable time period. Section 547(c) sets forth the exceptions to the trustee’s avoidance power and provides in pertinent part
(c) The trustee may not avoid under this section a transfer—
[[Image here]]
(3) that creates a security interest in property acquired by the debtor—
(A) to the extent such security interest secures new value that was—
(i) given at or after the signing of a security agreement that contains a description of such property as collateral;
(ii) given by or on behalf of the secured party under such agreement;
(iii) given to enable the debtor to acquire such property; and
(iv) in fact used by the debtor to acquire such property; and
(B) that is perfected on or before 10 days after the debtor receives possession of such property;
The transfer of a security interest is made for purposes of § 547(c)(3) is deemed to have been made at the time the transfer takes effect as between the transferor and the transferee if perfection is accomplished within ten (10) days of such transfer, and is deemed to have been made at the time of the transfer if the transfer is perfected after the ten (10) days. Section 547(e)(2).
Under the facts as agreed to by the parties, the debtor Christina Banks took possession of the automobile on August 28, 1987. At that time, she signed a retail installment sales contract thereby obligating herself to pay for the vehicle. The security interest given under the retail installment sales contract secured new value that was given to enable Ms. Banks to acquire the automobile, was in fact used by Ms. Banks to acquire the automobile, was given by her and the security agreement contained a description of the automobile as collateral. The lien given by Ms. Banks was not perfected in accordance with the laws of the State of Florida until October 9, 1987, well past the ten (10) days time period required under § 547(c)(3)(B). Thus, the transfer is not excepted from avoidance by § 547(c). Although GMAC raised in its pleadings that the transfer was also intended by the debtor and creditor to be a contemporaneous exchange for new value thus coming under the exception of § 547(c)(1) *435that provision does not apply to “enabling loans” whereby the security interest is given to secure the purchase price of the collateral. GOWER v. Ford Motor Credit Company, 734 F.2d 604 (11th Cir.1984).
Having determined that the exceptions in § 547(c) do not apply to the transfer, we must now examine the applicability of the avoidance provisions of § 547(b) to the transfer. It is clear that the granting of the lien was to or for the benefit of GMAC, a creditor, and that it was for or on account of the debt created by the debtor’s execution of the installment sales contract prior to the perfection of the lien. Pursuant to § 547(f), the debtor is presumed to have been insolvent on and during the ninety (90) days immediately preceding the date of the petition, and no evidence has been submitted to rebut that presumption. The entire transaction to include the purchase by the debtor of the automobile occurred prior to ninety (90) days before the date of the filing of the debtor’s petition. A review of the Chapter 7 case file of the debtor Ms. Banks indicates that exclusive of any recovery in this action, the trustee has collected only $1094.60 for distribution, against scheduled unsecured claims of $13,-801.00. Accordingly, the transfer of the lien to GMAC clearly would result in GMAC’s receiving more as a result of the transfer than it would otherwise would have received as an unsecured creditor in a Chapter 7.
While GMAC argues that up until October 5,1987, the debtor may have only had a limited interest in the vehicle subject to GMAC’s previous lien, it is beyond question that on October 9, 1987, when the lien in question here was perfected, the debtor’s right in the automobile was completely free of the pre-existing lien. The existence of the previous GMAC lien on the automobile was a completely fortuitous event and had no bearing on the transaction between Bill Thomas Chevrolet and the debtor. Furthermore, it is beyond argument that the debtor was, as of August 28, 1987, obligated to pay the purchase price for the automobile and that she took possession of the automobile on that same day. While avoidance of GMAC’s lien may produce a harsh result, such result is mandated by the clear language of § 547 of the Code. There are no exceptions to cover this particular set of facts which arise due to the dealer selling an automobile for which it had no title documents. In doing so, the dealer and GMAC exposed themselves to the risks associated with delay in transferring title to the purchaser and perfecting the lien. Accordingly, we find that the lien of GMAC is subject to avoidance under the provisions of § 547 of the Bankruptcy Code and any proceeds from the disposition of the automobile shall be remitted to the trustee in bankruptcy.
A separate order in accordance herewith will be entered.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490978/ | ORDER ON MOTION FOR SUMMARY JUDGMENT
ALEXANDER L. PASKAY, Chief Judge.
THIS CAUSE came on for consideration upon Cross-Motions for Summary Judgment filed by T. Roy Jarrett (Defendant), and Robert E. Venney and Jeffrey W. Warren, as co-trustees (Plaintiffs). It is the contention of both parties that no material issues of fact exist as to the Defendant’s claim that he holds a priority position in certain funds resulting from a sale of property of the Debtor-in-Possession and thus, this question may be resolved as a matter of law. The Court has considered the Motion, together with argument of counsel and the record, and finds a chronological summary of the undisputed facts relevant to a resolution of the matter under consideration to be as follows.
The matter in controversy involves the respective priority of mortgages held by *453the Defendant and holders of equal dignity mortgages referred to as “EDM’s” on a parcel of real estate in Broward County, known as the Atlantic Shores Motel.
On February 25, 1985, the Debtor filed its Chapter 11 Petition for Voluntary Relief under Chapter 11 of the Bankruptcy Code, and subsequently, Robert E. Venney and Jeffrey W. Warren were appointed as co-Trustees of Berkley Multi-Units, Inc. On August 19, 1986, the bankruptcy court entered an Order granting co-Trustees’ Motion for Authorization to Sell Property at Auction Sale Free and Clear of Liens, liens to attach to proceeds of sale providing for certain bidding procedures and notices required with respect thereto, providing for determination of fees and costs and setting times for objections to sales and hearing on confirmation of sales. Pursuant to that Order, Warren and Venney as co-Trustees conducted a public auction of the Atlantic Shores Motel. On September 26,1986, this Court entered an Order confirming auction sale of the Atlantic Shores Motel. Pursuant to the sale order, Warren and Venney as co-Trustees consummated a sale on or about December 31, 1986. All liens and encumbrances against the Atlantic Shores Motel that were not paid at closing were transferred to the net proceeds of the sale by order of the Court. The co-Trustees now hold in excess of $148,000 in an interest-earning escrow account representing the net proceeds of the sale.
Prior to October of 1983, Jarrett purchased and was the fee simple owner of that certain land, together with all improvements thereon, known as the Atlantic Shores Motel, described as Lot 15 in Block 19, Lauderdale Beach, according to the plat thereof, recorded in Plat Book 4, Page 2, of the Public Records of Broward County, Florida. On or about October 24, 1983, Jarrett sold the property to Berkley Multi-Units, Inc., a Florida corporation (Debtor), pursuant to the terms of a certain deposit receipt and Contract for Sale and purchase dated October 12, 1983. Pursuant to the Contract, Jarrett financed a portion of the sale of the property by taking back a note dated October 24,1983, in the original principal amount of $175,000 bearing interest at the rate of 10% per annum until paid, and secured by a purchase money mortgage constituting a first mortgage lien on the property (purchase money first mortgage), duly recorded in the Public Records of Broward County, Florida, in Book 11229, at Page 932. In addition, pursuant to the terms of the Contract, Jarrett financed a portion of the sale of the property by taking back a note dated October 24, 1983, in the original principal amount of $125,000, bearing interest at the rate of 12% per annum until paid and secured by a purchase money mortgage constituting a second mortgage lien on the property (purchase money second mortgage), which was duly recorded in the Public Records of Bro-ward County, Florida, in Book 11230, at Page 47. The sale of the property to the Debtor was closed and consummated almost immediately upon the receipt and acceptance by Jarrett of the contract submitted by Michael J. Kessler, president of the Debtor. Suncoast Title of PBC, Inc., filed for reeqrd the warranty deed, purchase money first mortgage, and purchase money second mortgage. A title examination of the property revealed that certain equal dignity mortgages (EDM’s) were recorded immediately after the purchase money first mortgage and immediately before the purchase money second mortgage, but all documents affecting the property were recorded on October 24, 1983, within a few minutes of each other.
The first page of the recorded warranty deed stated the following:
This deed is issued subject to a purchase money first mortgage and a purchase money second mortgage.
The first page of the purchase money first mortgage stated the following:
This is a purchase money first mortgage. This mortgage is given by a mortgagor to the mortgagee in conjunction with and at the same time as the mortgagor has granted to the mortgagee a second mortgage securing the purchase money second note in the amount of $125,000. It is understood and agreed that a default in this first mortgage shall constitute a default in the second mortgage.
*454The purchase money second mortgage provided in pertinent part:
This mortgage may be subordinated to a second mortgage securing an indebtedness not to exceed the sum of 75% of the fair market value of the subject property as established by an appraisal by a MAI real estate appraiser.
On or about September 1986, pursuant to an Order of this Court, Jarrett was paid in full all amounts due and secured under the purchase money first mortgage out of the proceeds of the auction sale of the property. Jarrett contends that the amount due under the purchase money second mortgage as of January -24, 1989, is $203,757, consisting of $125,000 of principal and $78,-750 of accrued interest plus the amount of $41.09589 in interest per day after January 24, 1989, until fully paid, and attorney’s fees and costs. Jarrett argues that the warranty deed and purchase money first mortgage which were recorded prior to the EDM’s contain on their face unequivocal references to the prior existence of the purchase money second mortgage, which by operation of law gave the beneficiaries of all EDM’s constructive notice of the prior existence of the purchase money second mortgage and Jarrett’s' superior lien.
This Court will limit its consideration to the sole question whether Jarrett’s mortgage is superior in right to the EDM’s described previously. Based on the record, this Court is satisfied that no material questions of fact exist as to the question of the respective priorities between Jarrett’s mortgages and the EDM’s and, therefore, this dispute may be resolved as a matter of law. In a nutshell, it is Jarrett’s contention that his mortgage is entitled to first priority position, regardless of the fact that the EDM’s were recorded prior in time based on the fact that the EDM’s had notice of the Plaintiffs’ mortgage due to the rec-ordation of the first purchase money mortgage which was recorded minutes prior to the EDM’s. In opposition is the contention of the EDM’s that they had no notice of this purchase money second mortgage at the time their mortgages were recorded, and, therefore, they should be entitled to a priority position based on the Florida Recording Statutes. Alternatively, Jarrett argues that even if the purchase money second mortgage is to be subordinated to any prior recorded mortgages, that the language of the purchase money second mortgage provides only that the mortgage may be subordinated to a second mortgage securing an indebtedness, and certainly not to all of the EDM’s that may have been recorded. The initial governing provision dealing with priorities of mortgages is Fla. Stat. 695.01(1) (1987) which provides as follows:
No conveyance, transfer, or mortgage of real property ... shall be good and effectual in law or in equity against creditors or subsequent purchasers for valuable consideration and without notice unless the same be recorded according to law. All instruments which are authorized or required to be recorded in the office of the clerk of the circuit court of any county in the State of Florida and which are to be recorded in the official records as provided for under s.28.222 and which are filed for recording on or after the effective date of this Act, shall be deemed to have been officially accepted by said officer and officially recorded at the time he affixed thereon the consecutive official registered numbers required under s.28.226 and at such time shall be noticed to all persons.
Jarrett does not contend that any of the beneficiaries of the EDM’s had actual notice of the existence of the purchase money second mortgage. In fact, none of the beneficiaries of the EDM’s had any knowledge of the property or the transaction between the Debtor and Jarrett. They were only general investors in the Debtor’s various enterprises, and had no idea on which specific properties, if any, liens would be placed to secure their monetary investment. Jarrett argues that under Florida’s recording statutes, the rec-ordation of an instrument, in this case the warranty deed and the purchase money first mortgage, is constructive notice to creditors and subsequent purchasers, not only of its existence and contents, but also of such other facts concerned with the in*455strument as would have been ascertained from the record, if it had been examined and if inquiries suggested by it had been prosecuted.
This Court has had an opportunity to visit an almost identical issue in D’Alfonso v. Vinney, 91 B.R. 150 (M.D.Fla.1988). In the D Alfonso case, this Court recognized that in order to prevail, the last recorded record holder must establish that the EDM’s had at least constructive notice of their claimed interest in the subject property. See Cone Brothers Construction Co. v. Moore, 141 Fla. 420, 193 So. 288 (Fla.1940). The concept of notice in Florida traditionally includes constructive, as well as actual notice, and constructive notice exists when the document has been recorded in the public records. See Leffler v. Smith, 388 So.2d 261 (Fla. 5th DCA 1980). This recordation of a document provides constructive notice of both the document itself and of the facts set forth in the document, provided it contains adequate information giving notice of the interest claimed. Id.
In D Alfonso, this Court held that although technically the assignment which was recorded last provided constructive notice to the EDM’s as to the mortgage, that no court could contemplate the one minute’s difference in recordation time even as “constructive notice of a prior recorded mortgage”. Id. Therefore, based upon the fact that the EDM’s did not have actual or constructive notice of the mortgage, the Court denied the Motion for Summary Judgment. In the present case, the purchase money first mortgage referenced the purchase money second mortgage, but all three mortgages were recorded within moments of each other, just as in the D Alfonso case, and so this Court is satisfied that once again, the EDM’s did not have actual or constructive notice of the prior recorded mortgage and, therefore, because the EDM’s recorded their mortgage prior to Jarrett’s purchase money second mortgage, it must be held to have been recorded prior to the purchase money second mortgage and has priority as a result thereof.
Therefore, based on the fact that the EDM’s recorded their mortgage prior in time to Jarrett’s second mortgage, and because the EDM’s did not have actual or constructive notice of Jarrett’s mortgage, Jarrett’s Motion for Summary Judgment must be denied and the Plaintiff’s Motion for Partial Summary Judgment should be granted.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Defendants’ Motion for Summary Judgment be, and the same is hereby, denied. It is further
ORDERED, ADJUDGED AND DECREED that the Plaintiff’s Motion for Partial Final Summary Judgment be, and the same is hereby, granted.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490979/ | ORDER ON MOTION FOR SUMMARY JUDGMENT
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a liquidating Chapter 11 case, and the matter under consideration is a Motion for Summary Judgment filed by Robert Venney and Jeffrey Warren, co-Trustees of the estate. The Trustees seek a determination by this Court based on undisputed facts the respective priorities of mortgage liens which encumbered the property known as Barbizon Lodge, which has since been sold by the Trustees. Inasmuch as the first mortgage held by John L. Price and Joan C. Price (the Prices) has been paid at closing of the sale, the remaining controversy relates to the respective priorities of six (6) equal dignity mortgagees (EDM’s), reflecting a principal debt of $230,000, claimed to be senior in rank, and a mortgage held by the Prices which, while on its face indicates to be a third mortgage, claims to be senior in rank to the EDM mortgagees by the Prices.
The following facts are not in dispute.
The mortgage of the EDM’s securing a principal debt of $230,000 were recorded in the public records on June 3, 1983, at 11:19 a.m., commencing at O.R. Book 3958, page 1866, and ending at O.R. 3958 at page 1883. The mortgage involved in this controversy, held by the Prices, was recorded on the same date at 11:21 a.m., at O.R. Book 4333, page 1332 to 1872. Edward J. Bond and Wanda B. Bond; Leon A. Menzl and Elizabeth Menzl; Thomas Bothell and Marjorie L. Bothell and David A. Bothell; John R. Gross and Karen Walker; Stanley R. Murray and Joan Murray; Fletcher M. Plymire and Josephine E. Plymire are five of the six EDM holders who filed an answer to the lawsuit.
It is the contention of the co-Trustees and the EDM mortgagees that there are no genuine issues of material fact and this Court should determine and rule as a matter of law that the six EDM’s have a valid second position and the mortgage of the Prices recorded on the same date at 11:21 is in a third position junior in rank to the mortgage of the EDM’s. This proposition, urged by the co-Trustees, is based on the undisputed facts first, that it is without dispute that the EDM’s second mortgage was chronologically recorded before the third mortgage of the Prices was recorded, therefore, pursuant to the recording statute of this State, Fla.Stat. 695.11; second, in any event the mortgage held by the Prices clearly indicates on its face not only that it was intended to be, but, in fact, is a third mortgage; third, it was clearly intended to be subordinate to the mortgage held by the six EDM mortgagees.
Fla.Stat. 695.11 provides, inter alia, that the priority of mortgages shall be determined in the sequence they are recorded and one recorded ahead in a point in time to another shall be held superior to one which is recorded thereafter. In addition, it is the contention of the co-Trustees that the mort*457gage of the Prices, not the original first purchase money mortgage but the mortgage under consideration states on its face first, that it is a third mortgage and second, that it shall be subordinated to the EDM mortgages securing the combined indebtedness of $230,000.
To overcome the obvious, the Prices contend first that when a mortgage involves a purchase money mortgage, the time rec-ordation of the mortgage is not relevant and a purchase money mortgage recorded will always be superior to other mortgages even though those have been recorded pri- or in time to the purchase money mortgage.
In addition, it is the contention of the Prices that notwithstanding the undisputed fact that their mortgage, which clearly indicates on its face that it is a third mortgage, it only provided for subordination if certain conditions precedent had been fulfilled. This proposition in turn is based on a statement in the mortgage which refers to a certain Contract for Sale between the Debt- or and the Prices, the original owners of the Barbizon Lodge. There is nothing on the face of the mortgage held by the Prices which indicates what these conditions precedent are supposed to have been alluded to in the third mortgage of the Prices. The Contract for Sale includes a hand inserted statement in the addendum to the contract to the effect that all monies obtained by the buyer, i.e., the Debtor, will be used by the Debtor to pay for the remodeling of the property or to make payments to the Prices, or to the payment of “costs to subsidize all existing debts” [sic]. Based on these obscure and vague provisions, the Prices contend that since the down payment of $100,000 paid to them came from the holders of the EDM’s, their position should be limited to the down payment of approximately $100,000, and the balance is merely an unsecured obligation.
Considering the respective positions of the parties, this Court is satisfied that in the State of Florida, the priorities of mortgages accompanying the same property are determined by the sequences of rec-ordation, Florida Statute Section 695.01(1) (1987), which provides as follows:
(1) No conveyance, transfer, or mortgage of real property, or of any interest therein, nor any lease for a term of one year or longer, shall be good and effectual in law or equity against creditors or subsequent purchasers for a valuable consideration and without notice, unless the same be recorded according to law; nor shall any such instrument made or executed by virtue of any power of attorney be good or effectual in law or in equity against creditors or subsequent purchasers for a valuable consideration and without notice unless the power of attorney be recorded before the accruing of the right of such creditor or subsequent purchaser.
To support the proposition urged by the Prices that, notwithstanding the Statute, a purchase money mortgage will prevail over even previously recorded mortgages filed subsequently, if any, they cite the cases of County of Pinellas v. Clearwater Federal Savings & Loan Ass’n, 214 So.2d 525 (Fla. 2d DCA 1968); National Title Insurance Co. v. Mercury Builders, Inc., 124 So.2d 132 (Fla. 3d DCA 1960). The case of County of Pinellas v. Clearwater Federal Savings & Loan Ass’n, dealt with the proposition that a welfare lien was subordinate to a purchase money mortgage at the time of the reacquisition of the property. Any reference to the priority of the purchase money mortgage was merely dicta to the effect that purchase money mortgages generally take priority over any and all prior or subsequent liens to the property through the mortgagor.
The Court in County of Pinellas noted that purchase money mortgages are recognized as being superior to claims of dower and homestead as well as to judgment liens and mortgages on after-acquired property. This Court is satisfied that the holding in County of Pinellas has no relevance to the issue under consideration, nor has the dicta any application in this instance. Even assuming, but not admitting, that the proposition urged by the Prices has some merit, this Court is satisfied there is no question that the facts which are undisputed in this *458instance clearly establish that the description of the mortgage held by the Prices leaves no doubt that it was intended to be a third mortgage and is a third mortgage. The fact that it also provided for subordination to the EDM mortgages is an additional support for this conclusion. The argument by the Prices that the reference to the Contract for Sale in the mortgage somehow imposed a limitation on the amount secured by the EDM’s mortgage is equally without merit. The mortgage itself fails to give any indication of any such limitation that it is independent of any provisions in the Contract for Sale. The subordination provision was obviously redundant since, as the mortgage of the Prices states on its face that it is a third mortgage, thus it was totally unnecessary to provide for a subordination to a second mortgage, in this case the mortgage held by the six (6) EDM mortgagees.
It defies logic and common sense to assume that had the Prices intended to secure a position superior to the holders of the EDM mortgages, they would have certainly included the debt owed to them in the first mortgage which they retained upon the sale of the property, the validity of which nobody challenged. This being the case, this Court is satisfied that there are no genuine issues of facts and the matter under consideration can be resolved in favor of the Co-Trustees and the EDM’s.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Partial Motion for Summary Judgment be, and the same is hereby, granted and the encumbrances on the Bar-bizon Lodge are established to be as follows: The first mortgage held by Mr. and Mrs. Price is now satisfied; the second mortgage held by the six (6) EDM’s, Edward J. Bond and Wanda P. Bond; John R. Gross and Karen Walker; Leon A. Menzl and Elizabeth B. Menzl; Stanley R. Murray and Joan Murray; Fletcher M. Plymire and Josephine E. Plymire; Thomas Bothell and Marjorie L. Bothell and David A. Bothell; and the third mortgage held by Mr. and Mrs. Price.
A separate Partial 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/8490981/ | MEMORANDUM AND DECISION ON MOTION TO ASSUME UNEXPIRED LEASE
ALAN H.W. SHIFF, Bankruptcy Judge.
The debtors move under Bankruptcy Code § 365(a) to assume a nonresidential lease. Donald K. Pierce, a prime lessee, objects.
I.
On April 18, 1985, DAC Associates leased a building located at 1275 Post Road, Fairfield, to Pierce for a term of five years with three successive five year options. On May 6, 1988, Pierce and the debtors entered into an agreement (the “Agreement”) under which the debtors purchased the restaurant business on that property for $350,000.00 and gave Pierce a five-year $292,500.00 promissory note (the “note”), secured by restaurant equipment and second mortgages on two pieces of real property. Pierce Memorandum Exhibit A, ¶ 2, at 2. The purchase price was allocated as follows: $50,000.00 for a covenant not to compete; $200,000.00 for equipment, machinery, furniture and leasehold improvements; and $100,000.00 for goodwill. Id. ¶ 14, at 7. The Agreement expressly provided that the debtors would be added as tenants, that Pierce would remain as a tenant until he was paid in full on the note, and that Pierce would waive his right of entry as a tenant so long as the debtors were not in default on the note. Id. ¶ 8.a., at 6. Performance of the Agreement was made contingent on DAC’s consent to the assignment of the lease from Pierce to the debtors.
On May 81,1988, the debtors, Pierce, and DAC executed an “Assignment of Lease” (the “Assignment”) which provided in part:
1. The lessor hereby consents to the addition of the [debtors] ... as additional lessees under said Lease so that the Lessees under the Lease are Donald K. Pierce ... [and the debtors];
2. The [debtors] ... hereby agree to be added to said Lease as lessees and agree to be bound by its terms;
3. Said [debtors] ... agree to perform all the terms, covenants and conditions of said Lease upon the part of the Assignor therein named to be performed and to save said Assignor harmless thereon;
*5774. The Assignor hereby assigns said Lease to the [debtors] ... conditioned upon payment by [debtors] ... to Assignor of a promissory note dated May 18, 1988 in the principal amount of $292,-500 which note is due, if not paid sooner, on May 18, 1993.
The Assignor shall provide the Lessor with a certification that said note has been paid in full. Upon receipt of said certification, the assignment shall be deemed effective provided that this lease shall then be in full force and effect and the Assignor and debtors ... shall have fully performed all of its terms and conditions.
[[Image here]]
6. The Assignor does hereby remise, release and forever discharge the Lessor from all manner of action and actions, cause, causes of action, suits, debts and claims and demands whatsoever that the said Assignor had or may have now or in the future against the Lessor, provided this assignment to said [debtors] ... becomes effective.
7. Lessor consents and agrees that the Assignor shall be released from the terms, provisions, rights and objections under said Lease when said assignment becomes effective.
Pierce Memorandum Exhibit B, ¶¶ 1-4, 6-7, at 2-3.
By a letter dated October 19, 1988, DAC notified the debtors and Pierce that they were in default under the lease for nonpayment of rent. Pierce Memorandum Exhibits C and D. On November 29, 1988, Pierce served a notice to quit upon the debtors, Pierce Memorandum Exhibit G, who thereafter cured the rent arrearages but have made no payments on the note since September, 1988. On December 19, 1988, the debtors filed a petition under chapter 11. On January 26, 1989, they filed the instant motion.
II.
A.
The debtors motion to assume the lease is premised upon the assertion that the Assignment was correctly labeled and in fact assigned the lease from Pierce to them and that therefore a cure of the default on the note is not a condition precedent to assumption under § 365. Pierce, on the other hand, contends that the effect of the Assignment was the creation of a sublease because he conveyed less than his entire interest for the unexpired term of the lease by reserving the right to enter upon default on the note and because he remained on the lease as DAC’s lessee, thereby retaining a privity of estate with DAC rather than mere privity of contract.1 Thus, Pierce argues that the debtors may not assume the lease without also assuming the “sublease”, which under § 365(b) requires that they cure the default on the note.2 The issue raised by Pierce’s objection requires a determination of whether the debtors’ tenancy was derived from an assignment or a sublease.
Bankruptcy Code § 365 provides in part:
(a) Except as provided ... in subsections (b), (c), and (d) of this section, the trustee, subject to the court’s approval, may assume or reject any ... unexpired lease of the debtor.
(b)(1) If there has been a default in an ... unexpired lease of the debtor, the trustee may not assume such ... lease unless, at the time of assumption of such ... lease, the trustee—
*578(A) cures, or provides adequate assurance that the trustee will promptly cure, such default;
(B) compensates, or provides adequate assurance that the trustee will promptly compensate, a party other than the debtor to such ... lease, for any actual pecuniary loss to such party resulting from such default; and
(C) provides adequate assurance of future performance under such ... lease.
In the absence of a conflicting federal interest, federal courts look to state law which creates and defines property rights. Butner v. United States, 440 U.S. 48, 54-55, 99 S.Ct. 914, 917-18, 59 L.Ed.2d 136 (1979). In Rocklen v. Radulesco, Inc., 10 Conn.App. 271, 274-75, 522 A.2d 846 (1987), the Connecticut Appellate Court stated:
The basic distinction between an assignment and a sublease is that by the former, the lessee conveys his whole interest in the unexpired term, leaving no reversion in himself; the latter transfers only a part of the leased premises for a period less than the original term. Contrary to Radulesco’s claim, a mere reservation of the right of entry on default does not constitute retention of a rever-sionary interest.
(Citations omitted).3 A reversion is an absolute right of possession in the transferor for a period of time after the expiration of the transferee’s interest, not a contingent right or possibility of possession. Berkeley Dev. Co. v. The Great Atl. & Pac. Tea Co., 214 N.J.Super. 227, 518 A.2d 790, 795 (Ct.Law Div.1986); R. Schoshinski, American Law of Landlord and Tenant 118.12, at 556-57 (1980).4
Contrary to Pierce’s assertions, the Assignment did convey his entire interest for the entire term of the lease. Pierce’s right of entry upon the debtors’ default on the note does not disturb that conclusion. Rocklen, supra, 10 Conn.App. at 274-75, 522 A.2d 846. Pierce’s argument that his status as a “lessee” put him in privity of estate with DAC and therefore established a sublease is also unsupported by the Assignment. To the contrary, the Assignment specifies that the debtors agreed to perform all of the lease covenants, and they did in fact pay the rent directly to DAC, so that privity of estate was established between the debtors and DAC. I further find that the language which specified that Pierce and DAC were to exchange mutual releases when the debtors paid the note referred to a release of contractual rights. That provision recognized that Pierce and DAC were to remain in contractual rather than estate privity.
B.
Pierce makes to alternative arguments in support of his objection. Relying on Bistrian v. Easthampton Sand & Gravel Co., Inc. (Matter of Easthampton Sand & Gravel Co., Inc.), 25 B.R. 193 (1982), he contends that the lease was intended as security for the note. In Bistrian, a creditor sold its business and leased the property where it was located to the debtor. The *579lease was assigned a specific value in the transaction, and payment on a note was made a specific condition of the lease. The court found that default on the note was also a default on the lease and that the parties intended that the lease would secure the note. In the instant case, the note was secured by other property. No value was assigned to the lease. Pierce Memorandum Exhibit A, II2, at 2.
Pierce also unsuccessfully argues that the Assignment is an executory contract and that the debtors must cure the defaults on the note as a condition precedent to its assumption. However, whether or not the Assignment is an executory contract, the debtors do not propose to assume it. Rather, they seek to assume the lease with DAC.
III.
For the foregoing reasons, Pierce’s objection to assumption of the lease is overruled, the debtors’ motion to assume is granted,5 and IT IS SO ORDERED.
. During occupancy of the premises, a lessee holds both privity of estate and of contract. An assignment of the lease divests a lessee of privity of estate and creates that relationship between the lessor and the assignee, so that the lessor has a right of action directly against the assignee on the covenant to pay rent and other covenants which run with the land. See Kostakes v. Daly, 246 Minn. 312, 75 N.W.2d 191 (1956); Davidson v. Minnesota Loan & Trust Co., 197 N.W. 833 (Minn.1924); 49 Am.Jur.2d § 397, at 415 (1970); R. Schoshinski, American Law of Landlord and Tenant ¶ 8.12, 559-68 (1980).
. It is assumed that Pierce equates performance under the Agreement with an obligation under an alleged sublease and that failure to make payments on the note constitutes a default under the sublease.
. See also R. Cunningham, W. Stoebuck & D. Whitman, The Law of Real Property ¶ 6.66, at 382 (1984):
With an assignment the tenant transfers the right of possession to all or part of the premises for the full time remaining on the term. With a sublease the tenant transfers the right of possession to all or part of the premises for a time, be it 10 years or a day, less than the full time remaining.
. A minority view holds that the reservation of a right of entry for default creates a sublease. See, e.g., Kendall v. Ernest Pestana, Inc., 40 Cal.3d 488, 220 Cal.Rptr. 818, 709 P.2d 837, 839 (1985); Novosad v. Clary, 431 S.W.2d 422, 426 (Tex.Civ.App.1968); Lebel v. Backman, 342 Mass. 759, 175 N.E.2d 362 (1961). A few states also look to the intent of the parties in determining whether a transfer is an assignment or a sublease. See, e.g., Castle v. Double Time, Inc., 737 P.2d 900, 902-03 (Okla.1986); First Am. Nat’l Bank v. Chicken Sys. of Am., Inc., 510 S.W.2d 906, 908 (Tenn.1974); Jaber v. Miller, 219 Ark. 59, 239 S.W.2d 760, 764 (1951). However, as Rocklen makes clear, Connecticut courts do not look to the intent of the parties, but instead determine whether the transferor’s entire interest is transferred. See also Joseph Bros. Co. v. F.W. Woolworth Co., 844 F.2d 369, 372 (6th Cir.1988); Thomas v. United States, 205 Ct.Cl. 623, 505 F.2d 1282, 1286-87 (1974); Haynes v. Eagle-Picker Co., 295 F.2d 761, 763 (10th Cir.1961), cert. denied, 369 U.S. 828, 82 S.Ct. 846, 7 L.Ed.2d 794 (1962).
. This decision does not consider whether any right that Pierce has to enter will survive any | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490982/ | MEMORANDUM OPINION AND ORDER
HELEN S. BALICK, Bankruptcy Judge.
Gates Engineering Co., Inc. is a debtor-in-possession having filed a Chapter 11 case on January 25,1989. On February 21, Gates sued International Fidelity Insurance Company (IFIC) for $182,670.27. Gates seeks to recover this sum under performance bonds that IFIC issued to Great Western Roofing, Inc. (GWR). GWR was a roofing' contractor that entered into contracts with the United States of America. Gates supplied the materials GWR installed on the following government projects:
I. Naval Air Station Building 964 Jacksonville, Florida
*656II. Pensacola Naval Air Depot Houston, Texas
III. Naval Air Station Building 769 Mill-ington (Memphis), Tennessee
GWR was adjudicated a bankrupt before any payment was made to Gates.
IFIC moved to dismiss Gates’ complaint on the following grounds:
1. The action is barred by the statute of limitations.
2. This court lacks subject matter jurisdiction.
3. Gates failed to properly plead as required by 40 U.S.C. § 270b(b).
Although the parties subsequently filed affidavits and briefed the motion as one for summary judgment, this court may not dispose of the merits as it lacks subject matter jurisdiction.
The parties agree that this is a Miller Act case and that the district courts have exclusive jurisdiction. They differ as to which district court. It is IFIC’s position that § 270b(b) of title 40, United States Code, requires such actions to be brought in the United States District Court for the district in which the contract was to be performed and executed and not elsewhere.
Gates argues that this restriction is overcome as to it, a Chapter 11 debtor, under the venue provisions of § 1409(a) of title 28, United States Code, which provides that a matter related to a bankruptcy case may be commenced in the district court in which such case is pending. Gates contends that the Delaware bankruptcy court is the appropriate forum. It relies upon 28 U.S.C. § 1334(b) and the District Court’s order of July 23, 1984 issued pursuant to 28 U.S.C. § 157(a) which referred all cases and all proceedings in bankruptcy matters to this court.
IFIC counters that even if the District Court of Delaware is an appropriate forum, the bankruptcy court lacks jurisdiction because the proceeding is subject to mandatory withdrawal under § 157(d). While the proceeding may be subject to withdrawal, it is so only upon timely motion of a party. Absent such a motion, it appears that this court may reach the merits. Despite the broad language of the statute conferring bankruptcy jurisdiction in district courts and the order of referral, this is not so.
Congress in the Miller Act conferred jurisdiction “in the United States District Court for any district in which the contract was to be performed and executed and not elsewhere.” The unequivocal phrase “and not elsewhere” amounts to exclusive, not permissible, venue and is a jurisdictional requirement. United States v. Roscoe-Ajax Constr. Co., 246 F.Supp. 439, 442-43 (D.N.D.Cal.,S.D.1965).
Congress in conferring jurisdiction of civil proceedings relating to bankruptcy cases said:
Notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts, the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11. 28 U.S.C. § 1334(b)
Congress negated its grants of exclusive jurisdiction to courts other than the district courts. It did not negate any Act which confers exclusive jurisdiction in a specific district court.
There is no ambiguity nor contradiction in the language of the two statutes. Such being the case, IFIC’s motion to dismiss must be granted for lack of subject matter jurisdiction. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490983/ | ORDER ON MOTION OF CERTAIN DEFENDANTS FOR REFERENCE TO INTERSTATE COMMERCE COMMISSION
DONALD E. CALHOUN, Jr., Bankruptcy Judge.
This cause came on for consideration upon the Motion of Certain Defendants for Transfer and Reference of Issues to the Interstate Commerce Commission and for Stay of Adversary Proceeding, and for other relief. The Motion for Reference is combined with four other Motions seeking various types of relief, including severance, dismissal, and determination that this is a non-core proceeding. However, only the Motion for Reference shall be considered here. The other aspects of the Motion shall be resolved by separate Order. This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and the General Order of Reference entered in this District.
The moving Defendants (collectively “the Defendants”) are from each of the above-captioned adversary proceedings as follows:
Adv. No. 2-87-0071 Coats & Clark Sales Corp.
Adv. No. 2-87-0077 Hydrotex, Inc.
Adv. No. 2-87-0081 Nudo Products, Inc. Murray Industries, Inc. National Metals Company National Potteries 1 North American Enterprises
Adv. No. 2-87-0087 Western Mining Corp. Western Publishing Co., Inc.
The Plaintiff, Frederick M. Luper, Trustee for Debtor Lee Way Holding Company (“the Plaintiff” or “the Trustee”), filed these adversary proceedings against numerous defendants, including the moving Defendants, under the Interstate Commerce Act, 49 U.S.C. § 10101, et seq., seeking to collect accounts receivable allegedly due the bankruptcy estate. These receivables consist of undercharges allegedly resulting from differences between amounts actually paid to the Debtor for freight shipments in which each Defendant was a liable party, and the amounts which should have been paid pursuant to the tariffs lawfully on file with the Interstate Commerce Commission (“ICC” or “the Commission”). The Defendants collectively answered the Plaintiff’s Complaint and asserted numerous affirmative defenses, including (a) the rates underlying the charges are not the legally applicable rate; (b) tariff publication error, misrepresentation or mistake by the Plaintiffs, which constitute unreasonable practices; (c) the rates are unreasonably high; (d) waiver; (e) fraud; (f) set-off; (g) laches; *879and (h) accord and satisfaction. The mov-ants seek referral of the issues to the Interstate Commerce Commission under the doctrine of primary jurisdiction.
When the Court is faced with an issue which calls into question an area of special expertise of an agency, the doctrine of primary jurisdiction allows the Court to suspend proceedings pending referral of the issue to the agency for its official position. The doctrine applies whenever enforcement of the claim requires resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body. In Far East Conference v. The United States, 342 U.S. 570, 72 S.Ct. 492, 96 L.Ed. 576 (1952), the Supreme Court explained the use of primary jurisdiction as follows:
[I]n cases raising issues of fact not within the conventional experience of judges or cases requiring the exercise of administrative discretion, agencies created by Congress for regulating the subject matter should not be passed over. This is so even though the facts after they have been appraised by specialized competence serve as the premise for legal consequences to be judicially defined. Uniformity and consistency in the regulation of business entrusted to a particular agency are secured, and the limited functions of review by the judiciary are more rationally exercised, by preliminary resort for ascertaining and interpreting the circumstances underlying legal issues to agencies that are better equipped than courts by specialization, by insight gained through experience, and by more flexible procedure.
342 U.S. at 574-75, 72 S.Ct. at 494, 96 L.Ed. at 582.
The Plaintiff argues that under the “filed rate doctrine” a carrier is required to charge and the shipper is required to pay the rate in the carrier’s tariff filed with the ICC. No deviation from the filed rate is permitted. The Court need only refer to the tariff to determine the amount of the Defendant’s indebtedness; thus no special expertise of the ICC is needed to resolve the dispute and referral is unnecessary.
The filed rate doctrine is based upon 49 U.S.C. § 10761(a) which provides that:
A carrier providing transportation or service subject to the jurisdiction of the Interstate Commerce Commission ... shall provide that transportation or service only if the rate for the transportation or service is contained in a tariff that is in effect under this subchapter. That carrier may not charge or receive a different compensation for that transportation or service than the rate specified in the tariff whether by returning a part of that rate to a person, giving a person a privilege, allowing the use of a facility that effects the value of that transportation or service, or another device.
The provision has been strictly construed, beginning with Louisville and Nashville R.R. v. Maxwell, 237 U.S. 94, 35 S.Ct. 494, 59 L.Ed. 853 (1915). Maxwell held, in short, that shippers who are charged less than the applicable tariff may be forced to pay the difference between the rate actually charged and the carrier’s published rate. Even an intentional misquotation by the carrier will not relieve the shipper/customer from payment of the full obligation. Maxwell, 237 U.S. at 97, 35 S.Ct. at 495. As explained by Justice Hughes:
Under the Interstate Commerce Act, the rate of a carrier duly filed is the only lawful charge. Deviation from it is not permitted upon any pretext. Shippers and travelers are charged with notice of it, and they as well as the carrier must abide by it_ Ignorance or misquotation of rates is not an excuse for paying or charging either less or more than the rate filed. This rule is undeniably strict, and it may work hardship in some cases, but it embodies the policy which has been adopted by Congress in regulation of interstate commerce in order to prevent unjust discrimination. (Emphasis added.)
Maxwell, 237 U.S. at 97, 35 S.Ct. at 495, 59 L.Ed. at 853. Maxwell and its progeny have led the ICC and the lower courts to refuse consideration of equitable defenses in suits by carriers to collect undercharges, until recently.
*880The Defendants argue that the Motor Carrier Act passed by Congress in 1980, which substantially deregulated the trucking industry, warrants reconsideration of the filed rate doctrine. However, Congress did not amend § 10761 and, in an analogous situation, the Supreme Court has refused to give an expansive reading to the Motor Carrier Act. See, Square D Company v. Niagara Frontier Tariff Bureau, 476 U.S. 409, 106 S.Ct.1922, 90 L.Ed.2d 413 (1986). In Square D, the plaintiffs asserted that the Keough doctrine had been impliedly repealed by the Motor Carrier Act and argued that allowing antitrust actions would promote the purposes of the Act. The Supreme Court, however, refused to read into the Act an implied repeal of the Keough doctrine, stating that:
... Congress must be presumed to have been fully cognizant of this interpretation of the statutory scheme, which has been a significant part of our settled law for over half a century and that Congress did not see fit to change it when Congress carefully reexamined this area of the law in 1980.
Square D, 106 S.Ct. at 1928 (Footnote omitted). The Fifth Circuit Court of Appeals has so held in a case involving collection of undercharges. Supreme Beef Processors, Inc. v. Yaquinto (Matter of Caravan Refrigerated Cargo, Inc.), 864 F.2d 388 (5th Cir.1989).
The Defendants also point to National Industrial Transportation League—Petition to Institute Rule Making on Negotiated Motor Common Carrier Rates, Ex Parte No. MC-177, 3 I.C.C.2d 99, 1986 Fed.Carr.Cas. (CCH) ¶ 37,284 (October 4, 1986), in which the ICC has reversed its previous position regarding equitable defenses. In National Industrial Transportation League (“NITL”), the Commission expressed its decision to allow consideration of equitable defenses in disputes before the ICC regarding reasonableness of practice. However, the ICC’s change in policy as illustrated by NITL, is not binding upon this Court. However good the intentions of the ICC may be, the ICC cannot legislate to change existing law. That law presently requires that this Court apply the fixed rate doctrine as enunciated by 49 U.S.C. § 10761 and the Maxwell decision by the Supreme Court. The discussion by the ICC in NITL did not and cannot usurp the legislative duties of Congress. See, Supreme Beef, supra.
Numerous cases have been cited by each party in support of their respective positions. In fact, it is difficult to reconcile the decisions of the various courts. It appears to this Court that there lies a distinction between reasonableness of the published tariff and reasonableness in practices of the carrier and/or collection of the published tariff. While both may be within the primary jurisdiction of the ICC, reasonableness of a carrier’s practices or reasonableness of collection of the published tariff (i.e. undercharges), are not factors which can be considered by the Court within the context of the Plaintiff's claim. See, Supreme Beef, supra. As set forth in Maxwell, supra, and other cases cited above, equitable considerations cannot be considered. See also, Farley Transportation Company, Inc. v. Santa Fe Trail Transportation Company, 778 F.2d 1365 (9th Cir.1985); Western Transportation Company v. Wilson & Company, Inc., 682 F.2d 1227 (7th Cir.1982); Delta Traffic Service, Inc. v. The Sun Chemical Dispersions Division, 1988 Fed.Carr.Cas. (CCH) 1183, 415 (S.D.Ohio Sept. 14, 1988); Delta Traffic Service, Inc. v. E.L. Mustee & Sons, 1988 Fed.Carr.Cas. (CCH) 1183, 407 (N.D.Ohio May 12, 1988). Not all courts which have considered the issue have recognized the issue of reasonableness of the tariff as basis for referral to the ICC. However, the Supreme Court specifically stated in Maxwell, supra, that shippers as well as the carrier must abide by the published rate “unless it is found by the Commission to be unreasonable.” Maxwell, 237 U.S. at 97, 35 S.Ct. at 495. See also, Western Transportation Company, 682 F.2d 1227, 1231.
The Defendants raised the reasonableness of the rates as well as other affirmative defenses in their Answer. Specifically, in their First Affirmative Defense *881they raise the issue of whether the Plaintiffs are charging the legally applicable rate. In their Third and Fourth Affirmative Defenses, the Defendants raise reasonableness of the rate for the services rendered by Lee Way. In their 19th Affirmative Defense, Defendants assert that Lee Way was a motor contract carrier rather than a common carrier service and therefore the filed rate doctrine is not applicable. It appears that under the doctrine of primary jurisdiction, these issues may be more appropriately addressed by the ICC. However, this Court shall refer to the ICC only those aspects of the case. As the ICC recognized, it is without jurisdiction to waive undercharges. NITL, supra. Furthermore, even if the ICC were to determine equitable defenses were warranted, this Court must follow established precedent, which does not recognize equitable defenses. Upon decision by the ICC, this matter shall be subject to final disposition by this court pursuant to 28 U.S.C. § 1334, § 1336(b) and § 157.
Finally, the Court is concerned about potential delay in this case by virtue of this Order. The Trustee has advised the Court that issues referred to the ICC have substantially delayed litigation in the referring court, in some instances up to two years passing without resolution. In light of the Court’s interest in prompt resolution of issues and expeditious administration of this estate, Defendants will be required to commence procedures before the ICC within fifteen (15) days of the date of entry of this Order. Upon commencement of the procedures before the ICC, counsel for the Defendants shall file a notice of same in this case, attaching a copy of the petition or such other documentation as is used to commence procedures. Should the Defendants wish to certify all or a portion of the record before this Court to the ICC, Defendants shall file a designation of the items to be included in the record to the ICC within ten (10) days of the date of entry of this Order.
In accordance with the foregoing, it is
Ordered that the Motion of Certain Defendants for Transfer and Reference of Issues to the Interstate Commerce Commission and for Stay of Adversary Proceeding is granted. This Court hereby refers to the ICC the issue of (a) the reasonableness of rates charged by the Plaintiff for services rendered by Lee Way Holding Company, and (b) whether Lee Way Holding Company is subject to the published rates as a motor common carrier service. Upon resolution by the ICC, the ICC shall forward a copy of its Order to this Court. This adversary proceeding is stayed as to the moving Defendants until entry of the Order by the ICC, or until further Order of this Court. It is further
Ordered that the Defendants shall commence procedures before the ICC within fifteen (15) days of the date of entry of this Order, and shall contemporaneously file a notice of same with this Court. In the event that Defendants wish to certify a portion of this record to the ICC, Defendants shall file a designation of the items to be referred to the ICC within ten (10) days of the date of entry of this Order.
IT IS SO ORDERED.
. Nissan Motor Corp. was also a moving Defendant; however, judgment was entered against Nissan in the amount of $1217.43 on June 5, 1989. Therefore, the Motion is moot as to Nissan. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490984/ | DECISION AND ORDER GRANTING (UPON RECONSIDERATION) DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
WILLIAM A. CLARK, Bankruptcy Judge.
Before the court is a motion of defendant, Fre, Inc. for the court to reconsider *16its order of December 5, 1988, 95 B.R. 68,1 which denied motions for summary judgment filed by both the plaintiff and the defendant. 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)(H).
In this adversary proceeding the trustee in bankruptcy for the bankruptcy estate of debtor Lelia Y. Jackson seeks to avoid an alleged transfer of a ring by the debtor to defendant Fre, Inc. as a fraudulent transfer under section 548 of the Bankruptcy Code.2 In its previous order, this court— by way of a preliminary analysis of the law — expressed its view that the trustee faced a difficult burden in proving that the debtor ever had an interest in the ring of her late husband. The court accepted further memoranda of law on the issue of the debtor’s interest in the ring under Ohio law and is persuaded that the trustee is unable to demonstrate that the debtor transferred an interest in the ring to the defendant.
In its earlier decision, the court noted that under Ohio law administration of a decedent’s estate is generally a prerequisite to the devolution of the personal estate of the decedent. In his latest memorandum of law, the trustee concludes that the debtor inherited her late husband’s right to redeem the ring from the defendant, because the estate of the debtor’s husband was under $25,000 and could have been relieved from administration and distribution made to the debtor. The court need not consider the effect of the state’s relief from administration procedures upon the passing of interests in personal property, because there is no representation here that the estate of the debtor’s husband was in fact relieved from administration or any indication that such a proceeding will ever be initiated.
At the time the debtor authorized the forfeiture of her husband’s ring, any “interest” she had in the ring or in a redemption of the ring was derivative of any interest she may have had in her husband’s estate. She had no direct interest in the ring, and, despite being afforded an opportunity by the defendant to redeem the ring, no authority has been provided to support a conclusion that she had a legal right, independent of the rights of her husband’s estate, to redeem the ring. Any claim for an inappropriate disposition of the ring belongs in the first instance to the estate of the debtor’s husband. The relief sought by the trustee in bankruptcy would bypass the functions of the state probate court and ignore the fact that the debtor’s rights are to any “net” proceeds from her husband’s estate, i.e. after payment of his creditors and administrative expenses.
An essential element in a fraudulent transfer action is that the debtor had an interest in the property transferred. 11 U.S.C. § 548(a). Under the facts of this case and applicable law, it is clear that the trustee in bankruptcy is not able to carry his burden of proof with respect to this element and, therefore, it is appropriate to grant summary judgment to the opposing party lender Fed.R.Civ.P. 56:
[T]he 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 the 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 nonmov-ing 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 re*17spect to which she has the burden of proof.
Celotex Corporation v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 2552-2553, 91 L.Ed.2d 265 (1986). This adversary proceeding has been pending before the bankruptcy court for over a year, but no evidence has been presented to substantiate the trustee’s claim that the debtor had any interest in the ring forfeited to the defendant.
For the foregoing reasons it is hereby ORDERED that Defendant’s motion for summary judgment is GRANTED. The motions of Defendant to strike certain matter in plaintiff’s motion and affidavit for summary judgment, (Doc. 20) for leave to amend answer (Doc. 22) and for a definite statement (Doc. 28) are rendered moot by this order.
. The previous opinion is incorporated into this opinion for purposes of stating the facts and explaining more fully the underlying law pertaining to this adversary proceeding.
. The trustee continues to assert that a preferential transfer occurred, but has never provided any material indicating that there was ever "an antecedent debt owed by the debtor before such transfer was made” as required by section 547(b)(2) of the Bankruptcy Code. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490985/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS is a Chapter 11 case and the matter under consideration is a Motion for Summary Judgment filed by G. Dale Murray and Susan Murray, his wife (Murrays), two of the named Defendants in the above-captioned adversary proceeding. The adversary proceeding is filed by Murray Industries, Inc. (Debtor). The Amended Complaint seeks an injunction seeking to prohibit Norwest Bank Minneapolis, NA., as Trustee of the Murray Industries, Inc., Retirement and Savings Plan Trust (Bank) not to make any disbursement from the corpus of a trust either to G. Dale Murray or to his wife, Susan Murray. The Complaint also seeks a permanent injunction after a judicial determination that the corpus of the trust involved in this litigation is property of the estate. In the alternative, the Debtor contends that it is entitled to garnish, attach or otherwise appropriate the funds currently held by the Bank as Trustee to satisfy the several claims of the Debt- or against G. Dale Murray.
In due course, all the Defendants filed their respective Answers. In addition, the Bank also filed a counter-and crossclaim. The answer to the Amended Complaint filed by the Murrays, in addition to a general denial stated in the nature of affirmative defenses, 1) that the Amended Complaint failed to state a cause of action; 2) that this Court lacks subject matter jurisdiction; and, 3) the Amended Complaint attempts to subject the corpus of the trust to the claims of the Debtor which, even if found to be valid, cannot be recovered to satisfy these claims simply because under the law of this State, by virtue of Fla.Stat. § 222.21, these claims are exempt.
The immediate matters under consideration are two Motions for Summary Judgment, one filed by the Murrays and the other by the Bank. Both Defendants contend that there are no genuine issues of material fact and the matter can be resolved in their respective favors as a matter of law. The Motion of the Murrays is supported by an affidavit filed by G. Dale Murray. The Motion for Summary Judgment filed by the Bank is also accompanied by an affidavit of Joyce L. Tray nor. In opposition of the Motions, the Debtor filed two affidavits, one by Bill Batastini, vice-president of the Debtor and the other by Kathleen Durden, an independent contractor retained by the Debtor.
In order to put this matter under consideration in the proper focus, it would be helpful to recite the facts which are indeed without dispute which appear from the record and which are as follows:
G. Dale Murray, one of the two Defendants, was at the time relevant to this controversy chairman of the board and president of Murray Industries, Inc., the Debtor. During his employment, the Debt- or established a retirement savings plan for the employees pursuant to 26 U.S.C. § 401, et seq. (ERISA Plan), a restatement of which became effective December 1, 1983, (Exh. No. 1) The Plan contains certain specific provisions designed to comply with the requirements of ERISA. It is without dispute the ERISA Plan set up by the Debtor did qualify under the Statute § 401(a) of the Internal Revenue Code of 1986 as amended. The Plan provides, inter alia, that the funds are to be placed in two different accounts, the contribution by the employers in the Employees’ Deferral Account and the contribution to the fund by *98the Debtor in the Company Contribution Account. The funds placed in these accounts are now held by the other Defendant, the Bank, who is acting as Trustee in charge of the administration of the Plan. G.D. Murray, as an employee of the Debt- or, participated in the Plan. Susan Murray, the spouse of G. Dale Murray, while never employed by the Debtor, is named as a beneficiary of the Plan (Paragraph 2.4 of Exhibit No. 1) Section 3.4(c) of the Plan provides that Susan Murray’s benefits will be paid to her in the form of a joint and survivor annuity unless she consents to a different form of distribution. Pursuant to § 3.3 of the Plan, all participating employees under the Plan are entitled to elect to defer from 1% to 5% of their compensation, which deferred compensation is deposited in the Employee Deferral Account. Section 3.6 of the Plan provides that the Debtor also contribute monies which are deposited in the Company Contribution Account for the benefit of each participant in the Plan. Pursuant to § 6.2 of the Plan, a participant under the Plan is entitled to receive the fair market value of his or her share in the Employee Deferral Account and his vested interest in the Company Contribution Account if the participant’s employment terminated prior to the date the participant would be entitled to receive a retirement benefit.
It is without dispute that the employment of Murray was terminated in August 1988, thus, pursuant to the applicable provisions of the Plan, the Murrays are entitled to have immediate access to the funds in the ERISA accounts maintained by the Bank.
In opposition to the Motion for Summary Judgment filed by the Murrays, the Debtor filed two affidavits. Both of these Affidavits set forth allegations that G. Dale Murray defrauded the Debtor and is guilty of defalcation while he was in charge of the affairs of the Debtor in the sum of in excess of five million dollars. According to the Debtor, these allegations alone would be sufficient to create a factual issue which, of course, would prevent the disposition of the matter in controversy, as a matter of law in favor of Murray by a summary judgment (citing, St. Paul Fire & Marine Insurance Co. v. Cox, 752 F.2d 550 (11th Cir.1985)).
Based on the foregoing facts, it is the contention of the Defendants, the Murrays, that they are entitled to a judgment in their favor dismissing the Complaint filed by the Debtor with prejudice. In opposing the position of the Debtor, the Murrays contend that the funds in the ERISA Plan are exempt by virtue of Chapter 222.21 Fla. Stat., which created a new exemption available to the citizens of this State. Relying on this Statute, the Murrays contend that even if one accepts the proposition that these monies are properties of the estate, they cannot be seized to satisfy any claim that the Debtor has against them, validity of which they vigorously challenge. In the alternative, the Murrays contend that even if they are not exempt and they may be impressed by a constructive trust in favor of the Debtor and against the Murrays, the claims of the Debtor have yet to be established and there is no present right to the injunctive relief sought by the Debtor.
It should be noted at the outset that it is without dispute that Susan Murray, the wife of G. Dale Murray, one of the Defendants named in the adversary proceeding, had absolutely nothing to do and has never been involved in any of the affairs of the Debtor. There is nothing in this record to indicate that she was ever an officer or director and there is no allegation in the Amended Complaint which even remotely suggests that Susan Murray is guilty of any wrongdoing. Thus, even accepting the proposition urged by the Debt- or, it is clear that no injunctive relief would be appropriate, as it relates to her rights, in the funds placed in the Plan in which she is the named beneficiary.
Considering the claim asserted against G. Dale Murray, a close analysis of the claim asserted by the Debtor also leaves hardly any doubt that the Debtor is not entitled to the relief it seeks for the following reasons: First, the monies currently held by the Bank in the ERISA trust never have been properties of the estate of *99the Debtor. Thus, any claim of exemption under local law is not involved in the conventional sense at all in this proceeding. There is no dispute that the funds held by the Bank are made up of contributions made by Murray and by the corresponding contributions made by the Debtor. In order to reach these funds, the Debtor must first establish a legal right to these funds, i.e., obtain a judgment against the Murrays on its claims asserted against Murray, and after having obtained a money judgment, then may seize the monies pursuant to a writ of execution issued by the court which awarded the judgment to the Debtor and against the Murrays. While it is true that one may obtain a prejudgment attachment under certain specific conditions, no facts alleged in this Complaint warrant authorization for the seizure of the funds in the ERISA accounts pursuant to a prejudgment attachment. This is so because before one obtains a prejudgment attachment, it must be established first that there is a pending lawsuit; second, there is a likelihood that the Plaintiff will ultimately prevail; third, unless the properties of the Defendants are seized, any victory achieved, if judgment is awarded, would be meaningless because there will no longer be any properties which could be seized to satisfy the judgment.
It is well recognized in this State that an attachment proceeding is entirely dependent on maintenance of an independent action or suit and has no legal existence apart from the claim of the plaintiff against the defendant. Cuba Aeropostal Agency, Inc. v. Kane, 145 So.2d 764 (Fla. App.1962). A prejudgment attachment of property or a preliminary injunction requiring payment of funds to the court’s registry, even in advance of a trial, will only be appropriate under extraordinary circumstances or when legal remedies are shown to be inadequate and the right to recover is clear. Cohen v. Hardman, 416 So.2d 498 (Fla.App.1982). The statute dealing with this subject in this State, Fla.Stat. 76.01, et seq., does not authorize the attachment of funds of money, Fine v. Fine, 400 So.2d 1254 (Fla.App.1981), and it is highly questionable whether or not any return of attachment issued by this Court would effectively seize funds held by the Bank outside of the State of Florida.
Based on the foregoing, there is hardly any question that the relief sought by the Debtor, at least in the manner in which it is presented, is neither supported by general legal principles governing attachments in general, nor by Fla.Stat. § 76.01, et seq.
In the present instance, there is no lawsuit pending by the Debtor against the Murrays. There is no showing or even any indication that one ever will be filed. Moreover, even assuming for the purpose of discussion that in light of this development, the Debtor will file one, and will be able to make a showing that it will ultimately prevail on its claims based on a breach of fiduciary by Murray or defalcation by Murray as a corporate officer, it still would not be able to establish that the monies on deposit held by the Bank in the ERISA accounts would be subject to its claim and could be levied on in light of the exemption created by § 222.21 of Fla.Stat.
In light of this development, it is clear, and this Court is satisfied, that the contention of the Debtor that under St. Paul Fire & Marine Insurance, supra, the exemption rights which otherwise might be available could be forfeited is really premature. The claim of exemption would not come into play until the Debtor obtained a judgment which then the Debtor would attempt to execute on. Based on this, this Court is satisfied that there being no genuine issues of material facts, the moving parties are entitled to a judgment as a matter of law.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Summary Judgment filed by G. Dale Murray and Susan Murray be, and the same is hereby, granted.
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/8490986/ | ORDER ON MOTION TO DISMISS OR, ALTERNATIVELY, MOTION TO GRANT RELIEF FROM STAY
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a confirmed Chapter 11 case and the matter under consideration is a Motion to Dismiss or, Alternatively, to Grant Relief from Stay filed by KRC Enterprises, Inc. (KRC). KRC seeks a dismissal of this confirmed Chapter 11 case on two grounds. The first is based on the contention that the Debtors violated the automatic stay imposed by § 362 in a case filed by First Fidelity Financial Services, Inc. (First Fidelity), in the Southern District of Florida. Second, KRC contends in the alternative that there is a material default in the confirmed plan and, therefore, it is appropriate to dismiss this Chapter 11 case pursuant to § 1112(b)(8) of the Bankruptcy Code. The matter was initially presented to the late Judge Silberman who took the matter under. advisement. Thereafter, the undersigned resumed responsibility to consider the issues raised by the Motion of KRC.
In order to assist this Court to resolve the matter, this Court directed the parties to submit a transcript of the hearing held before Judge Silberman and to furnish the exhibits introduced and admitted into evidence at the evidentiary hearing held by the late Judge Silberman. Unfortunately, the record submitted leaves much to be desired and it is difficult to make a positive fact finding on several important items which, in this Court’s view, are material and would be helpful, if known. Be as it may, the following facts appear from the record which are also relevant and germane and shall suffice to assist in the resolution of the issues raised by the Motion filed by KRC.
On January 20, 1981, Douglas and Janet Melvin (Debtors) executed and delivered to First Fidelity a promissory note in the principal sum of $172,000 secured by a mortgage encumbering two parcels of real property located in Brevard County, Florida. The note and mortgage were subsequently assigned to Fidelity Standard Mortgage Corporation (Fidelity Standard) and later to various individual investors. Sometime in 1982, First Fidelity and Fidelity Standard filed their respective voluntary Petitions for Relief under Chapter 11 of the Bankruptcy Code in the Southern District of Florida.
*101KRC is a Florida corporation who purchased 67.62% interest in the note and mortgage from the assignees of the trustees of the estates of First Fidelity and/or Fidelity Standard. The sale was approved by the bankruptcy court for the Southern District of Florida. The record fails to reveal when this sale occurred, but it is undisputed that KRC was not legally in existence until January 4, 1988, at which time the corporation KRC was formed.
On January 19, 1984, the Debtors filed their Petition for Relief under Chapter 11 of the Bankruptcy Code in the Middle District of Florida. The Debtors, in their Schedules of Liabilities, listed both First Fidelity and Fidelity Standard as the holders of a disputed third mortgage on real estate owned by them. It appears that at the time the Debtors filed their Petition for Relief in the Middle District of Florida, they were already aware that First Fidelity or its assignee, First Standard, sold off fractional interests in this mortgage to several investors. It appears from the exhibits that KRC acquired a fractional interest in the mortgage granted to First Fidelity on July 8, 1988, from Fenimore and Ina Mae Storch (Movant’s Exhibit # 6) who apparently acquired their fractional interest in the mortgage either from some other assignees of the mortgage or, possibly, directly from First Fidelity. It should be noted that neither First Fidelity nor its assignees complied with Bankruptcy Rule 3001 which requires a compliance with certain provisions governing transferred claims. Bankruptcy Rule 3001(e)(1) and (2).
Shortly after the commencement of the case, the Debtors filed a Motion and sought to amend their schedules. On March 20, 1984, this Court entered an Order granting the Debtors’ Motion and authorized the Debtors to file amended schedules and to list the names and addresses of the investors who purchased an interest in the disputed third mortgage. The Order also directed the Debtors to mail a formal notice to all the assignees of the disputed third mortgage of the pendency of their Chapter 11 case. Pursuant to the Order, the notices were sent which informed all parties who had a known interest at that time in this mortgage that the last date to file claims was May 22, 1984.
It appears that four of the assignees of the disputed third mortgage did, in fact, file their proofs of claims. However, the other assignees did not file proofs of claim nor in any way did they participate in the Chapter 11 case of the Debtors. Neither did KRC for the obvious reason that, as noted earlier, it did not exist and it did not acquire any interest in the mortgage in question until 1988 or four years after the bar date to file claims fixed by the Court.
On September 4, 1984, the Debtors filed their Plan of Reorganization. The Plan described the First Fidelity note and mortgage as disputed and proposed a payment of $50,000 to satisfy the indebtedness to be distributed pro rata to all persons holding an interest in the First Fidelity note ahd mortgage. On April 30, 1985, this Court entered an Order confirming the Plan of Reorganization. Pursuant to the terms of the confirmed Plan, the Debtors made payment to all investors in the First Fidelity note and mortgage who had timely filed their proofs of claim. The Plan did not provide for any payments to First Fidelity or to Fidelity Standard, and none were made for the simple reason that neither First Fidelity nor Fidelity Standard ever filed a proof of claim as they were required to do by Bankruptcy Rule 3003(c)(2), their claims having been listed as disputed. It is without dispute, as noted earlier, that First Fidelity and Fidelity Standard were debtors involved in a case pending in the Southern District of Florida at the time relevant to this controversy and it is without dispute that the Debtors did not seek relief from the automatic stay in the Southern District of Florida before they filed their Plan of Reorganization.
Based on this fact, KRC contends that this Court did not have jurisdiction to confirm the Plan of Reorganization of the Debtors and discharge KRC’s claim due to the failure of the Debtors to obtain relief from the stay in the Southern District in the First Fidelity and Fidelity Standard Chapter 11 cases. In addition, it is the position of KRC that the failure to pay *102KRC is a material default of the confirmed plan which, in turn, warrants dismissal of this Chapter 11 case by virtue of § 1112(b)(8).
Considering this second contention first, it should be obvious that KRC is not entitled to any distribution under the confirmed plan for several reasons:
First, KRC never acquired any right under the mortgage until long after the plan was confirmed. Moreover, whatever right KRC had acquired from its assignees with the note and the mortgage (who in turn acquired their rights ostensibly from First Fidelity or Fidelity Standard, a fact not clear from this record), this right was not greater than the right of First Fidelity or Fidelity Standard. Since neither First Fidelity nor Fidelity Standard had a right to any distribution, not having filed a proof of claim in this case, neither did their assign-ee, i.e. in this instance KRC, acquire any right to distribution. This conclusion is self-evident when one considers the undisputed facts of this record. Thus, the failure to pay a dividend to KRC is not a material default of the confirmed plan and, therefore, the Motion to Dismiss this Chapter 11 case pursuant to § 1112(b)(8) is without merit.
This leaves for consideration the more troublesome question, which is whether or not the Debtors in this case violated the automatic stay by proposing a plan of reorganization in their case which impaired the rights of First Fidelity and Fidelity Standard, the Debtor involved in the Chapter 11 case in the Southern District of Florida. Setting aside for a moment the proposition that KRC has no standing to raise this issue since KRC was never, to this Court’s knowledge, a debtor and never had the protection of the automatic stay, the ultimate question still remains whether or not filing a plan of reorganization by a debtor which impairs the property right of another debtor is a violation of the automatic stay and, if so, what are the legal consequences of such a violation.
It cannot be gainsaid that at the time of the commencement of this Chapter 11 case, the mortgage in question was property of the estate of either First Fidelity or Fidelity Standard thus protected by the automatic stay. However, the protection of the automatic stay which is relevant to the matter is limited to (1) the prohibition of enforcement of judgments against property of the estate obtained before the commencement of a case, § 362(a)(2); (2) prohibition of any acts to obtain possession or to exercise control over property of the estate, § 362(a)(3); (3) to prohibit any acts to create, perfect or enforce a lien against the property of the estate, § 362(a)(4).
It is evident that a close reading of these provisions of § 362 have no application to the instant case. It is bordering on absurdity to contend that the filing of a plan of reorganization by a debtor involved in a Chapter 11 case which is the statutory right granted to debtors by § 1121(a) would be equal or tantamount to any acts prohibited by § 362(a)(1), (2), (3) or (4) of the Code. First Fidelity and Fidelity Standard, for the purpose of this Chapter 11 case, were nothing more than creditors of the Debtors and had no more or less rights than other creditors similarly situated. They had the right, and because they were scheduled as disputed, the duty, to file a proof of claim; they had the right to object to confirmation of the plan, none of which occurred in this case. Thus, it is quite evident that by virtue of § 1141 of the Bankruptcy Code they are bound by the terms of the confirmed plan. This is so because subclause (a) of § 1141 provides that the confirmed plan binds all creditors whether or not a claim or interest of such creditor is impaired under the plan and whether or not such creditor accepted the plan. From these it follows that KRC is equally bound by the Order of Confirmation, a claimed succession in interest of the assumption of this mortgage. This being the case, this Court is satisfied first that the Debtors did not violate the automatic stay by filing their plan of reorganization; and, second, in any event, neither First Fidelity who is, by the way, not asserting any claims here, nor has KRC any right to *103complain and they have no right to receive any distribution under the plan.
One last comment. At the final eviden-tiary hearing, KRC attempted to inject some additional issues, none of which have any relevance to the Motion under consideration. Therefore, this Court is of the opinion that it is unnecessary to discuss same.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion to Dismiss or, Alternatively, Motion to Grant Relief from Stay filed by KRC Enterprises, Inc., be, and the same is hereby, denied.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490987/ | 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 is the dischargeability vel non of a debt owed to Sun Bank of Lee County, N.A. (Sun Bank), by Gary Hendricks and Linda Hendricks (Debtors). Sun Bank filed a Complaint seeking an exception to discharge pursuant to § 523(a)(2)(B) of the Bankruptcy Code. The single-count Complaint alleges that money was obtained by use of a statement in writing which was materially false respecting the Debtors’ financial condition on which Sun Bank reasonably relied and which was published with the intent to deceive. This Court heard testimony of witnesses and considered the documentary evidence, together with the record, and finds that the facts relevant as established at the final eviden-tiary hearing are as follows:
In early 1988, a loan officer employed by Sun Bank met socially with the Debtors. Later, Gary Hendricks, one of the Debtors, approached the loan officer regarding a possible commercial loan for Tire and Auto Systems, Inc. (Tire and Auto), a corporation which operated a retail tire store in Naples, Florida. All outstanding shares of Tire and Auto were owned by both Debtors, and Gary Hendricks was the president and chief executive officer of Tire and Auto. Gary Hendricks, on behalf of Tire and Auto requested a $65,000.00 line of credit to be secured by a blanket lien on the assets of the corporation. In connection with the request for credit, the Debtors provided to the Bank a personal financial statement (Plaintiffs Exh. No. 1), which indicated total liabilities of $55,500.00 and a net worth of $328,500.00. In addition, Gary Hendricks also gave to the Bank a compiled financial statement for the nine months operation of the corporation ending December 31, 1987. The statements indicated current liabilities of $90,919.00 and long-term debt of $120,357.00 of the corporation (Plaintiffs Exh. No. 2).
On May 20, 1988, the loan was granted and funds were disbursed. On June 23, 1988, a new note was executed by Gary Hendricks on behalf of the corporation and also individually in the principal amount of $80,000.00 to evidence not only the previ*115ous balance on the initial loan, but also an additional loan in the amount of $15,000.00.
In September of the same year, the corporation established a second location in Cape Coral, Florida, and Gary Hendricks requested additional credit from Sun Bank on behalf of the corporation. Sun Bank approved the request on September 23, 1988, and granted an additional term loan in the amount of $25,000.00 and a $25,-000.00 line of credit. As a further inducement for these new loans, both Debtors executed a guarantee of the corporate indebtedness (Plaintiffs Exh. No. 3). In due course, Sun Bank filed this adversary proceeding seeking a determination by this Court that the debt owed to Sun Bank by these Debtors should be declared to be nondischargeable. There is no dispute that the corporation defaulted on all its obligations owed to the Bank and the Debtors are still liable to the Bank based on their personal guarantees.
On March 21, 1989, the Debtors filed their Voluntary Petition for Relief under Chapter 7. Their Schedule of Liabilities reveals a total individual direct indebtedness of $28,736.25 and an additional indebtedness based on their potential liability for debts of the corporation in the amount of $634,235.48.
Sun Bank contends that the financial statement submitted by the Debtors was false in that they failed to disclose truthfully their outstanding liabilities and that they “failed to disclose the fact that inventory of the corporation was obtained by borrowed monies” [sic] and that they failed to disclose the existence of a second mortgage interest on their primary personal residence.
It is well established that traditionally the basic purpose of all bankruptcy legislation has been and still is to give the debtor a new opportunity in life and a clear field for future efforts, unhampered by the pressure and discouragement of pre-existing debt. Lines v. Frederick, 400 U.S. 18, 91 S.Ct. 113, 27 L.Ed.2d 124 (1970); Local Loan Co. v. Hunt, 292 U.S. 234, 54 S.Ct. 695, 78 L.Ed. 1230 (1934). The discharge provision of the Bankruptcy Code was also designed by Congress to enable the debtor to obtain a fresh start, free from obligations and responsibilities attendant to previous business misfortunes. In keeping with this policy, exceptions to discharge are strictly construed against the creditor and construed liberally in favor of the debtors. In the Matter of Bonanza Import and Export, Inc., 43 B.R. 577 (Bankr.S.D.Fla.1988). Thus, the burden lies with the plaintiff to prove by clear and convincing evidence that a particular obligation of the debtor falls within the exceptive provisions scope of § 523. In the Matter of Bonanza Import and Export, Inc., supra; In re Danns, 558 F.2d 114 (2d Cir.1977); In re Neumann, 13 B.R. 128, 130 (Bankr.E.D.Wis.1981).
Applying the foregoing general principles to specific facts established by this record, it is clear that the Plaintiff failed to establish with the requisite degree of proof any of the claims set forth in its Complaint.
First, there is no evidence in this record to warrant the finding that the liabilities which Sun Bank claims were undisclosed on the Debtors’ financial statements were incurred after extension of the credit by Sun Bank. On the contrary, this Court is satisfied that they were, in fact, not in existence at the time the financial statement was submitted by Gary Hendricks to the Bank. Second, no evidence was presented to establish that there was any “failure to disclose to Sun Bank the existence of any inventory which was obtained by borrowed monies”. In any event, proof of this allegation is irrelevant and would not establish any grounds upon which relief would be granted. It is intimated that Sun Bank actually intended to allege that goods were obtained on consignment prior to granting of the loan without disclosing this fact in the financial statements. Although no evidence was presented to substantiate this claim, it is also irrelevant as Sun Bank did not rely upon this alleged false statement to its detriment. Third, the second mortgage on the Debtors’ residence was given to secure credit obtained after the Sun Bank obligations were incurred.
*116Considering the totality of the evidence, this Court is satisfied that the record does not warrant a conclusion that the Debtors obtained money by the use of statements in writing which were materially false regarding the Debtors’ financial condition upon which the creditor reasonably relied and was made with the intent to deceive. For this reason, the claim of nondischargeability cannot be sustained, and the Complaint shall be dismissed with prejudice.
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/8490988/ | ORDER ON EXEMPTION
THOMAS C. BRITTON, Chief Judge.
The trustee’s objection (CP 80) to the debtor’s claimed exemption of 160 acres worth $485,000 in Levy County (40 miles west of Ocala) as her homestead under Article X, § 4 of the Florida Constitution, was heard July 20. For the reasons which follow, the objection is now sustained.
The 160 acres are in a platted subdivision, Ocala Highlands West, which is not within any municipality. The debtor’s claimed residence is a small apartment behind a barn, in a frame structure, on Lot 5 of Block 1. There are 44 Blocks in the subdivision. Of the acreage which is claimed exempt, only 10 acres are contiguous 1 to the site of the “residence”. The rest of the claimed exempt property is separated by 48 scattered lots which the debt- or sold to various individuals between 1972 and 1976 under Agreements for Deeds, many of which have been fully paid for.
As of May 16, 1989, delinquent taxes were owed to Levy County upon 286 lots titled in the debtor’s name. This fact, plus her inexperience and the disarray of her records, has resulted in her failure to deliver deeds.
The debtor’s interest in this property dates back 17 years. She has held title to most of it in her individual name since 1981. Her husband died in 1984. She is a real estate developer. This is her only project and her only significant asset.
The Florida homestead exemption is restricted to “contiguous land and improvements”. There is no basis, therefore, for any claim in excess of the 10 acres contiguous to the barn and adjoining apartment.
The debtor claims to have moved to Levy County on October 12, 1988, about seven *125weeks before she filed for bankruptcy on December 6, 1988.
The crucial issue in determining her entitlement to a homestead exemption for the barn-apartment and the ten adjoining acres is whether, as of the date of bankruptcy (December 6, 1988), the debtor (i) actually moved to that property, (ii) with a bona fide intent to live there permanently. Lanier v. Lanier, 95 Fla. 522, 116 So. 867 (1928).
For many years before she was widowed and for at least the four years until October 1988, the debtor resided in a luxurious two-bedroom condominium apartment in the Jockey Club in North Miami Beach. The Levy County barn was occupied exclusively by her horses, and the adjoining living space was occupied exclusively by her resident caretakers for at least six years before she filed for bankruptcy.
She testified first that she had moved to Levy County twice, on October 12, 1988, and again on April 5, 1989. She said she rented a trailer and on October 12 moved “some personal belongings” to Levy County. When she was informed that the crucial date for the purposes of this case is December 6, 1988, she abandoned the post-bankruptcy date, explaining that she moved her mother’s furniture on that date. I do not believe she ever spent a night on the subdivision, with any intent to reside there, before April 5, 1989, four months after bankruptcy, if she did then.
The only real property this debtor now claims or has ever claimed as a tax exempt homestead is the Jockey Club condominium.
The debtor still owns and maintains the Jockey Club condominium. This fact and her undisputed room service charges there, signed personally by her, during the month before and the month after bankruptcy, coupled with the sheer implausibility of this lady moving from the Jockey Club to the primitive accommodations in rural Levy County, behind her stable, convince me that the debtor has never moved nor intended to move her residence from the Jockey Club.
I do not overlook, but I do reject her contrary self-serving testimony, that she resided at the Jockey Club merely to file her bankruptcy and that she maintains the condominium for her son. She leased that apartment 'temporarily, from December 1, 1988 to April 1989, but she has made no move to vacate it permanently.
The trustee has carried his burden of proving that the debtor did not establish a homestead, entitled to exemption under Article X, § 4 from the claims of creditors, with respect to any part of Ocala Highlands West.
DONE and ORDERED.
. That is to say, separated only by the platted streets. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490990/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE having come before the Court upon the Complaint of MARGARET HERKO (the “Creditor”), for non-dis-chargeability of a debt pursuant to 11 U.S.C. Section 523(a)(4) against JOSEPHINE ALBA (the “Debtor”) and the Debtor having moved for a dismissal of the action after the Creditor completed the presentation of her case, and the Court having examined the evidence presented, considered the arguments of counsel, and being otherwise fully advised in the premises, does hereby make the following Findings of Fact and Conclusions of Law:
Jurisdiction is vested in this Court pursuant to 28 U.S.C. Section 1334(b) and Section 157(a) and (b). This is a core proceeding in which the Court is authorized to hear and determine all matters relating to this case in accordance with 28 U.S.C. Section 157(b)(2)(I).
The Creditor brings this action pursuant to Section 523(a)(4) which states that:
*133“(a) A discharge under Section 727 ... of this title does not discharge an individual debtor from any debt—
(4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny;”
The Creditor introduced into evidence a certified copy of the Pinal Judgment entered by the Circuit Court of Broward County, Florida in Case No. 86-19895 CS, together with a certified copy of the Complaint. The Creditor thereupon rested without introducing any further evidence or documents, choosing to rely solely on the collateral estoppel effect of the state court judgment.
The requirements for collateral estoppel were set forth by the Court In re Held, 734 F.2d 628, 629 (11th Cir.1984) which stated:
“The doctrine of collateral estoppel bars relitigation of an issue if three requirements are met:
(1) that the issue at stake be identical to the one involved in the prior litigation;
(2) that the issue have been actually litigated in the prior litigation; and
(3) that the determination of the issue in the prior litigation have been a critical and necessary part of the judgment in that earlier action.
Deweese v. Town of Palm Beach, 688 F.2d 731, 733 (11th Cir.1982)
However, the state court Final Judgment entered into evidence in this case contains no findings of fact on which this Court could make a determination of the factual issues decided in the state court, and whether the state court used standards identical to those required under 11 U.S.C. Sec. 523. See e.g. In re Huriash, 26 B.R. 372 (1982).
Therefore, this Court cannot give collateral estoppel effect to the state court Final Judgment.
In conclusion, this Court finds that said Final Judgment of the Circuit Court of Broward County, Florida, is insufficient to sustain a finding by this Court that the debt is non-dischargeable under Section 523(a)(4).
Accordingly, this Court finds that the Debtor’s motion for dismissal should be granted.
A separate Final Judgment Of Dismissal has been entered in conformity herewith. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490991/ | MEMORANDUM OF OPINION AND ORDER
RANDOLPH BAXTER, Bankruptcy Judge.
The Plaintiff, Receiver for Record Rendezvous, Inc. (R.R.I.), seeks the dismissal of a counterclaim filed by the Defendant, Joseph M. Simone (Debtor), which was filed as a partial response to the Receiver’s motion to determine dischargeability of debt pending before this Court.1
Contending that the Debtor is without standing to file his counterclaim, the Receiver avers that only the Chapter 7 Trustee can properly pursue such an action on behalf of the Debtor’s estate. More specifically, the Receiver, relying on provisions of 11 U.S.C. § 704(1), alleges that the claims being advanced by the Debtor are estate assets and, as such, can only be brought by the Trustee. The subject claims are two contingent and unliquidated claims against R.R.I. which are listed on the Debtor’s Schedule B-2. Thusly, she *394contends, the counterclaim should be dismissed as it fails to state a claim upon which relief can be granted.
No response to the Plaintiffs motion to dismiss was filed. An examination of the Debtor’s Answer and Counterclaim reveals that, “Defendant and/or Defendant’s estate is the holder of a cognovit note in the face amount $315,000.00 plus interest at two percent (2%) for a total indebtedness to date of approximately $555,066.35.” (See, Answer and Counterclaim, Count I, Para. 19). The above-quoted language chosen by the Debtor indicates that the Debtor’s estate is an interested party on the note. In Count V. of the same counterclaim (Paras. 23-25) the Debtor asserts a damage claim for an alleged breach of contract prepetition between the R.R.I. and himself in an approximate amount of $63,795.18. Both amounts, he alleges, should either be paid to him or set-off against any amount due and owing to the Plaintiff.
The Debtor’s Statement of Financial Affairs reflects two pending state court actions involving R.R.I. (See, Item # 10’s attachment). His Schedule B-2 (Personal Property) further includes two claims characterized as contingent and unliquidated against R.R.I. and affiliates of R.R.I. The first claim is stated in an amount of $555,-066.25, and the second claim is in an amount of '$63,795.18. Both claims reportedly are for consulting fees.
The Plaintiff-Receiver correctly notes that a debtor’s estate is comprised of interests of the debtor, legal or equitable,.which exist as of the commencement of the bankruptcy case. See, 11 U.S.C. § 541(a). As the aforementioned petition schedule indicates, the subject counterclaim is an asset of the Debtor’s estate. As such, the Debt- or lacks the required standing to pursue the counterclaim. As obligated under 11 U.S.C. § 704, the duly appointed Trustee would be the proper party to prosecute such actions on behalf of the Debtor’s estate. See Alberts v. Wall Street Clearing Corp., No. 89 Civ. 0002, 1989 WL 88585 (S.D.N.Y. July 13, 1989); In re Tvorik, 83 B.R. 450, 456 (Bankr.W.D.Mich.1988); In re Snyder, 61 B.R. 268 (Bankr.S.D.Ohio 1986).
Accordingly, the Plaintiff’s motion to dismiss the subject counterclaim is hereby granted.
IT IS SO ORDERED.
. The Debtor initially responded to the Complaint by filing a motion to dismiss the Complaint. Upon the Court’s denial of that motion, he subsequently filed his Answer and Counterclaim. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490992/ | JAMES H. WILLIAMS, Chief Judge.
MEMORANDUM OF DECISION
Before the court are the applications of Thompson, Hiñe & Flory (applicant) for final allowance of compensation and reimbursement of expenses. Applicant, as counsel for the debtor, seeks the allowance of $116,017.50 in attorney’s fees and $10,-450.59 in reimbursement of expenses as full and final compensation. Objections were filed by the United States Trustee, James R. Kandel, the Chapter 7 Trustee, E.T. Coal, Inc. and the State of Ohio, Division of Reclamation.
Upon the conclusion of the hearing the court requested the submission of memo-randa and the parties have complied.
FACTS
K & R Mining, Inc. (Mining) and K & R Processing, Inc. (Processing) each filed for relief under Chapter 11 of Title 11 of the United States Code on May 26, 1987. Orders approving the employment of applicant as attorney for the debtors and debtors in possession were entered by the court *396on May 27, 1987. At the inception of the cases, applicant received a retainer of $60,-000.00 from the debtors.
On November 27, 1987, applicant filed its first requests for compensation and expenses seeking $15,169.50 in fees and $1,460.07 in expenses in Processing and $30,095.50 in fees and $3,003.45 in expenses in Mining. Following a hearing on the applications, the court approved and allowed the payment of $12,000.00 in fees and $1,460.07 in expenses in Processing and $24,000.00 in fees and $3,003.45 in expenses in Mining. Such amounts were to be paid from the $60,000.00 retainer being held by applicant. The remaining amounts requested were deferred until a hearing on a final application for compensation and expenses.
Applicant filed second requests for compensation on February 29, 1988, seeking $7,475.00 in fees and $445.23 in expenses in Processing and $26,894.50 in fees and $1,446.27 in expenses in Mining. At the ensuing hearing, the court allowed only the payment of the expense reimbursement sought in each case. Again, such amounts were to be paid from the retainer. Additionally, the court allowed fees of $12,-675.00 in Mining and $5,500.00 in Processing but deferred allowance of payment of those sums. As before, the remaining amounts requested were deferred until a hearing on a final application.
Mining and Processing were substantively consolidated into case No. 687-00790 on July 12, 1988. Thereafter, on February 1, 1989, the ease was converted to a Chapter 7 liquidation proceeding with James R. Kandel being appointed the Chapter 7 Trustee.
Applicant has now filed its third and final requests for the allowance of compensation and the reimbursement of expenses seeking $33,573.00 in fees and $3,226.17 in expenses in Mining and $12,810.00 in fees and $869.40 in expenses in Processing for the period from January 1, 1988 to March 10,1989. Additionally, applicant also seeks approval of all prior amounts deferred or amounts not paid. Finally, applicant seeks authority to apply the balance of the retainer, $17,644.98, to the compensation and expenses granted by the court with the balance of its fees and expenses being allowed as a Chapter 11 administrative expense.
Out of the variety of objections raised to the applications, essentially two issues emerge: First, inasmuch as the fees and expenses of applicant are Chapter 11 administrative expenses, the objectors assert that they should not be paid ahead of the Chapter 7 expenses or in greater proportion than other Chapter 11 administrative expenses. Second, and most importantly, the parties object to applicant applying the balance of the retainer it holds to its approved fees and expenses. The Chapter 7 Trustee and U.S. Trustee argue that the retainer, being property of the bankruptcy estate, should be turned over to the Chapter 7 Trustee to be distributed pursuant to the provisions of the Bankruptcy Code.
DISCUSSION
A.
Case law has consistently held that a pre-petition retainer is property of the bankruptcy estate. As stated by the court in In re Kinderhaus Corporation, 58 B.R. 94, 97 (Bankr.Minn.1986):
A prepetition retainer taken by a debt- or’s attorney for services to be rendered and costs to be incurred during the pend-ency of a bankruptcy case is held in trust, except to the extent that attorney’s fees are allowed by the Court and ordered paid pursuant to 11 U.S.C. § 330 and § 331, until the case is closed or until the Court orders otherwise. Such a retainer, taken prior to the filing of the petition, becomes property of the estate upon commencement of the case, subject however, to the terms of the trust. See, 11 U.S.C. § 541(d).
Accord, In re Chapel Gate Apartments, Limited, 64 B.R. 569 (Bankr.N.D.Texas 1986); In re C & P Auto Transport, Inc., 94 B.R. 682 (Bankr.E.D.Calif.1988).
The terms of the trust, however, remain subject to the provisions of the Bankruptcy Code and Rules and only the court has the power and authority to deter*397mine whether, and to what extent, such retainer is to be paid to counsel for the debtor. See, In re Tri-County Water Association, Inc., 91 B.R. 547 (Bankr.S.D.1988).
As to the effect on a retainer of the conversion of a Chapter 11 case to one under Chapter 7, the court in In re Burnside Steel Foundary Company, 90 B.R. 942, 944 (Bankr.N.D.Ill.1988) noted:
[T]he typical retainer paid to a debtor’s attorney in a Chapter 11 case is intended to secure future payment of attorney’s fees awarded by the Court. In the event the Court orders such an award, and the debtor does not have the cash to pay the award, the retainer insures payment. If the case fails and is converted to Chapter 7, the retainer enables the debtor’s attorney to avoid the subordination of the Chapter 11 expenses of administration to those incurred in administering the Chapter 7 estate mandated by section 726(b) of the Bankruptcy Code.
The reason why this result obtains is simple. The debtor’s attorney who receives a prepetition retainer to insure payment of fees to be earned in the Chapter 11 case (or post petition retainer authorized by court order) becomes a secured creditor, secured by a possessory security interest in cash.... There is nothing theoretically different between the attorney who receives a retainer against future fees and a landlord who takes a cash security deposit to secure the payment of future rent. The reason that the retainer succeeds in avoiding the subordination requirements of section 726(b) is that section 726 only affects distribution priorities among holders of unsecured claims, and an attorney with the retainer is, to the extent of the retainer, the holder of a secured claim.
The United States Trustee and the Chapter 7 Trustee maintain that applicant cannot be a secured creditor of the debtor because it would then hold an interest adverse to the estate and not be disinterested pursuant to 11 U.S.C. § 101(13).1 The argument of the United States Trustee and the Chapter 7 Trustee is premised on the fact that Section 327(a) permits only the appointment of counsel “that do not hold or represent an interest adverse to the estate, and that are disinterested persons.”
This precise issue was addressed by the First Circuit Court of Appeals in In re Martin, 817 F.2d 175, 180 (1987):
At first blush, this statute [section 327(a)] would seem to foreclose the employment of an attorney who is in any respect a “creditor.” But, such a literalistic reading defies common sense and. must be discarded as grossly overbroad. After all, any attorney who may be retained or appointed to render professional services to a debtor in possession becomes a creditor of the estate just as soon as any compensable time is spent on account. Thus, to interpret the law in such an inelastic way would virtually eliminate any possibility of legal assistance for a debtor in possession, except under a cash-and-carry arrangement or on a pro bono basis. It stands to reason that the statutory mosaic must, at the least, be read to exclude as a “creditor” a lawyer, not previously owed back fees or other indebtedness, who is authorized by the court to represent a debtor in connection with reorganization proceedings— notwithstanding that the lawyer will almost instantaneously become a creditor of the estate with regard to the charges endemic to current and future representation. (Footnote omitted).
See, also, In re Burnside Steel Foundary Company, supra.
The court finds the reasoning of Martin to be persuasive and accordingly, does not view the applicant as disqualified to be counsel for the debtor if, indeed, it possesses a security interest property of the debt- or.
Additionally, the Chapter 7 Trustee maintains that if applicant is a secured creditor by virtue of the retainer, such se*398curity interest is limited to the fees incurred pre-petition. He argues that for post-petition fees to be secured, the provisions of 11 U.S.C. § 364(c)(2) would have to be met.2 Specifically, the Chapter 7 Trustee asserts that no notice was given and no hearing was held.
The court finds no merit in this argument. First, Section 364 is inapplicable to the instant proceeding. The provisions of Sections 327 through 331 concern and address the employment and compensation of professionals. Secondly, even if Section 364 were applicable, Thompson, Hiñe & Flory’s applications to be employed as counsel for the debtor were properly filed with the court. Pursuant to Bankruptcy Rule 2014, its applications disclosed the retainer arrangement. Additionally, every prior request for compensation filed by applicant disclosed the retainer. The court finds such numerous disclosures of the retainer arrangement to amount to sufficient notice for applicant to be accorded a security interest in the retainer.
The United States Trustee raises an additional objection that the $60,000.00 retainer held by applicant is excessive and at least a portion thereof should be turned over to the Chapter 7 trustee.
This now-consolidated case initially consisted of two independent Chapter 11 cases, as previously noted. The retainer was to apply to both. In view of this fact and the largely uncontested assertion that the total fees and expenses of applicant exceed $125,000.00, the court finds the $60,000.00 retainer not to be unreasonable.
Accordingly, the court finds that applicant possesses a security interest in the retainer to secure payment of its attorney’s fees and expenses and upon court approval of those fees and expenses, such retainer may be applied to reduce the fees and expenses awarded.
B.
The various objectors further oppose the payment to applicant of any fees and expenses approved by the court prior to the payment of the other Chapter 11 administrative expenses. Thompson, Hiñe & Flory acknowledges that apart from the application of the retainer to any approved compensation, the balance of its fees and expenses enjoys no right to better treatment than other Chapter 11 administrative expenses and that such fees and expenses will be paid pro rata with the other Chapter 11 administrative expense claims after the payment in full of the Chapter 7 administrative expenses. See, 11 U.S.C. § 327(b) and In re IML Freight, Inc., 52 B.R. 124 (Bankr.Utah 1985).
C.
Finally, as to the allowance of compensation and reimbursement of expenses, the court, upon review of the final application, finds the services rendered and the amount sought by applicant to be reasonable. The court notes, however, that applicant seeks compensation and the reimbursement of expenses in relation to the preparation and presentation of its fee requests. This court has previously held that such charges and costs are not compensa-ble as they are considered a part of the cost of doing business. In re Mansfield Tire & Rubber Company, 65 B.R. 446 (Bankr.N.D.Ohio 1986). Accordingly, the court will disallow $280.00 in fees and $13.50 in expenses in Processing and $300.00 in fees and $13.50 in expenses in Mining. Therefore, the court allows the sum of $33,273.00 in compensation and $3,212.67 in expenses in Mining and $12,-530.00 in compensation and $855.90 in expenses in Processing.
Additionally, previously deferred compensation in the amount of $25,459.50 will be allowed.
*399An order in accordance herewith shall issue.
. 11 U.S.C. § 101(13)(A) provides:
"disinterested person” means person that—
(A) is not a creditor, an equity security holder, or an insider.
. Section 364(c)(2) provides:
(c) If the trustee is unable to obtain unsecured credit allowable under section 503(b)(1) of this title as an administrative expense, the court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt—
(2) secured by a lien on property of the estate that is not otherwise subject to a lien. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490993/ | 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 a debt allegedly due and owing by Jay David Barber (Debt- or) to American Factoring Corporation (American Factoring), the Plaintiff who instituted this adversary proceeding. The Amended Complaint filed by American Factoring sets forth a claim of nondis-chargeability in four counts. The claim in Count I is based on the allegation that the Debtor personally guaranteed a certain factoring contract entered into between Specialty Refrigeration, a Florida corporation, and American Factoring (Plaintiff’s Exhibit # 1); that pursuant to that contract, American Factoring purchased from Specialty Refrigeration certain specific accounts receivable; that the Debtor, in violation of the agreement, collected some of the accounts and fraudulently retained the monies received and, therefore, according to American Factoring, the Debtor obtained monies by actual fraud and embezzlement or larceny and the debt owed to American Factoring should be declared to be nondischargeable based on Sections 523(a)(2)(A) or 523(a)(4) of the Bankruptcy Code.
The claim set forth in Count II is based on the allegation that the Debtor acted in a fiduciary capacity and his failure to remit the funds collected, constituted defalcation *699by the Debtor while acting in a fiduciary capacity therefore the debt owed by the Debtor should be declared to be nondis-chargeable pursuant to Section 523(a)(4).
The claim set forth in Count III alleges that among the accounts sold to American Factoring the Debtor submitted receivables which were non-existent and fraudulent and, therefore, the Debtor obtained money by false pretenses which, in turn, would render the debt nondisehargeable pursuant to Section 523(a)(2)(A).
Count IV contains merely a recital of certain assumptions and states that American Factoring, only upon completion of discovery, will be able to determine what part of the accounts sold would be false or non-existent accounts. Based on this, the prayer for relief in Count IV is not really a prayer for relief but is asking for permission to conduct discovery which is, of course, not a proper claim for relief inasmuch as all litigants have an absolute right to conduct discovery in a pending lawsuit and do not need an order by this Court allowing a litigant to use the discovery available under the Rules of Procedure.
The evidence presented at the final evi-dentiary hearing established the following relevant facts:
At the time relevant to this controversy, the Debtor was a principal of a corporation known as Specialty Refrigeration, Inc., a corporation engaged in the service and repair of air conditioning and refrigeration equipment in general. On September 30, 1987, the Debtor, on behalf of Specialty Refrigeration, entered into a factoring agreement with American Factoring. The agreement was signed by the Debtor as President and also by Hirman Sherman Wylie, Vice President and Bruce E. Gould, Secretary/Treasurer. The agreement was also guaranteed by the Debtor, and Hiram Sherman Wylie and Bruce Gould, the other officers of Specialty Refrigeration. The agreement covered one year period during which American Factoring agreed to pay to Specialty Refrigeration 92% of the face amount of the invoice on the following terms: 80% at the time of the purchase of the accounts receivable and 12% at the time the account is collected in full. Pursuant to the agreement, Specialty Refrigeration did sell to American Factoring certain specified accounts receivable in the amount of $54,168:61. Under the contract it was the responsibility of American Factoring to collect the accounts and the payments were to be made directly to American Factoring and all account debtors were notified of the sale of their accounts. Notwithstanding, it appears that some accounts were collected by Specialty Refrigeration. However, it appears that Specialty Refrigeration did in fact turn those funds over to American Factoring. ' It appears that the last two invoices which were sold to American Factoring, one involving an account allegedly due from Illinois Range Company and the other from an individual named S. Abbott, the amounts were disputed as not due and owing. There is no evidence in this record to what extent the Debtor was involved in this transaction and this record is totally devoid of any evidence that he personally obtained any funds or used any of the funds for his own personal benefit.
Basically these are the salient facts upon which American Factoring claims it is entitled to the relief set forth in its four count Complaint.
Section 523 provides in pertinent part: Section 523. Exceptions to discharge, (a) A discharge under section 727, 1141 [or 1328(b)], 1228(a), 1228(b) or 1328(b) of this title does not discharge an individual debtor from any debt—
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition—
(4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.
The majority of courts hold that the appropriate measure of proof in discharge-ability proceedings is the clear and convincing standard in light of the strong underlying policy of the Bankruptcy Code of fos*700tering a fresh start to debtors unhampered by the pressures and discouragement of pre-petition debt. See In re Billings, 94 B.R. 803 (E.D.N.Y.1989). In keeping with this policy, the exceptions to discharge set out in Section 523 of the Bankruptcy Code are construed narrowly against the creditor and in favor of the Debtor. See In the Matter of Bonanza Import and Export, Inc., 43 B.R. 577 (S.D.Fla.1984). Thus, the Plaintiff must establish each element of his claim of nondischargeability by clear and convincing evidence. In re Posta, 866 F.2d 364 (10th Cir.1989).
Applying the foregoing legal principles to the facts of this case, this Court is satisfied that any claim by American Factoring that this individual Debtor obtained money or property from American Factoring by misrepresentations or fraud is not supported by the requisite degree of proof. Equally there is no evidence in this record that this Debtor embezzled any funds nor that he was a fiduciary.
It is well established that Section 523(a)(4) does not extend to trusts imposed ex maleficio, that is, trusts imposed because of an act of wrongdoing out of which the debt arose. A fiduciary relationship must exist from the onset of the relationship between the parties. In re Angelle, 610 F.2d 1335 (5th Cir.1980). Although the definition of fiduciary under Section 523(a)(4) is a matter of federal law, the Court must consult applicable state law in determining whether the type of trust relationship contemplated by Section 523(a)(4) exists. Ragsdale v. Haller, 780 F.2d 794 (9th Cir.1986). In this connection, this Court is satisfied that this was a pure commercial transaction and there was no technical trust established between this Debtor and American Factoring at the time Specialty Refrigeration entered into the factoring agreement. A trust relationship or fiduciary capacity cannot be established as a result of an alleged wrong doing but must be based on a contractual arrangement establishing a technical trust. In re Angelle, supra; In re Dloogoff 600 F.2d 166 (8th Cir.1979). The evidence presented in support of the claim set forth in Count III equally falls far short of the degree of proof required to establish a viable claim under Section 523(a)(2)(A).
Lastly, as noted earlier, Count IV does not really set forth any claim for relief and for this reason it is unnecessary to state a ruling on same.
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/8490994/ | ORDER ON REVIEW OF FEES FOR DEBTORS’ ATTORNEY
THOMAS C. BRITTON, Chief Judge.
These two chapter 7 cases were filed the same day by the same law firm.
The cases involve two men engaged in business together as stock brokers and their respective wives. The law firm was paid $6,500 as a fee for each case. The trustee has alleged that the fee was excessive in each case and has requested review by this court under 11 U.S.C. § 329(b) and Bankr. Rule 2017(a). The hearing for both cases was held August 8, at which time a partner of the law firm offered an oral justification for the amount of the two fees.
I now find and conclude that each fee was excessive; that a reasonable charge, including a deposit for the $90 filing fee, is $2,500; and, therefore, that as is directed by § 329(b)(1)(B), with respect to the law firm, Schantz, Schatzman & Aaronson, the fee agreement is cancelled and the law firm is ordered to return in each case, the difference ($4,000) forthwith to the trustee.
In this instance, neither the papers filed by the debtors nor those filed by the law firm claimed or disclosed that the payment came from a source other than the debtors. During the firm’s oral presentation, it was stated that the two fees were paid by the Kramer Agency, a third party entity of which these two men are the principals. In view of these circumstances, I find that the money was paid from assets in which the two men had an equal interest and which they jointly controlled. Under those circumstances, those assets, subject only to the liabilities of that entity, if any, which are paramount to the claims of the two principals would have been “property of the estate”. The trustee must be prepared to respond to claims against the Kramer Agency to the extent of the excessive fees that are refunded, in the event that there are any such claims and in the event that any such claims are asserted before these two cases are closed.
*725These two cases are very similar. The liabilities of the Easters exceed $4.5 million. Their disclosed assets on the date the petition was filed, after deducting the value of their $250,000 homes which is exempt from the claims of creditors, total only $41,000. They had but $60 cash.
The liabilities of the Kramers exceeded $5.1 million. Their assets, after deducting the value of their $450,000 exempt homestead, were valued by them at $13,000. They had $120 in cash when they filed for bankruptcy.
The incomes of these two couples in 1987 approximated $100,000 each. The income of the Easters in 1988 was $81,000. The Kramers do not know what their income in 1988 was. The debts of all four debtors go back several years.
Although it is true that each of these bankruptcies involves a longer list of debts and creditors than is typical of what might be described as the average chapter 7 petition filed on behalf of a husband and wife in this District, the differences in these cases from the average husband and wife bankruptcy would merely require the debtors to furnish more information to their attorneys and would require more clerical effort in completing the required schedules.
I see nothing in either case, nor has anything in either case been asserted by the law firm that would make these cases unique bankruptcies which would require unusual skill or effort on the part of the attorneys to advise the debtors that they are indeed bankrupt, to prepare and file the required petitions and schedules and to attend the statutory creditors’ meeting with each couple.
In this District, a fee of $500 to $600 is generally charged for the typical husband and wife chapter 7 bankruptcy petition. A fee five times that amount should be ample to cover the labor involved in representing these two couples.
The oral justification offered included the submission of computer printouts reflecting time charges made by the lawyers in the firm to each case up to the date of the hearing. These time charges show that in each instance a senior partner, who values his time at $250 an hour counseled briefly with the respective debtors and that the matter was then, quite appropriately, turned over to an associate who billed $125 an hour, who signed the petitions and is fully qualified to perform all of the legal services to date in these cases.
The time of the two senior partners may well be worth the value they have placed upon it where the special knowledge and experience each has accumulated is required and is utilized. However, the services offered in this instance in each case neither required nor utilized those special demanding skills and, therefore, the time of the senior partners spent in these two cases did not become more valuable merely because that time was spent by these individuals, rather than by the qualified associate.
The oral justification for these extraordinary fees made the point that the creditors’ meeting was rescheduled and therefore had to be attended twice. This fact does not, in my opinion, justify any increase of fee because it is quite apparent that the only reason that creditors’ meeting was rescheduled is that the law firm delayed the filing of the debtors’ schedules (with this court’s ex parte permission) until after the originally scheduled creditors’ meeting. Because the schedules were not available, the trustee could not proceed on the date originally scheduled. Had this busy law firm been more diligent in preparing and filing the schedules, there would have been no need to reschedule the creditors meeting.
1 A second justification offered for these two substantial fees is that challenges to the debtors’ discharges are anticipated and the fee was fixed to include that anticipated expense.
The justification for the statutory scheme which permits attorneys to collect fees from debtors on the eve of bankruptcy for representation in bankruptcy and which permits attorneys to claim from bankrupt estates reasonable compensation for certain services in bankruptcy, is that such representation is an essential part of the administration of the bankruptcy case, and, *726therefore, the attorneys’ compensation should be given primacy over the claims of all creditors. The preferential treatment given to compensation of bankruptcy counsel, however, is limited to those services essential to the bankruptcy administration of the case. It does not include services designed to benefit the bankrupt personally. As the Fifth Circuit held in In re Jones, 665 F.2d 60 (5th Cir.1982):
“This appeal presents the question whether an attorney for the bankrupt is entitled to compensation out of the bankrupt estate for services rendered to the bankrupt in defeating the oppositions to discharge filed by several creditors. The trial court held that attorneys’ fees for such services are no payable out of the estate. We agree ...
“The granting or denial of a discharge is personal to the bankrupt and has nothing to do with the preservation of the estate. This court has stated that ‘legal services designed to benefit the bankrupt personally may not be compensable out of the estate.’ ”
DONE and ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490995/ | MEMORANDUM OF OPINION CONCERNING DEBTOR’S MOTION FOR STAY PENDING APPEAL
JOHN C. AKARD, Bankruptcy Judge.
On May 18, 1987, The First National Bank of Amarillo (Bank) filed a Petition for Involuntary Bankruptcy under Chapter 7 of the Bankruptcy Code against Robert A. Johnson (Debtor). An Order for Relief was signed on June 15, 1987. On June 17, 1987 the Debtor filed an Answer to the Petition for Involuntary Bankruptcy. On July 23, 1987, the Debtor filed a Motion to Set Aside the Order for Relief. On August 18, 1987, the Court heard the Debtor’s Motion to Set Aside the Order for Relief. The Court denied the Motion to Set Aside Order for Relief by Order dated September 8, 1987 and entered September 11, 1987, 105 B.R. 806 (Bkrtcy.N.D.Tex.1987). By the same Order, the Debtor was instructed to file a Statement of Affairs and Schedules within ten days from the entry of the Order. On September 21, 1987 the Debtor filed a Notice of Appeal and a Motion for Stay of Enforcement of Order Pending Appeal. A telephonic hearing on the Motion for Stay was held on September 24, 1987 at which time the Court advised the parties that the Motion would be denied and that an Order would be forthcoming. On September 25, 1987 the Debtor filed his Statement of Affairs and Schedules.1
*810DISCUSSION
In determining whether this Court should grant a Stay pending Appeal, this Court should consider four factors:
1. Whether movant has made a strong showing that he is likely to succeed on the merits of appeal;
2. Whether movant has established that unless the stay is granted he will suffer irreparable injury;
3. No substantial harm will come to other interested parties; and
4. A stay would do no harm to the public interest.
Belcher v. Birmingham Trust National Bank, 395 F.2d 685 (5th Cir.1968).
With respect to the first factor, the Court finds there is little likelihood that the Debtor will succeed on the merits on appeal. When the Motion to Set Aside Order for Relief was heard, the Debtor presented no evidence. The Debtor presented only argument which this Court conclusively found against the Debtor. It was not until after the hearing that the Debtor denied ever having received service of the Summons.
Section 303(b)(2) of the Bankruptcy Code2 provides that when there are fewer than 12 creditors, one creditor may file an involuntary petition if that creditor holds a debt in excess of $5,000.00. The Bank asserts that its claim is in excess of $5,700,-000.00. The Debtor asserts that he has more than 12 creditors, but no evidence on this point was presented at the hearing on the Motion. The Answer filed by the Debt- or did list parties who are claimed to be additional creditors. However, the Answer did not comply with Bankruptcy Rule Í003(b) which states that the Debtor “shall file with the answer a list of all creditors with their addresses, a brief statement of the nature of their claims, and the amounts thereof.” The Answer filed by the Debtor gave names and addresses, but did not give a statement of the nature of their claims or the amounts thereof.3 Bankruptcy Rule 1003(b) and § 303(c) allow time for additional creditors to join in the Petition if the Debtor timely asserts that he has more than 12 creditors.
Section 303(h)(1) provides that an Order for Relief shall be entered by the Court if the Debtor is generally not paying such Debtor’s debts as they become due. In paragraph 5, the Bank’s Petition alleged “Robert A. Johnson is generally not paying his debts which are not subject to bona fide dispute as they become due.” The Debt- or’s Answer in paragraph 6 specifically admitted that allegation.
Section 303(b)(1) provides that if the Debtor has more than 12 creditors, three or more creditors may bring an involuntary petition. If the District Court were to reverse this Court’s ruling, the matter would be remanded to the Bankruptcy Court. Notice would be sent to all creditors to see if they wished to join the involuntary petition. It can be anticipated that the Debtor will attempt to dispute every debt he owes. It is a likely prospect, however, that at least two undisputed creditors will join the Involuntary Petition. Undoubtedly, the Debtor will dispute the Bank’s claim, but it can be anticipated that at least a part of the Bank’s claim would be undisputed. So long as the total undisputed debt exceeds $5,000.00, the Order for Relief would then be entered since the Debtor admitted that he is generally not paying his debts as they become due.
The Debtor asserts that he will suffer irreparable injury by the entry of the Order for Relief. As indicated above, the prospects are great that an Order for Relief would be entered even if this Court’s prior Order is reversed and the matter remanded to this Court by the District Court. This Court cannot see how the Debtor will be harmed by disclosing his financial af*811fairs and having them investigated by his unpaid creditors pending his appeal.
The Debtor asserts that no substantial harm will come to other interested parties if his Motion for Stay Pending Appeal is granted. The Bank asserts that the Debt- or may well be making preferences, secreting assets, and otherwise hindering creditors. The Debtor’s constant delaying tactics lends credence to the Bank’s concerns. It is the opinion of this Court that it is in the best interest of creditors for these Chapter 7 proceedings to move forward rapidly and for a Trustee to investigate the Debtor’s acts and conduct.
The Debtor asserts that the stay would do no harm to the public interest. This Court holds that it is in the public interest for persons who have been found to be involuntarily bankrupt to cooperate with the Court and with the Trustee and comply with Orders of this Court. Therefore, the public would be best served by denying the stay pending appeal.
CONCLUSION
For the foregoing reasons, this Court finds that the Debtor’s Motion for Stay Pending Appeal should be denied.
Order accordingly.4
. Bankruptcy Rule 1007(c) requires that the Statement of Affairs and Schedules be filed by the Debtor within 15 days after the entry of the Order for Relief in an involuntary case. The Order for Relief was signed on June 15, 1987 and entered on June 16, 1987. Thus, the Statement and Schedules were due by July 1, 1987. In view of the Debtor's Motion, the Court determined that the Debtor should be given additional time in which to prepare and file the Statement and Schedules. In order to give the Debt- or as much time as possible, the Court advised the Debtor’s attorney by letter of August 31, 1987 that the Court was going to deny the Motion and order the filing of the Statement and Schedules within ten days after the entry of that Order. The Order was entered on September *81011, 1987. The Debtor did not file his Statement and Schedules until September 25, 1987.
. The Bankruptcy Code is 11 U.S.C. § 101 etseq. References to section numbers are to sections in the Bankruptcy Code.
. This information is still not shown for unsecured creditors in the Schedules recently filed by the Debtor, even though such information is required by the Official Form. A cursory reading of the Schedules reveals that they are also deficient in that the name and address of the priority creditor is not given and no addresses are given for the secured creditors.
. 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/8490996/ | MEMORANDUM DECISION
LOUISE DeCARL MALUGEN, Bankruptcy Judge.
What’s in a name? That which we call a rose
By any other name would smell as sweet. Shakespeare, The Tragedy of Romeo and Juliet,
Act II, Scene II, 43:44.
Like a modern day Juliet, this Court must ponder whether that which we call a “settlement” in an application to employ special counsel is the same as that “settlement” embodied in a confirmed reorganization plan. Although the semantic construction may appear to be less ethereal than that engaged in by Juliet, the stakes are high. At issue is the entitlement of three law firms to fees in excess of $865,000.
FACTUAL SUMMARY
Hill & Baskin are general counsel for William L. Grivas, an individual in Chapter 11 proceedings since February 1987. Shortly after the commencement of this Chapter 11 case, the debtor filed a lender liability lawsuit against Security Pacific National Bank (“SPNB”). The lawsuit alleged that SPNB’s precipitous action in shutting down Grivas’ line of credit a mere 45 days after commencing the lender-borrower relationship drove his successful electronics assembly business into Chapter 11 proceedings. To say that this litigation *956and, indeed, every aspect of this Chapter 11 case, was fought with the ferocity of Armageddon is an understatement.
For a period of time, Hill & Baskin represented the debtor in both the Chapter 11 case and the state court lender liability action. Then, in September 1987, the debt- or submitted his Application by Debtor-In-Possession to Employ Special Litigation Counsel and to Supplement and Modify Terms of Employment of Hill and Baskin. By that application, the debtor sought to employ Hill & Baskin, Milberg, Weiss, Ber-shad, Specthrie and Lerach (“Milberg, Weiss”) and Daughton, Hawkins & Bacon (the “Daughton firm”) as special litigation counsel in the lender liability action. The September 1987 application converted the debtor’s representation in the lender liability action from a part-hourly, part-contingent arrangement to a full contingency basis, providing for a sliding scale contingent fee in the event of recovery.1 The application further stated:
(d) In the event of a settlement of all or any part of the Security Pacific litigation, special litigation counsel shall have the option of choosing to be paid either at their normal hourly rates or in accordance with the contingency fee basis as set forth above. (Application filed September 30, 1987, para. 11(d), p. 7-8.)
The Court approved this arrangement by order entered September 30, 1987 (the “September 30 Employment Agreement”), which in addition to authorizing the Mil-berg, Weiss and Daughton firms to be employed, modified and supplemented the original employment order of Hill & Bas-kin.
In October 1988, the debtor filed an Application by Debtor to Retain Special Litigation Counsel. The application recited that the Daughton firm had been forced to withdraw as special litigation co-counsel and the debtor wanted to substitute Cap-pello & Foley, noted experts in lender liability litigation, for the now-disqualified Daughton firm. The application was made on terms similar to those employing Hill & Baskin and the Milberg, Weiss firm. The same sliding contingent fee scale was employed. In relevant part, the exhibit to the application further stated:
For the purpose of this application and the debtor’s agreement with special litigation counsel, the term “recovery” shall mean anything of value, including loans, deferred payment terms, merchandise credits, set-off rights, debt forgiveness, below-market interest and the like.
sjc sfc sfc >H j)t >H
(d) In the event of a settlement of all or any part of the Security Pacific litigation, special litigation counsel shall have the option of choosing to be paid either at their normal hourly rates or in accordance with the contingency fee basis set forth above. (Exhibit “A” to Application filed October 24, 1988, pp. 3-4).
The Court approved the retention of Cap-pello & Foley by Order entered October 25, 1988.
While the lender liability action raged in federal and state court (it was removed to federal court and remanded twice during its pendency) the Chapter 11 case became the battleground for competing plans of reorganization filed by SPNB and the debt- or. It was SPNB’s plan which creates this dispute over fees. That plan provided for SPNB to pay the estate’s unsecured creditors $1.75 million plus pay all administrative expenses (including attorney’s fees) and priority claims in full in exchange for compulsory dismissal of the debtor’s lender liability action. Needless to say, the debtor vigorously opposed submission of this plan to the creditor body.
At a hearing held on approval of the disclosure statement for the SPNB plan, *957the debtor raised numerous arguments against a compulsory settlement, including the point that the bank’s plan was not a “settlement” because the term “settlement" implied a consensual termination of the controversy. The bank countered with equally forceful arguments, including that contained in its Reply filed July 8, 1988, in which it stated:
The settlement which is at the heart of the Joint Plan2 is designed to achieve the principles and purposes of the Bankruptcy Code, [emphasis added] (Reply of Security Pacific National Bank filed July 8, 1988, p. 11, 11. 3-5)
The Official Creditors’ Committee joined SPNB’s argument stating:
The debtor says that Section 1123 doesn’t give this court any power to confirm a plan that provides for a settlement of the lender liability action, because the debtor is not a part of that settlement. It seems to me that would render meaningless and useless provisions in the Bankruptcy Code in .Chapter 11 that can provide for compromises of disputed claims. It is clear from the cases cited by Mr. Morrison [SPNB’s attorney] that time and time again the bankruptcy courts in confirmation hearings have settled claims over the objections of debtors and the equity security holders. (Transcript, Hearing re Approval of Debtor’s and/or Security Pacific National Bank’s Disclosure Statements, July 12, 1988, p. 73, 11. 21-25; p. 74, 11. 1-2)
Ultimately, the Court was persuaded by case authority cited by the Joint Plan proponents — namely, Matter of Texas Extrusion, 844 F.2d 1142 (5th Cir., 1988) and Holywell Corp. v. Bank of New York, 59 B.R. 340 (S.D.Fla.1986); aff'd on other grounds 820 F.2d 376 (11th Cir.1987) — that the Bankruptcy Code authorized the court to consider and, if appropriate, approve a plan proposing settlement of litigation over the debtor’s objection. The Court approved the dissemination of the Disclosure Statement and Second Amended Joint Plan of Reorganization at the same time as the debtor’s Amended Disclosure Statement and Second Amended Plan of Reorganization. Balloting was conducted and, when it became apparent that creditor support for the Joint Plan was overwhelming, the debt- or withdrew his plan from consideration.
Because impaired classes (the debtor’s insiders and the debtor as an equity holder) had rejected the Joint Plan which subordinated and provided nothing for their claims, the Court was nevertheless required to hold extensive confirmation hearings. Since the debtor claimed the value of the lender liability suit could be as much as $80 million and at best, the bank’s plan was offering $3.25 million,3 the Court was required to determine whether the Joint Plan was fair and equitable as to the impaired dissenting classes. The Court bifurcated the confirmation hearing into two parts: One part was a five-day summary jury trial or mini-trial held before an advisory jury for the purpose of determining the likely value of the lender liability action; the other part was a number of days reserved for court trial of the equitable defenses to the bank’s counterclaim and an evaluation of the acceptability of the advisory jury verdict in the lender liability action, as well as remaining the confirmation issues.
When the advisory jury returned a $1.2 million judgment in favor of the bank and against the debtor on the counterclaim to the lender liability action, the confirmation scenario rapidly changed. The debtor and insider creditors withdrew their objections to the Joint Plan, the Joint Plan was mod-, ified to provide for some of the insider creditors to participate pro rata in distribution with other unsecured creditors, the plan proponents withdrew their objections to the debtor’s exemption claims, letter agreements of settlement and mutual releases were executed by the bank, the OCC and the debtor. The Court was not required to rule upon the equitable defenses, the acceptability of the advisory jury ver-*958diet or any of the other confirmation issues reserved for the second part of the bifurcated confirmation hearing. Instead, an order confirming the modified Joint Plan was entered after a brief hearing.
However, predictably for this case, this was not the end of the dispute. When debtor’s special litigation counsel applied for fees on an hourly basis in reliance upon the above-quoted sections of the orders approving their employment, the bank opposed an award in any amount, arguing, “counsel’s request to be paid for any legal fees in connection with the lender liability lawsuit should be denied.” Vol. I, Objections of SPNB to Final Fee Application of Hill and Baskin (“SPNB Objections”) filed May 24, 1989, p. 52, 11. 6-8. SPNB also attacked the reasonableness of the fees requested by special litigation counsel.
DISCUSSION
SPNB’s position that the lender liability counsel of the debtor should be denied all legal fees is predicated primarily on three grounds:
I. That the meaning of the term “settlement” as used in the September 30 Employment Agreement is different from that used in the Joint Plan and does not entitle special litigation counsel to apply for hourly compensation.
II. That the settlement contained in the confirmed Joint Plan did not benefit the debtor but only the debtor’s estate, and therefore the debtor recognized no “recovery” which would entitle special litigation counsel to request fees.
III. That the fees requested by special litigation counsel are “unreasonable, unnecessary, inadequate, inefficient and not cost effective.” (Vol. I, SPNB Objections, p. iii, 11. 23-4)
I.
Any resolution of this dispute must begin with the terms of the contract which is the genesis of that dispute; namely, the September 30 Employment Agreement. In interpreting this contract, we are bound by the law of the State of California. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938).
Three rules contained in the California Civil Code governing the interpretation of contracts in California are particularly helpful in this effort:
CC SECTION 1638. ASCERTAINMENT OF INTENTION; LANGUAGE
Intention to be ascertained from language. The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity.
CC SECTION 1639. ASCERTAINMENT OF INTENTION; WRITTEN CONTRACTS
Interpretation of written contracts. When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible; subject, however, to the other provisions of this Title.
CC SECTION 1644. SENSE OF WORDS.
Words to be understood in usual sense. The words of a contract are to be understood in their ordinary and popular sense, rather than according to their strict legal meaning; unless used by the parties in the technical sense, or unless a special meaning is given to them by usage, in which case the latter must be followed.
SPNB urges that the September 30 Employment Agreement is ambiguous and/or susceptible to more than one reasonable interpretation. They cite to numerous instances, including Hill & Baskin’s above-quoted argument that the bank’s plan was not a “settlement”, where the term “settlement” was used to imply a consensual agreement disposing of the lawsuit. Indeed, SPNB is correct that at various times Hill & Baskin disagreed with SPNB that the Joint Plan was a settlement and said so vigorously in their opposition.
However, SPNB’s leap to the conclusion that the Court needs extrinsic evidence of the intent of the parties does not necessarily follow from this concession. For one thing, the parties to the September 30 Employment Agreement — Grivas on the one *959hand and the special litigation counsel on the other — are not in dispute. Although California has purportedly, “... turned its back on the notion that a contract can ever have a plain meaning discernible by a court without resort to extrinsic evidence,”4 the Court can find no case in which the doctrine enunciated by Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co., 69 Cal.2d 33, 442 P.2d 641, 69 Cal.Rptr. 561 (1968) was used to permit consideration of extrinsic evidence where the parties to the contract had no dispute over the inter: pretation of the contract language.5 Nor has SPNB cited any such authority.
Further, SPNB has introduced no evidence to suggest that the special litigation counsel and Grivas disagree over the terms of the September Employment Agreement. Even if the bank had such evidence, it is questionable whether, absent a dispute between the parties to the contract, the Court could consider extrinsic evidence of their intention offered by a stranger to the contract.6 Therefore, the Court is returned to Civil Code Sections 1638, 1639 and 1644 in analyzing the meaning of the words used in the September 30 Employment Agreement.
Paragraph 11(d) of that agreement affords the special litigation counsel an option of being paid at a normal hourly rate rather than on a contingency fee basis, “... in the event of a settlement of all or any part of the Security Pacific litigation,_” Cal.Civ.Code Section 1644 directs that the words of a contract are to be understood in their ordinary and popular sense. The term “settlement” implies a termination or avoidance of all or part of a lawsuit. Gorman v. Holte, 164 Cal.App.3d 984, 988; 211 Cal.Rptr. 34 (2d Dist.1985).
In interpreting Paragraph 11(d) of the Agreement, the Court must be guided by the standard of reasonableness:
The standard for our ... interpretation of the clause is reasonableness. Cal.Civ. Code Section 3542 (West 1964) provides: “Interpretation must be reasonable.” [citations omitted] Southland Corp. v. Emerald Oil Co., 789 F.2d 1441, 1443 (9th Cir.1986).
Can the confirmation of the Joint Plan which compromised the lender liability action reasonably be considered a “settlement”? It is apparent that SPNB always considered it a “settlement”. We start with the quoted text of the July 8, 1988 SPNB Reply, supra, herein at p. 5. Further, the Disclosure Statement Re Second Amended Joint Plan of Reorganization filed November 7, 1988 and approved for distribution to creditors by this Court finds SPNB making the following statements about the Joint Plan:
Security Pacific National Bank (“Security Pacific”) and the Official Creditors’ Committee (“OCC”) (collectively referred to herein as the “Proponents”) have filed a Second Amended Joint Plan of Reorganization (liquidation) (the “Joint Plan” or “Plan”) as an offer to fully and finally settle all claims by Security Pacific against the debtor and debtor-in-possession and to fully and finally settle all claims by the Debtor and Debtor-In-Possession against Security Pacific_ (p. 2, 11. 12-19)
* * * * 3k *
At the heart of the Joint Plan is a Settlement Payment by Security Pacific.... This fixed sum is not an admission of liability or responsibility but is a “cost of defense” only_ (p. 6, 11. 14-20)
*960The Lender Liability Litigation against Security Pacific National Bank, presently pending in the San Diego County Superi- or Court as Case No. 582942. The Plan provides that this action will be settled and dismissed with prejudice, (p. 72, 11. 11-15)
The Second Amended Joint Plan of Reorganization likewise discussed SPNB’s proposal in terms of a “settlement”:
(c) Settlement Payment by Security Pacific
All Claims by Security Pacific against the Debtor and Debtor-In-Possession, and all claims of the Debtor and Debtor-In-Possession against Security Pacific, including but not limited to the Lender Liability Lawsuit, shall be deemed settled pursuant to Bankruptcy Code Section 1123(b)(3)(A) and dismissed with prejudice. (p. 30, 11. 6-12)
When the advisory jury verdict precipitated a withdrawal of the debtor’s opposition to the Joint Plan and modifications to the Joint Plan, the Joint Plan proponents and the debtor compromised their differences. A letter agreement of settlement was entered into by SPNB, the OCC and Grivas on or about January 27, 1989, and modified slightly on January 30, 1989. The letter settlement agreement provided:
Concurrently therewith, the Bank shall dismiss ... with prejudice its Cross-Complaint in the Lender Liability Action which is to be dismissed without prejudice pursuant to the Joint Plan. (Letter, January 30, 1989)
Although SPNB carved out a reservation as to resolution of the attorney fee issue now presented by these objections, the letter agreements are so clearly settlements as to make an argument to the contrary border on frivolous.
Then, the parties circulated a Notice of Intent to Seek Entry of an Order Approving Settlement Agreement between the Official Creditors’ Committee, Security Pacific National Bank and the debtor, William L. Grivas (“Notice of Intent”) to all creditors. The Notice of Intent stated, inter alia:
The OCC, the Bank and Grivas believe that approval of the settlement agreement is in the best interest of the estate. They note that the settlement agreement removed all impediments to swift confirmation, and that it has already substantially reduced and will continue substantially to reduce expenditures of attorney time and fees by, among other things, substantially reducing the length and scope of the confirmation hearing; eliminating possible appeal; and eliminating pending litigation regarding the debtor’s claimed exemption for lost future earnings, objections to the claim of SGI Phoenix, and equitable subordination of the claim of SGI Phoenix, (p. 3, 11. 22-27)
The Court approved the settlement and mutual releases were executed.
Finally, the most recent and, perhaps, most telling, characterization of what occurred is from the mouths of SPNB’s lead counsel, Kenneth R. Chiate and Robert L. Morrison, who co-authored a brief article entitled “California Advisory Jury Finds No Lender Liability Claim And Awards Lender $1.2 Million In Fees” in the August 1989 Lender Liability Law Report:
Under the plan, the creditors would receive about $0.70 on the dollar for their claims, but there would be nothing left for the debtor. The plan also required the dismissal of the lender liability case. In reality, the joint plan was a settlement of the debtor’s lender liability claim against the bank in which the bank was contributing approximately $2 million toward the plan. (Volume 3, No. 2, Lender Liability Law Report, p. 7-8)
It is against this backdrop of SPNB’s usage of the term “settlement” that this Court rhetorically asks whether the Joint Plan can reasonably be considered a “settlement” of the lender liability litigation. The answer is obvious.
II.
The second argument made against an award to special litigation counsel is that the settlement contained in the Joint Plan did not benefit the debtor, but only the debtor’s estate. Therefore, in the absence of a “recovery” by the debtor, special litigation counsel are not entitled to any *961fees. The argument makes much of the distinction between the terms “debtor” and “debtor-in-possession” as used in the Bankruptcy Code — a distinction with which no one quarrels. However, in the context of the September 30 Employment Agreement, it is a distinction without a difference.
The September 30 Employment Agreement is captioned “Application by Debtor-In-Possession to Employ Special Litigation Counsel and to Supplement and Modify Terms of Employment of Hill and Baskin” [emphasis added]. Throughout the application [which contains the infamous paragraph 11(d)] the terms “debtor-in-possession” and “debtor” are used interchangeably and synonymously. The order entered on the September 30 Employment Agreement likewise reflects the interchangeable use of the terms. The October 24, 1988 application which, in effect, substituted the firm of Capello and Foley for the Daughton Firm incorporates by reference the exact language of the September 30 Employment Agreement. The October 25, 1988 order authorizing Capello and Foley’s employment likewise incorporates those terms as an exhibit to the order.
While the distinction between a debtor and a debtor-in-possession is important for some aspects of bankruptcy practice, with respect to the employment of counsel by the estate, it has none. There would be no point to counsel applying to be employed pursuant to 11 U.S.C. Section 327 if counsel were not looking to reimbursement from the estate for services benefitting the estate. And, as twice discussed by this Court in In re Weingarden, 84 B.R. 691 (Bankr.S.D.Cal.1988) and In re Storms, 101 B.R. 645 (Bankr.S.D.Cal.1989), in the context of a Chapter 11 case, reimbursement to counsel from the estate is dependent upon benefit to the estate and services benefitting only the debtor will not be recompensed by the estate.
To the extent that this semantic game-playing has raised any doubt in the parties’ minds as to the Court’s intent in employing special litigation counsel, each order authorizing employment of special litigation counsel made the finding that the firms’ employment was “in the best interest of this estate.” Litigation counsel are employees of the estate and not the debtor, if that distinction in this context has any meaning.
III.
The final attack on the fees requested by special litigation counsel is on the reasonableness of those fees. The heading contained on page 126 of Volume I of SPNB’s objections to the Hill and Baskin fee application summarizes their position: “General objections: Overstaffing, duplication and other miscellaneous overcharges.” Although the objections address more than the fees requested by special litigation counsel, the Court will consider them only in the context of litigation counsel’s fee request.7 The thrust of SPNB’s objections is to question the need for three separate firms to prosecute the lender liability action on the debtor’s behalf. Had SPNB’s defense of this allegedly meritless litigation been less aggressive, this Court would have likely agreed.
However, at the earliest stages of this case, SPNB made a tactical decision to engage the debtor on all fronts and the debtor responded in kind. The opening salvo was the combined hearing on SPNB’s motion for relief from stay and the debtor’s motion for use of cash collateral, filed within days of the Chapter 11 petition filing, and which ultimately consumed six days of evidentiary hearings for a debt of slightly more than $2 million. This was followed by an unremitting barrage of motion upon motion, deposition upon deposition, production request after production request in both the Chapter 11 case and the lender liability action. As the conflict escalated, each side peppered the other with personal *962insults, invective and attacks which made dispassionate compromise virtually impossible.
The Court is dismayed but not surprised to learn that in the course of discovery in both actions the debtor produced over one million separate pieces of paper, representing almost all of its business records! SPNB produced 8,145 pages of documents, as well. [See Final Application of Capello and Foley, filed April 14,1989, p. 7,11. 6-9] Although this Court was not privy to every aspect of the lender liability litigation, in reading the voluminous fee applications and objections, responses and replies engendered by them, this Court has learned that at some point a private judge was hired to “referee” discovery disputes between the parties. The intensity of the conflict can be surmised from one revealing statistic: By June 1988, 15 months after the Chapter 11 filing, when the debtor sold his business and paid the principal and interest due SPNB in full, SPNB had already spent $1,459,300 in attorneys’ fees alone on the bankruptcy and lender liability actions and was estimating another $1 million in anticipated fees and costs. (See Declarations of Robert L. Morrison filed June 13, 1988, p. 2, 11. 16-25 and Kenneth'R. Chiate filed June 13, 1988, p. 3, 11. 7-9).
Although SPNB points to numerous hearings at which more than one attorney for the debtor was present, the Court’s recollection is that SPNB routinely had at least two counsel present at hearings before this Court. Transcripts offered of hearings before the state court judge in conjunction with other aspects of this case corroborate this practice in the lender liability action as well. The June 2, 1989 response of Capello and Foley to SPNB’s objections contains a plausible explanation for the practice on both sides:
Like many firms, Capello and Foley employ a team approach to their cases and this was no exception. Under the team approach, different attorneys address certain portions of ongoing matters so that work is distributed and shared and not duplicated. Unlike a large firm like Lillick and McHose, Capello and Foley does not and did not have the time to have two attorneys to perform the same job. (Capello and Foley’s Response, filed June 2, 1989, p. 13, 11. 12-17)
SPNB’s criticisms of duplication of services occasioned by Capello and Foley’s late entry into the lender liability action after the Daughton8 firm’s forced withdrawal are satisfactorily answered by Capello and Foley’s response:
Capello & Foley replaced the firms of Bryan, Cave, McPheeters & McRoberts, and Daughton, Hawkins & Bacon, who were disqualified by the Bank and forced to withdraw due to a conflict with the Bank, respectively. Despite more than one-year’s [sic] work on behalf of the Debtor, Bryan Cave has not sought compensation. Moreover, although the Bank knew of the grounds for disqualification, it delayed in asserting those grounds to the detriment of the Debtor. As a consequence, the Bank is actually saving money by not having to pay Bryan, Cave notwithstanding time incurred by Capello & Foley in becoming acquainted with proceedings it entered midstream. (Ca-pello and Foley’s Response filed June 2, 1989, p. 3, 11. 21-3; -,p. 4, 11. 1-8)
SPNB’s remaining criticism of the litigation counsel’s conduct of the lender liability action is directed to their refusal to agree to a moratorium on all discovery in the lender liability ease after the Joint Plan was filed in June 1988. SPNB claims that debtor’s special litigation counsel used the denial of its motion for stay to, “[run] up the lender liability fees and costs.... ” (Vol. I, SPNB Objections, p. 92, 11. 3-4.)
In defense of its opposition to a stay of discovery, debtor’s counsel correctly points out that SPNB had no obligation to, “keep the settlement offer on the table ...” between the time it filed its Joint Plan and the time it went to the confirmation hearing. (Reply of Hill and Baskin, et al. to *963Objections of SPNB filed June 1, 1989, p. 41, 1. 1.) The confirmation hearing on the Joint Plan was not scheduled to begin until mid-January 1989, or conclude before the end of that month. The lender liability action was scheduled for a six to eight week jury trial in state court starting in April 1989. It would have been entirely possible for SPNB to withdraw its plan on the eve of confirmation and, instead, proceed with trial of the lender liability action after drawing the debtor into a false truce on discovery.
The effect of the debtor’s dogged determination to bring the lender liability case to trial was undeniable:
[N]o matter what the Bank says now, it was only litigation counsel’s continued and vigorous prosecution of the lawsuit which ensured that the Bank’s offer stayed on the table, and was not reduced or entirely withdrawn prior to confirmation. ... Had discovery stopped, had the case ground to a halt, and had the litigation team turned to other endeavors, there is every reason to believe that the Bank’s proposed settlement would have been reduced or withdrawn altogether. (Reply of Hill and Baskin, et al., filed June 1, 1989, p. 23, 11. 2-6; 11-15)
* * * * * *
In summary, the Court finds the objections of SPNB to special litigation counsel’s fees to be without merit. First, the language of the September 30 Employment Agreement and the mirror-image October 25 Employment Order is not ambiguous. That provision of those orders which entitles special litigation counsel to apply for compensation at their normal hourly rates in the event of a “settlement” was properly invoked when the lender liability action was settled through the confirmation of the Joint Plan. Second, that provision of the September 30 Employment Agreement which limited compensation to a “recovery obtained by the debtor” does not act to bar counsel’s compensation on the theory that the recovery was one made by the debtor-in-possession and not the debtor. The employment orders are clear that special litigation counsel were employed by the estate; the record is clear that special litigation counsels’ efforts precipitated SPNB’s offer worth at least $3.25 million to the estate’s administrative, priority and unsecured creditors.
Finally, the reasonableness of the debt- or’s special litigation counsel fees cannot be examined in the abstract. They were a reaction to aggressive and vigorous litigation by SPNB. While the Court does not condone the excesses in which both sides indulged, neither will the Court condemn and, in so doing, punish only the debtor’s counsel for responses appropriate to the litigation hostilities engaged in by both.
Based on the foregoing, the Court makes the following awards of attorneys’ fees and costs in accordance with their election to be paid at their normal hourly rates:
1. To Capello and Foley, for services rendered in the lender liability action and summary jury trial, the sum of $225,313.50, together with costs, including expense of expert witnesses, in the sum of $96,713.77.
2. To Hill and Baskin, for services detailed in category No. 3 of its fee application (Security Pacific litigation), the sum of $610,803 for fees, together with costs, including expense of expert witnesses, in the sum of $82,794.53.
3. To Milberg, Weiss, Bershad, Spec-thrie and Lerach, for services in the sum of $29,504.25, together with costs in the sum of $1,170.30.
The amounts awarded as costs by this ruling include those costs awarded on an interim basis by this Court’s order of June 30, 1989 and July 7, 1989. To the extent the previously ordered costs have been paid, they should be deducted from the amounts awarded herein.
SPNB is directed to pay these fees and costs within ten (10) days of entry of an order in accordance with this Memorandum Decision. Sums remaining unpaid after that date shall bear simple interest at twelve (12%) percent per annum. Hill and Baskin are directed to prepare an order in accordance with this Memorandum Deci*964sion within ten (10) days from the date Qf its entry.
. The application stated:
For that portion of any recovery obtained by the debtor constituting compensatory damages other than non-punitive damages, special litigation counsel shall be paid 3 3‘A percent of the first $10 million of any recovery, 25 percent of the next $8 million of any recovery, - and 20 percent of all amounts of any recovery in excess of $18 million. In addition, special litigation counsel shall be paid 40 percent of any recovery constituting punitive damages. (Application filed September 30, 1987, Par. 11(b), p. 7)
. At some point the Official Creditors’ Committee joined in the SPNB plan which then became known as the Joint Plan.
. See, Debtor’s Objections to Proposed Disclosure Statement Re First Amended Joint Plan filed July 6, 1988, p. 8, n. 2.
. Trident Center v. Connecticut General Life Ins. Co., 847 F.2d 564, 568 (9th Cir.1988).
. Pacific Gas rejected the proposition that extrinsic evidence was inadmissible to vary the terms of a written instrument which was plain and unambiguous on its face, reasoning, "if words had absolute and constant referents, it might be possible to discover contractual intention in the words themselves and in the manner in which they were arranged. Words, however, do not have absolute and constant referents.” 69 Cal.2d at 38, 442 P.2d 641, 69 Cal.Rptr. 561.
.Were SPNB to offer such evidence, it could only do so on the theory that the words used in the contract had some objective meaning apart from the parties’ intentions; that is, that the words used had a meaning different from the terms which the parties themselves used to their satisfaction. This' is precisely the theory rejected by Pacific Gas.
. At the hearing held June 5, 1989, on the applications for compensation, the Court made an interim award to Hill and Baskin of fees for general bankruptcy representation of the debt- or. The interim award was a percentage of the fees requested by Hill and Baskin with a retention sufficient to cover any adjustments necessitated by SPNB’s objections to general counsel’s representation. Disposition of those objections will be dealt with by separate opinion.
. The Daughton firm merged with the firm of Bryan, Cave, McPheeters and McRoberts during the litigation. The latter firm had had a client relationship with SPNB which caused the Daughton firm to be disqualified. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490997/ | ORDER GRANTING IN PART OBJECTION TO EXEMPTIONS AND MOTION TO AVOID LIENS
MICKEY DAN WILSON, Bankruptcy Judge.
At hearing on motion to avoid lien under 11 U.S.C. § 522(f) and objection thereto, objection to claim of exemption, and objection to proposed sale of property of the estate, evidence was introduced and received, and thereafter the matters were taken under advisement. Upon consideration thereof, and of the record herein, the Court, pursuant to Bankruptcy Rules 7052 and 9014, finds, concludes, and orders as follows.
FINDINGS OF FACT
On March 30, 1984, James Ray Wiford and Katherine Sue Wiford (“Mr. Wiford;” “Mrs. Wiford;” “Debtors”) filed their voluntary petition for relief under 11 U.S.C. Chapter 7 in this Court.
With their petition, Debtors filed their Schedule B-2 and supplement thereto, listing assets owned by the Debtors at time of bankruptcy. These included “199 hogs,” Schedule B-2(h); and also included “f ... vehicles ... i. Farming supplies and implements ... k. Machinery, fixtures, equipment, and supplies ... used in business ... [and] l. Inventory ...,” listed in detail. With their petition, Debtors also filed their Schedule B-4 claiming property as exempt from their bankruptcy estate pursuant to 11 U.S.C. § 522(b), (l) and Bankruptcy Rules 1007, 4004(a). Debtors’ Schedule B-4 appeared in pertinent part as follows:
Type of property
The East Half of the Northeast Quarter of Section 19, Township 28, Range 24, Ottawa County, Oklahoma, 80 acres Homestead
Specify statute creating the exemption
31 O.S. § 1A1
Value claimed exempt
$260,000.00
*995Type of property
1983 Ford 350
1983 Ford 350
10 hogs
10 hogs
Hand tools
Farm Supplies, implements, equipment inventory, too[l]s and apparatus provisions and forage on hand for use of exempt stock for one year
¿g £ Q iloro to ¡=j- ^ £“T
M • po S' m
CO * . tr h* xn
CO LÍi*. Ui
W l ^ ® i-S jí
CO
CO
CO
M 03
Value claimed exempt
$1,500.00
1,500.00
850.00
850.00
400.00
67,530.00
930.00
Debtors Schedules B-4 did not itemize the “hand tools, farming supplies, implements, equipment, inventory, tools and apparatus” claimed exempt, did not make any reference to Debtors’ Schedules B-2, and did not specify which items were claimed exempt under authority of 31 O.S. § 1(A)(5) as opposed to (6). The total values of property claimed exempt given on Debtors’ Schedule B-4 do not clearly correspond with the values appearing on Debtors’ Schedule B-2 and supplement, although they might possibly be reconciled in detail.
With their petition, Debtors also filed their Schedule A-2 listing creditors claiming security interests in Debtors’ assets; and reporting a first mortgage on Debtors’ homestead in favor of Federal Land Bank; a first mortgage on Debtors’ non-homestead realty in favor of one Luke Shelton; a second mortgage on Debtors’ land, and a mortgage on unspecified “equipment,” in favor of Farmers' Home Administration (“FmHA”), in consideration of an “Operating Loan;” and mortgages on “Livestock and equipment” in favor of First National Bank of Bartlesville, Oklahoma (“1st National Bank”) and Miami National Bank, Miami, Oklahoma (“Miami Bank”). According to Debtors, they “made payments to [Miami Bank] and [Miami Bank] made payments to 1st National Bank ...,” Schedule A-2. Hereinafter, no distinction is made between Miami Bank and 1st National Bank.
On July 6, 1984, Miami Bank filed its “Application for Order to Abandon” and “Notice and Request for Order to Abandon” regarding at least some of the property listed by Debtors on Schedule B-2 — Miami Bank’s reference to “Tools & mise, equipment” being no improvement on Debtors’ vague claim of exemption. On July 11, 1984, Debtors filed their “Objection to Application for Order to Abandon” and requested a hearing, but stated no reason whatever for their objection. The objection was never set for hearing.
On July 11, 1984, Debtors filed their “Motion to Avoid Lien” pursuant to 11 U.S.C. § 522(f)(2) on property claimed exempt but subject to Miami Bank’s security interest; and a similar motion with respect to property subject to security interest of FmHA. In each motion Debtors described themselves as “being farmers, ranchers and breeders of hogs.” Each motion included an itemized list of property as to which lien avoidance was sought. On August 9, 1984, Miami Bank filed its “Answer to Motion to Avoid Lien” and its “Objection to Property Claimed as Exempt.” On August 20, 1984, FmHA filed its “Response ... to Motion to Avoid Lien.” These matters were heard on November 20, 1984.
James R. Adelman (“Adelman”) was appointed Trustee of Debtors’ estate in bankruptcy. On August 29, 1984, Adelman issued an unfiled “Notice to Parties-in-Interest of Proposed Sale Free of Liens and Encumbrances,” wherein he announced his intent to sell a “24 x 7 Gooseneck flatbed trailer.” On September 11, 1984, Debtors filed their “Objection ... to Sale by Trustee,” asserting “that debtors asked for this item to be exempt under Title 31 O.S.A. Section 1A 5 and or 6.” Debtors’ Schedule B-2(f) lists two different Gooseneck trailers; but no such trailer is listed on Debtors’ Schedule B-2(i), (k) or (l) or on Debtors’ Schedule B-4, or in either of Debtors’ motions to avoid lien. This matter was also heard on November 20, 1984.
At hearing on November 20, 1984, Mr. Wiford testified that he had been engaged *996in farming since boyhood; that Mrs. Wi-ford had been his wife for 22 years; that their farming activities recently included raising cattle and swine, baling hay for sale and as fodder for their own animals, and growing alfalfa for sale and as fodder for their own animals; that their farming operations were conducted on 240 acres of land owned by them, but in addition Mr. Wiford used his equipment for- “custom” baling jobs; that they had employed others to feed their swine, but not since 1983; that the Gooseneck trailer(s) were used, among other things, to move other items of equipment from place to place; that all of the equipment claimed exempt was necessary to conduct their farming operations, and that all of it was necessary to farm the 80 acres they claimed exempt as homestead; and that none of the equipment (with exceptions no longer relevant) was purchased with money borrowed from FmHA or Miami Bank.
On November 20, 1984, Debtors filed their “Amended Motion to Avoid Lien,” which specified the authority for exemption of each specific item of property, and in particular distinguished between 31 O.S. § 1(A)(5) and (6). On November 30, 1984, Miami Bank filed its “Post-Hearing Brief in Opposition to Motion to Avoid Lien.”
On July 31,1985, Miami Bank and FmHA filed their “Joint Motion ... for Relief From Automatic Stay,” asserting among other things that “On May 16,1983, [Miami Bank] executed a subordination agreement by virtue of which it subordinated in favor of [FmHA] any lien or security interest it then had or would after acquire on or in ... crops ... livestock and farm equipment purchased or refinanced by debtors with [FmHA] loans [or] ... to secure accounts resulting from advances to be made or supplies to be furnished,” Joint Motion p. 3 fl 6. On August 12, 1985, Debtors filed their “Objection ...” thereto. The matter was set for hearing on August 20, 1985, but the case docket does not indicate the occurrence or result of any hearing.
Debtors’ claim of exemption of 80 acres of land as homestead was not objected to. However, it appears that this acreage was subject to first mortgage in favor of Federal Land Bank, Schedule A-2, and was at some time after bankruptcy foreclosed upon and sold by Federal Land Bank, together with certain fixtures to which Federal Land Bank’s mortgage apparently attached, Status Report p. 2 ¶ 7.
On March 4, 1988, FmHA filed its “Renewed Motion for Relief from Automatic Stay and for Abandonment,” asserting that “Debtors abandoned the subject property and left the state in February, 1986 ...” and seeking authority "to take possession of and sell the subject property to realize whatever value it continues to have,” Renewed Motion pp. 1 and 2. The Court determined that “the debtors are now not farming and have not farmed for a number of months and further that the debtors’ farm real estate has been foreclosed upon,” and accordingly granted FmHA permission to seize and sell its collateral, but directed that sale proceeds be escrowed pending determination of the lien avoidance issues, Orders filed March 10, 1988.
On or about May 13, 1988, Adelman resigned as Trustee. On May 27, 1988, Scott P. Kirtley was appointed successor Trustee.
On June 14, 1989, Debtors filed their “Status Report,” stating that Debtors moved in October, 1985 to Lincoln, Arkansas where Mr. Wiford “was employed by Tyson Foods as swine field representative”; that in November, 1988, Mr. Wiford “accepted employment with Hudson Farms as swine farm manager and [Debtors] returned to Oklahoma”; and that Debtors now reside in Colcord, Oklahoma, Status Report p. 1 ¶ 1, 2.
Debtors further report that “following bankruptcy, the hogs owned by the Debtors were sold over a period of two ... to three ... months as readied for market ... The twenty ... hogs claimed as exempt by the Wifords were sold with the other swine ... Sale funds were delivered to Trustee, James Adelman,” Status Report p. 1 Í1 3.
Debtors further report that certain listed items “were repossessed by FmHA under purchase money security agreements and sold by them ...” Status Report p. 2 ¶ 5;
*997that other listed items “were junked as valueless ...” Status Report p. 2 1J 6; that other listed items “remained affixed to the real estate and were transferred with the realty at the time of sale by Federal Land Bank ...,” Status Report p. 2 If 7; and that one listed item, “pasture mower, 14', (listed as pasture drill within some pleadings),” was “stolen prior to sale and the theft reported to the County Sheriff ...,” Status Report p. 2 ¶ 8. The stolen item is valued on Debtors’ Schedule B-2 supplement at $1,000; whether this item was insured and the disposition of insurance proceeds, if any, is not reported.
Some of the items listed in Debtors’ “Status Report,” namely “Stock trailer, Circle H, 7' x 22'” (Status Report If 5B) and “Natural grain storage, Reed, 44 ton ... Grain storage, Reed, 30 ton ... Mill, modern, 5 H.P.” (Status Report ¶ 7C., D., E.) seem not to have been listed in Debtors’ original Schedules. However, all of these items were subject either to FmHA’s purchase money security interest or Federal Land Bank’s mortgage and security interest in fixtures, are no longer in Debtors’ possession, and apparently are no longer claimed by Debtors as exempt or subject to lien avoidance.
Debtors further report that they “have in their possession” certain listed items, namely a chain saw, lawn mower, Rototiller, and hand tools, Status Report p. 1-2 114.
Debtors further report that “The balance of the items listed within Debtors’ pleadings were sold following removal from the Debtors’ original acreage ... which resulted in the approximately ... $17,000.00 ... of sale proceeds held in escrow,” Status Report p. 2 119.
“Debtors continue to assert their exemption [and?] avoidance claims as to the entire sale proceeds, ... $2,000 ... derived from hog sales, and that property in Debtors’ possession,” Status Report p. 3 1110.
The items of property whose exemption and lien avoidance remain in dispute, including those allegedly junked or stolen but not including those repossessed under FmHA’s purchase money security interest or sold with realty pursuant to Federal Land Bank’s mortgage and security interest, and the authority under which they are claimed exempt according to Debtors’ “Amended Motion to Avoid Lien,” are as follows:
10 hogs for Debtor, James Ray Wiford
10 hogs for Debtor, Katherine Wiford
Provisions and forage on hand or growing for use of exempt stock for one year 1968 J.D. 3020
1976 International 464
1983 International 560
J.D. Plow 4-14 bottoms
J.D. Sickle Mower #38
New Holland Swather 490
New Holland Rake # 258
New Holland 850B round baler Parker feed wagon w/auger Calamet vacuum tank (1,500 gallon)
J.D. Grain Drill
Imco 6' box blade
6' blade
3 point carry all
5' Siderider mower
14' J.D. pasture mower
MFS Grain Auger 56' X 8"
Wyatt Grain auger 5' X 6"
Forney Welder
Air Compressor
Big bale fork, 3 pt.
Big bale fork, 2 pt.
O) co cd rH
<D co cd rH
CD co co tH
tO rH
tO i — I
tD ^ rH
<1 rH rH
i — I i — I
tH rH
< tH rH
tH rH
tO CO P
<4 CO co <D O
<J CO co CD O
<J CO to CD O
<J O O CO co i — I CO
CO ^ (M & co co rH CO
<i O <D CO cd rH CO
<1 r-I i (
to ^ _, i )
<J rH o a> CO rH CO
<1 rH o cd co rH CO
<J rH O CD CO cd rH CO
<1 i — I O 0) CO cd rH CO
<1 rH O O CO cd rH CO
*998Pride of Farms scales
Platform Scales
Chain saw (Sthil)
Riding lawnmower
Lawn mower
Rototiller
Field sprayer
Fuel tank, 500 gallon
Fuel tank, 120 gallon
Cattle working chute
500 hog panels (fencing)
1000 t posts
48 feeders
1 cattle feeder
1 creep feeder
11 Farro rite houses
35 A type hay houses
14 farrow crates
20 cattle panels
2 portable confinement units
Livestock medication hand tools
i> rH CJ co cd rH CO
rH o <D co cd rH CO
í> rH o <3> co cd rH CO
í> rH o Q> co cd rH CO
í> rH o <3> co cd rH CO
> rH O CO co rH CO
0) eg co rH CO
® CO có rH CO
i o CO co
o CD CO co
o <D CO cd ! >
o d> CO cd T — I CO
o cd CO cd 1 — I CO
1 < o O) CO cd
o O) CO cd
o CO cd
o 0) CO cd
o CO cd I >
o <D CO cd rH CO
o <D CO cd rH CO
o <D CO cd rH CO
o <D CO cd rH
On June 15, 1989, FmHA filed its “Supplemental Report Re: Sale of Property by Farmers Home Administration,” and stated therein that sale proceeds had been placed in an interest bearing account; “[t]he balance of this account as of May 31, 1989 was $18,529.93”; and “FmHA’s pro rata share of these proceeds is $13,712.15, and [Miami Bank’s] pro rata share is $4,817.78 as of that date,” Supplemental Report p. 2.
Any “Conclusions of Law” which ought more properly to be “Findings of Fact” are adopted and incorporated herein by reference.
CONCLUSIONS OF LAW
This a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B), (K), (N), (O), 11 U.S.C. §§ 522(b), (f)(2), (l), 363(b)(1), (f).
Adelman announced his intent to sell a Gooseneck trailer; Debtors objected, stating “that [they] asked for this item to be exempt under Title 31 O.S.A. Section 1A 5 and or 6.” In fact, neither of Debtors’ two Gooseneck trailers were ever listed on their Schedule B-4, or in their Schedules B-2(i), (k) or (l) which might be supposed to correspond to their Schedule B-4; nor did they ever amend their Schedules to include any Gooseneck trailer among property claimed as exempt; nor did they ever list any Gooseneck trailer in any of their motions, or their amended motion, to avoid lien. In short, Debtors never claimed any Gooseneck trailer as exempt. Their objection to sale is entirely unfounded and must be denied.
Debtors move to avoid liens under 11 U.S.C. § 522(f)(2). A prerequisite for lien avoidance under this subsection is that the collateral be exempt property; FmHA and Miami Bank have objected to lien avoidance on grounds that amount to objection to exemption, and in addition Miami Bank has formally objected to Debtors’ claim of exemption. Accordingly, this Court will consider, first, Debtors’ exemptions; and second, avoidance of liens on property allowed as exempt.
FmHA objects to exemption of “the Reed grain storage, 44 ton, Reed grain storage, 30 ton, Modern Mill 5h, and 1978 N.H. hay bin 490 because these items are fixtures which were annexed to the' real estate,” FmHA Response p. 1. The first three items named were transferred with Debtors’ realty sold by Federal Land Bank, and their disposition is no longer in issue. The item last named, “1978 N.H. hay bin 490,” is not named as such anywhere in Debtors’ Schedules or motions. It may be the same item as the “New Holland Swather 490” claimed as exempt under 31 O.S. § 1(A)(5); but if so, it seems not to have gone with *999the realty sold by Federal Land Bank, which in turn indicates that it is not a fixture. Accordingly, FmHA’s objection to exemption on this ground cannot be sustained.
FmHA further “opposes Debtors’ Motion in toto for the reasons set forth in the Oklahoma Bankers Association Amicus Curiae Brief filed in the case of Delbert E. Berry and Anna Catherine Berry v. First National Bank and Trust Company of Vinita, and United States of America, Case No. BK-82-01101, Adversary No. 82-0730 and 82-0731, currently pending before this Court. A copy of such brief is attached as Exhibit ‘A’ and incorporated herein,” FmHA Response p. 3. The brief was not attached; and this line of argument may be considered unbriefed and abandoned. In any event, this Court’s decisions in the Berry case and adversary proceedings just cited are now pending on appeal, and need not be relitigated here.
FmHA further “opposes Debtors’ Motion in toto for the reason that the items claimed as exempt herein are not specifically claimed as exempt in Schedule B-4 attached to the Debtors’ Petition,” FmHA Response p. 3. A claim of exemption should be detailed enough to permit parties in interest “to decide which claims to challenge,” Payne v. Wood, 775 F.2d 202, 206 (7th Cir.1985), cert. den. 475 U.S. 1085, 106 S.Ct. 1466, 89 L.Ed.2d 722 (1985). Here, the items claimed as exempt are not itemized on the Schedule B-4; and the relationship between the Schedule B-4 and various subdivisions of Schedule B-2 is not clear. Yet it is apparent that Debtors intended that their claim of exemption on Schedule B-4 refer in some manner to the items listed in detail on Schedule B-2. This Court has already denied exemption of a Gooseneck trailer listed in neither place; but Debtors need not always be required to list the same property twice, once on Schedule B-2 and again on Schedule B-4. The Court does not condone claims of exemption that are vague and difficult to ascertain; but under the circumstances here, disallowance of any exemption whatever would be too harsh a penalty. Accordingly, FmHA’s objection to exemption on this ground cannot be sustained.
FmHA further objects to exemption of $67,530 worth of property, because of a $5,000 limitation imposed by 31 O.S. § 1(C) on operation of 31 O.S. § 1(A)(5), (6). The $5000 limitation imposed by 31 O.S. § 1(C) became effective on April 3,1984. Debtors filed bankruptcy on March 30, 1984, and may claim exemptions under Oklahoma law applicable on that date, 11 U.S.C. § 522(b)(2)(A); In re Pelter, 64 B.R. 492 (W.D.Okla.1986). Thus, 31 O.S. § 1(C) does not apply to these Debtors. Accordingly, FmHA’s objection to exemption on this ground cannot be sustained.
Miami Bank objects to exemption because “debtors have waived their exemption rights to the subject property by signing notes and security agreements granting [to Miami Bank] security interests in said property,” Miami Bank’s Objection p. 4 ¶ IV(A). No authority is cited for this remarkable proposition. It is “entirely elementary” that exemption rights are not effective against foreclosure of consensual liens, Keist v. Cross, 118 Okl. 142, 143, 247 P. 85 (1926). However, no law known to this Court calls for waiver of exemption rights for all purposes, merely because a security agreement has been signed. The Court’s attention is not drawn to any explicit waiver-of-exemption clause in any note or security agreement among these parties; and if any such clause did appear and was effective as among these parties, its effect as to Debtors’s bankruptcy estate (whose Trustee was not party to such waiver) is not explained. Waiver is the voluntary relinquishment of a known right, 28 AM.JUR.2D (1966) “Estoppel and Waiver” § 154. No waiver of Debtors’ exemption rights appears. Accordingly, Miami Bank’s objection on this ground cannot be sustained.
Miami Bank further asserts that “debtors have no exemption rights in the subject property because they have no equity in it, the unpaid balance of the indebtedness exceeding the value of the collateral,” Miami Bank Objection p. 4 1 IV(B). *1000Of Oklahoma’s many categories of exempt property, only one, namely debtor’s “interest” in a motor vehicle, refers to debtor’s equity interest, In re McCoy: Wilson v. General Motors Acceptance Corp., 643 F.2d 684 (10th Cir.1981). All other Oklahoma exemptions refer to property items themselves, not just debtor’s equity interest therein. Accordingly, Miami Bank’s objection to exemption on this ground cannot be sustained.
Debtors each claim exemption of ten hogs under 31 O.S. '§ 1(A)(14). The Oklahoma exemption statute at one time provided for exemption of “Ten (10) hogs,” without qualification, 31 O.S.A. (1971) § 1(12). Since at least 1981, however, the statute has provided for exemption of “Ten hogs, that are held primarily for the personal, family or household use of” the debtor claiming exemption (emphasis added). Debtors herein raised and sold swine as a source of income. They owned 199 hogs at time of bankruptcy, and sold all of them “as readied for market;” they merely claim the proceeds from sale of twenty of these hogs — any twenty — as exempt. There is no evidence that any of Debtors’ 199 hogs were held for personal, family or household use. What evidence there is, indicates that all of Debtors’ hogs were held for the same purpose, namely as a source of income, and disposed of in the same way, namely sold for income. Under these circumstances, Debtors’ claim of exemption of hogs, or their proceeds is improper. and must be denied.
Debtors also claim exemption of “provisions and forage on hand for use of exempt stock for one year” under 31 O.S. § 1(A)(16). There being no exempt stock, there can be no exempt forage for use of exempt stock, In re Cass, 104 B.R. 382 (N.D.Okla.1989); and this claim of exemption must be denied.
Debtors also claim exemption of various items of equipment under 31 O.S. § 1(A)(5) or (6). Some items are claimed exempt under both 31 O.S. § 1(A)(5) and (6). .
Miami Bank points out that the property thus claimed as exempt “consists largely of machinery and other equipment worth a large sum. [Miami Bank] submits that said property is not the type of property that qualifies for exemptions under which it is listed by the debtors and, in any event, consists of amounts of machinery and other equipment grossly in excess of that needed ...” Miami Bank Objection p. 5 11 IV(C). Although the 1984 amendment adding 31 O.S. § 1(C) mentioned above is not directly applicable to bankruptcy cases filed before the effective date of said amendment, this Court has held that said amendment was intended by the Oklahoma Legislature to clarify the intended scope of the pre-1984 exemptions in accordance with prior Oklahoma case law, In re Helmuth, 92 B.R. 494 (N.D.Okla.1988). Therefore, Debtors’ claim of exemption under either 31 O.S. § 1(A)(5) or (6) must be limited to property worth, at most, $5000; and exemption of property in any value greater than that cannot be allowed. However, Debtors may be entitled to exempt even less than $5000 worth of property, depending on the actual use of and need for the items claimed as exempt.
Generally, items are exempt as “implements of husbandry used upon the homestead” under 31 O.S. § 1(A)(5) if they are appropriate for domestic use on Debtors’ curtilage; while items are exempt as “tools or apparatus of trade or profession” under 31 O.S. § 1(A)(6) if they are used by workers of a certain sort “on the job.” It is incongruous to claim the same property exempt as “implements of husbandry” (which must be for domestic use) and as “tools of trade” (which cannot be for domestic use). Under peculiar circumstances, such claims of exemption might occasionally prove justified; but, notwithstanding Bankruptcy Rule 4003(c), it seems that the burden of explaining away such contradictory claims of exemption should be on these Debtors. Nevertheless, in the present case there is no indication that Debtors or their attorney apprehended the incompatibility of 31 O.S. § 1(A)(5) and (6). For purposes of this decision only, this Court will overlook the legal inconsistency of claiming the same item exempt under either 31 O.S. § 1(A)(5) or (6).
*1001However, Mr. Wiford testified that the all the items claimed exempt were necessary to conduct his farming operations, and that all of them were necessary to farm his homestead. It is improbable that the same equipment needed for a big farm (240 acres) is needed for a small one (80 acres or less). It is especially improbable that the same equipment needed for commercial farming operations on 240 acres is needed for domestic husbandry on the area immediately annexed to Debtors’ farmhouse. This presents a evidentiary inconsistency which this Court cannot overlook or excuse.
Items may be exempt as “implements of husbandry used upon the homestead” only to the extent such items are appropriate for domestic use upon Debtors’ curtilage; see In re Cass, supra; In re Helmuth, supra. There is evidence that Debtors’ 240 acres were largely given over to use as a commercial farm. Debtors’ “homestead” exemption might well have been objected to, yet no objection was made, and the entire 80 acres was exempted by operation of law, 11 U.S.C. § 522(Z), Bankruptcy Rule 4003(b). However, the failure to object may have been due to the fact that the property was subject to mortgage, which would override any interest of the bankruptcy estate in the property even if it was not exempt, and against foreclosure of which exemption would be ineffective anyway. This Court will therefore allow as exempt only such “implements” as are appropriate for domestic use on Debtors’ true curtilage, notwithstanding the possibly exaggerated size of Debtors’ total “homestead” exemption. See In re Cass, supra. Here, it is clear that some at least of Debtors’ equipment was used in their commercial farming operations and not for domestic use; but it is not clear what equipment might have been reserved for domestic use. Although Mr. Wiford’s testimony in this regard is impeached, there is no evidence apart from his testimony. The burden is on Miami Bank to show that these items are not appropriate for domestic use, Bankruptcy Rule 4003(c); and under these circumstances this burden has not been met. Accordingly, $5000 worth of the items listed as disputed in “Findings of Fact” above and claimed exempt under 31 O.S. § 1(A)(5), should be allowed as exempt as “implements of husbandry used upon the homestead” — except for one additional factor, to be discussed below.
Items may be exempt as “tools or apparatus of trade or profession” if they are inexpensive, hand-held or reasonably limited in bulk, complexity and artificial power, used by artisans, professional persons in a strict sense, or other skilled or semi-skilled workers' in the personal exercise of their special aptitudes, In re Helmuth, supra, 92 B.R. pp. 498-499. Whether any form of agriculture is a “trade or profession” for purposes of this exemption is an open question, In re Cass, supra. The benefit of doubt must be given to Debtors, Bankruptcy Rule 4003(c). Accordingly, $5,000 worth of the items listed as disputed in “Findings of Fact” above, and claimed exempt under 31 O.S. § 1(A)(6), should be allowed as exempt as “tools and apparatus of trade or profession” — except for one additional factor, to be discussed below.
There is one more factor which must be taken into account. The law by which exemption is determined is that in effect on the date of filing of bankruptcy. But the facts by which exemption is determined must include those bearing on Debtors’ anticipated future conduct with regard to items claimed exempt. That is, property is exempt if it is put to certain uses; if it is not to be so used in the future, it should not be exempt, 31 AM.JUR.2D (1989) “Exemptions” § 79. Exemptions of “implements,” “tools,” etc. are not a complicated species of cash reserve; they are intended to leave Debtors in possession of certain items of property which are used for the support of Debtors and their family. Items may be sold and their cash proceeds exempted, but only if the proceeds will be used in a manner furthering the purpose of the exemption — usually, reinvested in replacement property which itself will be exempt. Here, most of the disputed property has been liquidated. This fact alone does not deprive Debtors of their exemption *1002rights in the property or its proceeds; for Debtors might have intended to reinvest the proceeds in exempt equipment, and in any event this Court will not penalize Debtors for expedient measures taken while litigation was under advisement. But in this case, Debtors’ farm itself was foreclosed on by its mortgagee, Federal Land Bank. Since then, Mr. Wiford has been employed in sales and managerial capacities. His career as an independent farmer terminated with the foreclosure of his farm; and thereafter, his farm equipment became redundant to his support — save as items to be sold for money. With regard to “implements of husbandry”, it appears that the only items which can be said to be of any further use “upon the homestead” are the items still in Debtors’ possession— namely, a chain saw, lawn mower, Rototiller, and hand tools. Accordingly, these items, and these alone, may be exempt as “implements of husbandry used upon the homestead” under 31 O.S. § 1(A)(5). With regard to “tools of trade,” none of these items or their proceeds can be said to be of any further use to an individual whose “trade” is not farming. This makes it unnecessary to determine whether farming is a trade, or whether Mr. Wiford’s present activities are a trade, for exemption purposes. Accordingly, none of these items may be exempt as “tools or apparatus used in a trade or profession” under 31 O.S. § 1(A)(6).
Since the only property allowed as exempt is the chain saw, lawn mower, Rototiller and hand tools exempted as “implements of husbandry,” this is the only property as to which Debtors might avoid liens under 11 U.S.C. § 522(f). Even though exempt “implements,” these items are not “implements ... of the trade ” of Debtors, 11 U.S.C. § 522(f)(2), since they are held for domestic use and are only exempt to that extent. A closer question is whether they are “household goods” or “appliances,” 11 U.S.C. § 522(f)(2). A lawn mower seems to fit reasonably well within the common meaning of these terms — it is a large “appliance” but not all that different from, e.g., a vacuum cleaner. A chain saw fits less comfortably within these categories. All things considered, it appears that all of the items in Debtors’ possession should be included as “household goods” or “appliances” within 11 U.S.C. § 522(f)(2).
Miami Bank objects to lien avoidance, stating that “Because the debtors are unable to avoid the liens under State law, they are therefore foreclosed from seeking avoidance under the Federal scheme,” Miami Bank Answer p. 2 ¶ (D). As stated, this proposition has no merit, indeed is difficult to understand or credit.
Miami Bank further objects to lien avoidance “because the property is not exempt,” Miami Bank Answer p. 3 1 (E). This ground fails as to property which is exempt, namely the implements, goods or appliances in Debtors’ possession.
Miami Bank further objects to lien avoidance because “Title 11 U.S.C. § 522(f) was enacted to remedy situations where non-business consumers have granted security interests in property without much value, such as true household items. This section should not be extended beyond the evil it was intended to reach, and thus should not be applied where valuable property was given as security interest for a loan by a debtor in business,” Miami Bank Answer p. 3 H (F). Miami Bank accurately states Congressional intent, although the Court of Appeals of this Circuit has not recognized Congressional intent as limiting the operation of § 522(f), In re Helmuth, supra; In re Liming, 797 F.2d 895 (10th Cir.1986). But the only property allowed exempt by this Court as to which liens might be avoided is not “business” property; and although its value is uncertain, it probably has a resale value approaching zero. This is just the sort of property to which Congress meant § 522(f) to apply. Accordingly, Miami Bank’s objection in this regard is not well taken under these circumstances, and cannot be sustained.
Miami Bank further objects to lien avoidance because “The lien avoidance prayed for by the debtors, on property of substantial value, would constitute an unlawful taking by this Court of this creditor’s property without due process of law in violation *1003of the Fifth Amendment of the United States Constitution,” Miami Bank Answer p. 3 ¶ (G). This interesting question was apparently not presented to the Court of Appeals of this Circuit in In re Liming, supra. In In re Thompson, 867 F.2d 416 (7th Cir.1989), the Court of Appeals of the Seventh Circuit upheld the constitutionality of § 522(f) against challenge under the Fifth Amendment “Takings” Clause, because “lien avoidance is not a taking when it is authorized before the creditor makes the secured loan in question ... section 522(f), when as here it is applied prospectively, does not violate the takings clause of the Fifth Amendment,” citing U.S. v. Security Industrial Bank, 459 U.S. 70, 103 S.Ct. 407, 74 L.Ed.2d 235 (1982). This decision is not persuasive. In U.S. v. Security Industrial Bank, supra, debtors sought to avoid liens which had been granted and perfected before enactment of 11 U.S.C. § 522(f). The Court of Appeals of the Tenth Circuit held that § 522(f), so applied, violated the Takings Clause. The Supreme Court agreed that the operation of § 522(f) “would result in a complete destruction of the property right of the secured party” of a sort that might well violate the Takings Clause as construed and applied by the courts, id. 459 U.S. pp. 75-78, 103 S.Ct. pp. 410-412. But the Supreme Court held that § 522(f) was not intended (or, at least, should not be read) to apply retrospectively, and affirmed on that ground without deciding the “ ‘difficult and sensitive questions arising out of the guarantees of the’ Takings Clause,” id. 459 U.S. p. 82, 103 S.Ct. p. 414. The Supreme Court never said that § 522(f) was constitutional if applied prospectively; the Supreme Court said only that § 522(f) did not apply retrospectively at all, which, given the facts before the Court, made it unnecessary to settle the constitutional question. The Seventh Circuit opinion implies that government can seize or destroy any property it wishes, without compensation, provided it gives advance notice thereof — a terrifying doctrine in the context of condemnation proceedings, for example. However, as noted above, the collateral here involved is not of substantial value. Any question of “taking” is therefore academic, even though extremely interesting and important. This Court will not render an academic opinion on so weighty an issue.
For whatever it may be worth, therefore, Debtors’ motion to avoid lien as to property allowed as exempt and now in Debtors’ possession should be GRANTED.
Exemption of the chain saw, lawn mower, Rototiller, and hand tools now in Debtors’ possession is GRANTED, and to this extent FmHA’s and Miami Bank’s objections to Debtors’ claim of exemption is DENIED. Otherwise, FmHA’s and Miami Bank’s objections to Debtors’ claim of exemption are GRANTED. Debtors’ motion to avoid lien is GRANTED as to the property allowed as exempt, but is otherwise DENIED.
AND IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490998/ | ORDER DENYING RECONSIDERATION
THOMAS C. BRITTON, Chief Judge.
This debtor’s chapter 13 plan was before the court for confirmation on June 21.
On July 21 confirmation was denied for reasons spelled out in this court’s Order Denying Confirmation and Dismissing Case (CP 11). 102 B.R. 269.
On July 31, the debtor filed a verified motion for new trial, reconsideration, rehearing, to vacate order denying confirmation and dismissing case and for leave to file amended chapter 13 plan”. (CP 13). That motion was heard on September 5. In essence, this debtor acknowledges that his original plan was defective and that the denial of confirmation was justified, but he now proposes to offer a second plan designed to overcome the failings of the first plan.
This motion is denied. If this court is to continue to meet its obligations to the litigating public which it is charged to serve, it cannot permit one litigant to preempt so much of this court’s limited time and resources, as to preclude this court giving prompt and thorough attention to the demands of other litigants. Ramski has had his day in court and if I give him the benefit of a second effort, I know that I will be forced to shortchange another litigant who has not had his first day in court.
I cannot tell other litigants that their bankruptcy plans cannot be considered promptly and thoroughly because a previous litigant now wishes to restructure an ill-conceived and faulty plan, which consumed hours of this court’s limited time.
DONE and ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8490999/ | MEMORANDUM DECISION
THOMAS C. BRITTON, Chief Judge.
The plaintiff creditor seeks exception from discharge under 11 U.S.C. § 523(a)(2)(A) for her $55,000 claim. The debtor has answered and the matter was tried on September 5. I now conclude that plaintiff has failed to carry her burden to establish this exception from discharge.
A debt for obtaining money by false pretenses, false representation or actual fraud is excepted from discharge under § 523(a)(2)(A). It is plaintiff’s contention that she was the victim of the debtor’s inducing her to invest $55,000 in a restaurant business based on his misrepresenting his ownership of a note which he would sell to obtain proceeds to invest in the business. She further contends that her admitted naiveté was taken advantage of by the debtor in his siphoning of funds from the business and failing to pay bills. (CP 10 at 3-4).
The parties were close friends for 15 years. A business opportunity to buy a restaurant in July 1988 was discussed by the debtor with plaintiff, her husband and another friend. The plaintiff’s husband rejected the idea of investing with the debtor, as did the other friend. Plaintiff went forward and invested $55,000 of her own funds to become a “partner” with the debt- or’s wife. This investment would cover the first six months of the business’ operation. The debtor invested no cash, but the plaintiff understood that he committed himself to invest $20,000 from the proceeds of a $155,000 note.
A corporation was formed, although it appears that stock was never issued. The debtor managed the restaurant from September to December 1988, until he had a heart attack. He never made a cash investment, and drew no salary. The plaintiff worked as the cashier.
The dispute centers on plaintiff’s contention that the debtor made misrepresentations which concealed the following facts: (1) that the proceeds of the note were pledged to pay a mortgage; and (2) the actual yield of no more than $300 per month from the sale of the note would provide nothing to the debtor because he did not own the note.
The grounds relied upon are that plaintiff was defrauded and that the debtor:
“tricked her, misled her and played upon her naivity [sic] and trust.” (CP 10 at 4).
However, the factual circumstances persuade me that the plaintiff’s insistence on investing her money without adequate knowledge about the business and when her husband and friend refused to invest shows plaintiff’s blind faith in the debtor for which he cannot be held solely responsible. Plaintiff has not come forward with sufficient persuasive evidence that the debtor’s statements with respect to ownership and use of the note proceeds actually defrauded her.
Plaintiff’s alternative theory of a loss of $7,000 caused by the debtor’s access to register receipts and cash which should have been deposited into a bank account was not established by the evidence. The debtor’s explanation at trial, that salaries and vendors were paid by cash from the register, has not been refuted by contrary evidence.
It has long been settled that to except a debt from discharge under § 523(a)(2)(A), plaintiff must prove that the debtor’s conduct involved moral turpitude or intentional wrong, that he had an actual intent to deceive or defraud the plaintiff. 3 Collier on Bankruptcy (15th Ed.1989) ¶ 523.08[4] nn. 12 and 13. Plaintiff must also prove reasonable reliance on the representation. Id. n. 14.
The proof does not support the theory of trickery, although it clearly shows plaintiff’s naiveté. That fact alone does not entitle her to relief under the statute.
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 she has failed to do so.
*1018As is required by B.R. 9021, a separate judgment will be entered dismissing the complaint with prejudice. Costs may be taxed on motion.
DONE and ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491000/ | MEMORANDUM OPINION
JOHN H. SQUIRES, Bankruptcy Judge.
This matter comes before the Court on a motion for summary judgment pursuant to Federal Rule of Civil Procedure 56 filed by plaintiffs, Andrew Paul Henderson and Verlean Henderson (the “Hendersons”). For the reasons set forth herein, the Court having considered all the pleadings, exhibits and memoranda filed, does hereby deny the motion for summary judgment.
I. JURISDICTION AND PROCEDURE
The Court has jurisdiction to entertain this motion pursuant to 28 U.S.C. § 1334 and General Orders of the United States District Court for the Northern District of Illinois. The motion constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A), (K) and (O).
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 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 Donald v. Polk County, 836 F.2d 376, 378-379 (7th Cir.1988).
In 1986, the Supreme Court decided a trilogy of cases which encourage the use of summary judgment as a means to dispose of factually unsupported claims. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
“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 v. Stanadyne/Chicago Div., 832 F.2d 374, 378 (7th Cir.1987) (quoting Wainwright Bank & Trust Co. v. Railroadmens Federal Sav. & Loan Ass’n of Indianapolis, 806 F.2d 146, 149 (7th Cir.1986)). The burden is on the moving party to show that no genuine issue of material fact is in dispute. Anderson, 477 U.S. at 256, 106 S.Ct. at 2514; Celotex, 477 U.S. at 322, 106 S.Ct. at 2552; Matsushita, 475 U.S. at 585-586, 106 S.Ct. at 1355-1356. There is no genuine issue for trial if the record, taken as a whole, does not lead a rational trier of fact *171to find for the nonmoving party. Matsushita, 475 U.S. at 587, 106 S.Ct. at 1356. However, “[i]f the evidence is merely color-able or is not significantly probative, summary judgment may be granted.” Anderson, 477 U.S. at 249-250, 106 S.Ct. at 2510-2511; see also Valley Liquors, Inc. v. Reinfield Importers, Ltd., 822 F.2d 656, 659 (7th Cir.1987), cert. denied, 484 U.S. 977, 108 S.Ct. 488, 98 L.Ed.2d 486 (1987).
Once the motion is supported by a prima facie showing that the moving party is entitled to judgment as a matter of law, a party opposing the motion may not rest upon the mere allegations or denials in its pleadings, rather its response must show that there is a genuine issue for trial. Anderson, 477 U.S. at 248, 106 S.Ct. at 2510; Celotex, 477 U.S. at 323, 106 S.Ct. at 2552; Matsushita, 475 U.S. at 587, 106 S.Ct. at 1356. 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. Davis v. City of Chicago, 841 F.2d 186, 189 (7th Cir.1988); Marine Bank, National Association 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 311, 312 (7th Cir.1986), cert. denied, 479 U.S. 1092, 107 S.Ct. 1304, 94 L.Ed.2d 160 (1987); In re Calisoff, 92 B.R. 346, 350-351 (Bankr.N.D.Ill.1988). 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 5.Ct. 284, 78 L.Ed.2d 262 (1983).
Rule 12(i) of the General Rules of the United States District Court for the Northern District of Illinois adopted by the General Order of the Bankruptcy Court on May 6, 1986, requires that the party moving for summary judgment file a detailed statement of material facts as to which they contend there is no genuine issue. Rule 12(m) in!turn requires that the party opposing the motion file a statement of material facts as to which there is a genuine issue. If the Rule 12(m) statement fails to deny the facts set forth in the movant’s statement, those facts will be deemed admitted.
III. UNDISPUTED FACTS AND BACKGROUND
Due to the fact that neither defendant filed a Rule 12(m) statement contesting the asserted uncontested facts set forth in the Rule 12(Z) statement, those facts are deemed admitted for purposes of this motion. On December 2, 1988, the Hendersons filed a voluntary Chapter 7 petition.. They listed certain real property on the Schedule Bl, consisting of residential property at 3652 West Grand Avenue, Chicago, Illinois. They valued same at approximately $50,000.00. On the Schedule B4, they claim exemptions in the total amount of $15,000.00 in accordance with the aggregate homestead exemptions available to both individual debtors under Illinois law. See Ill.Rev.Stat. ch. 110, ¶ 12-901 (1988).
On March 17, 1989 the instant adversary proceeding was filed against Madison Bank & Trust (“Madison”) and Northwest National Bank of Chicago (“Northwest”) to avoid two junior trust deeds pursuant to 11 U.S.C. § 506. The complaint alleges that the property was purchased in 1985 for $50,000.00. Taiman Home Federal Savings & Loan, not joined as a party, allegedly holds a first mortgage encumbering the property in the principal amount of $47,-500.00. Subsequently, the Hendersons remodeled and modernized the premises and procured loans from Madison and Northwest secured by trust deeds in the respective amounts of $10,611.00 and $14,757.00. They contend that after the improvements, the value of the realty did not exceed $60,-000.00. The Hendersons assert that if the property were sold as of the date of the filing of the petition for its fair market value, after paying the first mortgage loan balance and the cost of liquidation and satisfaction of their claimed homestead exemptions, there would no equity for the benefit of the estate or for payment of the outstanding junior liens of Madison and Northwest. Accordingly, they contend that pursuant to section 506 the junior liens *172of Madison and Northwest should be avoided and those claims classified as unsecured.
On March 24, 1989, the registered agents of Madison and Northwest were served with a summons and complaint. However, neither defendant has pleaded. On July 26, 1989, the instant motion was filed and accompanied by an appraisal of the property. Said appraisal was performed by Lawrence Levine who valued the property at $51,-720.00 as of May 30, 1989. In addition, the Hendersons filed an affidavit asserting joint ownership of the premises, their claim of homestead in same and their personal opinion that the fair market value of the property does not exceed $60,000.00. Furthermore, included with the moving papers were recorded copies of the trust deeds executed by the Hendersons in October, 1986 and January, 1987, respectively in favor of Northwest and Madison. The memorandum in support of the motion contains a copy of a letter dated July 19, 1989, from an attorney purportedly representing Madison advising that she did not intend to appear to contest the matter.
IV. DISCUSSION
A. 11 U.S.C. § 506
The Hendersons seek to utilize section 506 to strip down the subject junior liens. Section 506(a) provides that “[a]n allowed claim of a creditor secured by a lien on property in which the estate has an interest ... is a secured claim to the extent of the value of such creditors’ interest in the estate’s interest in such property....” 11 U.S.C. § 506(a). Section 506(d) provides (with immaterial exceptions) that a lien which is not an allowed secured claim is void. The effect of these provisions is to strip down a lien encumbering the collateral to the value of the security. Such relief is increasingly requested by alert counsel. Section 506 strip downs are part of the strategic arsenal potentially available under the Bankruptcy Code.
Another main purpose served by section 506 is to put the secured creditor who chooses to pursue his rights in bankruptcy in the same position that he would occupy if he had decided to bypass bankruptcy. In re Lindsey, 823 F.2d 189, 191 (7th Cir.1987). Absent the action taken by the Hendersons in the instant adversary proceeding, the junior trust deeds and liens created thereby encumbering the property in favor of Madison and Northwest would pass through bankruptcy unaffected but for the Hendersons’ discharge from personal liability for the unpaid debts secured by the trust deeds. See In re Tarnow, 749 F.2d 464, 466 (7th Cir.1984). Under the undenied and verified allegations contained in the complaint, the property is subject to a senior mortgage lien in favor of Taiman in an amount less than the alleged current fair market value. If that balance is added to the aggregate claimed homestead exemptions of $15,000.00, however, there is no value left in the collateral to which the allegedly subordinate junior liens of Northwest and Madison can attach. Hence, the Hendersons conclude those liens should be declared void under section 506(d).
The use of section 506 to avoid liens on real estate to the extent that the amount of the lien exceeds the value of the collateral has been cited with approval in several other cases decided in this District. See In re Lyons, 46 B.R. 604 (Bankr.N.D.Ill.1985); In re Roth, 38 B.R. 531, 540 (Bankr.N.D.Ill.) aff'd, 43 B.R. 484 (N.D.Ill.1984). Use of the section 506 stripping technique has recently been held to be properly invoked by Chapter 7 debtors. In re Zlogar, 101 B.R. 1 (Bankr.N.D.Ill.1989). As Judge Coar noted in Zlogar, section 506 only determines the status of the secured claim and does not determine the rights of the debtor and its creditors with respect to any subsequent disposition of the property. Application of section 506 is but the first step in what is a two-step process. The second step, not presently before the Court, is whether the debtor can retain ownership of the property after the liens have been stripped down. Summary judgment was appropriate in Zlogar because there was no issue of material fact as to the applicability of section 506(d) involving liens on real property in a Chapter 7 case where the property had been abandoned by the trustee and the debtors sought to re*173tain ownership. Thus, the law is clear that the relief sought is potentially available. The judges of this Court usually follow law pronounced by other judges of this Court unless there appears a substantial reason not to adhere to the principle of stare deci-sis. The Court perceives no such reason in this case.
B. The Debtors’ Waiver of Homestead
The flaw in the Hendersons’ argument relates to the undisputed fact of their express release and waiver of their homestead rights as clearly indicated from the face of both the trust deeds. They have asserted their statutory homestead exemption rights to which no objections have been filed. Both trust deeds appear to be stock-form instruments and have been executed by the Hendersons. The trust deeds state that the Hendersons are “hereby releasing and waiving all rights under and by virtue of the homestead exemption laws of the State of Illinois.” Such exhibits along with the memorandum in support of the motion clearly indicate that they have made the requisite written waiver and release required by Ill.Rev.Stat. ch. 110, ¶ 12-904 (1988).
Section 12-904 provides in pertinent part that “[n]o release, waiver or conveyance of the estate so exempted shall be valid, unless the same is in writing, signed by the individual and his or her spouse.... ” The trust deed language, common to both, clearly releases and waives the Hendersons’ homestead rights in favor of Northwest and Madison alone. Similar language was held to give rise to a presumption that homestead was knowingly waived and that it was for the debtors to rebut such presumption in order to assert a homestead exemption claim to proceeds from the sale of real estate. See In re Harrigan, 74 B.R. 224, 232 (N.D.Ill.1987). Hence, the Hendersons are not entitled to the relief sought as a matter of law.
A party who signs a document is presumed to have read it and understand its contents. Harrigan, 74 B.R. at 232, citing 12 Illinois Law and Practice, Contracts ¶ 151; see also Finley v. Felter, 403 Ill. 372, 86 N.E.2d 188 (1949). In cases where the express release, waiver or conveyance of homestead rights is taken by way of mortgage or security, it is presumed as a matter of law that the waiver was knowing and intelligent. The burden to rebut such presumption is on the debtor. The secured claimant is not burdened with proving that the debtor read and understood the homestead waiver clause.
Waivers of homestead rights should be viewed narrowly. In re Hockinson, 60 B.R. 250, 253 (Bankr.N.D.Ill.1986). Homestead can be effectively extinguished by conveyance from the owner thereof. 20 Illinois Law and Practice, Homesteads 1175-76. The debtor who conveys legal and equitable title in his residence to a trustee expressly releasing and waiving homestead is not entitled to a homestead exemption in the proceeds of the sale made by the trustee at the debtor’s direction. In re Sjostrom, 338 F.2d 676 (7th Cir.1964). Sjostrom was decided before the adoption of the Bankruptcy Code containing the provisions of section 506(a) and (d). Moreover, the statute then in effect providing for waiver of the homestead is not identical to the current statute but is substantially similar. Thus, Sjostrom is still controlling and applicable.
None of the cited cases involved the issue of whether section 506 stripping should be allowed to void an otherwise perfected lien on a debtor’s homestead where the debtor has expressly waived the homestead exemption in the conveyance creating the perfected lien. To allow summary judgment would effectively eviscerate section 12-904 and render that Illinois statute nugatory in bankruptcy cases.
V. CONCLUSION
For the foregoing reasons, the Court hereby denies the motion for summary judgment. This adversary proceeding is set for trial on January 10, 1990 at 2:00 p.m. for prove up of the value of the property, the amount and validity of the liens securing the claims encumbering same and for other relief under section 506. A Final *174Pretrial Order will be entered concurrently herewith.
This Opinion is to serve as findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491001/ | FINDINGS OF FACTS, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS is a Chapter 7 liquidation case and the matters under consideration are two challenges to the discharge of Marion E. Pedigo (Debtor). The first is presented b.y a Complaint filed by Debbie Green Moore (Moore), as personal representative of the estate of Twanna LaShon Green, a deceased minor, and as a surviving parent of Twanna LaShon Green in Adversary Proceeding No. 89-175. In her three-count Complaint Moore contends that the Debtor should be denied a discharge pursuant to § 727(a)(2), § 727(a)(3), and § 727(a)(4) of the Bankruptcy Code. In Count I, Moore alleges that within one year of the commencement of the Bankruptcy case, the Debtor transferred several parcels of real property and assigned certain mortgages receivable with the specific intent to hinder or delay creditors. Based on the foregoing, Moore asserts that the Debtor is not entitled to a general bankruptcy discharge by virtue of § 727(a)(2) of the Bankruptcy Code.
In Count II, Moore argues that the Debt- or has concealed, destroyed, mutilated, falsified, or failed to keep books and records from which the Debtor’s financial condition or business transactions might be ascertained and, therefore, he is not entitled to a discharge by virtue of § 727(a)(3). Count III of Moore’s Complaint states that the Debtor knowingly and fraudulently made a false oath in or in connection with the *281Bankruptcy case by failing to disclose the transfer of assets and by failing to disclose income. As a result, Moore maintains that the Debtor should be denied a discharge pursuant to § 727(a)(4) of the Bankruptcy Code.
The second Complaint is brought by Larry S. Hyman, the duly appointed and acting Trustee for the estate of the Debtor. In his two-count Complaint, the Trustee seeks a denial of the discharge pursuant to § 727 of the Bankruptcy Code. In Count I, the Trustee states that the Debtor has transferred real property with the intent to hinder, delay, or defraud creditors or the Trustee and that the Debtor should, therefore, be denied a discharge pursuant to § 727(a)(2) of the Bankruptcy Code. In Cóunt II of the Trustee’s Complaint, he alleges that the Debtor, under penalty of perjury, failed to disclose transfers of property on his statement of financial affairs and, therefore, made a false oath in the Bankruptcy Case. As a result, the Trustee seeks a denial of the discharge of the Debt- or pursuant to § 727(a)(4).
At the conclusion of the pretrial conference, the parties agreed that the adversary proceedings would be consolidated for trial and that the evidence presented at that time would resolve all issues raised by the Complaints of the Trustee and Moore. The facts established at the final evidentiary hearing which are relevant to the disposition of these matters are as follows:
The Debtor, who is now divorced, was married to Hazel M. Pedigo for more than twenty-five years. The Debtor during the marriage acquired several parcels of real property located in the southside of St. Petersburg. While these properties were acquired allegedly as rental property, it is the Debtor’s contention they were not very rentable, and that he did not receive any meaningful income from the properties. The Debtor at this time is a handyman and in general earns his living as an independent contractor repairing residential properties.
On January 23, 1988, the Debtor, via a quit-claim deed, conveyed all his right, title and interest in 685 30th Avenue South, St. Petersburg, Florida, to his then wife, Hazel M. Pedigo. The deed indicated on its face that it was recorded in the public records of Pinellas County on March 30, 1988 (Plaintiff’s Exh. No. 11). In addition, the Debtor deeded his right, title and interest in other real property located in St. Petersburg to his then wife. This deed stated on its face that it was executed on January 23, 1983, and was notarized on March 23, 1983. However, the notary’s stamp indicates that the notary’s commission, which is valid for four years, was to expire on October 9, 1991. .This deed, even though executed in 1983, was not recorded until March 25, 1988 (Plaintiff’s Exh. No. 3). The Debtor also executed a quitclaim deed on the same day, January 23, 1983, conveying by a quitclaim deed all his right, title and interest in certain adjoining property to his then wife. This deed, just like the previous one, was purportedly executed on January 23, 1983, and was purportedly notarized the 26th day of January, 1983, again notwithstanding the fact that the stamp of the notary indicates that the notary’s commission was to expire on October 9, 1991 (Plaintiff’s Exh. No. 4). The Debtor also executed, again on July 10, 1987, a quitclaim deed conveying to his then wife real property. This deed, like the others, is notarized, by the same notary allegedly on the 15th day of July, 1987, even though the commission of the notary would expire on October 9, 1991. It is noteworthy that the deed again was recorded on the same date as the others, March 25, 1988 (Plaintiff’s Exh. No. 7).
On November 15, 1987, the Debtor also conveyed his interest in real property by way of a quitclaim deed to his then wife. • This deed indicates on its face it was executed on November 15, 1987, but was not recorded until March 25, 1988.
The Debtor also assigned a certain mortgage note receivable due from by Denver J. Stutler and Stuart Arnold, III, on June 10, 1987, to his then wife. This assignment, unlike the other deeds, was recorded on November 10, 1988, the date the document was notarized. The Debtor assigned another mortgage note executed by Henry E. Turner and Ruby Lee Turner to his exwife. This assignment bears an exe*282cution date of November 20, 1987, and was also recorded on March 25, 1988, in the public records of Pinellas County. It should be noted in this connection that, while the Débtor professed to have no legal knowledge in real estate transactions, all the documents recited earlier were prepared by him, with the exception of the one assignment of mortgage which was prepared by an attorney.
In 1985, the Debtor was the owner and operator of an apartment house which was destroyed by fire and, as a result of the fire, an infant known as Twanna LaShon Green was killed. The estate of Twanna Green sued the Debtor in the Circuit Court in and for Pinellas County and sought to recover damages. On July 19, 1988, the Circuit Court, based on a jury verdict, awarded a money judgment in the principal amount of $450,000 against the Debtor which, after being credited with a payment made by the co-Defendant, still represents an outstanding liability of $444,500.
On December 29, 1988, the Debtor filed his Voluntary Petition for Relief under Chapter 7 of the Bankruptcy Code. In connection with this Petition, the Debtor also filed his Statement of Financial Affairs. The Schedule of Liabilities filed by the Debtor indicates one secured creditor, the Debtor’s son, who allegedly obtained a mortgage on the Debtor’s residence; an unsecured obligation to Sears, Roebuck in the amount of $2,300; and the judgment rendered by the Circuit Court rendered in favor of Twanna LaShon Green, scheduled to be in the amount of $444,500. The only other claim scheduled is a contingent liability to the Bank of Boston which relates to a mortgage of one of the properties which was transferred by the Debtor to his then wife.
In response to Question No. 12, of the Statement of Financial Affairs which required the Debtor to disclose transfers of any kind, absolute or otherwise, of all types of properties, real or personal, during the period immediately preceding the filing of the Petition, the Debtor denied having transferred any properties within the time period indicated by the question. In response to Question 9(b), which required the Debtor to reveal any assignment of any property for the benefit of creditors or any general settlement with creditors within one year, the Debtor answered, “Hazel M. Pedigo” and below stated, “Terms — Divorce Settlement, Pinellas County Circuit Court, Case No. 88-607917”.
It appears that the Debtor filed a Petition for Dissolution of Marriage in Pinellas County. While the Debtor was represented by counsel, his wife, Hazel M. Pedigo, was not. On May 31, 1988, the Circuit Court entered a Final Judgment of Dissolution of Marriage which made no provision for alimony or for any property settlement except by reference to the fact that the parties amicably divided their separate real and personal properties accumulated by them during their marriage. At the duly scheduled and held meeting of creditors pursuant to § 341, the Debtor denied again under oath that he had transferred any properties within one year preceding the filing of the bankruptcy.
There is nothing in this record to indicate that the Debtor received any consideration of any sort for any of these conveyances and transfers and the transfers described earlier effectively denied the Debtor of all holdings with the exception of one piece of property which he claims to be his homestead, which has been claimed and allowed as exempt from administration.
The claim of the Trustee is based on § 727(a)(2) and contends that all these transfers were made within one year of filing of the bankruptcy petition with the specific intent to hinder or delay creditors, or in the alternative, that the Debtor made a false oath in bankruptcy in that he failed to disclose under penalty of perjury on his Statement of Affairs the transfers described earlier.
The claim of Moore is based on § 727(a)(2) alleging that the transfers described earlier were done with the specific intent to transfer the properties described earlier with the specific intent to hinder or delay or defraud creditors. In the alternative, Moore’s claim is based on § 727(a)(3), charging that the Debtor had failed to keep books and records from which his financial condition could be ascertained and/or § 727(a)(4) that the Debtor committed a *283false oath in bankruptcy by failing to disclose the transfers described earlier and by failing to disclose income and other assets received.
Under § 727 of the Bankruptcy Code, the burden is on the objecting party to prove that the debtor should be denied his discharge by clear and convincing evidence. Bankruptcy Rule 4005. In re Bernstein, 78 B.R. 619 (Bankr.S.D.Fla.1987). Further, § 727 must be construed liberally in favor of the debtor and strictly against the creditor. In re Greenwalt, 48 B.R. 804 (Bankr.Colo.1985).
Under § 727(a)(2)(A), the creditor objecting to discharge bears the burden of proving that the debtor has fraudulently transferred property with the intent to hinder, delay or defraud creditors within one year before filing a petition for bankruptcy. In re Chalik, 748 F.2d 616 (11th Cir.1984). The law is well settled that the intent must be actual fraudulent intent. See 4 Collier on Bankruptcy: § 727.02[3] (15th Ed. 1984), Cycle Accounting Services, 43 B.R. 264 (Bankr.Tenn.1984), In the Matter of Brooks, 58 B.R. 462 (Bankr.W.D.Pa.1986). Therefore, before a debtor will be denied a discharge under § 727(a)(2)(A), his actual subjective intent to hinder, delay or defraud creditors must be demonstrated.
Based on the evidence established in this record, this Court is satisfied that this Debtor is not entitled to a discharge for the following reasons:
It is clear that these transfers were not made in contemplation of a settlement of a divorce, certainly not those which were purportedly executed in 1983 when the Debtor was still married and there was no divorce pending. The Court expressly rejects the wife’s testimony to the effect that she failed to record the deeds until 1988 because she forgot that she received them from her husband and only realized that she was the owner of these properties when she moved out in preparation for the divorce. It is not difficult to infer that after the husband suffered the judgment in the amount of $450,000 in the suit filed by Moore, he became painfully aware of the fact that unless these properties were transferred out, they might be subject to levy and execution by Moore, who no doubt was about to seek to obtain satisfaction of the judgment. Moreover, this Court is satisfied that none of the conveyances are supported by any consideration and from the facts it is fair to conclude that these purchases were falsely notarized and consummated in order to prevent Moore from reaching these properties and subjecting them to levy or execution.
In this connection, it should be noted and there is no question that both the Debtor and his then wife were more than equivocal in this testimony covering dates those deeds were executed and notarized. It is clear and appears from the notary seal that the notary’s commission was to expire on October 9,1991. Under Fla.Stat. § 117.01, a commission of a notary is valid for four years. Thus, a notary with a seal indicating an expiration date of 1991 could not have possibly notarized the document in 1983. In sum, there is hardly any question that after Moore obtained her judgment, there was a considered and deliberate effort to remove all properties from the legal ownership of the Debtor and to transfer them to his then wife. It is just as clear that these properties were not transferred, contrary to the divorce decree as part of an amicable party settlement between the parties. In this connection, it also should be noted that some of the transfers purportedly occurred several years before the divorce even started and one occurred one month before the Petition for bankruptcy was filed.
Considering the claim of false oath, this Court is also satisfied that the Debtor was fully aware of these transfers and he understood the questions on the Statement of Affairs and he did knowingly and willfully conceal these transfers by his negative answers to these questions. The Debt- or’s defense that in answering Question 9(b) he revealed these transfers by referring to the property settlement is woefully inadequate. The Debtor’s failure to disclose these transfers on the Statement of Affairs, coupled with his answers under oath at the § 341 meeting, leaves no doubt that he did intend to conceal these transactions for the specific purpose of preventing the Trustee from pursuing these transac*284tions for the specific purpose to hinder a known creditor who was holding an unsatisfied judgment in the amount of $450,000 against the Debtor.
The professed unsophistication of this Debtor who claims to be a simple handyman with an eighth-grade education is belied by the fact that he was involved over the years in very extensive real estate transactions. The fact of the matter is that most of the documents involved in the transfers discussed were prepared by him and he fully understood the effect of a quitclaim deed and the assignment of mortgages and the legal requirements to perfect the transfers of real estate. Concerning the claim that the Debtor failed to keep adequate books and records, it is clear that he has none. However, since these properties apparently did not produce any sizable income, his failure to keep books might be excusable under the circumstances. In any event, based on the reasons stated above, this Court is satisfied that the Debtor is not entitled to his discharge.
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/8491002/ | ORDER ON MOTION TO DISMISS
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 case and the matter under consideration is a Motion to Dis*285miss a Complaint filed by Murray Industries, Inc., Murray Chris-Craft Cruisers, Inc. and Uniflite, Inc. (Debtors). The Complaint, entitled “Complaint to Recover Overpaid Taxes” sets forth a claim seeking to recover a tax refund contending that they, or one of them, are entitled to a refund of taxes allegedly overpaid in the amount of $303,518.34. The Debtors contend that the payment of this amount constitutes a double payment of taxes of Uni-flite, Inc. for the fourth quarter of 1983 because the taxes owed by Uniflite for that quarter were paid through weekly deposits in 1985 and also by Murray Chris-Craft Cruisers, Inc. (Cruisers). The Amended Complaint seeks a turnover of a tax refund in the amount of $303,518.34 and basically restates the claim stated in the original Complaint but in addition also alleges that the Debtors, or one of them, are entitled to a refund and the refund allocation if received will be determined in these three cases which have been procedurally consolidated. The right to a turnover order is asserted on the basis that the refund claim is property of the estate, thus subject to turnover pursuant to Section 542 of the Bankruptcy Code; that Uniflite filed an amended IRS Form 941 and requested a refund and that the Internal Revenue Service (IRS) failed to honor the request. The Motion to Dismiss the Amended Complaint, which is accompanied by a Memorandum, is based on the following specific contentions of the Government.
First, it is the contention of the Government that as a condition precedent to any suit to recover a tax refund, the taxpayer must first present an administrative claim to the Commissioner; second, the request for refund must be denied within 120 days from the date of the request; third, the taxpayer must, as condition precedent to obtaining a refund, state that it is not indebted to the Government in any amount; and, fourth, any suit for refund must be filed in the United States District Court. In addition, it is the contention of the Government that the Government did not waive sovereign immunity and it cannot be sued without its consent. While Section 505 of the Bankruptcy Code gives this Court jurisdiction to determine the validity, priority and extent of the tax claim of the Government, this Section does not authorize this .Court to grant affirmative monetary relief unless the Government filed a claim in the particular case. In addition, the Government also urges that this is not a “core” proceeding as characterized by the Debtors but is a “related” proceeding, therefore assuming, but not admitting, that this Court has jurisdiction, this Court is powerless to enter a dispositive order, but its jurisdiction is limited to hear the matter and to submit proposed findings of fact and conclusions of law to the District Court.
In opposition to the points raised by the Government, the Debtor first contends that Uniflite did in fact assert a claim for a refund when it filed its amended Form 941 in which, on line 19, it claimed to have made an overpayment in the amount of $227,563.18 and on the block which permits a taxpayer either to have the overpayment applied to the next return or to seek a refund, the refund block was checked off, indicating a formal request for refund. Second, the Debtors contend that inasmuch as the IRS failed to act on the request for a refund within 120 days, its inaction is legally tantamount to a denial of the request; third, it contends that Section 505(a)(2)(B) of the Code which deals with the right of an estate to a tax refund nowhere requires a showing that the estate is not indebted to the Government for any tax and such provision-in the Internal Revenue Code is not controlling. Concerning the claim of sovereign immunity, the Debtors point out that the Government is not entitled to invoke the protection of sovereign immunity simply because the Government did in fact file a proof of claim in this consolidated Chapter 11 case, albeit after the Debtor filed its Complaint, the Government filed a Notice of Withdrawal of the proof of claim.
Concerning the Government’s contention that in any event the claim asserted by the Debtor is a non-core or a related proceeding, it is the Debtors’ position that the claim asserted by the Debtors affects the liquidation of the assets of the estate and, therefore, is within the definition of “core” *286proceeding set forth in Section 157(b)(2)(0). Thus, the claim is a “core” proceeding in which this Court can enter a final disposi-tive order.
Before discussing in detail the respective contentions of the parties, it is now clear and is apparent that neither Murray Industries, Inc. nor Murray Chris-Craft Cruisers, Inc., have a viable refund claim against the Government for the simple reason that they are not the taxpayers who have a legitimate right to assert a refund. Rather it is Uniflite who was the taxpayer and who is the only entity with a possible claim for a refund. The fact that the funds might have been furnished to make the overpayment either by Murray Industries, Inc. or Murray Chris-Craft Cruisers, Inc. is of no consequence. Based on these, this Court is satisfied that the Motion to Dismiss the Complaint vis a vis these two Plaintiffs shall be granted and the Complaint as far as their respective claims are concerned shall be dismissed with prejudice.
This leaves for consideration the attack by the Government on the claim for refund asserted by Uniflite. Of course, the threshold question is whether or not a Complaint which seeks affirmative monetary relief against the Government in light of the doctrine of sovereign immunity may be permitted to stand. It cannot be gainsaid that by virtue of the specific provision of the Internal Revenue Code, 26 U.S.C. Sections 6511-6532, a taxpayer who claims to be entitled to a refund and whose request for the refund is denied by the IRS may institute a suit against the Government in appropriate United States District Court provided it met all conditions precedent referred to earlier for the institution of such an action. Estate of Fink, 852 F.2d 153 (6th Cir.1988); Rosenbluth Treading v. United States, 736 F.2d 43 (2d Cir.1984); Busse v. United States, 542 F.2d 421 (7th Cir.1976); Stoller v. United States, 444 F.2d 1391 (5th Cir.1971). Inasmuch as the statute expressly allows the taxpayer to institute a suit for refund against the Government, the defense of sovereign immunity cannot stand. The fact that such refund suit is filed in this Court and not in the United States District Court should not make any difference subject except to the extent of the limitations on this Court’s jurisdiction to entertain such suits. Thus, this Court is satisfied that Section 106 of the Bankruptcy Code which deals with waiver of sovereign immunity does not even apply to tax refund claims at all since this subject is specifically dealt with under the Internal Revenue Code. Section 106 was designed to deal with other types of claims which a Debtor seeks to offset against any claim filed by the Government in the particular case. In addition, in the present instance, as noted, while the Government initially filed a proof of claim, the same was withdrawn, thus currently there is no claim on record in this case against which a Debtor may seek an offset which is provided by subclause (b) of Section 106 of the Bankruptcy Code.
The additional requirement of the Internal Revenue Code that before a taxpayer is entitled to a refund it must not be indebted to the Government in any amount is a horse of a different color. It is not disputed by counsel of the Debtors that there is a provision of the Internal Revenue Code which deals with the right to tax refunds. However, to overcome the obvious, counsel for the Debtor contends that Section 505 which gives jurisdiction to this Court to determine the amount or legality of any tax, any fine or penalty relating to a tax has no such requirement. Section 505(a)(2)(B) which deals with tax refunds is really a limitation of a right of a trustee to request such refund and does not grant power to the Bankruptcy Court to order payment of a refund. Clearly, the provision set forth in Section 505 cannot and should not override specific provisions of the Internal Revenue Code.
Next, the 120 day limitation set forth in Section 505(a)(2)(B) is not applicable to this case inasmuch as contrary to the Government’s position, the filing of the amended Form 941 was tantamount to a request for a refund and since no refund was forthcoming, this condition precedent to instituting a suit to recover the refund has been ful*287filled; and since the Complaint alleges these facts the Motion to Dismiss based on this contention is without merit.
This leaves for consideration the last proposition urged by the Government that contrary to the allegations set forth in the Complaint, this is not a “core” but a “related” proceeding and, therefore, this Court is without jurisdiction to enter a final dispositive order. The claim that the proceeding is properly characterized as core is based on Section 157(b)(2)(0) which is the umbrella provision provided by Congress to include the addition to the specific enumerated described proceeding all proceedings affecting the liquidation of the assets of the estate. Concededly, this catchall provision would technically encompass any and all proceedings which affect administration of the estate including those which were concluded to be clearly outside of the power of the Bankruptcy Court to adjudicate. A literal interpretation of this Rule would include all claims of the estate against third parties including a claim for damages for breach of contract which has been found by the Supreme Court not to be the type of civil proceeding which a non-Article III Court may adjudicate. Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). As noted, a proceeding under this provision must do much more than affect the estate or if successful would benefit the estate. Matter of Wood, 825 F.2d 90, 95 (5th Cir.1987); In re STN Enterprises, 73 B.R. 470, 481 (Bkrtcy.D.Vt. 1987); Acolyte Electric v. City of New York, 69 B.R. 155 (Bkrtcy.E.D.N.Y.1986); In re American Manufacturing Technologies, 60 B.R. 645, 650 (Bkrtcy.S.D.Cal. 1986). The claim asserted against the Government in this case is in fact, contrary to the intimation set forth in the Amended • Complaint, not a turnover of a specific piece of property but affirmative monetary relief i.e., a money judgment. The only connection of the claim asserted is that the taxpayer who seeks a refund is a Chapter 11 debtor. This alone, in this Court’s judgment, is not sufficient to render this proceeding to be a “core” proceeding. For this reason, it can only be handled by this Court within the limitations set forth in 28 U.S.C. § 157(c)(1) unless there is a consent by the Government to the entry of a dispos-itive final judgment subject only to review under 28 U.S.C. § 158.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion to Dismiss as to Murray Industries, Inc. and Murray Chris-Craft Cruisers, Inc. be, and the same is hereby, granted and the Complaint as far as their claims are concerned shall be dismissed with prejudice. It is further
ORDERED, ADJUDGED AND DECREED that the Motion to Dismiss as to Uniflite, Inc. be, and the same is hereby, denied and the Government shall file an answer within fifteen (15) days from the date of entry of this Order. It is further
ORDERED, ADJUDGED AND DECREED that if an answer is filed, a pretrial conference shall be scheduled.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491003/ | ORDER ON MOTION TO IMPOSE SANCTIONS AND ASSESS FURTHER INTEREST AND AMENDED MOTION TO IMPOSE SANCTIONS AND ASSESS FURTHER INTEREST
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 case and the matter under consideration is the next round, unfortunately not the last, in this seemingly endless dog fight between counsel for the Debtor and the Trustee and his attorney. The immediate Motion is a “Motion for Award of Attorney Fees” (sic) and a Motion for award of interest and sanctions. These Motions are filed by Albert H. Mick-ler, counsel of record for George Schumann Tire & Battery Company (Debtor), and seek an order directing the Trustee’s attorney to reimburse the Debtor for the attorney fees and costs incurred by the Debtor in connection with an appeal filed by the Trustee and the Trustee’s attorney. The order involved in the appeal related to an order entered by this Court which determined the reasonable attorney fees which were to be paid to Mr. Ronald Bergwerk for his services rendered to the estate. It appears that the appeal was considered in due course by the District Court which entered an order affirming this Court’s determination of the amount found to be reasonable as compensation for the services rendered by Mr. Bergwerk.
Originally, counsel for the Debtor filed a Motion and an Amended Motion to Impose Sanctions and to Assess Further Interest. The Motion was set for hearing in due course before the undersigned. At the hearing the Court announced that the Motion of the Debtor for sanctions would be denied without prejudice to the Debtor to file a lawsuit seeking a surcharge against the Trustee. This Court also indicated that the Trustee should tender payment to the Debtor of whatever funds were held by the Trustee. Although counsel for the Debtor was directed to submit the order, it appears that he failed to do so.
On July 21, 1989, the Debtor again filed a Motion for Award of Attorney Fees and Motion for Award of Interest and Sanctions. These are the two Motions which were heard by the Court and which are the matters under consideration. It should also be noted that currently there is an appeal pending in the Eleventh Circuit Court of Appeals filed by the Mr. Berg-werk, attorney for the trustee. The appeal involves the order of the District Court which affirmed this Court’s Order which related not only to the determination of reasonable attorney fees but also an Order entered on July 25, 1988, an Order on Motion for Refund entered September 8, 1988 and an Order on Cross Motion for Rehearing entered on the same date, September 8, 1988.
MOTION FOR AWARD OF ATTORNEY FEES
The Motion seeks an award of attorney fees based on the allegation that the appeal prosecuted by counsel for the Trustee and on behalf of the Trustee was frivolous and, therefore, it is appropriate to award attorney fees and costs to the Debt- or. The award of attorney fees for frivolous appeals is governed by Rule 38, Federal Rules of Appellate Procedure. While FRAP rules are designed to govern the appellate practice for appeals from the District Court to the Court of Appeals, there is no sound reason why it should not be equally applied from appeals from the order entered by this Court to the District Court. After all, the District Court is the *298only tribunal which would be in a position to determine whether or not the appeal was frivolous or not and not the trial court. The power of the Bankruptcy Judge to impose sanctions on the basis that an appeal was frivolous was considered by the Ninth Circuit in the case of In re Akros Installations, Inc., 834 F.2d 1526 (9th Cir.1987). In Akros, the Bankruptcy Court imposed $500 sanctions upon a law firm for filing a Motion for protective order which was not justified. The law firm appealed and the District Court affirmed the Bankruptcy Court and imposed a Rule 11 Sanction for appealing the Bankruptcy Court order. The law firm appealed again and the Court of Appeals, speaking through Judge Tang, held that Rule 11 sanctions were inappropriate on appeal from the Bankruptcy Court order. The ruling was based on the finding that FRCP 11 is expressly inapplicable to “proceedings in bankruptcy except in so far as they might be made applicable thereto by the Bankruptcy Rules”. Fed.R.Civ.P. 81(a)(1).
Appeals to the District Court in bankruptcy cases are governed by Part VIII of the Bankruptcy Rules. These Rules do not contain any version of either Rule 11 and Bankruptcy Rule 9011. While Rule 9011 basically tracks the language of Rule 11, it is clear that the term “court” as used in Bankruptcy Rule 9011 refers to a bankruptcy court and not to a district court. See also, Bankruptcy Rule 9001(2).
Based on the foregoing, this Court is satisfied that Bankruptcy Rule 9011 governs only the initial proceeding in a bankruptcy court and not appeals pending in the district court. This Court is not oblivious of the case of In re Jacobson, 47 B.R. 476 (D.C.1985) decided by the bankruptcy court for the District of Colorado where the bankruptcy court used Fed.R.Civ.P. 11 as a basis for imposition of sanctions in connection with an appeal. It appears clearly from the decision, however, that the bankruptcy court failed to make a distinction between Fed.R.Civ.P. 11 and Bankruptcy Rule 9011 and since the Motion to impose sanctions was sought under both Rules, the imposition of sanctions might have been proper. It should be pointed out, however, that it was not imposition of sanctions for a frivolous appeal.
The second part of the Motion seeks an award of interest and sanctions. The Motion presents a factual picture which is somewhat confusing and not as easily susceptible for resolution as the previous Motion. During the pendency of this case, on August 4, 1986, Judge Proctor of this Court ordered the Trustee to refund to the Debtor the sum of $275,088.98 which represented the sums which remained after payment of all costs of administration and all allowed claims. The Debtor failed to take further actions to enforce that order which was not appealed by the trustee. On September 9, 1988, the Trustee tendered to Debtor’s counsel “what he had”, which was the sum of $299,749.22, but the Debtor refused the tender claiming that the tender was short by $45,882.70. The record reveals that this Court also entered an Order and directed the trustee to turnover to the Debtor the sum of $340,205.92. No appeal was taken from this order but just like the previous one, was not complied with by the Trustee, on the basis that he no longer has such sums in his trust account. It is without dispute that the Trustee does not have sufficient funds to pay any interest on the original award even if same would be granted.
It appears that counsel for the Debtor also informed counsel for the Trustee that he is asserting a charging lien on the funds and the same should not be paid over to the Debtor. The difficulty concerning this Motion stems from the fact that theoretically the Debtor would be entitled to interest from July 25, 1988 at least until the tender of the sum of $299,749.22, on September 8, 1988 but since the Trustee is unable to comply, the request for interest should not be granted, provided however, that this conclusion is without prejudice to the Debtor who may seek to recover the interest from the Trustee as part of the Debtor’s attempt to surcharge the Trustee for damages resulting from the alleged negligence of the Trustee in performing his duties, if so deemed to be advised.
*299The sanctions sought against the Trustee in the form of a penalty at the rate of $500 per day for each and every day the Trustee continued to disobey the Court’s Order entered September 13,1988, is equally fraught with difficulty even if the applicable law would permit imposition of such sanctions. This is so because, as noted earlier, the Trustee does not have the funds to respond. This leads to the last question which is what is the appropriate procedure to surcharge the trustee for alleged negligence in performing his duties as trustee.
Under the Bankruptcy Act of 1898, Section '50(n), a party injured by the breach of any obligation secured by a bond of the trustee was permitted to obtain a summary determination of the breach and the resulting damages, if any. The Section also provided appropriate process to enforce the collection of the award from those who were liable on the bond. The first version of the Bankruptcy Rules which became effective October 1, 1973, Rule 925, provided that any action to recover on a bond of the trustee is an adversary proceeding and the surety on the bond or undertaking deemed to have submitted himself to the jurisdiction of the Court and the liability if found to exist may be enforced pursuant to Part VII of the Rules. Inasmuch as the Bankruptcy Reform Act of 1978, Pub.Law. 95-598, abolished all distinctions between plenary and summary jurisdiction, the Bankruptcy Code does not contain a similar provision for obvious reasons. Notwithstanding, it is clear that a proceeding to recover money is governed by Part VII of the Rules and the fact that the monies sought to be recovered were for damages and from the trustee is of no consequence. Moreover, Bankruptcy Rule 9025 basically readopts the old Rule 925 and provides that any action on the bond of a trustee must be determined in an adversary proceeding governed by Part VII of the Rules. Thus, this Court is satisfied that the imposition of sanctions on the trustee for the trustee’s failure to pay the funds over to the Debtor as ordered is not presented for consideration in proper procedural posture and according the Motion must be denied, according to Rule 9025, albeit without prejudice.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion to Impose Sanctions and Assess Further Interest be, and the same is hereby, denied without prejudice with leave granted to the Debtor to proceed against the trustee in an adversary proceeding and/or his obligor on the bond by filing a complaint either in this Court or a Court of competent jurisdiction.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491005/ | *502MEMORANDUM
JOHN C. COOK, Bankruptcy Judge.
This case is before the court upon the plaintiffs dischargeability complaint alleging nondischargeability of debts pursuant to the provisions of 11 U.S.C. § 523(a)(2)(A) and § 523(a)(4). At the conclusion of plaintiffs proof, defendant Evaline White was dismissed from this action. The court now enters its findings of fact and conclusions of law with respect to the remaining defendant Joseph Michael White.
This is a core proceeding. 28 U.S.C.A. § 157(b)(2)(I) (West Supp.1989).
Findings of Fact
1. Plaintiff Burleson Construction Company (hereinafter “Burleson”) is a Tennessee corporation and was the general contractor on a construction project known as the “Oak Square Project” in Gatlinburg, Sevier County, Tennessee.
2. At all relevant times herein, defendant Joseph Michael White (hereinafter “White”) owned Kalthoff Heating and Cooling (hereinafter “Kalthoff”), a distributor and installer of heating and air conditioning units. Originally Kalthoff was a Tennessee general partnership with two partners — White and Sid Harrell. On October 5, 1984, White purchased Harrell’s interest in the business and thereafter operated the business as a sole proprietorship.
3. Barry Davis is an accountant who had been hired by Kalthoff to perform the company bookkeeping functions including the payment of payroll and office expenses. Davis had general authority to write checks on the business’s account and to pay invoices received from vendors and suppliers.
4. White had little to do with Kalthoff’s financial affairs during the time Davis was with the business. White spent most of his time outside the office arranging sales and supervising the business’s projects. Davis never discussed with White the complete financial condition of the business during the time Davis handled the bookkeeping functions. From its inception, the business experienced cash flow problems.
5. Kalthoff maintained one operating account from which its expenses were paid. When Kalthoff received payments from contractors on specific projects, the funds were always deposited in the general operating account. No effort was ever made to segregate the funds or to apply the funds only to a specific project. All funds deposited into the general operating account were available to pay the payroll, payroll taxes, utilities, and business expenses of Kalthoff.
6. One of Kalthoff’s major suppliers was Andrews Distributing Company (hereinafter “Andrews”). That company supplied Kalthoff with HVAC (heating and cooling) units for jobs subcontracted by Kalthoff. Davis had early on received instructions from White to keep the Andrews’ account current.
7. On October 17, 1984, Burleson entered into a written subcontract with Kal-thoff. This contract generally provided that Kalthoff would furnish and install a quantity of HVAC units on the Oak Square project for a contract price of $97,643. The supplier of the HVAC units to Kalthoff was Andrews.
8. The subcontract was modified in November 1984 to provide for a different set of HVAC units and the contract price was increased to $124,000. This modified contract price included a restocking fee of $4,000 which Kalthoff was to pay to Andrews for return of the units already delivered to Kalthoff business premises.
9. The HVAC units required under the modified contract were purchased from Andrews and were delivered to Kalthoff’s Knoxville business premises on the afternoon of December 21, 1984.
10. On December 24, 1984, Kalthoff invoiced Burleson for the sum of $103,493 which represented the cost and delivery of the HVAC units.
11. On January 10, 1985, Burleson issued a check in the amount of $93,143.70 which paid the invoice issued by Kalthoff on December 24, 1984, less ten percent retainage as required by the subcontract. Prior to receiving the check, White told *503Reno Burleson, president of Burleson, he wanted the check so he could promptly pay Andrews for the HVAC units in order to take advantage of a discount allowed by Andrews for early payment.
12. Upon receiving the check on January 10, 1985, White executed a waiver of lien form provided to him by Burleson. That form reads in relevant part as follows:
NOW, THEREFORE, for an in consideration of the sum of $93,143.70 (Ninety Three Thousand One Hundred Fourty (sic) Three Dollars and Seventy Cents) paid by Burleson Construction Co., Inc. and other good and valuable considerations, the receipt whereof is hereby acknowledged, the undersigned does hereby waive and release any and all lien and claim or right to lien on said above described building(s) and real estate under the statutes of the state in which the property is located relating to mechanics’ liens and materialmen’s liens by reason or on account of labor or materials, or both, whether fully described and identified herein or not, and heretofore furnished by the undersigned for the said building(s) and real estate; it being the express intention of the undersigned, with full knowledge of the provisions of his (its) rights, that acceptance of the above amount is acknowledgment of satisfaction and payment in full, and the execution hereof constitutes a full and complete discharge, release and waiver of his (its) mechanics’ lien and material-men’s lien for any and all work and labor done and performed or any and all materials or both, furnished to date.
The undersigned hereby certifies that all labor and/or materials furnished or used on the above described premises for which this waiver of lien is executed have been paid in full.
13. Although the waiver of lien form specifies that all materials furnished for the job had been paid in full, Reno Burle-son knew Andrews had not yet been paid by Kalthoff. Burleson assumed White would pay Andrews immediately. White, however, never told Burleson when Andrews would actually be paid.
14. The evidence did not clearly establish when the Andrews’ invoice was due, whether in late January 1985 or in February 1985.
15. The check for $93,143.70 was given by White to Davis for deposit into Kal-thoff’s general operating account in accordance with past practice. At the time he gave the check to Davis, White gave no special instructions to Davis concerning the check.
16. According to Davis’s testimony, sometime after the Burleson check was received and deposited, an employee at Kal-thoff prepared a list of accounts payable then due and owing for January. Davis testified he briefly discussed this list with White who instructed him what accounts to pay. Davis recalls that White told him he could use $70,000 from the proceeds of the Burleson check to pay a number of accounts payable and other business expenses. Davis then applied $70,000 from the check proceeds to accounts payable other than the Andrews’ account; an amount totaling $20,447.33 from the check proceeds was paid to Andrews.
17. White denied he instructed Davis to pay other accounts with the check proceeds. White testified that when he discovered Andrews had not been paid for the units, he also discovered a number of other delinquent accounts of which he was unaware. He then fired Davis in approximately February 1985.
18. Davis was somewhat tentative and unsure about his conversations with White. Davis first testified “nothing was ever said about this particular [the Burleson] check.” When confronted with his pretrial deposition, Davis testified he and White did discuss payment of particular accounts with proceeds from the Burleson cheek. In the same deposition, however, Davis stated his action in paying other accounts with the Burleson check proceeds could have resulted from a possible misunderstanding between him and White. Davis also testified he had no reason to believe White did not intend to pay Andrews.
19. The court cannot accept Davis’s testimony as clear and convincing evidence *504that White intended to defraud Burleson at the time White obtained the $93,143.70 check from Burleson. First, the tentativeness displayed by Davis during his testimony precludes a finding that Davis’s recollection of the events surrounding the disbursement of the Burleson check proceeds is entirely accurate. Secondly, aside from the equivocable nature of Davis’s testimony, the preparation of the payables list due in January and the purported conversation between Davis and White concerning payment of other payables with the check proceeds appears to have occurred after the Burleson check had been received and deposited in Kalthoff’s general operating account. Thus, even accepting Davis’s testimony as an accurate account of events, the testimony does not establish that at the time White obtained the Burleson check it was his intent to divert the proceeds to other accounts leaving the Andrews’ account unpaid. If White formed an intent to use the Burleson check proceeds to pay other accounts to the exclusion of the Andrews’ account, that intent could have just as easily arisen after the Burleson check had been received and deposited and an accounts payable list of accounts due in January had been presented to White. Consequently, the court finds the evidence failed to establish White intended to defraud Burleson at the time White obtained the $93,143.70 check from Burleson.
20. Davis was terminated by White in February 1985. At least by that time, White knew Andrews had not been paid for the HVAC units.
21. On March 1, 1984, Kalthoff delivered the HVAC units to the Oak Square project in Gatlinburg, Tennessee. White requested that Burleson pay the remainder due on the retainage plus the $4,000 restocking fee owed to Andrews. Before Burleson would issue the check, White was again required to sign a waiver of lien form. The second waiver of lien form signed by White contained the same language quoted previously herein. White executed the waiver of lien form and delivered it to Grover Burleson, secretary of Burleson Construction Company. Relying upon the representation that the materials furnished for the job had been paid in full, Grover Burleson delivered a check in the amount of $14,349.30 to White representing the balance due on the Kalthoff invoice to Burleson plus the restocking fee.
22. The check of March 1, 1985, was deposited into the general operating account of Kalthoff and was distributed to various creditors, but none to Andrews. At the time he obtained the $14,349.30 from Burleson, White had no intention of applying those funds to the Andrews' account.
23. To the extent White testified he was not cognizant of the meaning or significance of the waiver of lien form, the court finds such testimony not credible. White’s experience as a subcontractor belies the notion that he was not generally familiar with mechanics’ lien laws and their role in the construction industry.
24. The waiver of lien form not only states that the subcontractor acknowledges payment in full for all materials and labor furnished by the subcontractor, but it also makes a wholly separate representation that all materials furnished for the job have been paid in full. This second representation is particularly significant to contractors who can be held liable to those unpaid vendors of subcontractors who furnish materials to subcontractors for installation into a construction project.
25. White testified he could not remember whether he had actually read the waiver of lien form before he signed it. Yet, the form contains certain representations and certifications White acknowledged by his signature on the form. The one-page form was short and could be read in a minute or two, the print on the form was normal typewriter-sized print and was not difficult to read, and the form’s importance was emphasized both by the preface above the signature line which read: “Given under my (our) hand(s), this 1st day of March, 1985 in the County of Sevier, State of Tennessee” and by the inclusion of a signature line for a witness. If White did not read such a form before signing it, he acted in *505reckless disregard as to the truth of the representations contained in the form.
26. Because White knew Andrews had not been paid for the units at the time he executed the waiver of lien form which represented that all materials furnished for the job had been paid in full, and because White either knew he was making a false representation to Burleson that all materials had been paid, or he acted with gross recklessness as to the truth of the representation, White obtained the $14,349.30 check from Burleson by a false representation with intent to deceive.
27. Burleson would not have issued the $14,349.36 check to White had it known Andrews had not been paid for the units.
28. Burleson reasonably relied on White’s representation that the materials furnished for the job had been paid in full since the check for $14,349.30 represented only a $4,000 restocking fee and a ten percent retainage on Kalthoff’s invoice to Burleson which would have included profit, overhead, and delivery costs.
29. On March 18, 1985, White and his wife, Evaline White, filed a voluntary petition in bankruptcy under the provisions of chapter 7.
30. On April 10, 1985, Burleson and Electric Service Company of Knoxville entered into a written subcontract agreement for the installation of the HVAC units by Electric Service in the Oak Square project for the sum of $17,255.
31. The Oak Square project is now complete.
32. In a state court lawsuit, Burleson was ultimately held liable to Andrews for the cost of the units in the approximate amount of $70,000. Burleson’s reliance on White’s representation that all the materials for the job had been paid for was a proximate cause of Burleson’s loss represented by the judgment obtained against it by Andrews.
Conclusions of Law
The plaintiff relies upon § 523(a)(2)(A) and 523(a)(4) in seeking an order declaring its claim against Joseph White nondis-chargeable. Section 523(a)(2)(A) reads in relevant part:
(a) A discharge under section 727 ... does not discharge an individual debtor from any debt—
[[Image here]]
(2) for money ... to the extent obtained by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition....
11 U.S.C.A. § 523(a)(2)(A) (West Supp. 1989).
A creditor seeking to except a debt from discharge under § 523(a)(2)(A) must prove (1) the debtor obtained money through a material misrepresentation that at the time the debtor knew was false or made with gross recklessness as to its truth; (2) the debtor acted with intent to deceive; (3) the creditor reasonably relied upon the false representation; and (4) the creditor’s reliance was the proximate cause of the loss. Coman v. Phillips (In re Phillips), 804 F.2d 930, 932 (6th Cir.1986). Moreover, the creditor must establish the elements of § 523(a)(2)(A) by clear and convincing evidence. Id. at 932.
Intent to deceive may be inferred in instances in which the debtor acts with gross recklessness as to the truth of the representations being made. See Knoxville Teachers Credit Union v. Parkey, 790 F.2d 490, 492 (6th Cir.1986); Coman v. Phillips (In re Phillips), 804 F.2d at 934; Martin v. Bank of Germantown (In re Martin), 761 F.2d 1163, 1167 (6th Cir.1985). Such gross recklessness may be present where a debtor certifies a statement by his or her signature, only to claim later that he or she never read the statement. See Long Island Trust Co. v. Rodriguez (In re Rodriguez), 29 B.R. 537, 541 (Bankr.E.D.N.Y.1983); Teachers Serv. Org. v. Anderson (In re Anderson), 10 B.R. 607, 608 (Bankr.S.D.Fla.1981). As the court pointed out in its findings of fact, the circumstances presented in this case convince the court that the debtor either made the false representation to the plaintiff *506knowing it to be false or the debtor acted with gross recklessness in making the false representation that intent to deceive is inferred from debtor’s conduct.
Accordingly, the plaintiff having established by clear and convincing evidence all the elements of § 523(a)(2)(A) with respect to $14,349.30 of plaintiff’s claim, that amount will be declared nondischargeable.
Section 523(a)(4) of the Bankruptcy Code, the other section relied upon by the plaintiff in this action, reads in pertinent part as follows:
(a) A discharge under section 727 ... does not discharge an individual debtor from any debt—
[[Image here]]
(4) for fraud or defalcation while acting in a fiduciary capacity....
11 U.S.C.A. § 523(a)(4) (West 1979). The plaintiff contends that under Tenn.Code Ann. § 66-11-138 the payments it made to the defendant were impressed with a trust such that the defendant had a fiduciary obligation to see to it the funds were used to pay Andrews for the supplies furnished in connection with the Oak Square project. Because the funds were not used to pay Andrews, the plaintiff argues the defendant’s debt is nondischargeable under § 523(a)(4). Tenn.Code Ann. § 66-11-138 reads as follows:
66-11-138. Misapplication of contract payments — Felony.—Any contractor, subcontractor, or other person who, with intent to defraud, shall use the proceeds of any payment made to him on account of improving certain real property for any other purpose than to pay for labor performed on, or materials furnished by his order for, this specific improvement, while any amount for which he may be or become liable for such labor or materials remains unpaid, shall be guilty of a felony and punished accordingly.
Tenn.Code Ann. § 66-11-138 (1982).
The argument that Tenn.Code Ann. § 66-11-138 creates a fiduciary obligation within the meaning of § 523(a)(4) has been rejected by a number of bankruptcy courts in Tennessee. Judge Clive Bare succinctly disposed of such argument in Wilson v. Mettetal (In re Mettetal), 41 B.R. 80, 88 (Bankr.E.D.Tenn.1984):
Tenn.Code Ann. § 66-11-138 (1982) is not an explicit state builders trust fund statute; rather, it is merely a statute making the misapplication of construction funds a criminal offense. Were any trust deemed created under the statute, such a trust would clearly be only a trust ex maleficio, arising only upon occurrence of the unlawful act of misapplication. This statute does not create an express or technical trust necessary to establish a fiduciary relationship within the contemplation of 11 U.S.C.A. § 523(a)(4) (1979).
Id. at 88. Accord Wilson v. Estes (In re Wilson), 30 B.R. 91, 94 n. 5 (Bankr.E.D. Tenn.1983); Kannon v. Blalock (In re Blalock), 15 B.R. 33, 35 (Bankr.E.D.Tenn. 1981); Noland Co. v. Edmondson (In re Cedar City Elevator & Refrigeration Co.), 14 B.R. 623 (Bankr.M.D.Tenn.1981); Witt Building Material Co. v. Barker (In re Barker), 14 B.R. 852 (Bankr.E.D.Tenn. 1981); see also Sequatchie Concrete Serv. v. Cutter Laboratories, 616 S.W.2d 162, 166 (Tenn.Ct.App.1980).
Acknowledging the authority contrary to its argument, the plaintiff nevertheless argues the Tennessee Supreme Court recently held that a contractor in receipt of building contract funds is a fiduciary by reason of Tenn.Code Ann. § 66-11-138. The plaintiff cites the following quotation from Hayes Pipe Supply v. McKendree Manor, Inc., 695 S.W.2d 174 (Tenn.1985) to support its position:
The Court of Appeals noted that in some states when payments are made to a contractor by a landowner, the money becomes that of the contractor and he is thereafter free to apply it as he sees fit. Noting that such states impose very little duty upon the contractor, the Court of Appeals said:
“If the contractor has no duty to apply the money received from the owner to the account with the supplier in the owner’s name, it follows that the supplier has no greater duty to apply the funds properly.”
While this may be the rule in some jurisdictions, it has no application under *507Tennessee statutes. As stated previously, a contractor receiving payments from a landowner in this state is under a very strict statutory duty to apply those payments properly and not to divert them so as to leave the landowner exposed to the possibility of a lien.
695 S.W.2d at 179 (footnote omitted).
The above quotation from Hayes is not inconsistent with the conclusion that if a trust is deemed created by Tenn.Code Ann. § 66-11-138, it is a trust ex maleficio, that is, the trust only arises at the time of and because of the misappropriation. The Hayes court does not state that the statute creates an express or technical trust attendant with all the characteristics of such trust. Rather, the Hayes court merely points out that Tenn.Code Ann. § 66-11-138 requires a contractor to apply contract funds properly, failing which the contractor may be subject to criminal penalties. In short, nothing in Hayes persuades this court that it should depart from the holdings of previous cases which have rejected plaintiffs argument.
An appropriate order will enter. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491006/ | ORDER
MARY D. SCOTT, Bankruptcy Judge.
Pending before the Court is a Second Motion for Summary Judgment filed by the Plaintiff in an adversary proceeding brought as a Complaint to Determine Dis-chargeability. A Response opposing the Motion has been filed by the debtor defendant. Both parties reassert earlier contentions necessitating a review of the history of this case.
This Court, on April 25, 1989, also considered the initial Motion for Summary Judgment and denied it without prejudice. 99 B.R. 920 That Order detailed the parties positions as follows:
The Plaintiff asserts he is entitled to summary judgment on his Complaint contending the following:
1. As a result of hearing conducted by the Chancery Court of St. Francis County, Arkansas, on and prior to January 21, 1986, the court issued its February 26, 1986, letter opinion, wherein it set out its findings and conclusions. Those findings and conclusions were incorporated by reference in a Decree entered April 4, 1986, in the civil action styled Lucille Morgan and Teresa Morgan, plaintiffs v. Randall Trent Morgan, individually, and as Trustee of the Ollie Harold Morgan Trust and as Executor of the Estate of Ollie Harold Morgan, Deceased, defendants. That decision became final when the Arkansas Court of Appeals delivered its unpublished decision on May 11, 1988.
2. The Chancery Court ruled that Defendant, while acting as Trustee of the Ollie Harold Morgan Trust, committed fraudulent acts and was guilty of defalcation which caused the trust corpus to be diminished by at least $175,255.43.
3. Plaintiff commenced this adversary proceeding to establish that the judgment-debt awarded in the Chancery Court was not dischargeable because it was within he purview of 11 U.S.C. § 523(a)(4). The elements of a cause of action under Section 523(a)(4) were before the Chancery Court where the Defendant was a party. Those issues were central to the prior determination.
4. Res judicata should preclude this court from relitigating the issues that were actually, or should have been, presented to the state court. All facts having previously been finally and judicially determined, no controversy of material facts exists.
5. In support of this motion, Plaintiff files herewith an authenticated copy of the Decree of the Chancery Court, as Exhibit A; the complete trial court record, except for the box of exhibits, which are incorporated by reference and which remain in the custody of the Clerk of the Arkansas Supreme Court, as Exhibit B; and a copy of the Abstract and *575Brief of Appellate, filed with the appellate court clerk on November 6, 1987, as Exhibit C.
The debtor, in opposition to the Court’s granting this motion asserts the following:
1. Defendant Morgan denies each and every allegation of the Motion for Summary Judgment unless specifically admitted herein.
2. Defendant states that the decree entered by the St. Francis Chancery Court on April 4, 1986, was entered in violation of the automatic stay of 11 U.S.C. § 362 and, thus, is null and void.
3. Defendant Morgan further states that the doctrines of res judicata or collateral estoppel are inapplicable to this case due to the fact that the decree of the Chancery Court is void, the Chancery Court did not use the appropriate standard of proof in making its determination and that there are material facts that are controverted.
Both parties attached briefs in support of their respective arguments.
The Plaintiff also filed a Reply to the debtor’s response addressing what he denominated to be the two points argued by the debtor. The Court will only address the first issue because it concludes, on that basis, that the Motion for Summary Judgment must be denied at this time and without prejudice to its being renewed at a later time as hereinafter provided.
The Plaintiff argues that the automatic stay of the Bankruptcy Code “does not extend to void the state court’s acts.” He asserts that when the state court Chancellor signed and filed the formal decree after the bankruptcy case was filed, he did not commit an act prohibited by 11 U.S.C. § 362(a)(1). In support of this argument the Plaintiff cites two bankruptcy court decisions for the proposition that the entry of a formal written decision post-petition is not an action which is stayed under § 362(a) of the Bankruptcy Code. These courts adopted this position because they were (1) reluctant to extend the strictures of the automatic stay over state court judicial officers (as opposed to parties to state court proceedings) and (2) the parties had concluded all activities in the case and the court had made oral findings and/or had taken the matter under advisement. In Re Wilson, 72 B.R. 956 (Bkrtcy.M.D.Fla.1987); In Re Anderson, 62 B.R. 448 (Bkrtcy.D.Minn.1986).
The Court has considered the cases submitted by the Plaintiff in support of ' his argument that the post-petition action by the state court, i.e., entry of a formal order memorializing the informal decision of the court was not in violation of the automatic stay. This Court, however, on the facts presented in this case, does not reach the same conclusions reached by those courts. This Court is not ready to conclude as the Minnesota and Florida bankruptcy courts did that “as a matter of law” the actions by the state court did not violate the automatic stay imposed by the filing of a bankruptcy petition and hence, cannot at this juncture, grant a Motion for Summary Judgment. Further, this Court hastens to add that it is also not ready to conclude that the decree entered by the state court is null and void. The actions may be voidable, but that is a question of fact to be determined on a case-by-case basis.
It should be noted that even though this Court, under the facts presented here, rejects the conclusions reached by these other bankruptcy courts and does not grant the Motion for Summary Judgment, it is empowered to annul the automatic stay. 11 U.S.C. § 362(d). Thus, it would be inclined to annul the stay to ratify the actions of the state court or in the alternative permit entry of this final order post-petition.
Accordingly, it is hereby
ORDERED that the Motion for Summary Judgment be and hereby is denied without prejudice and for the reasons as hereinabove set out.
IT IS SO ORDERED.
Plaintiff files his second Motion for Summary Judgment and states as follows:
*576Pursuant to Bankruptcy Rule 7056 and F.R.C.P. 56(a), plaintiff moves this court to enter a summary judgment rendering and entering an order that holds defendant’s $175,255.43 debt to plaintiff to be excepted from the impact of discharge, stating:
1. As the result of hearing conducted by the Chancery Court of St. Francis County, Arkansas, on and prior to January 21, 1986, the court issued its February 26, 1986, letter opinion, where it sets out its findings and conclusions. Those findings and conclusions were incorporated by reference in a Decree entered April 4, 1986, in the civil action styled Lucille Morgan and Teresa Morgan, plaintiffs v. Randall Trent Morgan, individually, and as Trustee of the Ollie Harold Morgan Trust and as Executor of the Estate of Ollie Harold Morgan, Deceased, defendants. That decision became final when the Arkansas Court of Appeals delivered its unpublished decision on May 11, 1988.
2. The Chancery Court ruled that defendant, while acting Trustee of the Ollie Harold Morgan Trust, committed fraudulent acts and was guilty of defalcation which caused the trust corpus to be diminished by at least $175,255.43.
3. Plaintiff commenced this adversary proceeding to establish that the judgment-debt awarded in the Chancery Court was not dischargeable because it was within the purview of 11 U.S.C. § 523(a)(4). The elements of a cause of action under § 523(a)(4) were before the Chancery Court where the defendant was a party. Those issues were central to the prior determination.
4. On May 12, 1989, this court lifted the automatic stay to allow plaintiff’s application to the Chancery Court of St. Francis County, Arkansas. That application sought post-petition ratification of the state court’s Decree which was previously entered while the stay was in place.
5. On June 8, 1989, the chancery court ratified its prior Decree and entered its Order Ratifying Prior Findings and Conclusions and Decree entered April 4, 1989. That order was entered June 14, 1989, and is now final.
6. Res judicata precludes this court from relitigating the issues that were actually, or should have been, presented to the state court. All facts having previously been finally and judically determined, no genuine issue of any material fact exists.
7. In support of this motion, plaintiff refers to the authenticated copy of the Decree of the Chancery Court, the complete trial court record (except for the ' box of exhibits, which are also incorporated by reference and which remain in the custody of the Clerk of the Arkansas Supreme Court), and a copy of the Abstract and Brief of Appellate which was filed with the appellate court clerk on November 6, 1987. These documents were either attached to the Motion for Summary Judgment filed with the clerk of this court on June 9, 1988 or filed contemporaneously with that clerk in support of that motion. They are tendered in support of this motion as if they were actually attached or filed with the clerk contemporaneously with this motion. They are denominated Exhibits A, B, and C, respectively.
8. In further support of this motion, plaintiff incorporates and attaches as Exhibit D, a certified copy of the Chancery Court’s Order Ratifying Prior Findings and Conclusions and Decree entered April 4, 1986.
The Plaintiff also attaches a Brief in Support of his second Motion.
The Defendant asks this Court to deny the Motion and urges the Court to allow a trial in the matter before the bankruptcy court. The Defendant attaches a Brief in Support of his opposition, but it simply incorporates “by specific reference” the “initial brief filed on his behalf.”
This matter requires the Court to address the preclusive effect of an earlier civil non-jury determination of fraud on a subsequent bankruptcy proceeding under § 523(a) of the Bankruptcy Code. The issue is whether the earlier trial precludes redetermination of the issue of fraud. The *577debtor, of course, contends that while some elements were applied, a lesser standard of proof was used in the initial proceeding than is required to prove fraud under federal bankruptcy law. Specifically, the debtor asserts that fraud was not proved by clear and convincing evidence, the standard required under federal bankruptcy law, and hence, he is entitled to a new trial on the issue of fraud.
' The state court Chancellor, after a lengthy trial, filed his Memorandum Opinion incorporating findings of fact and conclusions of law as authorized by Rule 52(a) of the A.R.C.P. Attachment “A”. At the conclusion of the Memorandum Opinion, the Chancellor directs attorneys for the Plaintiff to prepare a precedent. They did so and submitted it to the Chancellor for signature and entry on the court’s docket. Attachment “B”.
A review of the state court’s Memorandum Opinion does not provide a clear answer with regard to what standard that court used to make its final determination that the debtor had defrauded the Plaintiff. The Court has reviewed the entire Memorandum Opinion which reveals that a trial was held to permanently remove the debtor as executor of a decedent’s estate. The court had previously entered an order temporarily removing him because of “misconduct.” Infra, p. 579, Attachment “A”. The court concluded he should be permanently .removed because:
The record in this case is complete and clearly establishes that the trustee has repeatedly violated the “standard rules” relating to a fiduciary’s conduct.
Randall Morgan is guilty of perjury committed as executor, breach of loyalty, mingling trust funds with the trustee’s individual funds, self-dealing, self-employment, lack of adequate record keeping, improper expenditures, improper charges, misappropriations, concealment, unauthorized borrowing from the trust estate, and conversion of assets from both the trust and estate conflicts of interest and encumbering the trust assets without court authority.
The record in this case is replete with evidence showing bad motive and willful purpose to deplete or injure the trust estate.
The Court finds that Randall Morgan has failed to perform the duties imposed upon him by law.
Where a trustee is guilty of an abuse of discretion, ... the court may remove him and appoint a new trustee. Infra, pp. 579-80, Attachment “A”.
The court went on to also deny the debt- or any compensation because he had “repudiated and intentionally mismanaged” the trust. Finally, the court responded to Morgan’s requests for relief, i.e., “if Randall Morgan owes the trust or if the trust owes Randall Morgan.” Infra, p. 580, Attachment “A”. The Court recited the provisions of the trust as well as the financial records, detailing Morgan’s activities as trustee and concluded that “it was the duty of the Trustee to administer the trust properly.... The burden of proving that his actions conform to the standard of this duty falls upon the trustee, not the beneficiary. [Emphasis added] This Randall Trent Morgan cannot demonstrate.” Infra, p. 581, Attachment “A”. The Court concluded under that standard that Morgan owed the estate, and that he failed to establish that he was entitled to any compensation.
It is noteworthy that the Chancellor, in his Memorandum Opinion, did not use the word “fraud.” This characterization of Morgan’s activities does not appear until the final “Decree” which was prepared by the prevailing party. See infra, p. 584 par. 3, Attachment “B”.
The Eighth Circuit Court of Appeals has recently reviewed the burden of proof under § 523(a) of the Bankruptcy Code. In Re Garner, 881 F.2d 579 (8th Cir.1989).
The burden of proof for fraud or any of the other exceptions from discharge under Section 523(a) of the Bankruptcy Code is far from clear. The Bankruptcy Code is silent as to the burden of proof necessary to establish an exception to discharge under section 523(a), including the exception for fraud. Both the appel*578late courts and the bankruptcy courts are split as to whether the standard is clear and convincing evidence or preponderance of the evidence.
There are six circuits that have commented on the burden of proof for fraud under section 523(a). Chrysler Credit Cory. v. Rebhan, 842 F.2d 1257, 1262 (11th Cir.1988); Combs v. Richardson, 838 F.2d 112, 116 (4th Cir.1988); Matter of Van Horne, 823 F.2d 1285, 1287 (8th Cir.1987); In Re Phillips, 804 F.2d 930, 932 (6th Cir.1986); In Re Black, 787 F.2d 503, 505 (10th Cir.1986); In Re Hunter, 780 F.2d 1577, 1579 (11th Cir.1986); In Re Kimzey, 761 F.2d 421, 423-24 (7th Cir.1985). Only the Fourth Circuit has adopted the preponderance of the evidence standard. Combs v. Richardson, 838 F.2d 112, 116 (4th Cir.1988). We, however, have followed the majority rule and applied the clear and convincing standard. Matter of Van Horne, 823 F.2d at 1287.
The circuits applying the clear and convincing standard have offered various explanations. All the circuits cite to various bankruptcy court decisions applying the clear and convincing standard. Two of the circuits cite to 3 Collier on Bankruptcy, para. 523.08 (15th Ed.1989) which states without explanation that the appropriate burden of proof.is the clear and convincing standard. In Re Phillips, 804 F.2d 930, 932 (6th Cir.1986); In Re Black, 787 F.2d 503, 505 (10th Cir.1986). Two of the circuits state that the clear and convincing standard is necessary to overcome the presumption of innocence. In Re Black, 787 F.2d 503, 505 (10th Cir.1986); In Re Hunter, 780 F.2d 1577, 1579 (11th Cir.1986). Three circuits offer no rationale at all for favoring the more stringent standard. Chrysler Credit Corp. v. Rebhan, 842 F.2d 1257, 1262 (11th Cir.1988); In Re Phillips, 804 F.2d 930, 932 (6th Cir.1986); In Re Kimzey, 761 F.2d 421, 423-24 (7th Cir.1985). This Circuit concluded that the stricter standard was appropriate since the general policy of bankruptcy is to provide the debtor with the opportunity for a fresh start and the courts should, thereby, construe provisions of the Bankruptcy Code favoring the debtor broadly. Matter of Van Horne, 823 F.2d at 1287.
We are not persuaded to alter our view of the proper standard of proof for fraud under section 523 of the Bankruptcy Code by the arguments of the Fourth Circuit.- The Fourth Circuit reasoned, in concluding that all the exceptions to discharge contained in section 523 of the Code are governed by the preponderance of the evidence standard, that the balance of the “fresh start” policy and the policies implicitly announced by Congress when it created the exceptions to discharge does not require a heightened standard of proof. Combs v. Richardson, 838 F.2d 112, 116 (4th Cir.1988). We are not convinced. While the legislative history is scant on this issue, we feel that it is fair to presume that Congress was aware that the prevailing view at the time of adoption was that fraud, for both section 523 and state common law purposes, had to be proved by clear and convincing evidence. In addition, the Fourth Circuit’s manner of interpretation effectively reads the “fresh start” policy out of any provision of the Code, provided that provision could be interpreted as conflicting with the “fresh start” policy. We do not believe that principles of statutory interpretation dictate such a reading where Congress has not expressly announced a contrary result. Therefore, we continue to follow the standard set forth in Matter of Van Horne, 823 F.2d 1285, 1287 (8th Cir.1987).
The burden of proof in demonstrating that a particular debt owed falls within the statutory exception to discharge is on the creditor. Matter of Campbell, 74 B.R. 805 (Bkrtcy.M.D.Fla.1987); In Re Salamone, 71 B.R. 69 (Bkrtcy.E.D.Pa.1987); In Re Magnusson, 14 B.R. 662 (Bkrtcy.N.D.N.Y.1981). The creditor must prove its case by a clear and convincing standard of evidence. In Re Tilbury, 74 B.R. 73 (9th Cir.B.A.P.1987); In Re Bonnett, 73 B.R. 715 (Bkrtcy.C.D.Ill.1987); and In Re Gallagher, 72 B.R. 830 (Bkrtcy.N.D.Ind.1987).
The Court, after a thorough review of the Chancellor’s opinion as well as the re*579cent Eighth Circuit opinion on this issue, cannot conclude that the earlier trial precludes a redetermination of the issue of fraud. The Court cannot conclude that the state court used the identical standard to render judgment against Morgan as the bankruptcy court would use to determine that a debt should be excepted from discharge based on fraud. In fact, the burden of proof fell upon Morgan to prove his actions conformed to the standards required of a Trustee administrating an estate.
The Court has reviewed the. Motion for Summary Judgment as well as the response and brief submitted. The Court finds that the Motion should be denied. The Court finds that the better course to follow would be to proceed with a trial of those issues still remaining. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1985).
Accordingly, it is hereby
ORDERED that the Second Motion for Summary Judgment is denied.
IT IS SO ORDERED.
ATTACHMENT A
February 26, 1986
Mr. Jimason Daggett Attorney at Law P.O. Box 646 Marianna, Arkansas 72360
Mr. John N. Killough Attorney at Law P.O. Box 373 Wynne, Arkansas 72396
Mr. William B. Howard Attorney at Law P.O. Box 1491 Jonesboro, Arkansas 72403
Mr. DeLoss McKnight Attorney at Law 108 Mississippi Street . Wynne, Arkansas 72396
Re: Morgan cases
Gentlemen:
The Court files this memorandum opinion incorporating its findings of fact and conclusions of law as authorized by Rule 52(a) of the ARCP.
Ollie Morgan died testate in St. Francis County, Arkansas, on February 6, 1984. His will was admitted to probate and on February 24, 1984, his nephew, Randall Morgan — nominated in the will — was appointed personal representative.
After, his appointment, he presented his inventory. Thereafter, exceptions to the inventory were filed.
On May 5, 1985, the Court removed Randall Morgan, pendente lite, and found that he and his father were indebted to the estate in substantial sums. This latter ruling is presently on appeal. The Court surcharged the account of the appellant as personal representative.
Permanent removal of a trustee is a drastic action and proof of the need for such remedy must be clear. Especially is this so where, as here, the person named as trustee enjoyed the special confidence of the decedent as evidenced by his appointment.
A Court may remove a trustee if his continuing to act is detrimental to the interests of the beneficiary. The matter is one for the exercise of reasonable discretion by the Court.
There are a wide variety of grounds for removal of a trustee from office. These grounds are set forth in Sec. 107 of the Restatement of Trusts.
The Court has previously removed Randall Morgan as executor of the decedent’s estate because he was guilty of such misconduct as personal representative as to cause his removal. Evidence of misconduct as executor is relevant in this action. Hargraves v. Hargraves, 14 Ark.App. 230, 686 S.W.2d 816 (1985). .
Broadly stated, it is the role of the trustee to administer the trust, to exercise care and to carry out the trust administration in good faith.
*580The record in this case is complete and clearly establishes that the trustee has repeatedly violated the “standard rules” relating to a fiduciary’s .conduct.
Randall Morgan is guilty of perjury committed as executor, breach of loyalty, mingling trust funds with the trustee’s individual funds, self-dealing, self-employment, lack of adequate record keeping, improper expenditures, improper charges, misappropriations, concealment, unauthorized borrowing from the trust estate, and conversion of assets from both the trust and estate, conflicts of interest and encumbering the trust assets without court authority.
The record in this case is replete with evidence showing bad motive and willful purpose to deplete or injure the trust estate.
It is an elementary principle in the law of trusts that in the execution of a trust the trustee is bound to comply strictly with the terms of the trust; the directions contained in the trust instrument define the trustee’s powers and duties and are the extent and limit of his authority.
The Court finds that Randall Morgan has failed to discharge his trust and has failed to perform the duties-imposed upon him by law.
Where a trustee is guilty of an abuse of discretion, (under such circumstances that it appears that he is an unfit person to act as trustee), the Court may remove him and appoint a new trustee.
Mr. Morgan’s removal from office is made permanent.
As in the case of other breaches of trust, the Court may deny compensation. There is no definite rule as to the effect of a breach of trust upon the trustee’s right to compensation, but the matter rests in the sound discretion of the Court. Restatement of Trusts, Sec. 243.
In the exercise of the Court’s discretion the following factors are considered; (1) whether the trustee acted in good faith or not; (2) whether the breach of trust was intentional or negligent or without fault; (3) whether the breach of trust related to the management of the whole trust or related only to a part of the trust property; (4) whether or not the breach of trust occasioned any loss and whether if there has been a loss it has been made good by the trustee; (5) whether the trustee’s services were of value to the trust.
The trustee has repudiated and intentionally mismanaged the trust and is allowed no compensation. The Court is not imposing this sanction as a penalty for committing a breach of trust but imposes the ruling on. the ground that he has not properly performed the services for which compensation is given.
The Court will next address the relief sought by Randall Morgan.
The Court must decide if Randall Morgan owes the trust or if the trust owes Randall Morgan.
A trustee has such powers as are specifically conferred by the terms of the trust and those necessary for the carrying out of the trust provisions which are not prohibited by the terms of the instrument.
The expression “terms of the trust” is not limited to express provisions of the trust instrument, but includes whatever may be gathered as to the intention of the settlor from the trust instrument as interpreted in the light of all circumstances, and any other indication of the Settlor which is admissible in evidence. Lindsay vs. White, 212 Ark. 541, 206 S.W.2d 762 (1947) (quoting Restatement of Trusts Sec. 186, comment d) See, Bowen, Powers of the Trustee of an Express Trust in Arkansas, 2 Ark.L.Rev. 153 (1948).
The extent of the powers conferred upon the trustee does not depend only on the language used by the settlor in creating the trust but may depend also upon the purposes for which the trust was created.
In the trust instrument, the settlor stated:
1. Basic Premise:
I am the owner of substantial assets, real and personal property, in St. Francis and Cross Counties, Arkansas. I am financially secure, and my personal needs are *581limited. It is my desire, by the execution of this document, to establish a trust to assure and guarantee the support, care and maintenance of my daughter, Teresa Lynne Morgan.
6. Purpose of Trust:
The purpose of this trust is to make disposition of my property.so that the same may be preserved intact without loss by dissipation, disagreement, or on my death, for the use and benefit of Teresa.
7. Distribution of Income:
It is my desire and intention that Teresa be provided for from the income of this trust with the necessaries of life, including food, shelter, clothing and education, and I direct that my trustee expend for her benefit such sums as are necessary to the maintenance of those. At the same time, I recognize that it is not in her best interests that she be given unlimited funds or that her standard of living be inconsistent with like children or young adults. It is my desire that she learn and develop a sense of responsibility about financial matters so that this trust and the assets thereof after its termination, will be sufficient to care for her, and hopefully, her children. Therefore, I direct that my trustee use his sound discretion in determining under what circumstances and in what amounts payments are made to her or for her benefit from the income of the trust. On the other hand, if the income of this trust is insufficient to care for any medical or other emergency which may arise, my trustee is empowered to invade the corpus of this trust to the extent absolutely necessary to provide emergency medical care or such other mandatory payment as may be necessary for her maintenance.
12. Powers of Trustee:
.Randall has and is now farming lands owned by me and to be conveyed to the trust, and has existing lease agreements covering these lands. I recognize that he will, for that reason, be dealing, with himself as fiduciary and trustee from time to time, and state my trust m his good faith and honesty in so doing.
14. Annual Accounting:
On each anniversary date of the execution of this trust, my trustee shall file an accounting of receipts and disbursements with the Chancery Court of St. Francis County, Arkansas, for approval by the Court.
On the date the trust was executed, its financial status was as follows:
Cash $15,247.11
Certificate of Deposit 79,000.00
Crops (unsold), certain machinery (per trust) and 1,009 acres of unencumbered farm land
Approximately one year later, the cash was expended, the certificate of deposit spent, a $100,000.00 mortgage placed on a portion of the lands that were previously debt free, the unsold crops gone, and the 1983 and 1984 rents expended.
The $100,000 unauthorized mortgage has accrued substantial interest of approximately $19,000.00. As stated, this loan was made without Court authority and without the knowledge or consent of the beneficiary.
A trustee’s breach of his duty of good faith comes within the maxim that “equity will not aid one who comes into Court with unclean hands.”
The only provision the trustee made for Teresa was to provide money for her to buy clothing to wear to her father’s funeral, money for school clothing and money for gasoline expenses for her father’s truck. These monetary contributions ($1,500.00) were nominal when compared with the large payments the trustee made to himself.
A trustee should seek to accomplish the results which the Settlor desired. It was the duty of the trustee to administer the trust properly. Sec. 169 of the Restatement of Trusts.
The burden of proving that his actions conform to the standard of his duty falls *582upon the trustee not upon the beneficiary. This Randall Morgan cannot demonstrate.
The Court has reviewed its trial notes. Many notations are found to the following effect: “no documentation,” “no time frame,” “invoice does not establish payment.”
A trustee is under a duty to the beneficiaries of the trust to keep clear and accurate accounts. Restatement of Trusts, Sec. 172. His accounts should show what he has received and what he has expended. They should show what gains have accrued and what losses have been incurred on changes of investments.
. If the trustee fails to keep proper accounts, all doubts will be resolved against him and not in his favor. The trustee alone is in a position to know all the facts concerning the administration of the trust, and obviously he cannot be permitted to gain any possible advantage from his failure to keep proper records. Such expenses and costs as may be incurred because of the failure of the trustee to keep proper accounts are not chargeable against the trust estate but are chargeable against the trustee personally. Not only must he keep accounts, but he must render a timely accounting when called upon. The settlor imposed this duty on the trustee. This Randall Morgan has not done.
At best, the trustee records are suspect. This is evident when one examines the invoices regarding machine hire.
The invoices and time records were prepared by the trustee.
The trustee’s records regarding the peach orchard are also suspicious.
Randall Morgan testified in relation to invoice No. 0112 that he placed 750 trees on “Ollie’s place.” Perhaps there is some argument regarding interpretation of invoice No. 0057. However, the physical count made by Bobby Webb establishes beyond question that only 210 trees were replaced in the whole orchard. And Randall Morgan was establishing an orchard on his own property during the same time period.
Although the trustee testified he expended the trust’s assets to “save the land,” in truth, his efforts did not generate enough income to service the mortgage debt and to pay the taxes.
The fallacy of Mr. Morgan’s position regarding his activities becomes apparent when one considers what he spent in Colby Valley as compared to the peach orchard in St. Francis County.
In the case of Grayson v. Hughes, 166 Ark. 173, our Court held:
A trustee is not entitled to reimbursement for unauthorized improvements on the trust property, especially where he does not show what value they added to the property.
Herein lies the problem. The trustee asks for indemnity and asks the Court to approve large expenditures for alleged land improvements.
The Court does not doubt that some work was done. However, these expenditures were not properly made. They were imprudent. The trust has been squeezed dry and is left with very few unencumbered assets.
A trustee is not entitled to indemnity except to the extent the trust has been benefited. If a trustee exceeds his powers in incurring an expense and no benefit is conferred thereby upon the trust estate, he is not entitled to indemnity for the expense thus incurred.
In this case, these unauthorized expenditures of trust assets were to the serious detriment to the permanent interests of the cestui que trust.
For the reasons stated, the Court finds that the former trustee is not entitled to be indemnified for any amounts he may have expended improperly.
The expenses incurred by the trustee to “save the land” in Cross County cannot be approved because they were unauthorized and have not benefited the land.
Little net income has been produced from the entire farming enterprise.
The expenses incurred by the trustee in St. Francis County were unauthorized and *583under the present set of circumstances it is difficult to see how the estate has been benefited.
The Court finds that a portion of the funds the trustee expended in St. Francis County should be sanctioned. The Court approves $10,000.00 for ditch work and general reclamation of the old peach orchard in St. Francis County.
The trustee is allowed an offset of $1,000.00 for the tank car and pipe.
The Court is mindful of the argument that Ollie Morgan received $8,967.02 from the trust during his lifetime. Invoice 0109 is not conclusive and the Court is unable to resolve this issue. The former trustee is held accountable for this sum.
The Court is mindful that there was testimony that Ollie Morgan observed the work in progress and made no objection. The Court does not find this testimony credible. Testimony of an interested party will not be considered as undisputed. Davis vs. Oaks, 187 Ark. 501, 60 S.W.2d 572.
A trustee is chargeable in his accounting with interest.for which he is liable as a consequence of some breach of duty in the administration of the trust. See 45 Am.Jur.2d Interest and Usury, Sec. 44, 72, 91, 93.
In conclusion, and noting the exceptions above, the trustee’s accounts are surcharged and judgment entered in accordance with this opinion.
The Court must address the remaining issues of standing and the question concerning the lease.
The 1986 farm year is fast approaching. This matter needs to be addressed shortly. If it is not, the Court will consider granting the Receiver this authority for this year.
Messrs. Daggett and McKnight will prepare the precedent and submit it to opposing counsel for review.
A copy of this opinion will be filed with the Clerk and will become a part of the record herein.
(s) John M. Pittman Chancellor and Probate Judge
ATTACHMENT B
In the Chancery Court of St. Francis County, Arkansas
58-749
NO. CH-84-93
Lucille Morgan, Plaintiff
vs.
Randall Morgan, et al, Defendants
DECREE
Filed April 4, 1986
On the 21st day of January, 1986, hearings on the accounting of Randall Morgan, as Trustee of the Ollie Harold Morgan Trust, and the Petition to remove him as Trustee of said Trust, were finally concluded, the said Randall Morgan appearing therein in person and being represented by his attorneys, John N. Killough and William B. Howard, and Lucille Morgan, individually, appearing in person and being represented by her attorney Jimason J. Daggett, and Lucille Morgan, as personal representative of the estate of Ollie Harold Morgan, deceased, being represented by her attorney DeLoss McKnight, and Teresa Morgan, the cestui que trustent under said express trust above mentioned, appearing in person and being represented by her guardian and attorney, DeLoss McKnight; and these matters were presented to the Court upon long and extended testimony of witnesses, documentary proof, arguments and briefs of counsel, and other relevant evidence, from all of which the Court finds and orders:
1. Under date of February 26,1986, this Court has filed herein its Memorandum Opinion, incorporating its findings of fact and conclusions of law as authorized by Rule 52(A) of the Arkansas Rules of Civil Procedure. A copy of this opinion is made a part of the record in this case and is incorporated into this decree by reference, to the same extent as if each and every statement therein were expressly set forth herein.
*5842. This Court has previously entered a temporary order removing Randall Morgan as Trustee of the above mentioned Trust. This temporary order is now made permanent and Randall Morgan is forthwith discharged and removed as Trustee of said Trust. DeLoss McKnight is hereby named and appointed Trustee of said Trust and given all the powers and authorities conferred upon the trustee by the original Trust executed by the settlor, Ollie Harold Morgan, under date of July 19, 1983.
3. The Court finds, from a complete, detailed and in-depth examination, item by item, of Randall Morgan’s accounting as Trustee of said Trust, from its inception to the date of his temporary removal as Trustee, that because of his fraudulent and illegal conduct while acting in his fiduciary capacity his account should be surcharged, after giving him credit for $10,000.00 expended by him for ditch work and general reclamation of the old peach orchard in St. Francis County and $1,000.00 for his purchase and installation of tank car and pipe for drainage purposes on the trust lands, in the total sum of $175,255.43.
IT IS, THEREFORE, CONSIDERED, ORDERED, AND ADJUDGED that the Ollie Harold Morgan Trust, and Teresa Morgan, the sole nominal cestui que trustent thereof, be and they are hereby granted a judgment against Randall Morgan in the total sum (principal and interest as of this date) of $175,255.43,* which said judgment shall bear interest from this date until paid at the rate of ten percent (10%), for all of which execution may issue. This judgment, now so rendered against the said Randall Morgan in favor of the Trust and Teresa Morgan, represents monies due them from him in his fiduciary capacity as Trustee of the express trust created by Ollie Harold Morgan dated July 19, 1983.
The Court retains jurisdiction of this matter to hear additional proof, if any there be, relating to the cancellation of all leases and contracts which the former Trustee, Randall Morgan, had with Ollie Morgan.
SIGNED this 2nd day of April, 1986.
(s) John M. Pittman CHANCELLOR | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491008/ | ORDER ON MOTION FOR WRIT OF GARNISHMENT
ALEXANDER L. PASKAY, Chief Judge.
THIS is a Chapter 11 case and the matter under consideration is a Motion for Writ of Garnishment filed by Murray Industries, Inc. (Debtor). The Motion seeks the issuance of a writ of garnishment by this Court to be served on Norwest Bank Minneapolis, N.A. (Bank) to garnish the sum of $173,577.52 which represents the proceeds of a certain pension plan trust of G. Dale Murray, the former chairman of the board and president of the Debtor. The Motion is filed in an adversary proceeding commenced by the Debtor by the filing of a verified Complaint. In Count I of the Complaint, the Debtor seeks a money judgment against G. Dale Murray based on a promissory note made by G. Dale Murray and payable to the Debtor in the principal sum of $133,905.00. The note became fully due and owing on June 30, 1988. The claim in Count II of the Complaint seeks to recover the sum of $48,824.00 plus fees, costs and interest, represented by a promissory note executed by G. Dale Murray and payable to the Debtor, which became fully due and owing on June 12, 1988.
At the duly scheduled hearing at which counsel for the Bank, and G. Dale Murray in proper person, appeared, the Court heard argument of counsel for the Debtor and counsel for the Bank and statement by G. Dale Murray, and now finds and concludes as follows.
In order to put the matter under consideration in proper focus, it is imperative to consider a companion adversary proceeding, Adversary Proceeding No. 89-141, filed by the Debtor against the Bank, not individually, but only as Trustee of the Murray Industries, Inc., Retirement and Savings Plan Trust and against G. Dale Murray. In this Complaint, the Debtor sought an injunctive relief prohibiting the Bank to disburse any funds from a trust to G. Dale Murray and an ultimate final injunction after trial determining that funds on deposit with the Bank under the Pension Plan Trust are properties of the estate. In the alternative, the Debtor sought authority to garnish, attach or otherwise recover the funds in issue after trial. The right to the injunctive relief was based on the contention that G. Dale Murray is indebted to the Debtor’s affiliate, Murray Boat Administrative Services, Inc., which is also a debt- or, based on two promissory notes; that G. Dale Murray has possession of the two Mercedes automobiles which were purchased with the funds of the Debtor; and that based on a preliminary audit, G. Dale Murray is indebted to the Debtor in the amount of $2.9 million. In due course, the Bank filed an answer and a crossclaim against G. Dale Murray and Susan Murray and sought an injunction against G. Dale Murray and Susan Murray to prohibit them from instituting any proceeding against the Bank for the recovery of the funds in the Retirement Plan Trust. The Bank further claimed that G. Dale Murray and Susan Murray should be required to interplead and settle between themselves the rights to the monies held pursuant to the Plan Trust, thereby discharging it from all liability with respect to the accounts of G. Dale Murray held pursuant to the Plan Trust. In addition, the Bank also sought a protective order that in the event the Court found that the Debtor was entitled to prevail on its claims against G. Dale Murray, the method of distribution should be pursuant to certain specific guidelines considered by this Court earlier in a previous case entitled, “Tambay Trustee v. Florida Progress Corporation, No. 86-108”. The Bank also *732sought, of course, to recover its costs and attorney fees.
On August 29, 1989, in Adversary Proceeding No. 89-141, this Court entered its Findings of Fact, Conclusions of Law and Memorandum Opinion which, inter alia, found that inasmuch as there was no lawsuit pending at that time by the Debtor against Mr. and Mrs. Murray, and in light of the fact that there was no showing made, that the Debtor would ultimately prevail, if one was filed, on its claim based on breach of fiduciary duty or defalcation by Mr. Murray, the Debtor was not entitled to injunctive relief. For this reason, the Motion for Summary Judgment filed by G. Dale Murray and Susan Murray was granted and based on these findings, this Court entered a Final Judgment on September 12, 1989, and dismissed the Debtor’s Complaint against G. Dale Murray and Susan Murray with prejudice. The Final Judgment also provided, however, that the prayer for attorney fees in the interpleader portion of the Complaint was granted in favor of the Bank and against the Debtor in the amount of $500.00. Unfortunately, the Final Judgment did not dispose of the counter-cross-claim filed by the Bank. On September 13, 1989, this Court entered an order on the Motion for Summary Judgment. Based on the finding that it was no longer necessary to maintain the interpleader action, the Order provided that the counter-crossclaim for interpleader would be denied as moot and awarded $500.00 attorney fees to the attorney for the Bank.
It should be noted that on September 22, 1989, the Bank filed a Motion for Rehearing based on the contention that this Court really failed to dispose of its eounter-cross-claim and especially, its prayer for inter-pleader relief and inasmuch as it is still holding the funds in question and confronted by competing demands for the funds— one by the Debtor and one by Mr. and Mrs. Murray — it should be entitled to be absolved from any further responsibility under the Plan and Trust. It appears that in the course of the hearing on the Motion for Summary Judgment, the parties agreed that the Bank shall hold the funds inasmuch as the funds would earn a greater rate than they would have earned if placed in the registry of the court.
The Motion for Writ of Garnishment is filed in Adversary Proceeding No. 89-442 and is based on Fla.Stat. 77.031. This Statute permits the issuance of a writ of garnishment before the entry of the judgment, but only under specific terms and conditions. It is the Debtor’s contention that the suit filed by the Debtor in this adversary proceeding is based on the two promissory notes described earlier; that the Motion is a verified Complaint; that the amount of debt for which the Debtor sues is just, due and unpaid; that the Debtor believes that the Defendant will not have in his possession after execution issued tangible and intangible property in the State and in the County in which the action is pending on which a levy can be made sufficient to satisfy the Plaintiff’s claim. Based on the foregoing, the Debtor claims that it is entitled to a writ of garnishment securing the funds until it is able to obtain a final judgment against G. Dale Murray.
It is the Bank’s contention that it is a mere stakeholder; that as Trustee of the trust is now exposed to two conflicting claims, one by G. Dale Murray and Susan Murray and one by the Debtor, and therefore, it is inappropriate to issue a writ of garnishment, but its prayer for relief in Adversary Proceeding No. 89-141 should be granted and it should be authorized, pursuant to the stipulation, to retain the funds until the claim of the Debtor against G. Dale Murray could be resolved or, in the alternative, to permit the Bank to deposit the funds in the registry of the court and be relieved of any further liability in this case. Unfortunately, rather than focus on the narrow issue presented by the Motion for Writ of Garnishment, both counsel for the Bank and for the Debtor engaged in extensive discussion of whether or not the previous benefit plan trust which contains an anti-alienation provision would immunize the funds in the trust on the basis that it is a spend thrift trust, thus by virtue of § 541(c)(1)(B), (2) is not part of the estate and not subject to administration or whether or not the funds held by the bank would *733be exempt under local law by virtue of § 222.21 of the Florida Statutes.
Disregarding this peripheral issue which may or may not control the ultimate disposition of the Debtor’s claim to these funds, it is evident that what is necessary at this time is simply to assure that the funds are not disbursed to anyone, including G. Dale Murray. This in turn requires the consideration of whether or not it is appropriate to grant the Motion for Writ of Garnishment filed by the Debtor in Adversary Proceeding No. 89-442, or if it is unnecessary to resort to garnishment to achieve the same goal by merely granting the Motion for Rehearing in Adversary Proceeding 89-141 and enter a final decree on the Complaint for interpleader filed by the Bank to the effect that based on the stipulation, the Bank shall hold the funds on deposit in the Plan and Trust and shall not make any distribution to G. Dale Murray and Susan Murray or in the alternative, to order the Bank to deposit the funds in the registry of the court to be held until final resolution of the Debtor’s claim against G. Dale Murray based on the promissory note sued upon in Adversary Proceeding No. 89-442.
Based on the foregoing, this Court is satisfied that it is appropriate as a matter of procedural convenience to consolidate Adversary Proceeding No. 89-442 with Adversary Proceeding No. 89-141, limited to the sole issue of a bank’s right to inter-pleader relief, but not to revisit the Debt- or’s right to injunctive relief and, based on the stipulation that because funds on deposit with the Bank earn a greater rate, to permit the Bank to retain the funds with the proviso that no funds shall be distributed pending resolution of the issues raised in Adversary Proceeding No. 89-442.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Writ of Garnishment be, and the same is hereby, denied without prejudice. It is further
ORDERED, ADJUDGED AND DECREED that Adversary Proceeding No. 442 be, and the same is hereby, consolidated with Adversary Proceeding No. 89-141. It is further
ORDERED, ADJUDGED AND DECREED that the Bank’s Motion be, and the same is hereby, granted and a final hearing shall be scheduled to consider the disposition of the Bank’s counter-crossclaim. It is further
ORDERED, ADJUDGED AND DECREED that pending the resolution of the issues, the Bank shall hold the funds on deposit subject to further Order of this Court and shall not make any distribution either' to the Debtor or to G. Dale Murray. It is further
ORDERED, ADJUDGED AND DECREED that G. Dale Murray and his wife, Susan Murray, are entitled to assert any defense they might have against the cross-claim filed against them by the Bank and, of course, any defense they might have against the suit filed by the Debtor based on the two promissory notes in question.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491010/ | MEMORANDUM OF OPINION AND ORDER
RANDOLPH BAXTER, Bankruptcy Judge.
In this adversary proceeding the Plaintiff, Ruth A. Armstrong (Armstrong) seeks a grant of summary judgment which, if granted, would render nondischargeable a state court judgment awarded to her. Upon full consideration of Armstrong’s motion for summary judgment with supporting documentation, and opposing brief submitted by Dennis Glendenning (the Debtor), the following findings arid conclusions have been reached:
This action is a core proceeding under 28 U.S.C. § 157, with jurisdiction conferred *137under 28 U.S.C. § 1334. Following the state court’s entry of judgment on the pleadings favorable to Armstrong, the Debtor sought relief in this Court under Chapter 7. That judgment was rendered in an amount of $30,000.00 plus interest and costs (See, Plaintiff’s Motion for Summary Judgment, Attach. # 1) and resulted from a breach of contract action filed by Armstrong against the Debtor and.another non-debtor party defendant. The prayer for relief sought $20,000.00 in compensatory damages and $10,000.00 punitive damages.
In support of her motion for summary judgment, Armstrong has submitted documentary evidence which is inclusive of a copy of the Amended Complaint filed in the state court; a copy of her motion for judgment on the pleadings filed in state court; a certified copy of the state court’s judgment entry; an affidavit of James D. Shelby (Plaintiff’s counsel); and her brief in support of the motion for summary judgment. Having considered each of those documents, it is observed that Armstrong’s motion for judgment on the pleadings was premised on the allegation that she had suffered damages as a result of the Debt- or’s conduct, and that the Debtor had failed to file an answer to the state court complaint in which she had alleged fraudulent conduct.
In opposing a grant of summary judgment, the Debtor acknowledged that Armstrong was a scheduled creditor on his voluntary Chapter 7 petition schedules. The Debtor contends, however, that summary judgment is improper in this instance as the state court judgment was, in effect, a default judgment based on the fact that Debtor failed to file an answer to the complaint filed in that court.
In reaching a resolution of this matter, the Court has considered Rule 7056(c), Bankr.R., which provides in pertinent part:
R.56(c) Motions and Proceedings Thereon.
—The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.... Rule 7056(c), Bankr.R.
The requirements of Rule 56(c) have been further considered in conjunction with the relatively modern approach taken in the adjudication of summary judgment motions. See, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Street v. J.C. Bradford & Co., 886 F.2d 1472 (6th Cir.1989). The criteria to be considered in determining motions for summary judgment were elaborately addressed in the Supreme Court’s holding in Liberty Lobby. Therein, the following is enunciated:
1. Not every issue of fact of conflicting inference presents a genuine issue of material fact which requires the denial of a summary judgment motion;
2. The materiality of any fact should be determined by the substantive law of the case. Liberty Lobby, supra, 106 S.Ct. at 2510.
3. The test for deciding a motion for summary judgment is the same as that for a directed verdict motion. Id. at 2512.
4. There is no issue for trial unless there is sufficient evidence favoring the non-moving party for a jury to return a verdict for that party.
5. The mere existence of a scintilla of evidence in support of the movant’s position will be insufficient; there must be evidence on which the jury could reasonably find for the movant.
6. When the non-moving party must meet a higher burden of proof than usual, that party must meet the same burden in resisting the summary judgment motion.
7. Summary judgment motions should be granted with circumspection; trials on affidavits are not justified. Id. at 2513-14.
8. The non-moving party must present affirmative evidence in order to defeat a *138properly supported motion for summary judgment. This is true even where the evidence is likely to be within the possession of the movant, as long as the non-moving party has had a full opportunity to conduct discovery.
The Debtor contends that since the effect of the state court ruling was that of a default judgment, it would be improper for this Court to grant summary judgment since the state court made no specific findings relative to the dischargeability elements of 11 U.S.C. § 523(a)(2) as alleged by Armstrong. On the other hand Armstrong’s argument advances the doctrine of res judicata which ensures the finality of decisions. Thereunder, a final judgment on the merits bars further claims by parties or their privies based upon the same cause of action. It precludes litigation of a claim in every respect where an earlier opportunity to do so was available to the parties. See, Brown v. Felsen, 442 U.S. 127, 131, 99 S.Ct. 2205, 2209, 60 L.Ed.2d 767 (1979), citing, Montana v. U.S., 440 U.S. 147, 99 S.Ct. 970, 59 L.Ed.2d 210 (1979).
At bar, an examination of the state court’s judgment reveals that it is silent regarding any specific findings required under § 523(a)(2) of the Bankruptcy Code. Additionally, neither the state court judgment nor any other exhibited documents reflects the presence of any stipulations entered into by the parties concerning any required element of dischargeability under § 523(a)(2). In order to be favorably sustained on a dischargeability action, an objecting creditor is reposed with the burden of proof which must be carried by a fair preponderance of the evidence. In re Ramos, 8 B.R. 490 (Bankr.W.D.Wis.1981). In meeting that challenge, the objecting creditor must be able to allege specific facts and show a specific statutory ground within the Bankruptcy Code for denying a debtor a discharge. Bankruptcy, ¶ 11, 154, Ginsberg, R.E., 1988 (Supp.). The position is well established in bankruptcy law that a pre-bankruptcy judgment which is favorable to a creditor should not be res judicata on the issue of dischargeability under § 523(a)(2)(4) or (6) since this issue is strictly a question of federal bankruptcy law. In re Reed, 700 F.2d 986 (5th Cir.1983).1
The Court next considers applicable criteria as was enunciated by the U.S. Supreme Court in Liberty Lobby. Here, an application of res judicata is not appropriate as only the Bankruptcy court can make an accurate determination regarding the dischargeability elements of § 523. Brown, supra, 442 U.S. at 137, 99 S.Ct. at 22. Further, the materiality of any fact should be determined by the substantive law of the case. Liberty Lobby, supra, 106 S.Ct. at 2510. Necessarily, the applicable substantive law of the case is that which is found in bankruptcy law. Further, the test for deciding a summary judgment motion is the same as that used for a directed verdict. Id. at 2512. That is, there is no issue for trial unless there is sufficient evidence favoring the non-moving party for a jury to return a verdict for that party. In view of this Court’s finding herein that extrinsic evidence is admissible to allow the Bankruptcy Court the determination of dischargeability issues, there remain triable issues upon which the non-moving Debtor may successfully defend himself. This Court is further mindful of the Supreme Court’s admonition that summary judgment motions should be granted with circumspection. Id. Additionally, the Debtor correctly argues that the state court judgment does not enjoy res judicata effect to the present action.
In view of the foregoing, it is hereby found that (1) genuine issues of material fact remain; (2) res judicata is not applicable and extrinsic evidence may be admitted to allow the Bankruptcy Court to determine dischargeability under § 523 pertaining to a debt previously reduced to judgment in a state court.
*139Accordingly, Armstrong’s motion for summary judgment is hereby denied.
IT IS SO ORDERED.
. "By the express terms of the Constitution, bankruptcy law is federal law, U.S. Const., Art. I, § 8, cl. 4, and the Senate Report accompanying the amendment described the bankruptcy court’s jurisdiction over these [§ 523] claims as 'exclusive.'” S.Rep. No. 91-1173, p. 2 (1970); Brown v. Felsen, supra, 442 U.S. at 136, 99 S.Ct. at 2211. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491011/ | OPINION
JONES, Bankruptcy Judge:
This appeal arises from a judgment entered in favor of the Debtor, Richard Bittle-man (Appellee), in Herman Rappaport’s (Appellant) adversary proceeding to determine the dischargeability of a debt. The Debtor has not filed a responsive brief.
FACTS
Appellant filed an adversary proceeding against the Debtor on July 25, 1986. The complaint essentially alleged that the Debt- or leased certain property from Appellant and that the lease was obtained through forgery, fraud and misrepresentation (E.R. at 23). In August 1986, the Debtor filed his answer to the complaint and in September 1986, the Debtor’s deposition was taken. At a January 21, 1987 pretrial conference, the bankruptcy court instructed both counsel that all declarations were to be filed by February 9, 1987. The bankruptcy court’s procedure for trial required that the testimony-in-chief of witnesses be presented in the form of written declarations and that the declarant/witnesses be present and available for cross-examination at the time of trial. Trial on the matter was set for April 7, 1987.
Appellant timely filed its trial brief along with five (5) declarations from various witnesses. The Debtor never filed a trial brief and the single declaration of the Debtor was filed approximately one month late.
At the time of trial, Appellant appeared through his counsel. However, only one of the Appellant’s witnesses (Mr. Harris), was present in the courtroom. Appellant’s counsel stated that the remaining witnesses were available on a one hour telephone call (Transcript p. 2). Although the Debt- or’s counsel was present, the Debtor himself was not.
Appellant argues that because the Debt- or was in violation of the pretrial order, appellant was willing to submit the case on the declarations. The bankruptcy court, however, stated “in order for a declaration to be admitted, you have to have the declar-ant present in court subject to cross-examination” (Transcript at 3). Appellant’s counsel then sought to proceed with the trial by producing Mr. Harris who was available in the courtroom. The opposing counsel, however, chose not to cross-examine Mr. Harris and the bankruptcy court accepted Mr. Harris’ declaration as true. Appellant’s counsel also argued that a Jack Bittelman (not the debtor), had been subpoenaed, but had not appeared.
The bankruptcy court, however, determined that even if Jack Bittelman and the Debtor had appeared, they were adverse witnesses and Appellant would have been unable to establish his case. Additionally, the court determined that even accepting as true the declaration of Mr. Harris, Ap*232pellant had failed to establish the elements of a nondischargeability action.1
Appellant’s counsel then sought a one-hour continuance so that the appropriate witnesses could arrive to be subject to cross-examination. Appellant’s counsel stated that Appellant “has a business deal closing, unfortunately today,” but could be in court within one hour2 (Transcript at 2). The bankruptcy court denied this request on the basis that it was improper to place any witnesses on one-hour call.
DISCUSSION
The essential issue underlying this appeal is whether the bankruptcy court improperly refused Appellant’s request to proceed with Mr. Harris and, thus, improperly denied Appellant’s request for a continuance.
The Ninth Circuit has recognized that a trial court’s denial of a continuance will be reviewed for a showing of abuse of discretion. E.g., Mission Indians v. American Management & Amusement, Inc., 824 F.2d 710, 715 (9th Cir.1987). Under this standard of review, a reversal is appropriate when the reviewing court has “a definite and firm conviction that the court below committed a clear error of judgment in the conclusion it reached upon the weighing of the relevant factors.” Id. at 724. However, the Ninth Circuit also recognizes that “dismissal is a harsh penalty and is to be imposed only in extreme circumstances.” Henderson v. Duncan, 779 F.2d 1421, 1423 (9th Cir.1986) (regarding a dismissal for failure to prosecute). The bankruptcy court’s denial of the requested continuance in the instant case effectively amounted to a dismissal.
In our view, the bankruptcy court abused its discretion in failing to grant Appellant’s motion for a continuance. Although the need to manage the court’s docket is an important factor, nothing in the record indicates that this factor outweighs the harsh penalty of dismissal imposed upon Appellant in this case. Here, the bankruptcy court had declarations before it, presumably establishing a prima facie case, which it refused to admit without all of the de-clarants being present for cross-examination. The court denied the one-hour continuance to obtain the witnesses who had been placed on one-hour call. Under the circumstances, this was an abuse of discretion. Nothing in the Federal Rules of Civil Procedure requires all witnesses to be on hand at the beginning of the trial. Moreover, Appellant’s counsel, at a minimum, should have been allowed to call Mr. Harris. The fact that he would have been an adverse witness does not compel the conclusion that his testimony could be of no probative value to Appellant. The same would hold true for testimony by the Debt- or. Additionally, Jack Bittleman was under subpoena by Appellant and failed to appear. He would have also consumed some of the time necessary to obtain the additional witnesses.
Furthermore, there is no indication of bad faith or intentional procrastination on the part of Appellant in failing to have all witnesses present at the beginning of the trial. Both below and on appeal Appellant contends that it misunderstood the reason for the court’s directive that all witnesses be present. Specifically, Appellant contends that it believed that the declarants’ testimony would only be permitted for purposes of rebuttal. Appellant claims to have- been unaware that the bankruptcy court would prohibit the admission of the declarations because the declarants were unavailable for cross-examination. Moreover, Appellant’s witnesses were placed on one-hour call so as to avoid unnecessary waiting on their part. Although this was arguably inconsiderate of the bankruptcy court’s need to manage its docket, there is *233no indication from the record that Appellant was guilty of bad faith or was disrespectful of the court.
Although Appellant was not present in the courtroom at the beginning of trial, neither was the Debtor. A plaintiff normally has the discretion to call witnesses in any order it chooses. Appellant might have chosen to call the Debtor as an adverse witness, prior to calling other witnesses. Finally, we note that the Debtor failed to file a trial brief and also failed to supply its declarations in accordance with the court’s order and procedure. Accordingly, the Debtor’s conduct before the court was less than exemplary.
Under the circumstances, we are of the view that the denial of the continuance was an unnecessarily harsh penalty. See Richman v. General Motors Corp., 437 F.2d 196 (1st Cir.1971) (denial of continuance unduly harsh when plaintiff was unable to go forward on trial date because of unavailability of expert witness). Assuming that Appellant’s conduct before the bankruptcy court fell short of an established standard, sanctions of a compensatory nature were available as an alternative to depriving Appellant of its day in court.
Accordingly, we REVERSE the denial of the continuance, VACATE the judgment in favor of the Debtor and REMAND the matter for trial.
. Appellant does not dispute that Mr. Harris’ declaration alone was insufficient to establish a case of nondischargeability, but bases his argument on the bankruptcy court’s refusal to accept all the witnesses’ declarations or to grant a one-hour continuance and allow Appellant to proceed with Mr. Harris.
. Apparently, the purpose of placing the other witnesses on “one-hour call” was because Appellant’s counsel assumed there would be a "backlog" and did not want them to have to wait unnecessarily (Transcript at 10-11). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491012/ | MOOREMAN, Bankruptcy Judge,
dissenting.
Under the circumstances of this case and pursuant to the abuse of discretion standard of review, I cannot say with a “definite and firm conviction” that the trial court “committed a clear error of judgment” in refusing to grant a continuance. Mission Indians, 824 F.2d at 724.
The bankruptcy court’s procedure was to accept declarations to establish the prima facie case if the witnesses were available for cross-examination. The plaintiff’s attorney knew of this procedure and still failed to have the witnesses appear. Accordingly, the bankruptcy court refused to accept evidence which was not subject to cross examination.
The majority’s opinion relies inter alia on the fact that “Appellant’s counsel, at a minimum, should have been allowed to call Mr. Harris.” Additionally, the majority’s disposition states that Jack Bittelman was under subpoena by the appellant and failed to appear.” Based on the above, the majority concludes that the appellant would have “consumed some of the time necessary to obtain additional witnesses.”
However, pursuant to the bankruptcy court’s procedure, the trial judge did allow the plaintiff’s attorney to introduce Mr. Harris’ testimony and accepted Mr. Harris’ declaration without exception. Mr. Harris had nothing more to add in the way of evidence and the defendant’s attorney did not object to the evidence. There was no need to call Mr. Harris to give oral testimony, because his testimony had already been accepted. The plaintiff’s attorney recognized this at the trial, but now inconsistently argues that he should have been allowed to call Mr. Harris.
As for the subpoenaed witness of Jack Bittelman, it was essentially uncontradicted at the trial and on appeal that even if Jack Bittelman was present to testify, he could not have added anything to establish the plaintiff’s prima facie case.
Although there is nothing in the federal rules that requires all witnesses to be on hand at the beginning of the trial, this was not the basis of the dismissal. Rather, the court merely determined that the plaintiff had failed to establish his case of alleged fraud. This fact is not disputed by the appellant.
Given the circumstances and record of the instant case, I am not convinced that the trial court committed a clear error of judgment in refusing to grant a continuance until the plaintiff could “close his business deal” and appear to testify.
Additionally, in reviewing whether the bankruptcy court abused its discretion by denying the requested continuance, two important factors are appropriate for consideration.
The first factor is the bankruptcy court’s need to manage its docket. Indeed, the *234bankruptcy court in the instant case stated that “I can’t allow others to run the court.” Transcript at 11. The appellant himself was obviously the most crucial witness for establishing his own case, however, he chose to risk the eventual outcome in order to “close a business deal.” Although the appellant may have been concerned with the problem of “unnecessary waiting” in the event of a backlog in the court proceedings, conduct such as placing witnesses on “one-hour call” merely adds to the continually increasing backlog of bankruptcy courts’ calendars. If such a practice were allowed, the resulting and inevitable delays would create unmanageable calendars.
The second factor to consider is the prejudice to the opposing party. In the instant case, it is evident that the defendant would have been prejudiced by increased attorney’s fees if the trial would have been postponed for at least an additional hour.
Given these considerations, and under the circumstances of the instant case, the appellant has, in my view, failed to show that the bankruptcy court committed a clear error of judgment in refusing to grant the appellant’s request for a continuance. See Mission Indians, 824 F.2d at 724. | 01-04-2023 | 11-22-2022 |
Subsets and Splits
No community queries yet
The top public SQL queries from the community will appear here once available.