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https://www.courtlistener.com/api/rest/v3/opinions/8491543/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause came before the Court on Plaintiff’s Complaint Objecting to the Discharge of Debts pursuant to 11 U.S.C. 727(a)(2)(A). A trial on the merits was held on August 11, 1992 in which the parties were afforded the opportunity to present evidence and arguments they wished the Court to consider in reaching its decision. The Court has reviewed the arguments of counsel, stipulations, exhibits, relevant statutory and case law, as well as the entire record. Based upon that review, and for the following reasons, the Court finds that Plaintiff is granted judgment against the Defendant, Richard Rowe, in the amount of Sixty One Thousand Five Hundred Dollars ($61,500.00); and that pursuant to 11 U.S.C. 727(a)(2)(A), this judgment is Nondischargeable.
STIPULATIONS
The parties have entered into the following stipulations:
1. Defendant is the owner and operator of R & R Truck Agency.
2. Plaintiff is a secured creditor by virtue of notes and security interests obtained from Defendants upon their purchase of numerous vehicles financed by Plaintiff.
3. On June 28, 1991, Plaintiff repossessed two of Defendant’s vehicles. These vehicles were in reasonable condition, ordinary wear and tear excepted.
4.Defendant surrendered to Plaintiff the following trucks on the accompanying dates:
One (1) 19Y8 Mack Tractor July 14, 1991
One (1) 1984 Mack Truck & R July 15, 1991
Two (2) 1985 MHS Trucks Mack July 15, 1991
Three (3) Mack Trucks July 16, 1991
One (1) other Truck July 20, 1991
5. The trucks specifically listed in 114 above were not roadworthy and had been stripped of various parts, all contrary to the terms of the security agreement.
6. The sole issue before the Court is whether Defendant had the requisite intent to hinder, delay, or defraud the Plaintiff when he removed and concealed or permitted the removal and concealment of property owned by Defendant within one year before the date of filing of his petition, as required under 11 U.S.C. 727(a)(2)(A).
FACTS
The basic facts are not in dispute. Defendant purchased seven (7) trucks from Flag City Truck & Equipment (hereafter “Flag City”) as follows:
One (1) 1989 Mack 36" Sleeper March 14, 1989
One (1) 1978 Mack Fifth Wheel May 14, 1990
Five (5) 1985 Mack Fifth Wheels May 14, 1990
*558Karla Rowe, Defendant’s spouse, is a guarantor for the March 14, 1989 purchase from Flag City only. Lima Mack Sales & Service (hereafter “Lima Mack”) sold Defendant a 1984 Mack Tractor on June 2, 1989. Both Flag City and Lima Mack are secured creditors whose agreements were assigned to Plaintiff. According to the security agreements, Defendant warranted to keep all trucks in good condition, excepting “reasonable wear and tear”. Further, the security agreements attach to all accessions. Defendant is aware of both provisions under the security agreements.
Defendant’s business began to fail during January, 1991. Although operational, the business was generating little, if any, revenue. To maintain day-to-day operations, Defendant permitted his drivers to interchange parts between trucks. This involved the removal of parts from one truck and the attachment of that part to another truck (also referred to as cannibalizing). Batteries were removed from some trucks as were tires. The turbo was removed from one truck and placed in another truck. Defendant did advise his employees to place a notice on the truck that the turbo was missing. An employee replaced the seat, stacks and chrome wheels on one truck with his own items. Defendant admits advising his employee that he could remove those items belonging to him before Plaintiff took possession. Upon repossession, those items purchased by Defendant’s employee and those items initially removed from the truck were both missing from the truck.
On May 16, 1991, Defendant filed a Petition for Relief under Chapter 7 of the United States Bankruptcy Code. During June, 1991 and July, 1991, Defendant voluntarily surrendered the fleet purchased from Lima Mick and Flag City to Plaintiff.
Defendant disavows any personal involvement regarding the removal, destruction or hiding of trucks. During this time he was in Canada. Before his departure, Defendant did advise his staff to prepare all trucks for repossession by July 13,1991. Although Defendant was not pleased with the manner in which his trucks were repossessed, he professes no animosity toward Plaintiff.
During July, 1991, Plaintiff authorized Jeff Fremont, sales manager for Flag City, to retrieve three of Defendant’s trucks from Caledonia, Ohio. All three vehicles were immovable so each was towed to Toledo. The defects to the three vehicles as observed by Mr. Fremont are as follows: the turbo was removed from one truck; several tires were removed from all trucks; several tires were deflated on all trucks; several tires had been replaced on all trucks; and a clutch cable was broken on one truck. The truck with the missing turbo included a notice that the turbo had been removed.
Henry Helton, owner of Flag City, assisted in the repossession of Defendant’s trucks. Mr. Helton noted that in addition to those defects observed by Mr. Fremont, four batteries had been removed from one truck. Since the truck required all four batteries to start, the truck was immovable.
Upon repossession, Flag City repaired all eight trucks. The total costs of repair, excepting aesthetic or cosmetic changes, was Thirty Nine Thousand Two Hundred Seventy Seven and 16/100 Dollars ($39,-277.16). Flag City then sold all eight trucks to Acme Leasing and Lima Mack for One Hundred Thirty Thousand Dollars ($130,800.00). Flag City garnered a profit of Nineteen Thousand Five Hundred Twenty Two and 84/100 Dollars ($19,522.84).
At the time of repossession, the total balance owed to Plaintiff on Defendant’s loan was One Hundred Sixty Thousand Five Hundred Dollars ($160,500.00). Plaintiff was able to recoup Seventy Two Thousand Dollars ($72,000.00) through the sale of the vehicles to Flag City. Adjustments and other recourse total approximately Twenty Seven Thousand Dollars ($27,-000.00) and therefore the deficiency owed to Plaintiff totals Sixty One Thousand Five Hundred Dollars ($61,500.00).
*559LAW
Section 727(a)(2)(A) provides:
(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 [11 USCS § 101 et seq.], 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 filing of the petition;
DISCUSSION
To succeed under § 727(a)(2)(A), Plaintiff must establish that (1) the debtor transferred, removed, or concealed property or in the alternative, debtor permitted the property to be transferred, removed, or concealed; (2) the property belonged to the debtor; (3) the transfer, removal, or concealment occurred within one year before the Petition in Bankruptcy was filed; and (4) the act was done with an intent to hinder, delay or defraud the creditor. In re Bastrom, 106 B.R. 223 (Bankr.D.Mont.1989) (quoting In re Martin, 88 B.R. 319, 322 (D.Colo.1988)).
Removal is defined as an actual or physical change in the position or locality of property belonging to the debtor which results in a depletion of the debtor’s estate. Collier on Bankruptcy, § 727.-02[6][a] 15th Ed.1984. Intent must be actual intent as distinguished from constructive intent. Collier on Bankruptcy, id, at § 727.02[3]. Since it is unlikely that the debtor will ever admit fraudulent intent, a finding of actual intent may be based upon circumstantial evidence or inferences drawn from a course of conduct. In re Devers, 759 F.2d 751 (9th Cir.1985). In effect, a court must consider all surrounding facts and circumstances to determine the debtor’s intent. The burden of proof regarding the debtor’s intent is on the objecting party. Bankr.R. 4005.
It is uncontroverted that all events occurred in the case at bar either within one (1) year prior to or within two (2) months after the filing of Defendant’s petition. Likewise there is no contest regarding whether Defendant’s acts constitute removal or destruction. The dispositive issue is whether Defendant’s intent was to hinder, delay, or defraud Plaintiff when he (1) removed, destroyed, mutilated, or concealed trucks or (2) permitted the removal, destruction, mutilation or concealment of trucks.
Section 727(a)(2)(A) does not require that debtor personally remove or destroy property from the estate. The debtor may be found to have fraudulent intent by merely permitting the removal and/or destruction of property of the estate. In this case, the Court finds that based upon Defendant’s testimony alone, the evidence shows: (1) that Defendant had knowledge of the removal of a turbo by his personnel; (2) that Defendant did permit the attachment of a seat, chrome wheels and stacks to one truck; (3) that Defendant did authorize the removal of the seat, chrome wheels and stacks before repossession by Plaintiff’s agent; (4) that Defendant did permit the removal of batteries and tires by his personnel; (5) that Defendant never replaced any removed parts prior to repossession; and (6) that Defendant was aware that all of the aforementioned acts were in contravention of the security agreement.
The Court finds that Defendant was aware that removal, destruction or hiding of trucks encroached upon the terms of the security agreement. He was even aware that the security agreement attached to the seat, chrome wheels and stacks however he still encouraged an employee to remove those items. Although the record is devoid of evidence that Defendant personally removed, destroyed or hid any trucks, he failed to admonish his employees that they too were precluded from removing, destroying or hiding trucks in contravention with the terms of the security agreement. Thus, defendant permitted the removal and/or destruction of the estate’s property. Defendant further exhibited his laissez faire attitude by advising his staff to prepare the trucks for repossession and then *560retreating to Canada while his trucks were being repossessed.
The Court further finds that Defendant intended to hinder Plaintiff in recouping its loss by turning over collateral which was significantly reduced in value. Defendant knew or should have known that a truck without tires, batteries, seat or turbo is significantly diminished in value. Further, Defendant knew or should have known that Plaintiff would be required to expend significant amounts to refurbish and revitalize the fleet prior to resale. There is no doubt that Defendant’s course of conduct constitutes a reckless indifference for his contractual obligations. As such, Defendant is not entitled to discharge the debt emanating from his intentional acts.
There is insufficient evidence regarding the liability of Karla Rowe, Defendant’s spouse and co-defendant. Ms. Rowe did not testify at trial nor was there any evidence presented showing the extent of her liability. Although Ms. Rowe did sign as guarantor on one of Defendant’s truck purchases, the Court is unable to transmute that obligation through final sale. Therefore the Court makes no judgment against Ms. Rowe in this matter.
Defendant’s obligation to Plaintiff to-talled One Hundred Sixty Thousand Five Hundred Dollars ($160,500.00) and Plaintiff recouped Seventy Two Thousand Dollars ($72,000.00). Plaintiff gave Defendant credits and recourse of Twenty Seven Thousand Dollars ($27,000.00) and the deficiency balance totals Sixty One Thousand Five Hundred Dollars ($61,500.00). Judgment is granted to Plaintiff against Defendant Richard Rowe in the amount of the deficiency or Sixty One Thousand Five Hundred Dollars ($61,500.00).
In reaching these conclusions, the Court has considered the demeanor of all witnesses, all evidence and arguments of counsel, regardless of whether or not they are specifically referred to in this Opinion.
Accordingly, it is
ORDERED that Plaintiff is granted judgment against Defendant Richard Rowe in the amount of Sixty One Thousand and Five Hundred Dollars ($61,500.00).
It is further ORDERED that the Plaintiff’s judgment against Defendant in the amount Sixty One Thousand Five Hundred Dollars ($61,500.00) be, and is hereby, held to be NONDISCHARGEABLE under 11 U.S.C. 727(a)(2)(A). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491544/ | ORDER AND MEMORANDUM OPINION
JAMES E. YACOS, Bankruptcy Judge.
This adversary proceeding came on for trial before the Court for the week of October 15 to October 19, 1990, and oral argument on October 25, 1990, resulting in a final judgment for plaintiffs, entered on May 13, 1991. In the final judgment, damages were awarded to plaintiffs in the amount of $5,166,188, and they were doubled to $10,332,376 pursuant to the New Hampshire Consumer Protection Act.1 Defendant was awarded $289,000 in counterclaim damages, thereby reducing plaintiffs’ total damage award to $10,043,376, plus interest from October 18, 1988. This Court also allowed “reasonable attorneys’ fees” and “costs” pursuant to the New Hampshire Consumer Protection Act. Presently before the Court is the amount of such attorneys’ fees and costs that should be allowed and paid to plaintiffs’ counsel by defendant.
The plaintiffs, Globe Distributors, Inc. (Globe) and Dennis Bezanson, Trustee (Trustee)2, request a fee of $4,208,141.07, plus one-third (3373%) of the interest that accrued and that will accrue since the final judgment was entered on May 13, 1991. 129 B.R. 304. Plaintiffs also request reimbursement of $2,536.11 in out-of-pocket costs and expenses incurred by plaintiffs’ counsel, the law firm of Wadleigh, Starr, Peters, Dunn & Chiesa, plus any further costs incurred by the firm defending the final judgment on appeal. In support of their request, plaintiffs submitted a statement for legal services rendered in this adversary proceeding and a memorandum of law in support of their motion for attorneys’ fees. Defendant Adolph Coors Company (Coors) objects to the fee requested by plaintiffs, as more fully detailed below.
Plaintiffs’ application recites 1,376 hours of attorney and paralegal time in handling the litigation in this adversary proceeding, which at their counsel’s regular hourly rates3 would indicate a fee of $148,174. As more fully described below, plaintiffs request the' higher fee allowance of $4.2 million on the basis that such an amount is justified in consideration of the services rendered by their counsel in this particular proceeding. The higher fee request is one-third (3373%) of the damage award to Globe, and presents a “fee multiplier” of 28.4, i.e., in excess of 28 times the base lodestar amount of $148,174.
Defendant Coors objects to plaintiffs’ fee request on several bases. Initially, Coors objects that, because some of the counts of plaintiffs’ original Complaint were stricken, because plaintiffs only prevailed on three of the nine counts in their Complaint, and because plaintiffs were unsuccessful in their defense of Coors’ counterclaims, plaintiffs should not recover attorneys’ *732fees for time spent on those matters.4
In my judgment, the hours expended by plaintiffs’ counsel on the litigation involved in this adversary proceeding clearly were not excessive, nor were the hourly rates anything but reasonable in terms of the complexity and toughness that the lawsuit presented. Plaintiffs’ counsel were matched against the law firm of Orr & Reno, which is a very competent and aggressive law firm, and they were also matched against a very tough defendant. Further, I find that the matters upon which plaintiffs were unsuccessful were relatively minor and were subsumed into the entire litigation. Accordingly, plaintiffs’ failure to prevail on certain claims, for one reason or another, should not result in a reduction of their counsel’s hours in the context of this “reasonable fee” determination.
Coors’ primarily objects to plaintiffs’ fee request on the basis that the “fee multiplier” of 28.4 is excessive under any analysis or determination of a reasonable fee award in this proceeding. As noted above, plaintiffs’ request for attorneys’ fees in excess of 4 million dollars is premised upon a contingent fee agreement between plaintiff Globe and their counsel entered into privately and without approval of this Court or any participation by the defendant.
Plaintiffs state that the contingent fee arrangement was necessary and appropriate, because neither Globe, Globe’s equity security holders, or the subsequently-appointed chapter 7 trustee could afford to hire counsel on an hourly-fee basis. Plaintiffs also note that contingent fee agreements are customary and usual in New Hampshire, and that their counsel incurred an extremely large risk of nonpayment in agreeing to represent plaintiffs on a contingent fee basis.
Plaintiffs contend that, in addition to the foregoing reasons, fairness and equity require implementation of the contingent fee arrangement by this Court, because plaintiffs’ counsel underwent long and difficult litigation in this matter, because the firm presented effective, vigorous, and successful representation herein, and because the firm achieved an exceptional result such that Globe’s creditors will all be paid in full with interest.
I agree with the points made by plaintiffs to the effect that counsel was faced with difficult issues and they did risk nonpayment of their fees. However, the fee agreement between plaintiff Globe and their counsel is a contract between those parties, and it has no binding effect upon this Court’s determination of a “reasonable fee” to be paid by the losing defendant in this litigation.5
This case is completely different from cases such as bankruptcy estate administration cases where a fee is awarded to counsel to be paid by counsel’s own client, whether that be a bankruptcy trustee or a debtor-in-possession, and where the fee to be allowed is determined pursuant to section 330 of the Bankruptcy Code. In this case, due to the award of “reasonable attorneys’ fees” in the final judgment as authorized by state law covering the transactions involved, there has been a “shifting” of fees, whereby the defendant is ordered to pay fees to the plaintiffs’ counsel. My prior opinions on fee enhancement issues were primarily non-fee-shifting decisions, and accordingly have no direct relevance to the award of reasonable attorneys’ fees in this “fee-shifting” case.6 It is *733obvious that fee-shifting cases raise the unique factor in which the defendant ordered to pay the fee had no part, or any procedural mechanism, for affecting the agreement as to fees or the standards for determining an appropriate fee award. See Venegas v. Mitchell, 495 U.S. 82, 89-90, 110 S.Ct. 1679, 1684, 109 L.Ed.2d 74 (1990).
The award of attorneys’ fees in the final judgment is derived from New Hampshire state statutes that shift the obligation of fee payment to the losing party.7 This fee award is contrary to the general “American rule” that each party to a lawsuit bears its own costs (and fees). See Alyeska Pipeline Service v. Wilderness Society, 421 U.S. 240, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975). Where, as here, an exception to the general rule is allowed, such exception should be implemented in a conservative fashion. Consequently, any agreement between parties other than the party ordered to pay the attorneys’ fees will not be determinative of what should constitute a reasonable fee. However, the situation that such an agreement placed plaintiffs’ counsel in, namely an all-or-nothing gamble on the recoupment of any attorneys’ fees, deserves some consideration.
In considering an award of “reasonable attorneys’ fees” in this case, I am guided by the “lodestar” analysis and the various criteria discussed by the First Circuit Court of Appeals in fee-shifting cases such as Furtado v. Bishop, 635 F.2d 915 (1st Cir.1980) (section 1983 case), citing King v. Greenblatt, 560 F.2d 1024 (1st Cir.1977) (section 1983 case) and Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir.1974) (Title VII case).8 “The starting point is to calculate the ‘lodestar’: ‘The number of hours reasonably expended multiplied by a reasonable hourly rate.’ ” Furtado, at 920, quoting Copeland v. Marshall, 641 F.2d 880, 891 (D.C.Cir.1980) (en banc).
This lodestar can then be adjusted up or down to reflect several factors, such as the contingent nature of any fee, delay in payment, exceptional (and unexpected) results obtained, and quality of representation, if such factors have not already been taken into account in computing the lodestar. See Furtado at 920, 924 (“The second step ... is to adjust the lodestar for factors that it does not yet include.”) Specifically, the additional factors are as follows:
1. The time and labor required.
2. The novelty and difficulty of the issue.
3. The skill necessary to perform the services properly.
4. The preclusion of other employment.
5. The customary fee.
6. Whether the fee is fixed or contingent.
*7347. Time limitations imposed by the client or circumstances.
8. The amounts involved and the results obtained.
9. The experience, reputation and ability of the applicant.
10. The “undesirability” of the case.
11. The nature and length of the professional relationship with the client.
12. Awards in similar cases.
See S.Rep. No. 1011, 94th Cong., 2d Sess. 6 reprinted in [1976] U.S.Code Cong. & Admin.News 5908, 5913; H.Rep. No. 1558, 94th Cong., 2d Sess. 8 (1976) (approving 12 factors used in calculating fee award); Furtado v. Bishop, 635 F.2d 915 (1st Cir.1980); King v. Greenblatt, 560 F.2d 1024 (1st Cir.1977); Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir.1974). These criteria are similar to those in the ABA Code of Professional Responsibility 9 and the New Hampshire Rules of Professional Conduct.10 Many of the factors set forth above are generally incorporated into the lodestar analysis.11 Nevertheless, the considerations set forth in numbers 2, 3, and 6 above may justify an enhancement of the lodestar amount in this case in determining a “reasonable” fee.
Subsequent to the First Circuit opinion in Furtado, the Supreme Court of the United States set out certain principles regarding when a “bonus” or “premium” may be allowed over a fee calculated at reasonable hourly rates. See Blum v. Stenson, 465 U.S. 886, 104 S.Ct. 1541, 79 L.Ed.2d 891 (1984). Blum was in fact a fee-shifting case, i.e., a fee decision under the civil rights statute, 42 U.S.C. § 1983, and its companion fee statute, 42 U.S.C. § 1988. The Supreme Court reversed the lower courts’ award of an upward adjustment of the lodestar, or a “bonus fee”, primarily on the grounds that the lower courts had made no detailed findings that would justify such an upward adjustment. The Supreme Court commented generally on upward adjustments of fee awards, stating that' “ ‘[T]he product of reasonable hours times a reasonable rate’ normally provides a ‘reasonable’ attorney’s fee within the meaning of the statute ... [although] ‘in some cases of exceptional success an enhanced award may be justified.’ ” Id. at 897, 104 S.Ct. at 1548, quoting Hensley v. Eckerhart, 461 U.S. 424, 434-35, 103 S.Ct. 1933, 1940, 76 L.Ed.2d 40 (1983). However, the Supreme Court held that “Neither complexity nor novelty of the issues ... is an appropriate factor in determining whether to increase the basic fee award.” Id. 465 U.S. at 898-99, 104 S.Ct. at 1549. The Court reasoned that whatever work was required by the issues would be fully reflected in the number of billable hours recorded and that ‘quality of representation’ is generally reflected in the reasonable hourly rate. Id. at 899, 104 S.Ct. at 1549.
In Blum, the Supreme Court left open the consideration whether the risk of nonpayment, due to a plaintiff’s failure to be the prevailing party within section 1983 litigation, should be a factor in awarding an upward adjustment of an attorney’s fee. Id. at 901, n. 17, 104 S.Ct. at 1550 n. 17. The First Circuit Court of Appeals answered this question in Wildman v. Lerner Stores Corporation, 771 F.2d 605 (1st Cir.1985). In Wildman the prevailing party in an age discrimination lawsuit — again a fee-shifting situation — was awarded attorneys’ fees by the lower court, including an increase of 50% on the ‘lodestar’ amount due to the unusual difficulties presented by the prosecution of that case, and due to the plaintiff attorneys’ “contingency of losing all their time and effort.” Id. at 610. The Court of Appeals noted that “upward adjustments for quality of representation after Blum ‘are to be few and far between.’ ” *735Id. at 610, quoting Garrity v. Sununu, 752 F.2d 727, 739 (1st Cir.1984).
Most importantly, however, the Court of Appeals in Wildman addressed the question as to upward fee adjustments for the risk of nonpayment, and determined that in the First Circuit fee risk would justify a multiplier or upward adjustment:
We now turn to the question of whether a multiplier can be justified solely because of the contingent nature of the action. In Blum the attorney was not working on a contingency basis and the majority opinion, while noting the contingency issue, explicitly did not decide the propriety of adjusting the lodestar figure upward to encourage attorneys to take cases that involve a risk of nonpayment.
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While the lodestar calculation may reflect the difficulty of the resolution of the issues involved in a case, ... the lodestar figure alone does not differentiate between the case taken on a full retainer and a case in which an attorney spends many hours over a period of months or years with no assurance of any pay if the suit is unsuccessful. Even if the client ultimately prevails, the burden of supporting salaried employees and fixed costs during the course of the contingent litigation can be substantial.
In addition to the risk of not recovering fees from the adverse party, the contingent-fee attorney may incur substantial expenses in the preparation and litigation of the action for everything from travel and transcript expenses to expert witness fees. Moreover, the attorney may face a second risk once his client has prevailed — that the court will find some of his time duplicative, unnecessary, or inefficiently expended.... To deny all consideration of the added burden and additional risks an attorney under a contingent fee agreement may have to bear does not strike us as “reasonable.”
******
[W]e believe that adjustment of the lodestar figure, after examining the particular risks assumed by an attorney in a particular case, may be necessary in order to provide the “reasonable attorney fee”.... Of course, it is the actual risks or burdens that are borne by the lawyer or lawyers that determine whether an upward adjustment is called for, not the mere fact that the case was taken on a contingent basis.
Id. at 610, 611-13. The Wildman court remarked upon the range of fee multipliers that have been awarded in fee-shifting cases:
“... [N]o multipliers approaching this have ever been awarded in any section 1988 petition, or in any other attorney fee award case. In fact, the cases in which multiples of two have been awarded are unusual, even in complex litigation. While multiples of 2, 3, 4, and 4.5 have occasionally been given, these multipliers occur primarily in protracted mul-tidistrict antitrust and securities cases involving recoveries of ten million dollars or more. In the area of civil rights litigation where upward adjustments are much more modest, a survey of the reported cases shows that a multiplier of two has been given only three times in the last five years. A multiplier of more than two has not been used at all.”
Id. at 613 (citations omitted). The court then remanded the case for specific determination as to what multiplier, if any, was justified solely on the basis of the contingent nature of the case. Id. at 616.12
Subsequently, the Supreme Court rendered a plurality decision reversing a lower court’s award of enhanced fees under the *736Clean Air Act13, a federal fee-shifting statute using a “reasonable attorneys’ fee” standard. Pennsylvania v. Delaware Valley Citizens’ Council for Clean Air, 483 U.S. 711, 107 S.Ct. 3078, 97 L.Ed.2d 585 (1987) (plurality and concurring opinions). In this decision, the plurality of four justices considered “whether, when a plaintiff prevails, its attorney should or may be awarded separate compensation for assuming the risk of not being paid.” Id. at 715, 107 S.Ct. at 3081. The plurality further noted that the “risk is measured by the risk of losing rather than winning and depends on how unsettled the applicable law is with respect to the issues posed by the case and by how likely it is that the facts could be decided against the complainant.” Id. at 715-16, 107 S.Ct. at 3081. After a lengthy analysis of the varying holdings in the Circuit Courts and a review of bar and legal commentators on the subject, the plurality would have held that “multipliers or other enhancement of a reasonable lodestar fee to compensate for assuming the risk of loss is impermissible under the usual fee-shifting statutes.” Id. at 727, 107 S.Ct. at 3088. Four dissenting justices disagreed on this point. Justice O’Connor concurred in the judgment reversing the decision below but would have agreed that if certain factors had been properly developed the risk of non-payment in an appropriate case could justify enhancement. Id. at 731, 107 S.Ct. at 3089 (Justice O’Connor, concurring in part and concurring in the judgment).
In accordance with the foregoing law of the First Circuit and the Supreme Court, developed specifically in fee-shifting cases, I find that plaintiffs request, in effect, for a fee multiplier of 28.4 times the base lodestar amount is extraordinary and out of the question in this ease. See Wild-man, supra, at page 735. None of the case law to date allowing increases in the lodestar reasonable fee amount in a fee shifting case comes anywhere close to such a multiplier. As Wildman indicates, it is unusual to even see a multiplier of 2 times the lodestar amount. Although risk of nonpayment is a cognizable factor in upward adjustments of reasonable fee awards, it could not approach a multiplier of this magnitude in the fee-shifting situation.
However, I do believe that the risk of nonpayment deserves some multiplier or upward adjustment in this case, because neither the debtor nor the bankruptcy estate had any substantial assets to fund the litigation of this adversary proceeding, as indicated by the record. In addition, the plaintiffs clearly have established that there were no other attorneys realistically who would have wanted to take this case over on anything but a contingent fee basis at the outset. Further, since I denied the plaintiffs’ request for injunctive relief at the onset of this bankruptcy case, this litigation was clearly a “long-shot”. In the circumstances presented herein, I believe a multiplier of two is reasonable. Cf. In re Churchfield Management & In. Corp., 98 B.R. 838, 856 (Bankr.N.D.Ill.1989) (“[A] doubling of the lodestar would provide a proper ceiling in a case where recovery by counsel was wholly contingent.”) Therefore the reasonable fee to be paid plaintiffs’ counsel by defendant shall be $148,-174 times two, for total reasonable attorneys’ fee in the amount of $296,348.
I do not believe that the novelty of the issues factor nor the exceptional skill factor justify an upward adjustment or enhancement of attorneys’ fees in this case. These factors are generally incorporated into the lodestar determination of a reasonable amount of time spent on a matter and reasonable hourly rates, and therefore are not appropriate factors in determining whether to increase a basic fee award. See Blum v. Stenson, 465 U.S. 886, 898-899, 104 S.Ct. 1541, 1548-1549, 79 L.Ed.2d 891 (1984); Wildman v. Lerner Stores Corp., 771 F.2d 605, 610 (1st Cir.1985).
Only in the most extraordinary, unusual, rare, or exceptional instances do these fac*737tors justify an enhancement of the attorneys’ fee award. I do not find such circumstances in this case. The issue that plaintiffs claim to be novel — primarily, whether the Consumer Protection Act is applicable in a situation where there is another comprehensive statutory scheme involved — was addressed by the U.S. District Court of New Hampshire in 1986 in WVG v. Pacific Ins. Co., 707 F.Supp. 70 (1986) and by the New Hampshire Supreme Court, also in 1986, in Rousseau v. Eshleman, 128 N.H. 564, 519 A.2d 243 (1986). In addition, the “exceptional skills” factor requires actions that are rare and beyond what is expectable from the hourly rates charged, and I find that the hourly rates sufficiently encompass the attorneys’ skills in this proceeding.
This determination of reasonable attorneys’ fees to be paid by the defendant Coors to counsel for the plaintiffs has no bearing on what fees, if any, counsel for plaintiff Globe may be paid by its own client under the contractual agreement and obligation entered into between plaintiff Globe and their attorneys in the event the distribution in the bankruptcy estate leaves, as is likely, a substantial surplus for the equity holders after full payment to creditors.
Conclusion
Plaintiffs’ counsel are found to have expended 1,376 hours in handling this adversary litigation, which at their hourly rates presents a basic lodestar amount of $148,-174. The law firm is entitled to a multiplier of two in the circumstances of this adversary proceeding, which presents a reasonable fee award in the amount of $296,-348 for all services up to, but not including, services during the pending appeal.
Defendant Coors Company shall pay the law firm of Wadleigh, Starr, Peters, Dunn & Chiesa, counsel for plaintiff Globe Distributing Co., Inc. and plaintiff Dennis Be-zanson, Trustee, $296,348 in fees and $2,536.11 in expenses, for a total amount of $298,884.11.
DONE and ORDERED.
ON MOTION TO RECONSIDER ATTORNEYS’ FEES
This adversary proceeding was tried before the Court for the week of October 15 to October 19, 1990, resulting in a final judgment for plaintiffs, entered on May 13, 1991. As part of the judgment, the Court awarded “reasonable attorneys’ fees and costs”, which the Court subsequently determined in an “Order and Memorandum Opinion” dated May 27, 1992.
Presently before the Court is a “Motion for Reconsideration of Order Regarding Attorney’s Fees”, filed by Globe Distributors, Incorporated (hereinafter “Globe”) and Dennis Bezanson, Trustee, and the Objection thereto, filed by Adolph Coors Company (hereinafter “Coors”). The Court heard oral argument on this matter on June 23, 1992, but only with regard to reconsideration of the issue whether New Hampshire caselaw would justify a larger multiplier in fee-shifting cases, and reconsideration of the issue whether any such New Hampshire law is determinative in this adversary proceeding. For the reasons set forth below, the motion for reconsideration is denied.
The issue before the Court for reconsideration is how much of a multiplier is justified under New Hampshire law when “reasonable attorneys’ fees” have been awarded pursuant to a fee-shifting statute, (Consumer Protection Act, N.H. RSA 358-A:10), when only one fee enhancement factor (the risk of non-payment) is applicable, and when the prevailing party has a contingent fee agreement with its attorney.
Globe, the prevailing party, has essentially requested a multiplier of 28 times the “lodestar” fee (reasonable hourly rates multiplied by reasonable hours expended), by requesting that it be awarded fees in accordance with the contingent fee agreement between Globe and its attorneys, which provided that Globe’s attorneys would receive one third (33Vs%) of any recovery.
This Court allowed a multiplier of two times over the “lodestar” amount as an appropriate adjustment to reach a “reason*738able fee” determination taking into account both the risk of non-payment, the only fee enhancement factor that this Court found applicable in this case, and also the countervailing consideration that this is a fee-shifting case. As discussed in the Memorandum Opinion, multipliers of two are rare in fee-shifting cases, and two is the highest multiplier that has been awarded in federal cases.
Globe wants a larger fee multiplier, and argues that the Court should give more weight to the contingent fee agreement because it would be given more weight under New Hampshire law. Globe further contends that the contingent fee agreement should be given more weight because the chapter 7 trustee and Alphonse Vitale agreed that Vitale/Globe would pay on a contingency basis, because Globe would not have been able to obtain any other attorneys to represent it at that time in those circumstances in that market, and because the risk of non-recovery and the heavy investment of time and effort justify imposition of the full 33Vs fee agreement upon defendant Coors.
I recognize, as I did in my prior Order and Memorandum Opinion dated May 27, 1992, that New Hampshire law is determinative of what would constitute “reasonable attorneys’ fees”, because the fee award was made pursuant to New Hampshire law, specifically the New Hampshire Consumer Protection Statute, N.H. RSA 358-A. However, as I stated in the memorandum opinion, neither the legislative history of the statute nor New Hampshire case law specifically sets forth the applicable standards or method for determining the amount of reasonable attorneys’ fees under the Consumer Protection Act.
Although the New Hampshire Court has considered “reasonable attorneys’ fees” in fee-shifting cases, in the workers’ compensation context, it has never determined “reasonable attorneys’ fees” under the Consumer Protection Act. The Consumer Protection Act, however, provides that courts may be guided in their analyses of the Act by reference to decisions under the federal Consumer Protection Act, 15 U.S.C. § 45(a)(1). See N.H. RSA 358-A:13. Since there is no private award of attorneys’ fees allowed under the federal Consumer Protection Act, and consequently no fee decisions thereunder, “[cjourts often look to cases decided under the antitrust laws_” Rousseau v. Eshleman, 128 N.H. 564, 571, 519 A.2d 243 (1986) (dissenting opinion). Accordingly, both New Hampshire statutory law and New Hampshire caselaw has permitted, if not directed, this Court to review federal caselaw in determining issues under the New Hampshire Consumer Protection Act.
The New Hampshire Supreme Court has looked to the New Hampshire Rules of Professional Conduct, and particularly Rule 1.5, in deciding what constitutes “reasonable attorneys’ fees” in fee-shifting scenarios. See e.g. Cheshire Toyota/Volvo, Inc. v. O’Sullivan, 132 N.H. 168, 562 A.2d 788 (1989) (“Courts determine the reasonableness of fees by examining the Rule 1.5(a) factors.”), citing Corson v. Brown Products, Inc., 120 N.H. 665, 667, 421 A.2d 1005 (1980), and Couture v. Mammoth Groceries, Inc., 117 N.H. 294, 296, 371 A.2d 1184 (1977). As I wrote in the prior opinion on attorneys’ fees in this case, the criteria used by the federal courts in determining “reasonable” attorneys’ fees under the “lodestar” method are similar, if not identical, to the factors set forth in the New Hampshire Rules of Professional Conduct. The New Hampshire Supreme Court has itself used the so-called “lodestar method” for determining reasonable attorneys’ fees in a fee-shifting situation, a civil rights case, as noted in the prior memorandum opinion. See Order and Memorandum Opinion, p. 8, n. 8, (May 27, 1992), referring to Scheele v. Village District of Edelweiss, 122 N.H. 1015, 453 A.2d 1281 (1982).
The New Hampshire Supreme Court clearly has held that a contingency fee agreement is not legally binding upon the non-prevailing party in a fee-shifting situation such as this case. In Cheshire Toyota/Volvo, Inc. v. O’Sullivan, 132 N.H. 168, 562 A.2d 788 (1989), the Court considered whether the trial court had properly applied the law governing fee arrangements *739by setting a fee using the factors listed in Rule 1.5(a) of the New Hampshire Rules of Professional Conduct. The defendant had been awarded reasonable attorneys’ fees for successfully defending a workers’ compensation case, and defendant appealed because the trial court disregarded the contingent fee arrangement. The New Hampshire Supreme Court, affirming the trial court’s determination of a reasonable fee, held that:
Fee arrangements between an attorney and his client, however, do not dictate the amount of attorneys’ fees recoverable under [the workers’ compensation law.] On the contrary, we have interpreted the statute to allow the court to exercise its discretion in determining a reasonable fee; the statute does not restrict the court’s role to that of wielding a rubber stamp. As a result, the fee arrangement between an attorney and his client is but one of a number of factors for a court to consider in determining a reasonable fee. The defendant’s contingent fee arrangement with her attorney did not bind the court.
Cheshire Toyota/Volvo, Inc. v. O’Sullivan, 132 N.H. 168, 171, 562 A.2d 788 (1989) (citations omitted); see also Corson v. Brown Products, Inc., 120 N.H. 665, 421 A.2d 1005 (1980) (“We expressly reject the plaintiff’s counsel’s suggestion that the contingent fee arrangement which he entered into with his client controls the amount of recoverable attorney’s fees.... [T]he contingent fee agreement does not bind any of the parties.”)
In some fee-shifting cases, the New Hampshire Supreme Court did allow a total dollar amount of fees which approximated the amount of the contingent fee requested. See e.g. Cheshire Toyota/Volvo, Inc. v. O'Sullivan, 132 N.H. 168, 562 A.2d 788 (1989) (A workers’ compensation case in which the attorney for the successful claimant was allowed a fee equal to one-fourth of the total benefits awarded.); Couture v. Mammoth Groceries, 117 N.H. 294, 371 A.2d 1184 (1977) (A workers’ compensation case in which the attorney for the successful claimant was allowed a fee equal to one-third of the total benefits awarded.).
However, such fees were allowed expressly upon a determination that, when all relevant reasonable fee factors were considered, such dollar amount was in fact a “reasonable fee” in the circumstances. For example, in Couture, supra, the Court determined that the trial court’s fee award was not erroneous, because the Court could not say that the fee award was “clearly excessive”.
Unfortunately, none of the reported decisions of the New Hampshire Supreme Court indicate what ‘lodestar’ amount was involved in the case, and therefore it is impossible for me to determine from the reported New Hampshire decisions what “multiplier” of the ‘lodestar’ fee, if any, was used in each case. Notwithstanding this absence of ‘lodestar’ and “multiplier” analysis, it is my opinion and judgment that the New Hampshire Supreme Court would not approve the 28 multiplier requested in this case, or any comparable case, and would tend to follow the decisions of the federal courts in fee-shifting situations, as it has done in the past. See Scheele v. Village District of Edelweiss, 122 N.H. 1015, 1020, 453 A.2d 1281 (1982), citing Furtado v. Bishop, 635 F.2d 915, 919-20 (1st Cir.1980) (“In calculating the award of attorney’s hourly fees in section 1983 actions, we choose to have our courts follow the “lodestar” approach adopted by the First Circuit.”)
Accordingly, this Court adheres to its prior ruling in which a multiplier of two was determined to be a “reasonable fee” that was appropriate in this fee-shifting case.1
DONE and ORDERED.
. N.H. RSA 358-A (Titled “Regulation of Business Practices for Consumer Protection” and commonly referred to as the "Consumer Protection Act”.)
. The Complaint was brought by plaintiff Globe Distributors, Inc. on December 28, 1988. On March 2, 1989, this bankruptcy case was converted from a Chapter 11 case to a Chapter 7 case, and Dennis Bezanson, Esquire was appointed as the Chapter 7 Trustee. By Order dated June 14, 1989, I directed the Chapter 7 Trustee to step in as a party plaintiff. A Motion to Add A Party Plaintiff was filed on July 13, 1989, however it was never noticed for hearing and, consequently, the motion was never acted upon. By separate Order this date the Court has granted said motion. Accordingly, both Globe Distributors, Inc. and Dennis Bezanson, Trustee are listed as plaintiffs herein.
. The hourly rates for plaintiffs’ counsel were not provided, and, in any case, the rates would certainly differ for the various firm members (partners, associates, paralegals, and law interns) that worked on this lawsuit. However, an average hourly rate of $108 is indicated by dividing the fee of $148,174 by the total hours of 1376.
. Prior to trial this Court denied plaintiffs’ request for injunctive relief (1/20/89), dismissed three of plaintiffs’ counts as moot (6/27/89), dismissed two of plaintiffs’ counts as unsupported by the law (6/19/89), and entered summary judgment in favor of ex-defendant Capitol Distributors (1/9/90). After trial the Court held for plaintiffs on three of the original nine counts in the Complaint (5/13/91).
. It is not clear on the record whether the chapter 7 trustee privately may have agreed to the contingent fee when he came into the picture. However, it is clear that the Court was never asked to pass upon the matter and any such private agreement is not binding on the bankruptcy estate. It may well be that this question will be moot in any event in view of the substantial surplus which will accrue to the equity holders of the debtors in this case.
. In WVG Associates, BK No. 83-487, slip op. (November 16, 1990), I stated that my decision in In re Elmendorf Board Corp., 57 B.R. 580 (Bankr.D.N.H.1986) "was too broad to the extent that it may be read as holding that risk of *733nonpayment as the only factor involved could justify an enhanced fee award.” Id., slip op. at 6 (emphasis in original). While that pronouncement still holds true in non-fee-shifting situations, such as the bankruptcy case involved in WVG, it is not a correct statement of the law with regard to fee-shifting cases. See Wildman v. Lerner Stores Corp., 771 F.2d 605 (1st Cir.1985).
. See N.H. RSA 358-A:10 (“In addition, a prevailing plaintiff shall be awarded the costs of the suit and reasonable attorney’s fees, as determined by the court.”)
See also N.H. RSA 181:41(111) (“The prevailing party in any action under paragraph I shall be entitled to actual damages, including reasonable attorneys’ fees ...”)
. As indicated above, costs and reasonable attorneys' fees were awarded in this case pursuant to state statutes. Neither the legislative histories of these statutes nor New Hampshire case law specifically sets forth the applicable standards or method for determining the amount of reasonable attorneys’ fees under these statutes. In Rousseau v. Eshleman, 128 N.H. 564, 571, 519 A.2d 243 (1986) (dissenting opinion), the Court noted that the New Hampshire Consumer Protection Act, N.H. RSA 358-A:13, provides that courts may be guided in applying the Act "by the interpretation and construction given ... the Federal Trade Commission Act ... by the Federal Trade Commission and the federal courts,” however, because there is no private award of attorneys’ fees allowed under the FTC Act, and consequently no fee decisions thereunder, “[c]ourts often look to cases decided under the antitrust laws_” The so-called "lodestar method” for determining reasonable attorneys' fees in a fee-shifting situation has been used by the New Hampshire Supreme Court in a civil rights case. See Scheele v. Village District of Edelweiss, 122 N.H. 1015, 453 A.2d 1281 (1982).
. See Ethical Consideration 2-18 and Disciplinary Rule 2-106(B).
. See Rule 1.5.
. Cf. Furtado at 920, 924, citing Copper Liquor, Inc. v. Adolph Coors Co., 624 F.2d 575, 583, n. 15 (5th Cir.1980) ("This approach recognizes that commenting on the twelve factors ... may not in any real sense contribute to the rational setting of a fee; the comments are imprecise and the items overlap.... We view this step as a residual category that is relevant only when the parties point out factors that do not easily fit into the initial calculation of the lodestar.”)
. In making its decision, the district court should examine the risks undertaken by each attorney separately and consider: 1. what, if any, payment each attorney would have received had the suit not been successful; 2. what, if any, costs or expenses each attorney would have incurred if the case had been lost; 3. whether, after the successful verdict, Nachman and Moreno were completely dependent upon the court for their fees; 4. the length of time and number of hours the case consumed during which Nachman was required to compensate his associates and carry his overhead expenses without assurance of compensation; and 5. whether other attorneys refused to take the case because of a risk of nonpayment.
. The award of "reasonable attorneys’ fees” is set forth in section 304(d) of the Clean Air Act, 42 U.S.C. § 7604(d).
. If this Court’s Order is appealed, the parties have available the option of requesting the Unit*740ed States District Court to certify the issues involved to the New Hampshire Supreme Court, as permitted by Procedural Rule 34 of the Rules of the Supreme Court of New Hampshire. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491545/ | MEMORANDUM OPINION AND DECISION
LOREN S. DAHL, Chief Judge.
FACTS
The debtors David G. Lee and Susan C. Lee filed a chapter 11 petition on August 9, 1991 and have remained in possession. In their amended schedules, they listed their interest as plaintiffs in a state court lawsuit as an asset of the estate.
On August 10,1992 pursuant to a motion brought by the debtors for approval of compromise and settlement, this court signed an order approving the settlement of the state court lawsuit. The court, however, reserved ruling on that part of the motion which requests the payment of attorney’s fees and costs for special counsel for the debtors, Gary B. Mitchell, Esq. The parties were given an opportunity to submit further evidence and written argument on the attorney’s fees issue and the hearing on the payment of fees was continued. The evidence and briefs having been filed and the matter argued, the court issues this memorandum opinion and decision.
It is undisputed that this court did not authorize the employment of Mitchell as special counsel to the debtors until June 11, 1992, after the state court lawsuit had been *15settled. The order authorizing his employment provided,
IT IS ORDERED that the Debtors be and are hereby authorized to retain GARY B. MITCHELL, ESQ., as special counsel to represent the Debtors’ interest in that certain Sutter County Superior Court action, entitled David G. Lee v. John Marta, et al., Case No. 39291, and all fees requested will be subject to approval of the Bankruptcy Judge and no compensation shall be paid except upon Court Order following Application pursuant to 11 U.S.C. Section 330(a).1
The settlement will result in the payment of $510,000 to the estate. Of that amount, the debtors seek to reimburse Mitchell for his costs in the amount of $11,659.21 and to pay him $164,446.93 or 33V3 percent of the net recovery based upon their prepetition contingent fee agreement with him.
Creditors James K. Neff and Harry Lee oppose the payment of contingent fees to Mitchell on the grounds that this court never approved the agreement. Moreover, Neff and Lee argue that Mitchell’s explanation of his time spent and services performed contained in his declaration filed with the court on August 11, 1992 is too broad and general. Thus, they conclude that Mitchell’s explanation is insufficient to support an award of attorney’s fees based upon a lodestar calculation.
DISCUSSION
I. Retroactive Award of Fees — the THC Financial Test
It is a fundamental bankruptcy precept that court approval of the employment of counsel for a debtor in possession or a trustee is a prerequisite to counsel getting paid. In re Shirley, 134 B.R. 940 (Bankr. 9th Cir.1992). The failure to receive prior court approval for the employment of a professional in accordance with 11 U.S.C. sec. 327 and Fed.R.Bankr.P. 2014 precludes the payment of fees. Id.
In the Ninth Circuit, however, authority does exist for a bankruptcy court to grant a retroactive award of fees. In In re THC Financial Corp., 837 F.2d 389, 392 (9th Cir.1988), the court held that a retroactive award of fees for services rendered without court approval is not necessarily barred. Such awards should be limited to exceptional circumstances where the applicant can show both a satisfactory explanation for the failure to receive prior court approval and that the applicant has benefited the estate in some significant manner. Id. Mere negligence is insufficient to establish the requisite exceptional circumstances. In re Emco Enterprises, Inc. 94 B.R. 184, 187 (Bankr.E.D.Cal.1988).
A. Satisfactory explanation
Turning to the instant facts, Mitchell states in his uncontroverted declaration that David Lee hired him prepetition in April 1990 on a contingent fee basis to represent him in a state court lawsuit. The lawsuit previously had been commenced by a succession of two attorneys who refused to handle the case except upon an hourly basis. Mitchell continues that he was unaware of the chapter 11 filing until late March 1992 and, thereafter, contacted the debtors’ bankruptcy counsel. According to Mitchell, debtors’ bankruptcy counsel then proceeded to draft and circulate for signature the application which would secure Mitchell’s employment and Mitchell’s declaration in support.
Mitchell states that on the evening of May 7, 1992 while preparing for a deposition, he learned of some startling evidence which would greatly enhance the opportunity for a favorable settlement in his client’s favor. He presented the facts to the defendants at the deposition» on the morning of May 8, 1992 and later that afternoon the parties reached a tentative oral settlement agreement.
Mitchell also telephoned debtors’ bankruptcy counsel later that day and they both agreed that this opportunity for settlement *16should not be foregone merely because Mitchell’s employment had yet to be approved by the bankruptcy court. Mitchell received the settlement proceeds on May 22, 1992, and the final written agreement was signed by the debtor on May 29, 1992.
Mitchell has also filed the declaration of debtors’ bankruptcy counsel with this court. In his declaration which is also un-controverted, debtors’ bankruptcy counsel states that he was not aware that the debtors were actively prosecuting their state court lawsuit until early April 1992.
Debtors’ bankruptcy counsel confirms that due to necessary revisions and a mail mix-up, it took nearly two (2) months, from April 8 through May 31, 1992, for the application for employment and supporting declaration to be circulated for signature for presentation to the court.
Besides the declarations of Mitchell and debtors’ bankruptcy counsel, the declaration of the debtor, David Lee, also was filed with the court. He states that he did not tell Mitchell about his bankruptcy filing until late March 1992.
After reviewing the uncontroverted declarations, the court finds that the first prong of the THC Financial case is met. Mitchell has shown a satisfactory explanation for the failure to receive prior court approval of his employment. Several factors convince the court.
First, the court believes Mitchell when he states that he did not learn about the debtors’ bankruptcy until late March 1992. There is nothing in the record or in the case file to suggest that Mitchell would have known about the bankruptcy sooner. Nothing indicates that the state court lawsuit and the debtors’ financial problems which pulminated in the bankruptcy filing were somehow connected so that Mitchell could or should have known about the bankruptcy. The debtor was the plaintiff in the state court lawsuit, and, unlike a defendant who may seek bankruptcy relief for the protection of the automatic stay, there would be no reason for Mitchell, as plaintiff’s counsel, to investigate whether his client had filed or would be a candidate for bankruptcy.
Second, once having learned about the bankruptcy, Mitchell contacted debtors’ bankruptcy counsel who then rightly assumed the responsibility of obtaining court approval for Mitchell’s employment. At that point, Mitchell had done everything possible to protect himself. Mitchell was not the one in control of the task of preparing and submitting the declaration and application for employment to the court. Short of making inquiry of debtors’ bankruptcy counsel as to when the court would sign the order, Mitchell had no influence over the almost two (2) month delay before the application was presented to the court for approval.
Third, the court notes that the lawsuit was listed on amended schedule B filed on October 22, 1991 as an item of personal property. On that schedule prepared by debtors’ bankruptcy counsel, the debtors were claiming damages in the amount of $300,000' although the debtors’ interest in the lawsuit is listed as unknown. Debtors’ bankruptcy counsel states that he was unaware that the debtors were actively pursuing this lawsuit. As an attorney representing chapter 11 debtors, however, it was incumbent upon him to inquire about all of the details pertaining to the case, especially when the damages sought were sizeable.
Further inquiry makes sense because such a lawsuit could be a possible funding source for the chapter 11 plan which soon would have to be formulated. A denial of fees in this case would be tantamount to penalizing Mitchell for the oversight of debtors’ bankruptcy counsel. This outcome would be unfair.
B. Significant benefit
The second prong of the THC Financial test requires a showing of significant benefit to the estate. This showing has been met. Mitchell agreed to handle a case which previously had been handled by two other attorneys without success. He took a case where the debtors estimated their damages in excess of $300,000 and he obtained a settlement for $510,000. The settlement has resulted in what could be the *17primary source of payment to creditors under the plan.
II. The Disclosure Issue
The objecting creditors also argue that attorney’s fees should be denied because of defective disclosure surrounding Mitchell’s appointment as special counsel on June 11, 1992. They argue that once having entered into the tentative oral settlement agreement on May 8, 1992, Mitchell should have disclosed this event in his application for employment and his declaration. This argument is unpersuasive.
The court would have approved Mitchell’s employment as special counsel even if he had disclosed in his declaration and the application that the case tentatively had settled. In short, if such a disclosure had been made the court envisions that it would not have hesitated to approve Mitchell’s employment. A denial of his application for employment in the court’s view could have upset the settlement.
The court notes that the written fee agreement entered into between Mitchell and the debtors prepetition is attached to Mitchell’s declaration in support of his application for employment. The written fee agreement, disclosed to this court although never approved, revealed that Mitchell was rendering services to the debtor without having been authorized previously to do so. This disclosure would not have influenced whether Mitchell should be authorized to represent the debtors. Instead, it would be a factor to be considered down the road if and when Mitchell applied for attorney’s fees based upon the number of hours he worked. See In re Sinor, 87 B.R. 620 (Bankr.E.D.Cal.1988).
Mitchell states that he relied upon debtors’ bankruptcy counsel to prepare the application and as an attorney who does not practice bankruptcy law, it did not occur to him that the application and his declaration needed revision. He continues that in any event he was uncertain when the application actually had been submitted to the court. Based upon 30 years in the private practice of law before sitting on the bench, the court can well understand and believes Mitchell’s statement that he did not view the oral agreement as a final settlement by any means.
The court disagrees with the objecting creditors’ contention that Mitchell has been less than candid with the court. Instead, the fact that Mitchell, at the behest of debtors’ bankruptcy counsel, amended his declaration in support of employment to reveal that he previously had represented the Lees in another, unrelated case indicates that Mitchell made every effort to make a complete disclosure.
III. The Measure of Fees
Once having concluded that Mitchell clears the THC Financial hurdle, the next question is what amount should he receive and how should his fee award be calculated?
Mitchell argues that his fees should be calculated using a contingent fee formula. The court intends to award Mitchell’s fees on a contingent fee basis, however, not for the reason urged by Mitchell.
Citing 11 U.S.C. sec. 328(a), Mitchell argues that contingent fees should be allowed because the court approved his employment on a contingent fee basis. Mitchell is incorrect. As noted above, the order approving Mitchell’s employment, provided that his fees would be calculated pursuant to 11 U.S.C. sec. 330(a). This court struck the reference to 11 U.S.C. sec. 328(a).
Although the court did not initially approve the contingent fee agreement, the court may still award fees based upon this calculation. Two recent cases support this conclusion.
In Unsecured Creditors’ Committee v. Puget Sound Plywood, Inc., 924 F.2d 955 (9th Cir.1991), counsel for the creditors’ committee, filed a fifth fee application in which he requested $21,465 in fees and $1,099.34 in costs. His fees were calculated according to the lodestar and the majority of the fees were incurred for work performed on the committee’s objection to $120,000 in attorney’s fees paid to a secured creditor pursuant to 11 U.S.C. sec. 506(b). After the bankruptcy court took *18the attorney’s fees application under advisement, the court ordered the secured creditor to disgorge $18,517.90 in fees. Two months later, the bankruptcy court awarded counsel for the creditors’ committee $6,172.63 for his work related to the fee objection. This amount represented one-third of the fees which the court ordered the secured creditor to disgorge. The district court affirmed. Counsel for the committee then appealed to the Ninth Circuit and argued that his fees should have been calculated on an hourly basis as were his prior fee applications.
The Ninth Circuit rejected the argument and affirmed. The court noted that the order approving the employment of the attorney did not guarantee a particular fee arrangement. 924 F.2d at 960. The court also held that 11 U.S.C. sec. 328 did not apply because that section only applies where the court previously has approved a fee agreement and, then, later seeks to change it. Id. Finally, the court stated that where there is no prior approval of a fee arrangement, the court may review the application under 11 U.S.C. sec. 330.
Reaffirming In re Yermakov, 718 F.2d 1465, 1471 (9th Cir.1988), the court stated
Although Manoa [In re Manoa Finance Company, 853 F.2d 687 (9th Cir.1988)] suggests that starting with the “lodestar” is customary, it does not mandate such an approach in all cases. Moreover, In re Yermakov states that calculating the “lodestar” is the “primary” method for calculating fees; “primary” is not a synonym for “exclusive.” (citation omitted).
The Ninth Circuit concluded that where the fee application submitted by counsel is not sufficiently detailed, contains entries which are lumped together, and is such that a court cannot “quantify to numerical precision ... the lodestar calculation,” the court does not abuse its discretion in applying a different formula. 924 F.2d at 960.
Puget Sound Plywood was cited with approval recently in In re Kitchen Factors, 143 B.R. 560 (9th Cir. BAP 1992). In Kitchen Factors the court affirmed the bankruptcy court’s award of attorney’s fees for special counsel for the debtor calculated on a contingent fee basis rather than the lodestar method. The court noted that the most relevant factor in determining that fees should be awarded on a contingent fee basis was the small amount which could have been recovered for the estate.
Both Puget Sound Plywood and the Kitchen Factors case support an award of fees to Mitchell based upon a contingent fee basis. This court has not previously approved terms and conditions of Mitchell’s employment. As such, the court may apply a lodestar calculation or, if appropriate, a contingent fee method for calculating fees. Mitchell outlines the services he performed in his declaration and estimates that he spent a total of 1,016 hours on the ease. He also states that during the relevant time period his hourly billing rate ranged from $175 to $200 per hour. Thus calculated, Mitchell’s fees based upon the lodestar would range from $177,800 to $203,200. As in Puget Sound Plywood and Kitchen Factors, calculating Mitchell’s fees using the contingent fee method would be more economical for the estate.
Yet another factor convinces the court that Mitchell’s fees should be calculated on a contingent fee basis. The services set forth by Mitchell in his declaration and the amount of time spent are not set forth in accordance with Fed.R.Bankr.P. 2016(a). The statement is not a detailed statement but rather a general estimate obviously prepared in hindsight of the services which he believes were performed and the time which he spent. Even if his estimate is accurate, such a fee application appears to be precisely the type referred to in the Puget Sound Plywood case which would support a calculation of fees based upon a contingent basis rather than the lodestar.
CONCLUSION
Mitchell acted in the best interests of his client when he entered into the oral settlement of the case despite knowing that his employment had not yet been approved by the court. This case is a rare example where a professional can prove that the *19exceptional circumstances doctrine set forth in the THC Financial case has been met. This case is not one of defective disclosure.
The court will approve a retroactive award of fees in this case and such award shall be calculated on a contingent fee basis. Mitchell is also entitled to be reimbursed for his costs.
This Memorandum Opinion and Decision shall constitute findings of fact and conclusions of law. Counsel for Mitchell shall prepare and submit an appropriate order.
. The court struck from this order prepared by the attorney for the debtors the reference to 11 U.S.C. sec. 328. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491547/ | MEMORANDUM OPINION
JAMES E. YACOS, Bankruptcy Judge.
These two contested matters have been consolidated for decision because they present the identical issue of law. Debtors’ have moved pursuant to 11 U.S.C. § 522(f)(1) to avoid judicial liens that allegedly impair their right to realize the homestead exemption provided for by New Hampshire state law. The responding banks deny their judicial liens impair debtors’ homestead exemptions on the basis that the debtors have no equity, in the economic sense of that word, in their residences. The issue the Court must decide is whether a judicial lien impairs a debtor’s right to claim a homestead exemption when it is undisputed that the debtor has no economic equity in the residence.
For the reasons developed in this opinion, the Court rules as a matter of law that a judicial lien does not impair a homestead exemption a debtor would have been enti-*53tied when the debtor has no present equity interest in the residence. The following constitutes the Court’s findings of fact and rulings of law.1
I. FACTS
A. DELIGUORI V. GRANITE BANK
On September 9, 1991, the New Hampshire Superior Court, Hillsborough County, granted Granite Bank (hereinafter “bank” or “banks”) a pre-judgment attachment of $30,000 on the debtors’ primary residence at the initiation of a state court suit. Thereafter, on November 1, 1991, the mov-ant and his wife filed a joint chapter 7 petition.2 The debtors’ bankruptcy schedule A “Real Property,” lists the debtors’ home in Bennington, N.H., and states the debtors’ interest as $60,000. Schedule A also lists the total debt on the property as $64,599.89. On Schedule C, “Property Claimed As Exempt,” the debtors used the same amounts as to their interest in the property and debt outstanding and claimed a $10,000 homestead exemption pursuant to N.H.Rev.Stat.Ann. 480:1 — 4.3 Schedule D, “Creditors Holding Secured Claims,” lists a first mortgage on their primary residence in favor of Peterborough Savings in the total amount of $64,599.89, of which $60,000 is a secured claim and $4,599.89 is an unsecured claim.4 Schedule D also lists the bank’s attachment as a secured claim of $30,000, although it is also listed as disputed and contingent.
On January 20, 1992, the debtors executed a reaffirmation agreement with the first mortgagee, Peterborough Savings Bank, in the amount of $64,397.92.
Then, on February 10, 1992, the debtors filed the motion to avoid lien. The motion states that Peterborough Savings Bank has a valid first mortgage in the amount of $64,397.92. The motion further states that the debtors’ homestead has a fair market value of $59,400. It is thus undisputed that the debtors have no present equity interest, in the economic sense of the word equity, in their residence.
B. HOGAN V. FARMINGTON NATIONAL BANK
On January 14, 1992, the Hogan debtor filed a voluntary chapter 7 petition. The debtor’s bankruptcy schedule A “Real Property,” lists the debtor’s home in Farm-ington, New Hampshire and states the market value of debtor’s interest in his residence as $49,000. On schedule C, “Property Claimed as Exempt,” the debtor lists his residence in Farmington, New Hampshire, and both lists the current value of the property without deducting the exemption as $49,000 and states the value of the claimed exemption as $49,000. On schedule D, “Creditors Holding Secured Claims,” the debtor lists mortgages and liens on his home in Farmington, Connecticut in the total amount of $96,500 of which $46,500 are claimed as unsecured.
While never stated, it is clear from the debtor’s multitudinous motions that when all the mortgages and liens are added together, he has no present economic equity in his home. The consensual mortgages alone add up to $76,500. The consensual and nonconsensual liens on his home are as follows:
*54Lien Amount Date
Mortgage from Kevin & Nancy Hogan to Rochester Savings Bank & Trust Co. $35,500.00 7/27/79 ^
State of New Hampshire tax lien $840.15 5/6/88
Federal tax lien $7,439.15 9/1/88
State of New Hampshire tax lien , $589.00 10/19/88
Judicial lien in favor of Peerless Insurance Company $18,781.00 5/17/89
Judicial lien in favor of Linda Collins $10,000.00 2/26/90 .3
Judicial lien in favor of Robert Jacobs $5,000.00 3/23/90
Judicial lien in favor of Farmington National Bank $10,000.00 4/5/90
Mortgage from Kevin & Nancy Hogan to Rochester Truck Repair $4,000.00 4/11/90
Mortgage from Kevin & Nancy Hogan to Richard & Paula Hogan $15,000.00 5/11/90
Mortgage from Kevin & Nancy Hogan to Kerry Hogan $10,000.00 5/11/90
Mortgage from Kevin & Nancy Hogan to Marcel & Giselle Nadeau $12,000.00 5/11/90
Judicial lien in favor of Peerless Insurance Company $18,620.73 6/17/91 3
On April 15, 1992 debtor filed six different motions seeking to avoid liens e, f, g, h, i, k and m, supra, pursuant to § 522(f)(1). Liens i and k are consensual mortgages and therefore debtor’s motion to avoid them pursuant to section 522(f)(1) is groundless as a matter of law. The Court only considers the motions to avoid liens e, f, g, h, and m to be based in law and possibly subject to lien avoidance.
II. ARGUMENT OF THE PARTIES
A. DELIGUORI
Notwithstanding their lack of economic equity, the debtors maintain that respondent Granite Bank’s attachment impairs their homestead exemption. In opposition, the bank argues that the attachment does not impair the debtors’ homestead exemption because it is not one of three enumerated exceptions to the homestead exemption statute whereby levying or sale on execution or liability for the payment of debts is permitted.5
Notwithstanding the undisputed fact that these debtors lack any economic equity in their homes, they nevertheless maintain that they do have an interest in their homes and that interest is being impaired by the bank’s judicial liens which they can avoid pursuant to Code section 522(f)(1). While they make this bald assertion, they never identify what in fact that interest is at this point.6 The debtors’ have also vigorously argued on public policy grounds that the judicial liens impair their ability to realize the Code’s “fresh start.”
In opposition the Bank argues that since it is undisputed that the debtors have no economic equity in their homestead, then there is no homestead exemption that applies in this case and therefore their lien cannot be avoided. Alternatively, the Bank argues that even if the Court were to hold that 11 U.S.C. § 522(f)(1) does apply to the *55present fact, the lien nevertheless cannot be discharged because under N.H. R.S.A. 480:4 the homestead is exempt from attachment. Stated slightly differently, it is the Bank’s position that since their attachment is already behind the homestead exemption provided under N.H. R.S.A. 480:1 their attachment does not impair the homestead exemption because that exemption is in fact by law before any judicial lien of which the attachment is but of one kind.
Finally, and although not relevant for purposes of the pure issue of law that this Court must decide, the Bank has argued, in response to the debtors’ argument that failure to avoid the Bank’s attachment will deny the debtors their fresh start as is envisioned and underlines the Bankruptcy Code, that the debtors are in fact not entitled to a fresh start since the attachment is premised on a dischargeability complaint brought by the Bank which alleges that the husband, debtor with knowledge of the impending bankruptcy, continued to take credit card orders for merchandise that he had no intention or ability to provide.
B. HOGAN
The bank in the Hogan case has essentially made the same legal argument as the bank in DeLiguori. The bank in Hogan relies on the Supreme Court case of Owen v. Owen.7 The bank argues that Owen establishes that a lien may be avoided only where there is an interest that passes to the debtor’s estate. The bank believes no interest passed to the estate because the debtor has encumbered his homes with consensual liens in excess of its market value. The bank analyzes the Owen decision as requiring a debtor to have equity in his residence that he would be entitled to claim as exempt but for the judicial lien in question.
The bank in Hogan also identifies what it believes is an issue not raised by DeLiguo-ri. Here, the bank argues that unlike De-Liguori, the debtor in Hogan voluntarily issued several mortgages after the bank perfected its judicial lien against the debt- or’s residence. The bank argues that to now permit the debtor to avoid the bank’s lien would allow a “circuity” of lien priority that was never intended by the enactment of Code § 522(f). It is the bank’s contention that if the debtor is allowed to avoid its judicial lien while subordinate consensual mortgages are left in place, it would confer an unfair advantage or priority to these junior consensual lienholders who presumably took their lien with record notice of the senior judicial liens. According to the bank, “[t]he debtor’s consent to the unavoidable junior mortgages in effect rati-fie[d] the prior judicial liens and insulates them from avoidance.”
Creditor Robert Jacobs filed an objection stating his judgment lien cannot be avoided because the debtor has no equity, and to the extent that the debtor has encumbered his property with consensual mortgages in excess of the present value of the property, the debtor may not avoid judicial liens.
Lastly, mortgagee Kerry Hogan has also objected to debtor’s motion to avoid her mortgage. She states that the debtor waived his homestead rights when he granted the mortgage to her. This allegation is irrelevant as a matter of law and it will not insulate her from avoidance were her interest in debtor's homestead a judicial lien. But it is not, it is a consensual mortgage. Creditor Kerry Hogan also states that the debtor’s motion must be denied because the debtor has not established the property’s value and therefore has not proved that it is her mortgage that impairs any equity that the debtor may hold in the property.
III. APPLICABLE LAW
A “judicial lien” is:
one of three kinds of liens defined by the Code. It is a lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding. It is non-consensual, as is a statutory lien and is readily distinguishable from the third kind of defined Code lien, the security interest, which is consensual.
*565 Collier on Bankruptcy 1300.12 (15th eel 1991).
N.H.Rev.Stat.Ann. 480:4 provides:
The homestead right is exempt from attachment during its continuance from levy or sale on execution, and from liability to be encumbered or taken for the payment of debts, except in the following cases:
I. In the collection of taxes;
II. In the enforcement of liens of mechanics and others for debts created in the construction, repair or improvement of the homestead;
III. In the enforcement of mortgages which are made a charge thereon according to law;
IV. In the levy of executions as provided in this chapter.
11 U.S.C. § 522, “Exemptions,” provides:
(f) Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of alien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is—
(1) a judicial lien; or
(2) a nonpossessory, nonpurchase-mon-ey security interest in any—
(A) household furnishings, household goods, wearing apparel, appliances, books, animals, crops, musical instruments, or jewelry that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor;
(B) implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor; or
(C) professionally prescribed health aids for the debtor or a dependent of the debtor.
IV. DISCUSSION
A. EQUITY OR EQUITABLE INTEREST?
1. CIRCUIT COURT CASES
Resolution of the pure issue of law raised by these two matters depends on statutory interpretation involving both the Bankruptcy Code and the New Hampshire homestead exemption. To date, three circuit courts have reached the same issue: two circuit courts require economic equity and one does not. Simonson v. First Bank of Greater Pittston, 758 F.2d 103 (3d Cir.1985); Fitzgerald v. Davis, 729 F.2d 306 (4th Cir.1984); contra In re Brown, 734 F.2d 119 (2d Cir.1984).8
In In re Simonson, 758 F.2d 103 (3d Cir.1985), joint chapter 7 debtors moved pursuant to § 522(f)(1) to avoid judgment liens on their residence claiming the liens impaired their federal bankruptcy exemption under § 522(b) of the Code. Like the present case, in Simonson it was undisputed that there was no economic equity in the debtor’s home. The Bankruptcy Court denied the motion and the Third Circuit affirmed.
The judgment liens in Simonson were in the second and third positions and the debt- or argued that through the combination of § 522(f)(1) and 522(i)(2) those liens could be avoided and the debtor could, in essence, “jump into” the second and third priority positions relative to a subsequently recorded valid second mortgage. See also In re Gancarz, 108 B.R. at 394.
The Third Circuit addressed the issue of what interest a debtor without economic equity in his residence has that may be used to avoid the fixing of a judicial lien. Noting that while section 522(f) does not define what the interest of the debtor in property is for purposes of lien avoidance, the Third Circuit answered the open question thus: “[it is] intended to mean an interest of the debtor measured by taking into account those interests of other parties which may not be avoided under § 522(f).” 758 F.2d at 105.
The Third Circuit also scanned the legislative history but found nothing indicating that Congress intended the anomalous re-*57suit urged by the Simonson debtor. The Third Circuit wrote: “We have found no indication in the legislative history of § 522 suggesting that Congress intended it to be a means of creating equity, which did not otherwise exist, in property for the benefit of a debtor. Absent such equity, the problem of lien avoidance under § 522(f) simply does not arise.” 758 F.2d at 106.
The Third Circuit concluded that as the Simonson debtor had no economic equity, there was no interest in the property to which a claimed exemption could attach. Id.
In a different twist, it was the debtors in Fitzgerald v. Davis, 729 F.2d 306 (4th Cir.1984), who argued that a judgment lien should be avoided precisely because they had no economic equity in their home after unavoidable mortgages were taken into account. On appeal, the judgment lien creditors argued for subordination rather than the partial avoidance in an amount equal to the state homestead exemption that the bankruptcy court had ordered.
The Fourth Circuit vacated and remanded to the bankruptcy court because of an intervening sale of the property “for a sum in considerable excess” of the estimated value used for purposes of the motion to avoid. Id. at 308. But in remanding the case for reconsideration in light of the market-established value of the home, the Fourth Circuit strongly indicated that for purposes of a motion to avoid a judicial lien under section 522(f)(1), equity was a prerequisite:
“The fair market value of the property is an important factor in determining how to treat a judgment lien under § 522(f), because the extent to which the lien impairs a valid exemption depends on the amount of the debtor’s equity in his property. The debtor’s equity is the value of the property less any unavoidable mortgages on the property.”
Id. at 308.
Unlike Simonson and Davis, the Second Circuit’s decision in In re Brown, 734 F.2d 119 (2d Cir.1984), held that a debtor need not establish economic equity in her residence in order to successfully avoid a judicial lien.
The facts of Brown involved a debtor who invoked § 522(f)(1) to avoid the fixing of a judgment creditor’s lien on the proceeds of a pre-bankruptcy foreclosure sale of real estate owned by the debtor. The Brown judgment creditor recorded its judgment as a judgment lien on the debtor’s property pre-bankruptcy. Then a mortgagee foreclosed upon debtor’s residence. The judgment creditor’s lien attached to the proceeds as a matter of law. The bankruptcy court allowed the debtor to use § 522(f)(1) to exempt the proceeds of the pre-bankruptcy foreclosure sale of real estate.
In her schedules, the Brown debtor listed the surplus from the foreclosure sale as exempt property. Notwithstanding that the debtor clearly had no equity in the proceeds of the foreclosure sale, the Second Circuit nonetheless found that she had a sufficient equitable interest within the meaning of § 541(a)(1) to support an exemption.
Relying on the usual broad interpretation of Code section 541, “Property of the Estate,” the Second Circuit concluded that the equitable prong of section 541’s “all legal or equitable interests of the debtor” phrase had generally not been interpreted as being limited to a debtors equity in property. Id. at 123. The Second Circuit wrote: “Rather, the overwhelming weight of authority holds that even if liens on the property exceed the market value of the property, leaving the debtor with no equity in it. The debtor nonetheless has ‘equitable interest in the property.’ ” The Brown court identified the debtor’s interest as the contingent equitable right of redemption which, in the words of the Second Circuit, “presumably [would] have ... entitled [her] to have the surplus funds returned to her.” Id. at 124.
2. SUPREME COURT CASES
The Supreme Court recently opined on the issue before this court on its way to deciding a related issue for purposes of § 522(f)(1) judicial lien avoidance. In Owen v. Owen, — U.S. -, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991), the Supreme Court concluded that § 522(f)(1) of the Code allowed *58a debtor to avoid a judicial lien notwithstanding a governing state law which excluded property encumbered by the kind of lien in question from exemption. The Court discussed the issue at bar thus:
Property that is properly exempted under § 522 is (with some exceptions) immunized against liability for prebank-ruptey debts. § 522(e). No property can be exempted (and thereby immunized), however, unless it first falls within the bankruptcy estate. Section 522(b) provides that the debtor may exempt certain property “from property of the estate”; obviously, then, an interest that is not possessed by the estate cannot be exempted. Thus, if a debtor holds only bare legal title to his house — if, for example, the house is subject to a purchase-money mortgage for its full value — then only that legal interest passes to the estate; the equitable interest remains with the mortgage holder, 11 U.S.C. § 541(d). And since the equitable interest does not pass to the estate, neither can it pass to the debtor as an exempt interest in property. Legal title will pass, and can be the subject of an exemption; but the property will remain subject to the lien interest of the mortgage holder. This was the rule of Long v. Bullard, 117 U.S. 617, 6 S.Ct. 917, 29 L.Ed. 1004 (1886), codified in § 522...
Though not the holding and therefore not determinative of the outcome of the present issue, it is apparent that the Supreme Court fully contemplated that a debtor must have a cognizable economic equity interest in his home before it becomes subject to the homestead exemption.
The issue was also discussed in the companion case of Farrey v. Sanderfoot, — U.S. -, 111 S.Ct. 1825, 114 L.Ed.2d 337 (1991). The sole question presented in Sanderfoot was whether § 522(f)(1) permitted a debtor to avoid the fixing of a lien on a property interest that he obtained through a divorce settlement. Id. 111 S.Ct. at 1828. While Sanderfoot involved an unusual fact pattern where the debtor’s interest and the lien thereon arose simultaneously, the Court did discuss the issue of what “an interest of a debtor” means for § 522(f)(1) purposes. The Court reasoned that a debtor must first have an interest to which a lien is subsequently fixed before it can be avoided by the § 522(f)(1) lien avoidance power. Id. at 1828-29.
However, the Sanderfoot decision is not precedential in that it did not focus on the kind or magnitude of interest a debtor must have before a lien can be avoided, but rather discussed the timing element between when a debtor’s interest in property arises and when a lien on that interest becomes fixed. Id.
3. DISTRICT OF NEW HAMPSHIRE BANKRUPTCY COURT
This court considered a motion to avoid a judicial lien in the matter of In re Gancarz, 108 B.R. 392 (Bankr.D.N.H.1989). Gancarz involved a chapter 13 debtor’s motion to avoid a judicial lien on his home pursuant to § 522(f)(1). During the course of the Gancarz opinion this Court noted that “[tjhere is no question defendant has a judicial lien, or that the debtors have equity in their home equal to the amount of the judicial lien they seek to avoid. The only question raised in this adversary proceeding is whether the lien impairs a valid exemption under New Hampshire State Law.” Id. at 393. As both parties have correctly observed, the issue of whether or not a debtor must have equity in his home before an exemption- interest arises was assumed without being decided. The Court now definitively answers that open question in the affirmative.
//. OTHER CASES
The debtors have advanced their argument by relying principally on the case of In re Berrong, 53 B.R. 640 (Bankr.D.Co.1985). Berrong’s utility for the debtors’ is its protean statement that “although the case law is divided, the overwhelming and more recent authority supports the interpretation that while equity is an interest, it is not necessarily the only interest of the debtor.” Id. at 643 (citations omitted).
Like the Second Circuit’s Brown decision discussed above, the Berrong court reached its result on the basis of the customarily broad interpretation given *59§ 541(a)(1) of the Bankruptcy Code. Section 541(a)(1) states that a debtor’s estate consists of all legal or equitable interests of the debtor as of the time of the commencement of the case. In essence, the Berrong decision relied on the interpretation of a different section of the Code to rationalize and arrive at its determination under § 522(f)(1).
Perhaps between the lines of Berrong was that court’s concern that judicial lien-ors will wait for some appreciation in a property’s value and then rush to foreclose and collect on their judicial liens. Apparently, and perhaps correctly, Berrong perceived this possibility as an impediment to the debtor’s fresh start. Id. at 643.
Nonetheless, this Court is constrained to reject Brown and Berrong. Neither case abides by the plain language of section 522(f)(1). Moreover, their rationale leads to anomalous results that cannot be supported in the absence of citation to legislative history indicating Congress considered and intended such results.9
B. “WOULD HAVE BEEN ENTITLED” BUT FOR WHAT?
Complicating the resolution of the present controversy is the phrase in § 522(f) that reads: “The debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, — ” (emphasis added). While arguably ambiguous, the only plausible interpretation of this phrase is that the “would have been” refers to the situation that would exist but for the judicial lien itself. Thus, if it is the judicial lien in dispute which impairs a claimed homestead exemption, then the debtor may avoid that judicial lien.
Under the facts of the present case, these debtors would not have been entitled to claim the New Hampshire homestead exemption since it is undisputed that the total liens exceed the present value of the property. As the phrase “would have been entitled” is in the past tense, the debtors can hardly argue that some future increase in the value of their homes, and thus the belief that equity will be created deus ex machina, entitles them to avoid the judicial liens now. That reading simply does not comport with the language of § 522(f).
The Supreme Court has recently construed the very exact phrase and its construction supports this Court’s determination. In Owen v. Owen, — U.S. -, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991), referred to above, the Supreme Court analyzed the meaning of the phrase “would have been entitled to.” The Supreme Court wrote:
If respondent’s interpretation of § 522(f) were applied, to this exemption, a debtor who owned a house worth $10,000 that was subject to a judicial lien for $9,000 would not be entitled to the full homestead exemption of $7,500. The judicial lien would not be avoidable under § 522(f), since it does not “impair” the exemption, which is limited to the debt- or’s “aggregate interest” of $1,000. The uniform practice of bankruptcy courts, however, is to the contrary. To determine the application of § 522(f) they ask not whether the lien impairs an exemption to which the debtor is in fact entitled, but whether it impairs an exemption to which he would have been entitled but for the lien itself.
As the preceding italicized words suggest, this reading is more consonant with the text of § 522(f) — which establishes as the baseline, against which impairment is to be measured, not an exemption to which the debtor “is entitled,” but one to which he “would have been entitled.” The latter phrase denotes a state of affairs that is conceived or hypothetical, rather than actual, and requires the reader to disregard some element of reality. “Would have been” but for what? The answer given, with respect to the federal exemptions, has been but for the lien at issue, and that seems to us correct.
* * * * * *
We have no doubt, then, that the lower courts’ unanimously agreed-upon manner of applying § 522(f) to federal exemp*60tions — ask first whether avoiding the lien would entitle the debtor to an exemption, and if it would, then avoid and recover the lien is correct.
V. THE “FRESH START”
Debtors also argue that denial of their motions to avoid judicial liens will be tantamount to a denial of their fresh start. Unless the Court grants the motion, the debtors claim they will have to sail into the future with an albatross around their necks. In support of this contention, the DeLiguori debtors note that they have reaffirmed their note with the first mortgagee and have remained current on post-petition payments. The Hogan debtor notes he “continue[s] to make mortgage payments to the purchase-money lender.”
As the Hogan debtor rightly and correctly observes, this Court takes the Code’s primary policy of giving an honest debtor a fresh start very seriously. Along with the Code’s equality of distribution policy, a debtor’s fresh start is one of the two pillars on which the Code is built.
Nonetheless, the fresh start envisioned by the Code never guarantees a debtor the right to insulate his home, especially where as in these cases, the debtors saw fit to encumber their homes with consensual mortgages in excess of the values. Mr. Hogan, who has vigorously asserted this policy argument, has encumbered his home with consensual mortgages in the amount of $76,500 on a home he valued in his bankruptcy schedules as now being worth approximately $49,000.
The Code’s policy of giving every good faith debtor the possibility of reorganizing his or her financial affairs and to start life afresh informs virtually every decision of a bankruptcy court. However, the statutory language of section 522(f)(1) is clear and requires the conclusion that debtors’ motions to avoid judicial liens be denied. The Second Circuit’s Brown decision looses sight of the plain language of section 522(f)(1) and reaches its result through section 541 property of the estate analysis. Under Brown, every debtor has an equitable interest in his home, i.e., his interest not to lose it. But, as already noted above, using this amorphous kind of equitable interest produces an anomalous result not in accord with the language of section 522(f)(1).
If the Congress desires to expand the benefits of the Code’s fresh start for debtors, they of course are free to do it explicitly, absent any constitutional obstacle.
VI. CONCLUSION
The Court holds that a debtor must have economic equity in his home as of the petition date in order to avoid a judicial lien pursuant to 11 U.S.C. § 522(f)(1). Simply stated, there is no “interest” a debtor “would have been otherwise entitled to” when his home is over-encumbered with consensual mortgages in excess of the home’s present market value.
. Fed.R.Bankr.P. 7052.
. Although the DeLiguori case is a joint chapter 7 petition, only the husband, Lyman DeLiguori, is named as the movant on the motion to avoid lien. Nonetheless, the movant claims a $10,000 homestead exemption, an amount reflecting the combined homestead exemption available to husband and wife under New Hampshire exemption law in effect at the time of filing of their case. The statute has since been amended to permit a debtor to claim a $30,000 homestead exemption. Despite this superficial inconsistency, the Court will treat the motion as brought by the debtors jointly.
. See subheading "III. Applicable Law” at p. 55 infra.
. Although the debtors fail to specify in their Schedule D the date the debtors executed the first mortgage in favor of Peterborough Savings, the Court assumes it was prior in time to the recordation of respondent’s attachment.
. See subheading "III. Applicable Law" at p. 55 infra.
. The memorandum in support of the motion to avoid lien in the DeLiguori case argues as follows:
"[T]he interest which the debtors have in their home rises above the mere dollars and cents which the simple investor sees ... Although the debtor’s schedules show marginally less value than the senior mortgage, thus showing no equity, such values are not so binding as to preclude the Court from finding that equity could still exist.”
Memorandum of Law in Support of Motion to Avoid Lien at 6.
. Discussed at pps. 57-58, 59 infra.
. Three other Circuit Courts of Appeals have reached the similar issue of lien avoidance pursuant to 11 U.S.C. § 522(f)(2). The split has been the same with two requiring economic equity and one not. In re Pine, 717 F.2d 281 (6th Cir.1983); In re McManus, 681 F.2d 353 (5th Cir.1982); contra In re Hall, 752 F.2d 582 (11th Cir.1985).
. See Simonson, 758 F.2d at 106, discussed at pps. 56-57 supra. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491548/ | *493ORDER ON OBJECTIONS TO CONFIRMATION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 11 case and the matters under consideration are Objections to the Confirmation of the “Amended and Restated Plan of Reorganization dated June 2, 1992 as Modified by the Modification of Amended and Restated Plan of Reorganization dated August 27, 1992” (Plan) filed by Bicoastal Corporation, d/b/a Simuflite, f/k/a The Singer Company (Debtor). The Objections were filed by the California Department of Toxic Substances formerly known as the California Department of Health Services (California), and William Mathews Agency, Inc., now known as William Mathews, Inc. (Mathews), and several partnerships and corporations collectively referred to as the Citation Entities (Citation). All of these Objections carry a basic common thread based on the contentions, primarily articulated by counsel for California and echoed by the other objectors, that the Plan under consideration unfairly discriminates against California, Mathews and Citation, or alternatively, that the Plan of the Debtors is not feasible, and therefore cannot be confirmed.
To put the issues raised by the Objections in proper focus, it should be helpful to recap briefly the status of the objecting parties in this Chapter 11 case which, as appears from the record, is as follows:
On November 80, 1989, this Court entered an Order and initially fixed the bar date to file a proof of claim as December 30, 1989. This date was later extended until January 31, 1990. The notice of the second bar date was mailed to all known parties of interest. In addition, a notice was also published in the national editions of the Wall Street Journal and The New York Times, and several other newspapers with general circulation, including the Los Angeles Times.
THE CLAIM OP CALIFORNIA
The first claim of California was filed on July 26, 1990, in the amount of $7,492,-294.00. The second claim of California was filed February 5, 1992, in the amount of $43,653,894.00, and was accompanied by a Motion for Reconsideration of the Order denying the first claim. Both claims were based on alleged liability of the Debtor for the cost of cleanup of certain land located in California which was allegedly contaminated by the Debtor. The first claim was promptly challenged by the Debtor who filed an Objection to the allowance of same. There is no question that both claims were filed late, that is, after the time fixed by the Court as the bar date had expired. The Debtor's Objection was based first, on the contention that the claim was time barred and second, that it was unliquidated and contingent, and thus, cannot be allowed by virtue of § 502(c) of the Bankruptcy Code. This Court sustained the Debtor’s objections and disallowed California’s first claim and denied California’s Motion for Reconsideration and disallowed the second claim. California timely filed two Notices of Appeal, but did not seek a stay pending appeal. These appeals are still pending in the District Court.
THE CLAIM OF MATHEWS
William Mathews Agency, Inc., now known as William Mathews, Inc. (Mathews) never actually filed a Proof of Claim. Instead, on December 11, 1991, it filed a Motion and sought leave to file a claim after the bar date. In addition Mathews filed a Supplemental Motion on February 26, 1992 again seeking leave to file a claim after the bar date. Mathews attached a Proof of Claim as an Exhibit to the Supplemental Motion, asserting a claim in the amount of “not less than a Million dollars.” This claim is also based on the alleged liability of the Debtor for contamination of land which was sold by the Debtor to Mathews, which is the same property subject to California’s first claim. It is Mathews’ contention that as the current owner of the land, it may be held liable to California for the cost of cleanup and, therefore, it is entitled to be reimbursed or made whole by the Debtor in the event Mathews is ultimately held liable by California for the cost of cleanup. The Debtor opposed the motion on the grounds that the claim was time *494barred and that no excusable neglect existed. In addition, the Debtor also sought a disallowance on the ground that by virtue of § 502(e), the claim is for reimbursement or contribution to an entity whose claim against the estate was disallowed. Mathews’ Motions were considered in due course and were denied by this Court on May 8, 1992, on both grounds asserted by the Debtor. Mathews, like California, promptly filed a Notice of Appeal but, again did not seek or obtain a stay pending appeal. This appeal is also still pending in the District Court.
CLAIM OF CITATION
The claim of Citation is also based on the alleged liability of the Debtor for polluting land previously owned by the Debtor and sold to the Citation group. The Debtor’s Objection to these claims is yet to be considered and, albeit it has already been heard, the matter is currently under advisement by this Court. Thus no Order of Allowance or Disallowance of this claim has been entered as of this date. Unlike the claims of California and Mathews, these claims are technically still presumptively valid and allowed claims unless they are ultimately disallowed. Thus, Citation’s claims are different from the claims of California and Mathews. This is so because it is possible that as soon as this Court rules on the Citation claim and if the claim is allowed, it will receive distribution on its claim pro rata with the other allowed unsecured claims. On the other hand if disallowed and Citation challenges the dis-allowance by a timely filed Notice of Appeal, Citation may seek and obtain a stay pending appeal.
The Plan before this Court is challenged by California, Mathews and Citation on the same grounds described earlier. The Plan provides that all allowed unsecured claims in Class 13 will share pro rata in the fund which is initially estimated to be $62-70 million dollars. The Plan further provides that the Debtor will set aside and maintain a reserve for all disputed claims which will be challenged by the Debtor and will be used to pay the pro rata share of those which are ultimately allowed. There is no provision in the Plan specifically naming the disputed claims and, of course, the Plan does not provide for a reserve for the claims of California, Mathews or Citation.
This feature of the Plan, according to California and Mathews, joined in by Citation, unfairly discriminates against them and, therefore, the Plan cannot be confirmed by virtue of §§ 1129(b)(1) and 1122. This Section is known as the “cramdown” provision of the Code and was designed to assist and enable a Debtor who otherwise complies with § 1129(a) of the Code, with the exception of securing the requisite majority of the vote in number and amount of an impaired class, to obtain confirmation in spite of the rejection of an impaired dissenting class.
The reliance of the Objectors on § 1129(b)(1) is obviously misplaced and meritless. Since the last controlling Order entered by this Court is one which disallowed the claims of California and Mathews and there is no stay granted pending appeal, neither California nor Mathews have at this time an allowed claim and, therefore, they do not have a right to vote. The fact that the Order of Disallowance is challenged on appeal is of no moment because no stay pending appeal was sought or obtained. This Court is satisfied that this Debtor established that its Plan met all the requirements of § 1129(a) and obtained the affirmative vote in number and in amount of all impaired classes. This being the case, it is unnecessary for this Debtor to resort to the cramdown provision of § 1129(b) which obviously does not even come into play. The fact that the Plan has a provision setting aside a “reserve” to deal with disputed claims involves only disputed claims which ultimately may or may not be allowed, but does not involve the claims of California whose claims have been disallowed nor Mathews who never even filed a claim. That this provision does not specifically include the claims of California and Mathews, is without significance and does not render a Plan unconfirmable.
Mathews’ and Citation’s contention that this Plan does not meet the require*495ments of § 1129(a)(ll) is without merit. This Section requires that the Debtor establish competent evidence that the Plan is feasible, and that the confirmation of the Plan is not likely to be followed by liquidation or the need for further financial reorganization. Citation’s attack is apparently based upon its asserted administrative claim presently asserted for fixed amounts of less than $100,000.00 but for contingent amounts of up to $23 Million. The Debtor has not owned the property in question for more than a decade, and it has objected to Citation’s administrative claim, as well as Citation’s late filed prepetition claims. These matters are under advisement. The evidence presented concerning this requirement of the Code was more than sufficient and warrants the conclusion that this Debtor will have no difficulty whatsoever to consummate the Plan as proposed. First, it has sufficient cash on hand to meet the immediate cash requirements of the plan, including any potential administrative claim of Citation. In addition, it has sufficient remaining cash on hand to pay an initial dividend to unsecured creditors in the amount projected to be between twenty to thirty percent of the allowed unsecured claims. Finally, the Debtors are actively pursuing their very substantial claims: one against the State of Israel and the other, a claim for royalties against SSMC, Inc. and Microelectronics (Far East) Limited. It should be noted that the Debt- or’s right to royalties already has been determined by this Court and it is a right which exists in perpetuity. The only matter unresolved is a determination as to the amount due to the Debtor and the proper method of calculating the royalties. It is likely that this litigation will produce a substantial recovery which might very well enable this Debtor to give full satisfaction of all unsecured allowed claims.
In sum, this Court is satisfied that none of the objections are well taken for the reasons stated. Therefore, the Plan of Reorganization of the Debtor shall be confirmed by separate order.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that Objections to Confirmation of the Amended and Restated Plan of Reorganization dated June 2, 1992 as Modified by the Modification of Amended and Restated Plan of Reorganization dated August 27, 1992 is overruled.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491549/ | HELEN S. BALICK, Bankruptcy Judge.
This is the court’s decision on the objection of Motels of America, Inc. to the proof of claim (G-24) and proof of interest (G-25) filed by Grand Pacific Capital Corporation.
1. Background,
A brief background will assist in understanding the claims and MOA’s objections. In July 1987, MOA issued an offering placement memorandum concerning the issuance of preferred and common stock. With respect to 11% series A preferred stock, the memorandum granted a liquidation preference of $50 per share. The memorandum also required MOA to make sinking fund payments sufficient to retire 50% of this series by June 30, 1997.
Grand Pacific purchased 10,000 shares of this series. Indeed, MOA has listed Grand Pacific as an such an owner in its List of Equity Security Holders filed pursuant to Rule 1007(a)(3). Docket No. 153.
The bar date in this Chapter 11 case was April 1, 1991.
2. MOA’s Technical Objections
Claim G-25
Grand Pacific filed a proof of interest for $500,000 (G-25). MOA has argued G-25 was filed on April 3, 1991, after the bar date, however, the court records indicate that G-25 was filed on April 1, 1991. Claim G-24
On April 1,1991, Grand Pacific filed a proof of claim for $250,000.00 (G-24). The claim seeks general, unsecured status. MOA objects that Grand Pacific fails to sufficiently explain or document the basis for its $250,000 claim. The court disagrees.
Claim G-24 states: “Pursuant to a ‘Confidential Private Placement Memorandum,’ Debtor became contractually obligated to retire at least 50% of Claimant’s Preferred Stock and to pay 11% per annum cumulative dividends in quarterly installments.” If 3. The private placement memorandum was not filed with the claim.
Bankr.R. 3001(c) states:
When a claim, ..., is based on a writing, the original or a duplicate shall be filed with the proof of claim.
This rule assists a debtor-in-possession in ascertaining the basis and accuracy of the claim. 3 Collier on Bankruptcy ¶ 501.1, *546at 501-6 (1992). Six pages of MOA’s brief argue the lack of merit to Grand Pacific’s claim. Moreover, MOA itself attached the placement memorandum to its brief in support of its objection. Fifty per cent of 10,000 shares multiplied by $50 per share is $250,000, which equals the amount claimed. Under these circumstances, MOA has been sufficiently apprised of the basis of claim G-24, and disallowance pursuant to Rule 3001(c) would be inappropriate.
However, the court observes that Grand Pacific has not articulated any basis for Claim G-24 different than that for G-25. Claim G-25 states “[Grand Pacific’s] 10,000 shares of 11% Series A Preferred Stock are entitled to a liquidation preference ... in the amount of approximately $50 per share_” ¶ 5. Claim G-25 also does not attach any writings.
Claim G-24 is therefore disallowed as duplicative of G-25.
3. MOA’s Substantive Objections
MOA makes several arguments why claim G-25 should be disallowed. The only one that need be addressed here relates to the nature of Grand Pacific’s interest.
Grand Pacific is merely an equity security holder of MOA’s Series A preferred stock. It is not an unsecured creditor of MOA. Its equity interest will be treated in accordance with whatever plan is ultimately confirmed by this court. The court takes judicial notice that MOA’s most recent filed plan places Grand Pacific’s interest within Class XXI. This class receives no distribution under that plan.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491550/ | OPINION
ASHLAND, Bankruptcy Judge:
J. Richard Golob appeals from an order of the bankruptcy court denying motion to set aside a previous order of the court approving a settlement among Golob, and others, and Old National'Bank of Washington, succeeded by U.S. Bank of Washington. We affirm.
STATEMENT OF THE FACTS
Prior to commencement of the underlying bankruptcy case, the debtors, J. Richard and Barbara Golob, and Golob & Sons, *568Inc., of which the debtors and Pearl Golob are the primary shareholders, (collectively referred to as the “debtors”) executed three promissory notes to Old National Bank of Washington in the principal amount of $2,000,000. Payment on the notes was secured by real and personal property of the debtors. The debtors defaulted on their payments under the notes and the bank accelerated the payments due. The bank brought suit against the debtors in state court for monies due and to foreclose on the debtors' property securing the notes.
In March of 1982, the Golobs filed a petition under Chapter 11 of title 11 of the United States Code. The schedules listed the bank as its only creditor.
The bankruptcy court referred the foreclosure action and related counterclaims to the district court for adjudication. On May 14, 1985, the debtors and the bank entered into a stipulated in-court settlement (“settlement”) setting forth the general terms and conditions of their agreement. The settlement provided that certain of the debtors’ real and personal property be transferred to the bank in lieu of foreclosure and included a release of claims amongst the parties. On September 3, 1985, the parties filed a motion to compromise controversy and the bankruptcy court entered an order approving the settlement on December 16, 1985.
Almost one year after approval of the settlement, another motion for order approving stipulation of settlement and compromise of claims was filed with the bankruptcy court (“second settlement”). The second settlement set forth in greater detail the terms of the agreement between the parties. The motion to approve the second settlement recited the fact that a prior settlement and release of claims had been entered into between the parties and approved by the bankruptcy court. It was clear from the language of the motion that the second settlement would serve as the agreement between the parties. The concluding paragraph of the motion stated:
“Wherefore, the Court having previously entered an Order Approving Compromise in Settlement of Claims with Old National Bank on December 13, 1985, Debtors and Bank pray that an additional order approving the terms of said settlement, as set forth herein, be issued by this Court without further notice to creditors.”
Appellant’s E.R., Tab 4, 11:24-12:2.
The second settlement was executed by all parties. The bankruptcy court entered an order approving the second settlement on December 2, 1986.
Approximately four years later, the debtors brought a motion to set aside or otherwise reconsider the order approving the second settlement. The basis for the motion to set aside was an alleged discrepancy between the two settlements. Specifically, the debtors asserted that according to the first settlement the bank was to receive the “feedlot,” but the second settlement included a legal description of the property which debtors assert to be “grossly inconsistent” with the terms of the initial settlement. The legal description in the second settlement included not only the feedlot but other things such as a personal driveway, park, landscaped areas, barn used for show horses, farm maintenance sheds, repair stalls, driveway accessing farm areas and a “right of way” of the personal and farm driveways. See, Appellant’s E.R., Tab 6, 3:4-14.
A hearing was held on December 17, 1991 on the motion to set aside order. The bankruptcy court denied the motion and this appeal timely followed.
ISSUE PRESENTED
Whether the bankruptcy court erred in denying the motion to set aside its prior order approving the second settlement and compromise of claims.
STANDARD OF REVIEW
Denial of a motion to amend judgment or order pursuant to Federal Rule of Civil Procedure 60(b) is reviewable for an abuse of discretion. Supermarket of Homes v. San Fernando Valley Bd. of Realtors, 786 F.2d 1400, 1410 (9th Cir.*5691986), citing, Plotkin v. Pacific Telephone and Telegraph Co., 688 F.2d 1291, 1292-93 (9th Cir.1982); In re Martinelli, 96 B.R. 1011, 1012 (9th Cir. BAP 1988).
DISCUSSION
Federal Rule of Civil Procedure 60(b) is applicable in bankruptcy through Federal Rule of Bankruptcy Procedure 9024. FRCP 60(b) states in pertinent part:
On motion and upon such terms as are just, the court may relieve a party or a party’s legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; (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; or (6) any other reason justifying relief from the operation of the judgment. The motion shall be made within a reasonable time, and for reasons (1), (2), and (3) not more than one year after the judgment, order, or proceeding was entered or taken. ...
Fed.R.Civ.P. 60(b).
To the extent that the motion to amend order was brought under subsections (1) or (3) of FRCP 60(b), a one year statute of limitations applies and debtors’ motion would be barred as untimely. However, to the extent that either 60(b)(4) or (6) are grounds for the debtors’ motion, the one year statute does not apply and the motion need only be brought within a reasonable time.
The bankruptcy court found that the motion to amend was brought pursuant to subsections (1) [mistake, inadvertence, surprise, or excusable neglect], or (3) [fraud, misrepresentation, or other misconduct of an adverse party]. Because the motion was not brought until four years after the order was entered, it was barred by the one year statute of limitations. We agree.
It is well established that a motion cannot be granted under FRCP 60(b)(6) if the motion can be justified under subsections (1), (2), or (3). See, Liljeberg v. Health Services Acquisition Corp., 486 U.S. 847, 863 n. 11, 108 S.Ct. 2194, 2205 n. 11, 100 L.Ed.2d 855 (1988); Waggoner v. R. McGray, Inc., 743 F.2d 643, 645 (9th Cir.1984); Corex Corp. v. United States, 638 F.2d 119, 121 (9th Cir.1981). Here, the variance in terms between the first settlement and second settlement was either due to mistake on the part of the debtors or fraud or misrepresentation on the part of the bank. The debtors had categorized the bank’s actions taken pursuant to the second settlement as misrepresentation or possible fraud in pleadings submitted to the bankruptcy court. However, on appeal the debtors now assert that exceptional circumstances are present and FRCP 60(b)(6) should be applied in this situation. Such an attempt to circumvent the one year statute of limitations should not be allowed. The supreme court in Liljeberg stated:
In Klapprott v. United States, 335 U.S. 601, 613 [69 S.Ct. 384, 389-90, 93 L.Ed. 266] (1949), we held that a party may “not avail himself of the broad ‘any other reason’ clause of 60(b)” if his motion is based on grounds specified in clause (1) — “mistake, inadvertence, surprise, or excusable neglect.” Rather, “extraordinary circumstances” are required to bring the motion within the “other reason” language and to prevent clause (6) from being used to circumvent the 1-year limitations period that applies to clause (1).
Liljeberg, 486 U.S. at 863 n. 11, 108 S.Ct. at 2205 n. 11.
Debtors further argue that the first settlement was agreed to by both parties and the only way to alter the terms of the settlement was through a Rule 60(b) motion to amend or by direct appeal of the court’s prior order. Since neither action was taken in this case, the debtors con-*570elude that the bankruptcy court did not have jurisdiction to approve the second settlement and the order should, therefore, be voided pursuant to FRCP 60(b)(4). The debtors’ argument must fail. The second settlement was not imposed upon the debtors by unilateral action of the bankruptcy court; rather, the terms of the second settlement were agreed to by the parties and brought before the bankruptcy court for its approval. The parties to a settlement are not precluded from consenting to a modification of its terms. Likewise, the bankruptcy court is not precluded from approving of those modified terms.
The cases cited in debtors’ opening brief in support of their argument that the bankruptcy court lacked jurisdiction to approve the second settlement are not applicable to the case at hand. In the cases cited by the debtors one party attempted to alter the terms of a settlement over the objection of the other party to the settlement. In such an instance, cases have found that a court is precluded, absent special circumstances, from altering the terms of the settlement as agreed to by the parties. See e.g., In re Air Crash Disaster, 687 F.2d 626, 629 (2nd Cir.1982). In this case, both parties agreed to the modification and it was within the court’s discretion to approve of its terms.
CONCLUSION
We conclude that the bankruptcy court exercised reasonable discretion in applying FRCP 60(b)(1) and (3). We affirm the holding of the bankruptcy court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491627/ | MEMORANDUM OF DECISION
CHARLES J. MARRO, Bankruptcy Judge, by Special Designation.
This Court has jurisdiction as a core proceeding under 28 U.S.C. § 157(b)(1), (2)(E)(J), 11 U.S.C. § 548 and 11 U.S.C. § 727(2), (3), (4) and (5).
This Memorandum of Decision constitutes findings of fact and conclusions of law under F.R.Civ.P. 52 as made applicable under Rule 7052 of the Federal Rules of Bankruptcy Procedure.
The Plaintiff as Trustee of the estate of the Debtors seeks, pursuant to § 548 of the Bankruptcy Code to set aside a transfer of a 50% interest in certain real property at 7 Coopers Grove Road in Kingston, New Hampshire and various household goods and furniture which the Debtors, Kenneth L. Reynolds and Teresa M. Reynolds transferred to their son, allegedly with the actual intent to hinder, delay or defraud the Debtors’ creditors.
The Plaintiff alleges that Defendant, Diane Reynolds, may claim some interest in the subject property by virtue of her marriage to Barry Reynolds.
An evidentiary hearing was held during which the trustee’s attorney tried to impeach Kenneth L. Reynolds as a witness by the use of questions and answers from a deposition previously taken of him. On objection by the attorney for the Debtors the Court precluded the use of said deposition since it had never been submitted to the deponent for review and had not been signed by him.
*976Although the evidentiary hearing was held on November 24, 1992 the trustee waited until December 2, 1992 to file a Motion To Reopen the Evidence to Allow Additional Deposition Testimony and this motion was not received by the Court until December 4 which was the last day of hearings conducted by it on special assignment in Florida. The Debtors oppose this motion under an objection thereto mailed to the trustee’s attorney on December 29, 1992.
The trustee relies heavily on Rule 7032(d)(4) which provides that errors and irregularities in the manner in which the testimony is transcribed or the deposition is prepared, signed, certified, sealed, endorsed, transmitted, filed or otherwise dealt with by the officer under Rules 30 and 31 are waived unless a motion to suppress the deposition or some part thereof is made with reasonable promptness after such defect is, or with due diligence might have been ascertained.
The Debtors have aptly pointed out that this rule addresses errors and irregularities in the manner in which the testimony is transcribed or the deposition is prepared, signed, sealed, endorsed, transmitted, filed or otherwise dealt with by the officer under Rules 30 and 31 (Federal Rules of Civil Procedure). Underscoring supplied.
Rule 7032(d)(4) does not pertain to the submission of the deposition to the deponent for review and signature or to the waiver thereof after such submission by the officer.
If a party intends to use a deposition for impeachment purposes which seems to be the run of the mill in modern trial practice common sense dictates that he supervises the carrying out of the proper procedures by the officer transcribing the testimony as it relates to review by the deponent as well as the obtaining of his signature or the waiver thereof. In this case the deposition was not signed by the Debtor nor was it established that his signature was waived. The trustee knew or should have known this prior to the evidentiary hearing at which he attempted impeachment. .
Overriding all of this the Court observes that any testimony by the Debtor in the deposition inconsistent with that given by him at the evidentiary hearing would add little to the proof required of the trustee in establishing a fraudulent transfer. The Debtor tried to explain that when the deposition was taken he was ill, a confused man and did not feel responsible for the accuracy of his testimony. Further, it was obvious to the Court that the Debtor had, in several financial statements submitted by him to the Arlington Trust Co., listed as an asset a 50% interest in the 7 Coopers Grove Road property when in fact he had never, according to the credible evidence, made any investment in this property.
Based on the testimony adduced at the evidentiary hearing the following findings of fact are made and conclusions reached:
FINDINGS OF FACT
The Debtors, Kenneth L. Reynolds and Teresa M. Reynolds, filed a petition for relief under Chapter 7 of the Bankruptcy Code on December 26, 1991 with their schedules showing total assets of $212,-468.00 and liabilities of $635,415.34. On the date of filing the only real estate owned by them was their residence situated at 11264 Cloverleaf Circle) Boca Raton, Florida.
During a number of years prior to their filing the Debtors did their financing through the Arlington Trust Company of Lawrence, Massachusetts and in connection therewith they did provide the bank with personal financial statements dated June 26, 1987, June 21,1988 and March 10, 1989. On each of these they listed themselves as having a 50% ownership in property located at 7 Coopers Grove Rd. acquired in 1983 at a cost of $48,000.00 and subject to a mortgage to said bank with a monthly payment of $456.00.
In fact this property located in Kingston, New .Hampshire was purchased by the Debtors’ son and his then wife, Barry and Cynthia Reynolds on or about September 1, 1983 but title was taken in the names of Kenneth Reynolds, Teresa Reynolds, Barry *977Reynolds and Cynthia Reynolds because the son could not qualify for financing.
With his parents as co-signers on the note and mortgage no down payment was required and the full purchase price was. obtained from the bank. The Debtors did not contribute any money whatsoever for the property. Mortgage indebtedness and taxes were all paid by Barry Reynolds and, after his divorce from Cynthia, his second wife, not only helped with the mortgage payments but made substantial monetary contributions for the improvement of the property. She even used the proceeds of a $22,200.00 Certificate of Deposit she received from her former husband for this purpose.
On a number of occasions over the past 3 or 4 years Barry Reynolds requested the Debtors to transfer their record title interest in the property to him. Finally in August, 1991 after one Baxter had placed a judgment lien against the property and the Debtors had it removed by the substitution of other property of the Debtors the Coopers Grove Road premises in Kingston, New Hampshire were conveyed by the Debtors to Barry without any consideration.
Barry and his wife, Diane, continued with the mortgage payments and these, together with others previously made, are supported by copies of checks on the account of Barry K. Reynolds and Diane M. Reynolds, signed by the latter.
CONCLUSIONS AND DISCUSSION
The Court is impressed with the testimony of Barry and Diane Reynolds. They were both frank and open concerning all of the transactions relating to the property. Barry frankly admitted his failings which impaired his credit rating and it was apparent that his second wife was instrumental in restoring his confidence. Both were credible witnesses. The Court is convinced that the property belonged to them, subject to the mortgage, ab initio and that the Debtors had a naked record title in what they considered a 50% interest.
The Court recognizes that the Debtors listed the ownership of the 50% interest on their personal financial statements which in a sense may be considered puffing in an attempt to improve their net worth for credit purposes. Such conduct should not be condoned but on the other hand it should not be considered as proof of ownership.
A fraudulent transfer under § 548 of the Bankruptcy Code presupposes the existence of a transfer of an interest of the debtor in property. Since the Debtors did not in fact have such an interest but only a bare record title for the convenience of the real owner, their son Barry, there could not be a fraudulent transfer. Without such an interest in property there would also be lacking as required by § 548 an intent to hinder, delay or defraud creditors.
The nature of property interest must be determined by an examination of State law. Butner v. United States, 440 U.S. 48, 54, 99 S.Ct. 914, 917-18, 59 L.Ed.2d 136 (1979); In re STN Enterprises, Inc., 47 B.R. 315, 318 (Bkrtcy.D.Vt.1985). Accordingly, the law of New Hampshire would apply since the real estate is located there and all transactions relating thereto occurred in that state. In re Janis, 60 B.R. 349 (Bkrtcy.S.D.Fla.1986). With such an application of the law and even without the transfer of record title by the Debtors ownership of the property would be vested in Barry Reynolds and his wife by virtue of a constructive or resulting trust. Chamberlin v. Chamberlin, 116 N.H. 368, 359 A.2d 631 (1976) holding that a resulting trust arises where one pays the consideration for a transfer of real property and title is taken in the name of another.
The Court concludes that the trustees motion to reopen the evidence and his Complaint To Recover Fraudulent Transfer and Objecting To Discharge of Debtor should be dismissed with prejudice. A separate order to this effect is being entered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491628/ | ORDER DENYING MOTION FOR STAY PENDING APPEAL
MARY D. SCOTT, Bankruptcy Judge.
THIS CAUSE is before the Court upon the “Motion for Stay Pending Appeal” filed by Farmers Insurance Company, Inc. (“Farmers”) on March 18, 1993. The debt- or is a fourteen year old child incarcerated for the murder of Edward Cooper. The sole debt listed on the petition is the $2,500,000 wrongful death suit filed by the estate of Edward Cooper in state court. The debtor has no income or other tangible assets. At the time of the filing of the petition on August 11, 1992, the sole potential asset of the estate was Walker’s parents’ home insurance policy. Whether the insurance policy covers the homicide incident is disputed in the state court proceedings. The state law issues of whether Farmers must pay on the policy is a matter for the state court, not the federal courts.
The debtor’s discharge was entered on December 29, 1992, and, on January 6, 1993, the trustee filed his Report of No Distribution, thereby abandoning any interest the estate may have had in the insurance policy. On February 10, 1993, the creditor, Rose Cooper, as administratrix of the estate of Edward Cooper, (“Cooper”), filed a “Motion for Partial Lift of the Automatic Stay,” requesting that she be permitted to continue litigation of the wrongful death claim in state court.
On February 25, 1993, the Court sua sponte dismissed the contested matter because there was no automatic stay in existence to preclude the state court matter from going forward. There being no automatic stay in effect, there was no justicia-ble issue over which the Court could exert jurisdiction. The debtor and Farmers timely filed a Joint Notice of Appeal on March 8, 1993. The debtor was voluntarily dismissed as an appellant because the appeal “was improvidently filed.” Farmers continues to prosecute the appeal, asserting that the Bankruptcy Court erred in entering a sua sponte Order before a hearing took place. Farmers now requests a stay “of further proceedings” in state court pending appeal.
The request for a stay of the proceeding must be denied because Farmers has failed to present any grounds for which the proceeding should be stayed. The bankruptcy court has discretion to grant a stay on such terms as are just, pursuant to Rule 8005, Federal Rules of Bankruptcy Procedure. However, the moving party must make a particular showing in order for a stay to be imposed. Specifically, the movant must demonstrate:
(1) it is likely to prevail on the merits of the appeal;
(2) it will suffer irreparable injury if the stay is denied;
(3) the other party will not be substantially harmed by the stay; and
(4) the public interest will be served by the granting of the stay.
Community Federal Savings and Loan Assoc. v. Stratford Hotel Company (In re Stratford Hotel Company), 120 B.R. 515, 516-17 (E.D.Mo.1990).
In the instant case, Farmers has failed to even assert grounds for a stay of the proceeding; it neither raises nor addresses any of the four elements. The motion states only that the state court matter is proceeding and that a stay pending appeal is sought. The failure to even address the elements for the relief requested is sufficient reason to deny the motion for stay.
Even were the issues addressed, no grounds exist for a stay of the proceeding since there is little likelihood that Farmers will prevail on the merits. It is clear that a hearing on a request for relief from stay would be meaningless since there is no stay to lift. There is no Order this court can issue which would halt the state court proceedings. If Farmers seeks to extend either the time or the persons protected by the automatic stay under section 362, it needs to file an injunctive action under the Rules of Part VII of the Federal Rules of Bankruptcy Procedure. No such *1011action has ever been filed or requested. In any event, Farmers has suggested no legal or equitable grounds for such a cause of action.
The motion initiating this matter requested relief from stay. Since there was no automatic stay in effect, there was no issue for the court to decide; there was no stay for the court to lift. Even were the Court to hear the motion for relief from stay, any Order it might issue would be meaningless: a denial of the motion would not reinstate the automatic stay. The automatic stay was already dissolved by statute. See 11 U.S.C. § 362(c). This Court will not waste its resources to hear a matter that is so clearly moot.
The concept that a justiciable issue must be presented is very basic to a federal court’s jurisdiction. See Lewis v. Continental Bank Corp., 494 U.S. 472, 477-78, 110 S.Ct. 1249, 1253-54, 108 L.Ed.2d 400 (1990). (“federal courts may adjudicate only actual, ongoing cases or controversies”); Emily Iron Cloud v. Sullivan, 984 F.2d 241 (8th Cir.1993). Indeed, lack of justiciability deprives the Court of jurisdiction to hear the matter. See North Carolina v. Rice, 404 U.S. 244, 246, 92 S.Ct. 402, 404, 30 L.Ed.2d 413 (1971); Aguirre v. S.S. Sohio Intrepid, 801 F.2d 1185, 1189 (9th Cir.1986) (“[A] reading of the record indicates that the case has become moot. Because mootness is an element of justicia-bility and raises a question as to our jurisdiction, we consider the matter sua sponte.... We cannot take jurisdiction over a claim as to which no effective relief can be granted.”).
Farmers also appears to assert that the Court vacated the permanent injunction of 11 U.S.C. § 524. Farmers is in error. This Court has not issued an order suspending, vacating, -or modifying in any manner the discharge injunction. The Court merely followed the nearly uniform line of well-reasoned cases which holds that the discharge injunction does not prohibit suit against the insurer. See, e.g., Matter of Hendrix, 986 F.2d 195 (7th Cir.1993).
Under the relief afforded by the Bankruptcy Code, the debtor has received a discharge and is no longer personally liable for the debt. However, the right of a secured creditor to proceed against property in rem survives a Chapter 7 proceeding. Johnson v. Home State Bank, — U.S. -, -, 111 S.Ct. 2150, 2152, 115 L.Ed.2d 66 (1991). Thus, the law is clear that debtor’s insurance company may yet be liable to pay on the debt despite the individual debtor’s discharge in bankruptcy. See Green v. Welsh, 956 F.2d 30 (2d Cir.1992); In re Shondel, 950 F.2d 1301, 1306 (7th Cir.1991); In re Jet Florida Systems, Inc., 883 F.2d 970, 976 (11th Cir.1989); In re Western Real Estate Fund, Inc., 922 F.2d 592, 601 n. 7 (10th Cir.1990) (per curiam); In re Lembke, 93 B.R. 701, 702-03 (Bankr.D.N.D.1988); Arkansas Real Estate Commission v. Veteto, 303 Ark. 475, 798 S.W.2d 52 (Ark.1990). Contra In re White Motor Credit, 761 F.2d 270, 274-75 (6th Cir.1985). Indeed, the Seventh Circuit has recently, sua sponte, issued an order to show cause to a Chapter 7 debtor’s liability insurer and its counsel why sanctions should not be imposed based on their “frivolous” appeal in a similar factual situation. Matter of Hendrix, 986 F.2d 195 (7th Cir.1993).
Based on this authority and statutory dissolution of the automatic stay, there was no justiciable issue presented by the motion for relief from stay. Accordingly, there is little likelihood that Farmers can succeed on the merits; there are no merits to litigate. Further, since there is no issue for determination, there is no injury if a stay pending appeal is not granted. Denial of the stay pending appeal, like denial of the motion for relief from stay has no effect upon the parties because there was no issue, injury, or right before the Court. Since Farmers has failed to even address, much less carry, its burden regarding any of the required elements for relief, the motion must be denied. It is
ORDERED that the Motion for Stay Pending Appeal, filed on March 18, 1993, DENIED.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491629/ | ORDER
JAMES G. MIXON, Chief Judge.
On April 1, 1992, Keith Scott Criswell (debtor), filed a voluntary petition for relief under the provisions of Chapter 7 of the United States Bankruptcy Code. The debt- or claims certain personal property as exempt under 11 U.S.C. § 522(d) (1988). Lor-ra Beth Passmore, a creditor, objects to the debtor’s listing of any exemptions other than those provided for by Ark. Const, art. IX, § 2.
The proceeding before the Court is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B) (1988). The Court has jurisdiction to enter final judgment in the matter.
The United States Bankruptcy Code enumerates a list of federal bankruptcy exemptions available to a debtor. See 11 U.S.C. § 522(d) (1988). Subsection 522(b) allows states to decline the federal exemptions and provides bankruptcy exemptions for its citizens pursuant to its applicable state laws. 11 U.S.C. § 522(b) (1988). This provision provides as follows:
(b) Notwithstanding section 541 of this title, an individual debtor may exempt *265from property of the estate the property listed in either paragraph (1) or, in the alternative, paragraph (2) of this subsec-tion_ Such property is—
(1) property that is specified under subsection (d) of this section, unless the State law that is applicable to the debtor under paragraph (2)(A) of this subsection specifically does not so authorize; or, in the alternative,
(2)(A) any property that is exempt under Federal law, other than subsection (d) of this section, or State or local law that is applicable....
11 U.S.C. § 522(b) (1988).
In 1981, the Arkansas Legislature elected to “opt-out” of the federal exemption scheme. Act of March 11, 1981, No. 419, 1981 Ark. Acts 743 (codified at Ark.Code Ann. § 16-66-217 (Michie 1987)) (repealed 1991). Section 16-66-217 (Michie 1987) prohibited Arkansas residents from using the federal exemptions provided in § 522(d), and limited the exemptions to those permitted by the Arkansas Constitution and laws of the State of Arkansas.
The Arkansas Constitution limits personal property exemptions for married individuals or heads of households to $500.00 plus their clothing. Ark. Const, art. IX, § 2. Other debtors are limited to $200.00 plus their clothing for personal property exemptions. Ark. Const, art. IX, § 1.
The 1981 Act also created a schedule of personal property exemptions applicable only in bankruptcy cases. Act of March 11, 1981, No. 419, 1981 Ark. Acts 743 (codified at Ark.Code Ann. § 16-66-218 (Michie 1987 & Supp.1991)). These exemptions were created in addition to those allowed by other Arkansas statutes and the Arkansas Constitution.
Ark.Code Ann. § 16-66-218 (Michie 1987 & Supp.1991) was challenged in In re Holt, 84 B.R. 991 (Bankr.W.D.Ark.1988), aff'd, 97 B.R. 997 (W.D.Ark.1988), aff'd, 894 F.2d 1005 (8th Cir.1990). The Holt debtors claimed an exemption in certain insurance proceeds pursuant to Ark.Code Ann. § 16-66-218(b)(7) (Michie 1987). Section 16-66-218(b)(7) incorporated Ark.Code Ann. § 16-66-209 (Michie 1987), which exempted all proceeds of life insurance from claims of creditors. In Holt, § 16-66-218(b)(7) permitted the debtors to exempt over $300,-000.00 rather than the $500.00 allowed by Ark. Const, art. IX, § 2. A creditor objected to the claimed exemption, arguing that the statutory exemption conflicted with the Arkansas Constitution and should be stricken as unconstitutional. The Eighth Circuit Court of Appeals agreed, and held that the Arkansas statutory exemption was unconstitutional in that it granted greater personal property exemptions than allowed by the Arkansas Constitution. In re Holt, 894 F.2d 1005 (8th Cir.1990). See also In re Hudspeth, 92 B.R. 827 (Bankr.W.D.Ark. 1988).
The Eighth Circuit’s Holt decision prompted the Arkansas Legislature to pass Act of March 5, 1991, No. 345 (codified at Ark.Code Ann. § 16-66-217 (Michie Supp. 1991)) repealing the opt-out statute, Ark. Code Ann. § 16-66-217 (Michie 1987). This new Act gives bankruptcy debtors the option of utilizing the federal or state exemptions, and provides in part:
Residents of this state having the right to claim exemptions in a bankruptcy proceeding pursuant to 11 U.S.C. § 522 shall have the right to elect either:
(i) The property exemptions provided by the Constitution and the laws of the State of Arkansas; or
(ii) The property exemptions provided by 11 U.S.C. § 522(d).
Ark.Code Ann. § 16-66-217 (Michie Supp. 1991).
Passmore argues that Ark.Code Ann. § 16-66-217 (Michie Supp.1991) adopts the federal exemptions as state law, and since these exemptions conflict with the Arkansas Constitution, they are unconstitutional. She also argues that a state’s decision to opt-out of the federal exemption scheme under § 522(b) is irrevocable.
I
Ark.Code Ann. § 16-66-217 (Michie Supp.1991) does not adopt the federal exemption table listed in 11 U.S.C. § 522(d)(1). When enacting Act No. 345, *266the legislature intended to “give the citizens of the State of Arkansas an opportunity to enjoy the rights granted by the Federal Government....” Act of March 5, 1991, No. 345, § 6. The language in the emergency clause indicates that the legislature did not adopt the federal exemptions, but merely provided bankruptcy debtors the opportunity to choose the federal exemptions. The language of Act No. 345 granting bankruptcy debtors the option of choosing state or federal exemptions is unnecessary since 11 U.S.C. § 522(b), already provides this option. By allowing bankruptcy debtors to utilize the state or federal exemptions, the legislature did not adopt federal law, but rather, adhered to it.
Even if it is assumed that Passmore is correct in her assertions that § 16-66-217 (Michie Supp.1991) violates Ark. Const, art. IX, § 2, her objection cannot be sustained. Act No. 345 contains a severability clause which provides that invalidity of a portion of the Act shall not effect the other provisions. Section 1 of Act No. 345 is the provision granting Arkansas residents the option to elect between federal and state exemptions. This section alone is the alleged unconstitutional provision. This section may be excised, and the valid portions remain in effect. Streight v. Ragland, 280 Ark. 206, 655 S.W.2d 459, 464 (1983); Borchert v. Scott, 248 Ark. 1041, 460 S.W.2d 28, 37 (1970). Section 2 of the Act repeals Ark.Code Ann. § 16-66-217 (Michie 1987) which prohibited the use of the 11 U.S.C. § 522(d) exemptions. Since Arkansas law fails to prohibit the use of the federal exemptions, 11 U.S.C. § 522(b)(1) grants a choice between state exemptions and those listed in 11 U.S.C. § 522(d) (1988).
II
The plain language of the 11 U.S.C. § 522(b) gives states the option of allowing or disallowing the federal exemptions, without limitation. Congress could have inserted language making the opt-out irrevocable, as it has in other statutes. For example, an election to relinquish the car-ryback period of net operating losses is irrevocable. 26 U.S.C. § 172(b)(3) (1988 & Supp.1990). 11 U.S.C. § 522 contains no language suggesting that a state’s decision to opt-out of the federal exemption scheme is irrevocable.
The debtor has elected to utilize the federal exemptions contained in 11 U.S.C. § 522(d) (1988) in his Chapter 7 proceeding. This election is authorized by 11 U.S.C. § 522(b)(1) (1988). Passmore has failed to demonstrate the unconstitutionality of Ark. Code Ann. § 16-66-217 (Michie Supp.1991). Passmore’s objection to the claimed exemptions is overruled.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491632/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 case, and the matters under consideration are Cross Motions for Summary Judgment filed by the Plaintiff, Lauren Johnson, Trustee, who instituted the above captioned adversary proceeding and the Defendant, Bulger Contracting Company (Bulger). The Complaint filed by the Trustee claims that the payment to Bulger of $10,760.12 was a preferential transfer voidable pursuant to § 547(b) of the Bankruptcy Code. Both Motions under consideration urge that there are no genuine issues of material fact, and each is entitled to a judgment in it’s favor as a matter of law, respectively. In addition, Bulger contends that the payment by Empire Pipe and Development, Inc. (Debtor) was a contemporaneous exchange for new value by virtue of § 547(c), which operates as an exception to the Trustee’s power to avoid a transfer as a preference, and, therefore, the Trustee’s Motion should be denied. In support of this proposition, Bul-ger asserts that upon receipt of the payment by the Debtor, Bulger released its mechanic’s lien filed against the property of the owner.
The following facts are without dispute. At the time relevant, the Debtor owned and operated a building supply business in Florida and also acted as a general contractor in the construction business. The Debtor hired Bulger as a subcontractor to perform site work, excavation and final dressing on a project known as Morgan Industrial Park. The work began on July 24, 1989, and ended on September 18, 1989. Bul-ger’s final bill to Debtor came to the sum of $106,363.70. After attempting on several occasions to collect full payment, and receiving only partial payment, Bulger on December 12, 1989, filed a claim of lien, pursuant to Chapter 713 of the Florida Statutes, on the owner’s property to satisfy the outstanding amount due, which totalled $10,760.12. Debtor made a final payment by check on January 29, 1990, to Bulger in the amount of $10,760.12. Once that payment was received, Bulger filed a final release of their lien on the property.
On March 29, 1990, Debtor filed a Petition for Relief in this Court under Chapter 11 of the Bankruptcy Code. Subsequently, the Chapter 11 case was converted to a Chapter 7 case, and Lauren Johnson was appointed Trustee. The final payment to Bulger of $10,760.12 was made during the “preference period” under § 547(b) of the Bankruptcy Code. The Trustee contends that this payment was a preferential transfer under Section 547(b) of the Bankruptcy Code which provides:
(b) Except as provided in subsection (c) of this section, the trustee may avoid any transfer of an interest of the debt- or 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;
*341(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the filing of the petition; ...
(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.
It is without dispute that Bulger was a creditor of the Debtor and payments made by the Debtor to Bulger were on account of an antecedent debt. Since all operating elements are without dispute, the Trustee should prevail unless the exception set forth in § 547(c) is claimed by Bulger and qualifies as a valid exception. Section 547(c) provides:
The trustee may not avoid under this section a transfer—
(1) to the extent that such transfer was—
(A) intended by the debtor and the creditor to or for whose benefit such transfer was made to be a contemporaneous exchange for new value given to the debtor; and
(B) in fact a substantially contempora- • neous exchange;
Bulger asserts that by waiving its claim of lien on the owner’s property to satisfy the debt owed between the Debtor and Bulger, the transaction was, in fact, a contemporaneous exchange for new value. New value is specifically defined under § 547(a)(2) of the Bankruptcy Code as:
(a)(2) ... money or money’s worth in goods, new credit, or release by a transferee of property previously transferred to such transferee in a transaction that is neither void nor voidable by the debtor or the trustee under any applicable law, including proceeds of such property, but does not include an obligation substituted for an existing obligation.
There is no question that the Debtor did not receive anything of value in exchange for the payment to Bulger in the sum of $10,760.12. While it might be argued that Bulger’s release of its lien on the owner’s property might have indirectly conferred some benefit on the Debtor, the value of this indirect compensation is highly speculative and certainly falls far short of the type of consideration which would qualify as “new value.” Be that as it may, no measurable value was added to the assets of the Debtor. Based on the foregoing, this Court is satisfied that the record fully satisfies the requirement of § 547(b) and since Bulger failed to establish the exception of the Trustee’s power to avoid under § 547(c), it is appropriate to enter a Final Judgment in favor of the Trustee and against Bulger. 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/8491634/ | MEMORANDUM OF DECISION
CHARLES J. MARRO, Bankruptcy Judge by Special Designation.
This is a core proceeding and this Court has jurisdiction under 28 U.S.C. §§ 157(b)(2)(E), (H); 28 U.S.C. § 1334 and the General Order of Reference of the United States Bankruptcy Court for the Southern District of Florida.
This Memorandum of Decision constitutes findings of fact and conclusions of law issued under F.R.Civ.P. 52 as made applicable under Rule 7052 of the Federal Rules of Bankruptcy Procedure.
The trustee, Soneet Kapila as Chapter 11 Trustee, seeks, under complaint filed September 22, 1992, to avoid alleged preferences in favor of the defendants Isaac Ha-maoui and Crown Center, Inc. as insiders pursuant to § 547(b) of the Bankruptcy Code and further to avoid alleged fraudulent transfers in favor of said Defendants pursuant to 11 U.S.C. § 548(a).
From the records in this case and the evidentiary hearings held the following findings of fact are made and conclusions reached.
FINDINGS OF FACT
An involuntary petition for relief under Chapter 11 was filed against Gateway Investment Corporation (Gateway) on August 6,1992 to which it consented on August 12, 1992.
The plaintiff, Soneet Kapila, is the duly qualified and acting trustee by virtue of the approval of his appointment by this Court on or about August 14, 1992.
Gateway is a reorganized debtor by virtue of a consensual Chapter 11 plan confirmed by this Court on May 16, 1990.
On April 24, 1992 Hamaoui purchased 98% of the capital stock of Gateway and, as a result, became the sole shareholder, (except for 2% owned prior stockholders), and he also became sole officer and director of the debtor. At about the same time Ha-maoui organized Crown Center, Inc. (CCI) as a management company with a monetary investment of $1,000.00 and shortly thereafter he transferred his shares of stock in Gateway to CCI. He became the sole shareholder, officer and director of CCI.
On May 4, 1992 Hamaoui transferred $189,271.02 from Gateway to CCI. Of this sum $90,000.00 was used to pay tax obligations of Gateway.
On June 15, 1992 Gateway as owner and CCI as agent entered into a real estate management agreement under which CCI was employed as the sole and exclusive renting and management agent of the property of the owner (Gateway) known as Crown Center Office complex and Telemat-ics Building located on West Cypress Creek Road, Fort Lauderdale. The agreement spelled out the responsibility of the agent in the renting and management of the property for which CCI was to receive as compensation 5% of all rent and other income from the property.
Paragraph 9 of said agreement provided that it “shall become effective on May 15th, 1992 and shall continue in full force and effect until and including December 31st 1995.” In fact CCI did undertake the management of the property on May 15, 1992.
The agreement was executed in behalf of both the owner, Gateway, and the agent, CCI, by Isaac Hamaoui.
The property managed by CCI comprised 20 acres of land on four streets with six buildings thereon and an area of 410,000 square feet. Prior to the taking over of management by CCI the property had been neglected with no improvements made by *356Gateway for a period of 2 to 3 years. CCI engaged the services of Hamaoui, his son, his daughter who also had a real estate broker’s license, a secretary with a salary of $250.00 a week, a janitor at $450.00 a week, and a lawyer who was also an accountant and was paid $2,500.00 a month for his services which included keeping the books of both Gateway and CCI. They were all paid from the 5% commissions received by CCI in the management of the property.
Hamaoui, in behalf of CCI, pursuant to the management agreement began the task of improving the premises by cleaning the sidewalks, curbs and greens working four men for two months, painting and erecting signs for 180 parking spaces to be used by students of Kaiser Community College, a tenant. He had a canopy erected with the name of the College and started negotiations with it for additional rental space. He worked at the CCI office 5 to 6 hours on a daily basis over a period of 4 to 5 months. During one week he was on the premises from seven in the morning until nine at night monitoring the parking while solving a dispute between tenants. He hired an architect to design plans for additional rental space in anticipation of increasing revenue. In sum the services of CCI as management agent were extremely beneficial to Gateway.
Prior to the execution of the management agreement Gateway managed the property at a cost of' $17,394.00 a month.
CCI was ousted from the property on August 14, 1992 when the appointment of the plaintiff as trustee was approved by the Court.
CCI collected the following rents from April through August, 1992:
April $443,296.23
May 501,083.15
June 249,798.56
July 463,341.44
August 450,000.00
The management fee of 5% of all rental and other income of the property is reasonable. However, since CCI was not incorporated until April 24, 1992 and Hamaoui did not purchase 98% of the stock for Gateway until that date it is not entitled to a 5% fee on the rents of $443,296.23 collected during April. Further since the $450,000.00 for August is a projected amount for the entire month and CCI was dispossessed by the trustee on August 14 CCI would be entitled to no more than 5% on xh of that sum or $225,000.00.
The accounting rendered by CCI to the trustee is as follows:
Received by CCI from Gateway $189,271.02 Rental income 114,680.31
$303,951.33
Expenses paid by CCI for Gateway 136.469.30
$167,482.03
Turned over to trustee by CCI 60.685.15
Retained by CCI as Commissions $106,796.88 Commissions claimed earned by CCI 105.575.96
Overpayment to CCI $ 1,220.92
Of the commissions charged by CCI the sum of $39,375.00 was paid pre-petition and the balance postpetition.
Hamaoui was an insider as defined under § 101(31) of the Bankruptcy Code and the Debtor was insolvent when the transfers were made.
CONCLUSIONS AND DISCUSSION
The Plaintiff as trustee seeks avoidance of the transfers both as a preference and as a fraudulent transfer.
The Court is not persuaded that there was any actual intent on the part of CCI or Hamaoui to defraud any entity to which the Debtor, was or became on or after the date that the transfers were made or the obligations were incurred, indebted.
Since section 548(a) requires an actual intent to hinder, delay or defraud, its application cannot be mechanical. As Judge Hough aptly said:
The elements productive of that intent. can never be defined. They vary as do facts, and any judge or jury, dealing with facts by some rule of thumb, will always miss the human touch. Testimony can never be tested or weighed by machine. Richardson v. Germainia Bank, 263 F. 320 (2 Cir.1919) cert. denied 252 U.S. 582, 40 S.Ct. 393, 64 L.Ed. 727 (1920); Kielb v. Johnson, 23 N.J. 60, 127 A.2d 561 (1956); 4 Collier 15th Ed. 548-48.
Under Florida law, whether a transfer is made to the end, purpose or *357intent to delay, hinder or defraud a creditor must be determined by the facts and circumstances of each particular case. In re Hytha 39 B.R. 196 (S.D.Fla.1984). The intent trustee must prove under § 548(a) must be more than a simple intent to defraud a creditor. In re Lucar Enterprises, Inc. 49 B.R. 717 (S.D.Fla.1985) Richardson v. Germania Bank 263 Fed. 320 (2nd Cir. 1919); Irving Trust Co. v. Chase National Bank 65 F.2d 409 (2nd Cir.1933); Sargent v. Blake 160 Fed. 57 (8th Cir.1908); In re Braus 248 Fed./55 (2nd Cir.1917).
The record is clear that the Plaintiff has failed to establish any intent on the part of CCI or Hamaoui to delay, hinder or defraud any creditor and, therefore, the Plaintiff has not sustained his burden of proof under § 548(a).
The Court appreciates the attempt of the Plaintiff to bring himself within the holding of In re F & C Services, Inc. 44 B.R. 863 (S.D.Fla.1984) that a general scheme or plan to strip the Debtor of its assets with no regard for the needs of the Debtor’s creditors can support a finding of actual fraudulent intent. However, no evidence has been adduced by the Plaintiff to support any such scheme or plan.
Likewise the Plaintiff seeks solace from J.I. Kelley Co. v. Pollack 49 So. 934 (1909) under which fraud will be presumed when the transfer occurs between two corporations controlled by the same officers and directors. As pointed out by the Plaintiff, the Court, in J.I. Kelley Co. said:
When the legal effect of a conveyance is to hinder or delay creditors, the intent [to defraud] will be presumed, regardless of the actual motives of the parties. •
In the instant case the legal effect of the transfer was not to hinder or delay creditors and there was no intent to defraud. There was a quid pro quo. CCI and Hamaoui preformed valuable management services for the Debtor at a reasonable charge. Without the management agreement the Debtor would have to incur the expense of the rental and management services at substantially the same cost. There was no depletion of assets as a result of performance under the agreement and the creditors were not materially affected. The Debtor in fact received a reasonably equivalent value in exchange for its transfer of the amounts of the 5% commissions earned by CCI.
§ 548(a)(2) does not authorize the voiding of a transfer which “confers an economic benefit upon the debtor either directly or indirectly. In re Rodriquez 895 F.2d 725, 727 (11th Cir.1990); Rubin v. Manufacturers Hanover Trust Co. 661 Fed.2d 979, 991 (2d Cir.1981). In such a situation “the debtor’s net worth has been preserved” and the interests of the creditors will not have been injured by the transfer. Id.
THE ALLEGED PREFERENTIAL TRANSFER
Under § 547(b) the Plaintiff as trustee made 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 ...
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(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;
However, a trustee may not avoid such a transfer ...
(1) to the extent that such transfer was (A) intended by the debtor and the creditor to or for whose benefit such transfer was made to be a contemporaneous exchange for new value given to the debtor; and
(B) in fact a contemporaneous exchange.
Under the Bankruptcy Code a “transfer” includes “every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property, including retention of title as a *358security interest.” § 101(54)[58]. For property other than realty, the transfer is perfected “when a creditor on a simple contract cannot acquire a judicial lien that is superior to the interest of the transferee.” § 547(e)(1)(B) In re Conner 733 Fed 2d 1560, 1562.
Hence transfer of the $189,271.02 from Gateway to CCI was perfected on May 7, 1992. On that date it became the property of CCI although for reasons better known to Hamaoui the sum of $136,-469.30 was used by CCI to pay taxes and other expenses of Gateway. Rental income was added to the original sum received by CCI and the total became subject to the commissions of 5% earned by CCI in the management of the property. The Court considers the payment of these commissions as transfers intended by Gateway as debtor and CCI as creditor as contemporaneous exchanges for new value given to the debtor and in fact substantially contemporaneous exchange as such they are not subject to avoidance by the plaintiff as trustee. § 547(c)(1)(A), (B)
Such payments were also in satisfaction of a debt incurred under the agreement in the ordinary course of business or financial affairs of the debtor and CCI as transferee made according to ordinary business terms. As such they are not subject to avoidance. § 547(c)(2)(A-C). In re Jerry-Sue Fashions, Inc. 91 B.R. 1006, 1008 (Bkrtcy.S.D.Fla.1988)
The Plaintiff is not entitled to avoidance either as a preference or a fraudulent transfer.
The 5% fee for management is considered reasonable. The Court rejects the opinion of the Plaintiffs expert that a 2lk% rate is adequate especially since he related it to an off site type of management. On the other hand Floyd Cerf, a real estate broker who had considerable experience in property management, testifying in behalf of CCI and after hearing the testimony of Hamaoui as to the extent of services rendered, concluded that a range of 4 to 7% of the gross rent was reasonable. The Court accepts his opinion and determines that the 5% provided in the agreement is not excessive.
Although the Plaintiff is not entitled to avoidance the Court determines that he is entitled to the following:
$22,163.80 representing commissions charged by CCI for the month of April (CCI was not organized until almost the end of April);
$11,250.00 representing one-half of the commissions charged by CCI for the month of August. (The trustee’s appointment was approved on August 14);
$1,220.92 representing an overpayment by Gateway to CCI.
Accordingly CCI and/or Hamaoui should reimburse the Plaintiff the total sum of $34,634.72.
In accordance with this Memorandum of Decision a separate order, pursuant to Rule 9021 of the Federal Rules of Bankruptcy Procedure, is being entered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491635/ | MEMORANDUM OF DECISION RE:
COMPENSATION OF SPECIAL COUNSEL
JAMES H. WILLIAMS, Chief Judge.
Presented for consideration is the application of Larry L. Inscore and the law firm of Inscore, Rhinehart, Whitney, Enderle and DeWeese Co. (Inscore), special counsel for the debtor in possession (Debtor) in these consolidated proceedings filed under Chapter 11 of Title 11 of the United States Code.
The court has jurisdiction in this matter by virtue of 28 U.S.C. § 1334(b) and General Order No. 84 entered in this district on July 16, 1984. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A). This Memorandum of Decision constitutes the court’s findings of fact and conclusions of law pursuant to Fed.R.Bankr.P. 7052.
FACTUAL BACKGROUND
The Debtor sought approval of employment of Inscore on March 21, 1986, “[t]o prosecute a civil action on behalf of the [Debtor] for the benefit of this estate ... against Aetna Casualty & Surety Co_” Compensation was proposed to be paid at 40% of net proceeds after expenses in the event of a trial and 30% of such net proceeds if the matter was concluded without trial. Over the objection of the Aetna Casualty and Surety Company (Aetna), the retention of Inscore was approved by the court on June 17, 1986.
Much litigation, and time, passed, the detailed recounting of which would serve no purpose here. Suffice it to note that Inscore did pursue, with vigor, the Debtor’s claims against Aetna; that Aetna fought back with at least equal fervor; that ultimately, Aetna was successful in gaining confirmation of the plan to which it contributed financially and which incorporated a so-called “global” settlement, designed to resolve all disputes in which the Debtor was involved, including the litigation Ins-core was prosecuting on its behalf. Typical of this case, the matter did not end there, for an appeal of the court’s confirmation order was taken to the United *476States District Court. That court sustained the confirmation order, no further appeal was taken and the plan is now being consummated.
Now, says, Inscore, he is entitled to 30% of $150,000.00 in cash contributed to the plan by Aetna, as well as 30% of any of the net proceeds paid into the estate from recovery on a claim the Debtor held known as the Cuyahoga River claim. Funds recovered on this claim were another integral part of the plan which the court ultimately confirmed. In partial support of his position, Inscore offers, in some detail, a compilation of 155.7 hours of professional time he asserts were spent in pursuing his client’s claim against Aetna. Additionally, he claims another 250 hours were expended “in other activities to maintain and enhance the viability of the claims set forth in the Adversary Case.” Another 150 hours were spent, he says, resisting confirmation of the Aetna-sponsored plan. His customary hourly charge is asserted to be $125.00. He concludes that it is for “this court to decide the extent of the economic enhancement of Au, Inc.’s estate resulting from special counsel’s services and the impact of 328(a).”
Aetna offered a four-pronged attack on Inscore’s application for compensation:
1. There is a failure of proof that Aet-na’s funding of the plan “resulted directly” from Inscore’s efforts in prosecuting the adversary case against Aetna on behalf of the Debtor.
2. Even if Inscore had something to do with Aetna’s financial contribution, the added cost of administration of the estate resulting from Inscore’s litigation activities must be taken into account.
3. There is a failure of compliance with Fed.R.Bankr.P. 2016 relative to previous payments to the special counsel.
4. The application fails to conform with various aspects of this court’s 1988 Guidelines for compensation of professional persons.
DISCUSSION
The court considers only the first of Aet-na’s objections as meriting close examination.1 The added costs of administration resulting from what Aetna perceives as Inscore’s interference with the case are nearly impossible to quantify, beyond the efforts already made by the court to reduce duplicate charges for work rendered by Brouse & McDowell, the Debtor’s general counsel, in areas in which Inscore functioned. As Inscore points out, explanation was offered at the oral hearing on his compensation request as to payments received by him for his work, which explanation, coupled with the declaration accompanying the initial application to employ him and his firm as special counsel, the court accepts. The 1988 Guidelines obviously came into being long after Inscore’s appointment as special counsel and, in any case, have no direct application to a contingent fee arrangement. Inscore offers evidence of several hundred hours of his professional time spent on behalf of the Debt- or to buttress his view that the fees calculated under the percentage arrangement are not unreasonable. In such usage, lack of rigid adherence to the Guidelines does not warrant a rejection of the application for compensation.
As noted, Aetna’s first, and in the court’s mind, most compelling argument is that there is a failure to demonstrate that Aet-na’s contributions to the plan “directly resulted” from Inscore’s efforts.
While the court is aware of criticism of the concept, it has long held to the view that results obtained or, in other words, benefits to the estate, are a crucial factor in fixing the compensation of professionals. See In re Gibbons-Grable Company, 141 B.R. 614, 617-8 (Bankr.N.D.Ohio 1992) and *477the cases there cited, including, interestingly, the report of an earlier skirmish in this very case, In re Roger J. Au & Son, Inc., 114 B.R. 482 (Bankr.N.D.Ohio 1990).
Much more difficult than stating the concept is applying it practically, however. It is one thing to look at a fee bill and sort out specific actions which can be tied to particular results, e.g., recovery of a sum of money for the estate from the prosecution of a preference action, and quite another to look, as here, at a fund of money contributed for, probably, several reasons and conclude that any one professional or group of professionals “caused” or “created” that fund, in whole or in some percentage. One can understand if not appreciate Inscore’s suggestion that the final calculation is the court’s job!
If one is to apply the 30% contingency fee calculations to the funds contributed to the plan by Aetna, Inscore is entitled to $104,022.00 (30% X $150,000.00 in cash, plus $196,740.00 from the Cuyahoga River claim). This is in contrast to an allowance of $69,462.50 if all of the time specified by Inscore (155.7 hours itemized, 250 hours estimated for “other activity” and, of highly dubious value, 150 hours in resisting, unsuccessfully, confirmation of the plan) is allowed at $125.00 per hour.
The court is satisfied that the efforts of Inscore are reflected at least to some extent in the ultimate contributions Aetna made to this plan. It is not prepared, however, to accept the applicant’s view that his efforts, alone, compelled Aetna to so act. It appears that no more than 400 to 500 hours were spent in productive effort to enhance the estate.2 It would be, of course, unfair to, in retrospect, deny allowance based on a contingent fee arrangement because the applicant is unable to reconstruct time records which will support an award calculated under the contingency fee agreement. Part of the justification for high awards under the contingent fee system is to recognize the risk factor in undertaking representation on such a basis.
Although the supporting documentation is woefully lacking, the court will accept Inscore’s assertion that at least 500 hours of his professional time were expended in the effort under discussion here. To the product of this number of hours multiplied by $125.00, it will add a factor of 25% in order to give effect to the contingency arrangement which the parties bargained for, and which the court approved, several years ago. The result is $78,125.00 which shall be paid over to Inscore as a part of the cost of administration of this estate.
An order in accordance herewith shall issue forthwith.
. Aetna later submitted a lengthy attack on Ins-core’s right to compensation because of certain undisclosed involvements Inscore had with entities related to the Debtor corporation. Inscore responded that Aetna had long known of these alleged conflicts and had kept silent; that no demonstrable harm had come to the estate because of these connections; and the court, in any case, had approved Inscore’s appointment under 11 U.S.C. § 327(e) which contains no "disinterested" requirement. The court agrees that the frailties of Inscore’s position, if any, are addressed by Aetna’s four-part objection discussed here.
. Not including the 150 hours Inscore allegedly spent in attempting to derail the Aetna-spon-sored plan which ultimately provided the framework for the payments in which he now seeks to share. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491636/ | MEMORANDUM OF DECISION
JAMES H. WILLIAMS, Chief Judge.
This case is before the court on remand for further proceedings from the United States District Court for the Northern District of Ohio. In October, 1986, the Disposition Assets Trustees (Trustees) objected to claims filed by the Internal Revenue Service (IRS) for certain excise taxes. This court agreed with the Trustees, held that the IRS’ claims were penalties, subordinated its claims and the District Court affirmed. In re Mansfield Tire & Rubber Company, 80 B.R. 395 (Bankr.N.D.Ohio 1987), aff'd, 120 B.R. 862 (N.D.Ohio 1990). The Court of Appeals reversed and held that the excise taxes assessed against the debtors were not penalties and were entitled to priority under 11 U.S.C. § 507(a)(7)(E). In re Mansfield Tire & Rubber Co., 942 F.2d 1055, 1059 (6th Cir. 1991), cert. denied, Krugliak v. United States, — U.S.-, 112 S.Ct. 1165, 117 L.Ed.2d 412 (1992).
The IRS now asserts that because it holds allowed claims it is entitled to interest on the unpaid balances from the consummation date of the plan, January 29, 1986, until the date of payment.
The Trustees and the IRS submitted stipulated findings of fact, briefed the issues, and, following oral argument, the court took the matter under advisement.
FACTS
The court substantially adopts the facts as agreed upon by the parties.
*4791. On October 1, 1979, Mansfield Tire & Rubber Company (Mansfield) and a related company, The Pennsylvania Tire and Rubber Company of Mississippi, Inc. (Penn-Miss) filed voluntary petitions for relief under Chapter 11 of Title 11 of the Bankruptcy Code.
2. On November 1, 1979, another related company, Pennsylvania Tire Company, an Ohio corporation, (PennOhio), filed for protection under the bankruptcy laws.
3. On February 6, 1980, the IRS filed a proof of claim for withholding and Federal Insurance Contributions Act taxes (FICA taxes) in the amount of $6,304.63 for the third quarter of 1979 for Mansfield.
4. On February 6, 1980, the IRS filed a proof of claim for withholding and FICA taxes in the amount of $14,042.50 for the third quarter of 1979 and for excise taxes for the third quarter of 1979 in the amount of $256,244.00 for PennMiss.
5. On May 19, 1980, the IRS filed a supplemental claim for Form 5330 excise taxes (Pension Excise Taxes) in the amount of $315,208 for 1977 and 1978 and for unemployment taxes for 1979 in the amount of $1,560.38 for Mansfield.
6. On May 19, 1980, the IRS filed an administrative claim, which it designated as Supplemental # 2 to its proof of claim filed on February 6, 1980 for Mansfield. The claim was for withholding and FICA taxes for the fourth quarter of 1979 for Mansfield in the amount of $2,453.73.
7. On November 26, 1980, the IRS filed supplement three to its February 6, 1980 proof of claim for Mansfield for $19,125.82 in excise taxes for all four quarters of 1977 and the first three quarters of 1978 and for $16,061.20 in Pension Excise Taxes for 1978 for Mansfield.
8. On June 4,1981, the IRS filed supplemental claim four for $31,842.00 for Pension Excise Taxes for 1979 for Mansfield.
9. On March 29, 1984, the IRS filed a proof of claim to amend and supersede its claim filed on February 6, 1980 for Penn-Miss. This proof of claim alleged third quarter excise taxes in the amount of $201,021.31.
10. On March 29, 1984, the IRS filed a proof of claim for unpaid withholding and FICA taxes for the fourth quarter of 1979 for PennOhio in the amount of $242.86.
11. On December 23, 1985, the United States filed an objection to the Debtors’ Second Modified Consolidated Plan of Reorganization. The objection alleged, inter alia, that the plan
is ambiguous to the extent that Article III (Treatment of Claims and Interest), ¶ 3.1, provides for alternative dates of payment of allowed claims. The Internal Revenue Service is entitled to payment in full on the effective date of the Plan; or, alternatively, to interest on its claim if not paid in full on the effective date. 11 U.S.C. § 1129(a)(9)(A), (C).
12. By letter dated December 26, 1985, the United States Attorney’s office notified Mr. Schwartzberg, then counsel for the Trustee, that:
assuming the correctness, validity, and amounts of the Internal Revenue Service’s (IRS’s) priority and administrative claims, all of these claims, including pre-petition interest, will be paid in cash on the date of confirmation of the second modified consolidated plan of reorganization. With this understanding, the IRS withdraws its objection to the second modified plan.
13. As of the date of the December 26, 1985 letter referred to in paragraph 12, supra, no period of limitations had been set by the Court for filing objections to the allowance of any or all Claims, priority, general unsecured or otherwise, and no objection had been filed with respect to any claims of the IRS.
14. On December 30, 1985, the Second Modified Consolidated Plan was confirmed by the Court. Plan provisions provide that:
ARTICLE I
DEFINITIONS
* * * * * *
(a) “Allowed Claim ” shall mean any claim against the Debtors, proof of which was filed on or before March 30, 1984, or *480which has been or hereafter is scheduled by the Debtors as liquidated in amount and not disputed or contingent and, in either case, a claim as to which no objection to the allowance thereof has been interposed within the applicable period of limitation fixed by the Bankruptcy Code, the Rules of Bankruptcy Procedure or an order of the Bankruptcy Court, or as to which any objection has been determined by an order or judgment of the Bankruptcy Court allowing such claim that is no longer subject to appeal or certiorari proceeding, and as to which no appeal or certiorari is pending.
* * * * * *
(i) “Consummation Date” shall mean the first business day after the thirtieth day following the Confirmation Date or such later business day as soon as practicable thereafter ...
***** *
(m) “Distribution Date” shall mean any date, subsequent to the Consummation Date, on which additional distributions of Available Cash are made to holders of Allowed Claims in Classes 2 and 3.
******
1.2 Terms defined in the Bankruptcy Code, and not otherwise specifically defined in the Plan, shall, when used in the Plan, have the meanings attributed to them in the Bankruptcy Code.
ARTICLE II
CLASSIFICATION OF CLAIMS AND INTERESTS
For the purposes of the Plan, Claims and Interests are designated as follows:
2.1 Class 1 shall consist of administrative expenses and Claims entitled to priority in distribution as granted by §§ 503(b) and 507 of the Bankruptcy Code.
ARTICLE III
TREATMENT OF CLAIMS AND INTERESTS
3.1 Class 1 Claims are not impaired; and the Disposition Assets Trustees shall pay to the holders of Class 1 Allowed Claims, without interest, one hundred percent (100%) of the amount of such Allowed Claims on the Consummation Date, in the ordinary course of business, or on such other terms as may be agreed upon between any of the Debtors or the Disposition Assets Trustees and the respective holders of such Allowed Claims. ******
ARTICLE IX
RESERVE FUND, SUBSEQUENT PLAN DISTRIBUTIONS ******
9.2 Subsequent to the Consummation Date, once a claim in Classes 1, 2, or 3 becomes an Allowed Claim, the Disposition Assets Trustees shall as soon as practicable thereafter pay to the holder of such Allowed Claim in Cash, without interest, from the Reserve Fund an amount equal to the aggregate of the Cash distributions which would have been previously distributed to such holder by the Disposition Assets Trustees, as if such Allowed Claim had been an Allowed Claim eligible for distribution on the Consummation Date.
* ' * * * * *
Additionally, the provisions of the Order Confirming Plan provide that:
******
2. The provisions of chapter 11 of the Code have been complied with; and
******
4. Each holder of a claim has accepted the Plan and will receive or retain under the Plan property of equal value, as of the effective date of the Plan, that is not less than the amount that such holder would receive or retain if the debt- or were liquidated under chapter 7 of the Code on such date;
******
11. Upon motion of attorney for the Trustee to incorporate the evidence and testimony- taken at the hearing on approval of the Disclosure Statement on November 29, 1985, into the record of *481this hearing, the Court hereby orders that the entire transcript of that proceeding be incorporated into this proceeding for the purpose of consideration hereof.
15. Richard Phillips and Samuel Krugl-iak were named trustees of the trust in which the assets of the debtors vested.
16. By letter, dated April 14, 1992, to Kenneth W. Rosenberg of the United States Department of Justice, counsel for the Trustees proffered, on their behalf, to pay to the IRS the sum of $363,111.20 in satisfaction of the Pension Excise Claim. The letter also references a telephone call to Mr. Rosenberg in February 1992 during which counsel for the Trustees previously had proffered to pay the Pension Excise Claim. Subsequent to his receipt of the Trustees’ April 14, 1992 letter, Mr. Rosenberg referred the Trustees to Karen Smith of the Justice Department, indicating that Ms. Smith would contact the Trustees to arrange payment of the Pension Excise Claim.
17. By letter dated May 7, 1992, (the May 1992 Letter), counsel for the United States advised the Trustees that IRS records indicated a total tax liability (including the Pension Excise Claim) in the principal amount of more than $590,000.00 plus an administrative claim in the principal amount of $2,453.73. The May 1992 Letter stated that IRS records indicated that certain of these liabilities may have been paid and requested documentation of any such payment. The letter further asserted that the IRS is entitled to interest on its tax claims from the Confirmation Date of the Plan.
18. On June 5, 1992, a telephone conference among Judge Williams, Ms. Smith for the United States and counsel for the Trustees was held to discuss these issues. During the telephone conference, counsel for the Trustees proffered to pay to the United States the sum of $363,111.20 in satisfaction of the prepetition amount of the Pension Excise Claim. Following the telephone conference, by telefax the Trustees (i) advised the United States that the funds to pay such amount would not be liquid until June 22, 1992 and (ii) transmitted to the United States copies of the Plan and the order confirming the Plan. On June 8, 1992, the Trustees transmitted to the United States documentation of payment of some of the asserted tax claims and requested an accounting of what claims the IRS deems still outstanding.
19. The documentation of payments provided by the Trustees showed the following payments:
a. $6,304.63 on claim 38077 for withholding and FICA for the 3rd quarter of 1979 (which amount equalled the pre-petition amount of the February 6, 1980 claim filed for Mansfield);
b. $20,335.14 on claim 380135 for pension excise and FUTA taxes for Mansfield (which amount is $14,851.88 less than the pre-petition amount of supplement 3 to the February 6, 1980 claim).
c. $192,282.31 on claim 390208 for third quarter excise taxes for PennMiss (which amount is $7,739.00 less than the pre-petition amount due on the amended superseded claim filed on March 29, 1984; and
d. $242.86 on claim 330108 for Penn-Ohio (which amount equals the pre-petition balance of the claim filed for PennOhio).
20. On June 23, 1992, the United States received from the Trustees check no. 61-06406855, dated June 22, 1992, in the amount of $363,111.20, the receipt of which constituted payment in full of the face amount of the proofs of claim related to the Pension Excise Claim.
21. The United States agrees that these payments were made and applied to the applicable proofs of claim balances.
22. By letter dated June 30, 1992, the United States advised the Trustees that it asserted an entitlement to interest on the Pension Excise Claim from the Consummation Date (as defined in the Plan) of the Plan up to June 23, 1992 in the amount of $334,104.32. With respect to certain taxes in the aggregate principal amount of $220,-164.94 (the 1986 Taxes), which amount had been paid and posted on October 26, 1986, the United States asserts entitlement to interest from January 30, 1986 until October 22, 1986 in the amount of $19,420.72. *482The United States also asserts entitlement to additional interest upon the interest it asserts is owing on the Pension Excise Claim in the amount of $2,859.96 and on the 1986 Taxes in the amount of $15,664.48, both as of August 1, 1992. It also asserts an entitlement to additional interest on any unpaid amounts from August 1 until the date of posting of said payments.
28. In its June 30, 1992 letter, the United States also alleged that certain priority unsecured tax claims in the aggregate principal amount of $7,739.00 and an administrative claim in the principal amount of $2,453.73 (collectively, the . Additional Claims) remain due and owing and asserts entitlement to interest on the Additional Claims from the Consummation Date of the Plan.
24. By letter dated July 22, 1992, counsel for the United States informed counsel for the Trustees that, applying all payments made to the unpaid pre-petition amounts of the proofs of claim (and not to post-consummation interest), unpaid pre-pe-tition balances remained as follows:
a. Claim #380135 had an unpaid pre-petition balance of $351.06.
b. Claim #390208 had an unpaid pre-petition balance of $7,739.00
c. The administrative claim of the IRS had an unpaid principal balance of $2,453.73.
The letter further stated that the IRS had no knowledge of or correspondence about any reason why the full amounts of these claims had not been remitted.1
DISCUSSION
Inasmuch as this matter has been taken under advisement upon remand from the District Court, “the trial court must ... proceed in accordance with the mandate and law of the case as established by the appellate court.” Petition of United States Steel Corp., 479 F.2d 489, 493 (6th Cir.1973), cert. denied, 414 U.S. 859, 94 S.Ct. 71, 38 L.Ed.2d 110 (1973). Therefore, the IRS’ claims will be accorded Section 507(a)(7)(E) priority status without further discussion.
The IRS argues that it is entitled to interest on its claims because they were allowed claims on the confirmation date. The plan provided for payment of the IRS claims and no objection was pending on the confirmation date. Therefore, the argument runs, Section 1129(a)(9)(C) mandates that allowed priority claims, such as those asserted by the IRS, be paid, either at confirmation, as a deferred payment with interest as of the plan’s effective date, or upon other agreed terms.
The IRS’ second basis for its interest claim is that the plan, at the very least, provides for postconsummation interest on its claims. This argument is also based upon the IRS’ contention that its claims were allowed on the confirmation date. Section 3.2 of the plan provides for one-hundred percent payment, without interest, on allowed claims as of the confirmation date. The IRS urges that it was entitled to payment on the January 29, 1986, consummation date because no objection had been filed prior to the confirmation date of December 30, 1985. IRS’ claim of entitlement to one-hundred percent payment on the January 29, 1986, consummation date is based on the fact that any late payments must include interest up to the time of actual payment.
Lastly, the IRS asserts that it is entitled to interest on the interest it is owed, up to the time of payment.
The Trustees argue that Section 1129(a)(9)(C) has no postconfirmation applicability as Section 1129 only addresses the contents of a plan, not parties’ compliance therewith. Further, say the Trustees, had the IRS wanted to preserve its right to interest, it should have objected to the *483plan’s confirmation and res judicata now bars the IRS from arguing that the plan fails to comply with Section 1129. Secondly, the Trustees contend that the IRS is entitled to no interest because it is bound by the terms of the plan. Despite the fact that the Trustees’ objection was not filed until October, 1986, the filing of the objection precluded the IRS’ claims from attaining allowed status under Article I of the plan. Section 9.2 of the plan provides for payment of disputed claims, whenever paid, without interest and at the amount the claim holder would have received on the consummation date, had the claim been allowed.
The IRS’ claim to “interest on interest” is dismissed by the Trustees as absurd. They argue that because the IRS is not entitled to interest on its claims, it is similarly not entitled to interest on the interest owed.
Lastly, the Trustees contend that the IRS is not equitably entitled to interest on its claims. Had it lost, it would not be seeking interest on a subordinated claim and is not entitled to prejudgment interest on its claims.
In essence, the Trustees argue that because they objected within the time allowed, the IRS’ claims did not obtain allowed claims status under the plan. As a result, they say, section 9.2 controls and no interest is payable.
The plan provides for payment of allowed claims as defined in Article I. “Allowed Claims” are defined as only those claims which have not been objected to within the period permitted by the Code or the court, or those which have been objected to and are no longer subject to appeal or certiorari. Article III compels the Trustees to pay Allowed Claims, without interest, at one-hundred percent. Three payment terms are provided in Article III: 1) On the consummation date; 2) in the ordinary course of business; or 3) other agreed upon terms. Article IX further provides for payment of claims which become Allowed Claims after the consummation date. Such claims are to be paid as soon as practicable, as if they were Allowed Claims on the consummation date, without interest.
The Trustees point out that the plan was confirmed as written and that the IRS had an opportunity to object to the provisions of the plan at the confirmation hearing. It is argued by the Trustees that res judicata now bars the IRS from altering the plan’s terms. The Trustees’ position" is correct insofar as the res judicata effect of confirmed plans. In re GEX Kentucky, Inc., 100 B.R. 887 (Bankr.N.D.Ohio 1988); In re Sanders, 81 B.R. 496 (Bankr.W.D.Ark. 1967); 5 Collier on Bankruptcy, 111141.01 at 1141-4 to 1141-8 (15th ed. 1992). This does not necessarily lead, however, to the conclusion that the IRS is not entitled to interest on its claims.
A plan of reorganization creates legally enforceable rights upon its confirmation. Evans v. Dearborn Machinery Movers Co., 200 F.2d 125 (6th Cir.1953); 5 Collier, supra, 111141.01[1] at 1141-5. Additionally, “[i]t is the debtor’s obligation when seeking the court’s confirmation to specify as accurately as possible the amounts which it intends to pay the creditors.” Terex Corp. v. Metropolitan Life Insurance Co., 984 F.2d 170, 175 (6th Cir. 1993) (emphasis added). As outlined above, the plan provides for three means of payment on claims “to which no objection has been interposed within the applicable period of limitation fixed by the Bankruptcy Code, the Rules of Bankruptcy Procedure or an order of the Bankruptcy Court ...” (emphasis added). It may be reasonable to read that passage, as the Trustees do, to mean that any timely objection, whenever filed, acts to preclude the claim from acquiring allowed status under the plan. The court believes it is more reasonable to read the provisions of the plan in light of its effective date. The temporal element of the passage under consideration refers to claims “to which no objection has been interposed.” Had the Trustees intended to create the preclusive effect they are now seeking, language could have been included in the plan to so provide. An allowed claim might have been defined as one “to which no objection has been [, or may be,] inter*484posed within the applicable period....” Reading Article I of the plan as of the time of confirmation, does not, as written create the preclusive effect sought by the Trustees. At that juncture, no objection to the IRS’ claims had been interposed, and as such, the IRS claims met the definition in Article I of the plan. Thus, the IRS was entitled to «payment of its claims on the consummation date as provided in the plan.
The IRS looks to In re Arrow Air, Inc., 101 B.R. 332 (S.D.Fla.1989) for support of its proposition and the Trustees rely on In re White Farm Equipment Co., 146 B.R. 736 (Bankr.N.D.I11.1992). The court does not consider White Farm Equipment persuasive because the IRS’ claim in that case was in dispute at confirmation. Id. at 737. (The IRS did not dispute that its claim was not allowed or payable until the Supreme Court denied certiorari.) In Arrow Air2 the plan merely provided for payment in full rather than payment of one-hundred percent of the claim without interest on the consummation date, as does the subject plan. In Arrow Air, the court agreed with the IRS and found that “by promising to pay the priority claims of the government ‘in full’ under the language of the plan, Appellee guaranteed payment in the manner provided by Section 1129(a)(9)(C).” Arrow Air, 101 B.R. at 334-35. The Arrow Air court advises that “[i]f the debtor wishes to be more specific and secure a confirmed plan that modifies the plain language of a 100% payment guarantee, it is the debtor’s duty to put the creditor on notice by specifically detailing any exceptions.” Id. at 336 (quoting In re Fawcett, 758 F.2d 588 (11th Cir.1985)). As stated above, despite the inclusion of the “without interest” language, because no objection had been filed prior to confirmation, the Trustees’ plan failed to prevent the IRS from becoming entitled to payment of its claims on the consummation date.
The IRS also argues that 11 U.S.C. § 1129 affects the disposition of this matter. Section 1129(a)(9)(C) provides:
with respect to a claim of a kind specified in section 507(a)(7) of this title, the holder of such claim will receive on account of such claim deferred cash payments, over a period not exceeding six years after the date of assessment of such claim, of a value, as of the effective date of the plan, equal to the allowed amount of such claim.
While Section 1129 does not have express posteonfirmation effect, the plan as confirmed must conform to its requirements. The Trustees and the IRS arrived at agreed payment terms, and as such, the plan complied with Section 1129(a)(9). The Trustees must either pay the IRS’ claims, if allowed, at the consummation date, or if an objection had been filed, and upon postconfirmation allowance, at one-hundred per cent as if paid on the consummation date, without interest. Based upon that agreement, the IRS did not object to the plan’s confirmation. The court could not have confirmed a plan which did not provide for payment of a claim in compliance with Section 1129, and similarly, it should not act now to validate the Trustees’ actions which in effect create a plan in violation of Section 1129. See Terex Corp., 984 F.2d at 174 (“an award of interest was the only means by which Metropolitan’s claim could be paid in a manner consistent with § 1129(a)”). Therefore, because the Trustees did not pay the IRS' claims on the consummation date as agreed, the court must treat the IRS’ claims as deferred payments thereby entitling the IRS to the value of its claims as of the effective date of the plan.
The only issue remaining is the amount of interest owed based upon the rate and relevant periods. The appropriate rate to be used in calculating interest has been found by other courts to be the market rate at the effective date of the plan, rather than the rate set by 26 U.S.C. § 6621. In re Camino Real Landscape Maintenance Contractors, Inc., 818 F.2d 1503, 1505-08 (9th Cir.1987); United States v. Neal Pharmacal Company, 789 F.2d *4851283, 1285-89 (8th Cir.1986); In re Burgess Wholesale Mfg. Opticians, Inc., 721 F.2d 1146, 1147 (7th Cir.1983); Matter of Southern States Motor Inns, Inc., 709 F.2d 647, 650-51 (11th Cir.1983); 1A Collier, supra, 11.05[3] at 11-48 to 11-49; 5 Collier, supra, 1129.02[9][a].
The cases cited above recognize that the rate found in I.R.C. § 6621 may be considered as a factor, but it is not exclusive and has not been given extraordinary weight in the courts’ analyses. Additional factors which have been considered are: 1) The rate the government pays to borrow; 2) the risk of nonpayment to the IRS; 3) the term of the “loan”; and 4) the value of any security taken. See Camino Landscape, 818 F.2d at 1505-08; Neal Pharmacal, 789 F.2d at 1285-89; 5 Collier, supra, ¶ 1129.-02[9][a] at 1129-50.
There are portions of the interest rate analysis which the court can address at this time. First, the IRS’ claims are unsecured and hence, the value of any security is not an issue. Second is the period for which any interest may be owed. There are three periods to be considered: 1) January 29, 1986, to October 26, 1986, on the $220,-164.94 payment; 2) January 29, 1986, to June 23, 1992, on the $363,111.20 payment; 3) January 29, 1986, until the payment date on any unpaid balance. Using those periods, the IRS’ entitlement to interest may be found by calculating the value of the IRS’ claims as of the payment dates noted above. The court declines to address other issues which may impact the interest rate calculation, such as the risk factor and the government’s borrowing rate because neither party has provided argument in their briefs and the court is otherwise without guidance on these issues.
Finally, the IRS’ request for interest on interest will be denied for the reason that the court is not in fact awarding interest on the IRS’ claims. The court must only ensure that the claim is paid according to Section 1129(a)(9)(C) which requires that claimants receive “value, as of the effective date of the plan, equal to the allowed amount of such claim.” The interest rate merely happens to be the means by which the court finds the present value of the allowed amount of a claim. Therefore, because interest on interest goes beyond the present value of the IRS’ claims, that much of the IRS’ position must be rejected.
CONCLUSION
In conformance with the foregoing discussion, the court finds the IRS’ claim for interest on its claims to be well taken and it will be granted. The court will withhold judgment on the actual rate and amount owed until such time as the parties may agree on the issue or submit briefs so that the court may make an informed decision. Finally, the court finds the IRS’ claim to interest on interest not to be well taken and it will be denied.
. It appears that there have been some errors made in the crediting of payments.
The stipulations assert that there was a shortage of $14,851.88 arising from the Trustees' $20,335.14 payment of October 26, 1986. The only way this result is obtained is if the payment is applied to the $19,125.82 excise tax claim and the $16,061.20 Pension Excise Tax claim. The $363,111.20 payment of June. 23, 1992 appears to result in a double payment of the $16,061.20 Pension Excise Tax claim.
. The Sixth Circuit Court of Appeals cited approvingly to Arrow Air in Terex Corp., 984 F.2d at 175. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491637/ | OPINION AND ORDER
KENNETH J. MEYERS, Bankruptcy Judge.
Debtor, Dale Moler, has filed a motion to avoid the judicial lien of Nonilco Corporation (“Nonilco”) on real property used as the debtor’s residence. The debtor asserts that Nonilco’s lien may be avoided under 11 *562U.S.C. § 522(f)(1) as impairing a homestead exemption to which he would otherwise be entitled. The debtor further contends that Nonilco’s lien is void in that Nonilco’s memorandum of judgment was recorded following the debtor’s bankruptcy filing in violation of the automatic stay of 11 U.S.C. § 362(a).
The facts are undisputed. Nonilco obtained a judgment against the debtor in August 1992 and, on September 10, 1992, mailed a copy of the judgment to the Williamson County Recorder of Deeds. On September 11, 1992, the debtor filed his Chapter 7 bankruptcy petition. The Williamson County Recorder of Deeds, upon receipt of Nonilco’s judgment, recorded it on September 14, 1992.
The threshold issue of whether a lien exists depends on the scope of the automatic stay and whether the recording of Nonilco’s judgment by the Williamson County Recorder of Deeds was void as a violation of the stay. Under § 362(a)(5), the filing of a bankruptcy petition operates as a stay of
(5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case....
11 U.S.C. § 362(a)(5).1
Nonilco asserts that since its action of mailing the judgment to the Recorder of Deeds occurred prior to bankruptcy, there was no violation of the stay and its lien is valid. However, the Illinois statute governing judicial liens provides that a judgment is a lien on real estate “only from the time a transcript, certified copy or memorandum of the judgment is filed in the office of the recorder in the county in which the real estate is located.” Ill.Rev. Stat. ch. 110, par. 12-101 (1991) (emphasis added). Thus, under the terms of the statute, it is the actual filing of the memorandum of judgment by the recorder that creates the lien, not the mailing of such memorandum to the recorder’s office to be filed. Oil Well Supply Co. v. Wickwire, 52 F.Supp. 921 (E.D.Ill.1943).
In Wickwire, a transcript of judgment was mailed to the circuit clerk for filing but was not endorsed by the clerk as “filed” until the judgment creditor forwarded the appropriate filing fee. Between the time the clerk received the document and the time he marked it filed, the interests of a third party had intervened. In deciding that the judgment creditor’s lien did not arise under Illinois law until the document was actually filed by the circuit clerk, the court cited authority to the effect that
‘Filing a paper ... consists of placing it in the custody of the proper official ... and making of the proper indorsement by the officer.... The word carries with it the idea of permanent preservation of the thing so delivered and received, that it may become a part of the public record. It is not synonymous with deposited[.]’
Id. at 922.
The court concluded that the judgment was filed and the lien created, not when the transcript of judgment was mailed by the judgment creditor or received in the clerk’s office, but when the document became “part of the files of the clerk’s office” by the clerk marking the document filed. Id. at 923. The court observed that a contrary rule would unreasonably extend the constructive notice function of public records, as prospective purchasers or creditors searching the records would acquire no notice of liens arising from judgments that had been merely mailed for recording. Id.2
*563In this case, the debtor’s bankruptcy filing occurred before Nonilco’s judgment was placed of record to become a lien on the debtor’s real estate. The automatic stay, having intervened between Nonilco’s mailing of the judgment and the actual filing of the judgment by the Recorder of Deeds, is effective against the creation of the judgment lien by filing. Cf. Wilkey v. Ohio Valley National Bank of Henderson (In re Baird), 55 B.R. 316, 318 (Bankr.W.D.Ky.1985) (although writs of execution were obtained and delivered to sheriff prior to bankruptcy filing, sheriff’s returns on these writs, made after the filing, were void as in violation of stay, so that no perfected liens arose against debtors’ property).
The Court finds that Nonilco’s lien, having been obtained in violation of the automatic stay, is void and of no effect as a charge upon the debtor’s property.3
IT IS SO ORDERED.
. “Property of the debtor” includes exempt property and property acquired after the date of the bankruptcy filing. 2 Collier on Bankruptcy, P 362.04[5], at 362-42 (15th ed. 1992). While, as explained in this Court’s decision in In re Cerniglia, 137 B.R. 722, 726 (Bankr.S.D.Ill.1992), a judgment lien does not attach to a debtor’s homestead interest under Illinois law, it would attach to the debtor’s interest in property accruing after bankruptcy, including any appreciation in value or equity that accumulates above the debtor’s homestead amount following bankruptcy. See id. at 724. Thus, § 362(a)(5) applies in this case to preclude the creation of a judicial lien on the debtor’s property after his bankruptcy filing.
. Nonilco does not argue that the Illinois "mail box rule” (Ill.Rev.Stat. ch. 1, par. 1026(1) (1991)) applies so that its judgment would be *563deemed filed on the date of mailing. While this provision has been invoked in situations involving the filing of papers before the expiration of a period, the Court is aware of no case applying it in a situation such as this, in which filing serves a notice function to third parties searching public records.
. Because Nonilco’s lien was void in its inception, it is unnecessary to address the debtor’s further contention that the lien may be avoided under § 522(f)(1). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491638/ | ORDER DENYING DEBTOR’S MOTION FOR PARTIAL SUMMARY JUDGMENT DECLARING THAT EACH POLICY AT ISSUE IS TRIGGERED BY BODILY INJURY OR PROPERTY DAMAGE DURING THE POLICY PERIOD
THOMAS E. BAYNES, Jr., Bankruptcy Judge.
THIS CAUSE came on for hearing upon Debtor’s1 Motion for Partial Summary *650Judgment Declaring that Each Policy at Issue Is Triggered by Bodily Injury or Property Damage During the Policy Period. The Court, having heard the argument of counsel and having reviewed the record, finds as follows:
The instant Motion seeks what Debtor characterizes as a very simple declaration that the insurance policies at issue provide coverage for damages on account of bodily injury or property damage which occur during the policy periods. Given the nature of asbestos-related bodily injury claims, asbestos-related property damage claims, and environmental claims, Debtor contends bodily injury or property damage may have occurred continuously over the course of numerous policy periods. Thus, Debtor seeks a ruling that asbestos-related bodily injury, asbestos-related property damage, and environmental contamination occur on a continuous basis from time of first exposure (whether as a result of inhalation or installation of asbestos or release of a contaminant into the environment) through the time of manifestation of the injury or damage and coverage is triggered for any insurance policy in effect during the intervening time period between first exposure and manifestation.
The Insurance Company counters that Debtor’s allegation that bodily injury or property damage or environmental contamination “may have occurred” continuously over the course of numerous policy periods is not sufficient. The Insurance Company contends the unambiguous policy language and applicable law2 require Debtor to demonstrate factually injury or damage or contamination during the applicable policy periods. According to the Insurance Company, the applicable law, at best, provides the insurance policies in effect at the time of exposure and at the time of manifestation would be triggered but those insurance policies in effect only in the intervening years between exposure and manifestation would not be triggered. Moreover, the Insurance Company contends, there is no factual support that asbestos-related bodily injury, asbestos-related property damage, and environmental contamination progress continuously from time of first exposure through time of manifestation.
In general, the policies at issue provide coverage for damages arising out of bodily injury or property damage caused by an occurrence. An occurrence is defined as an accident, including injurious exposure to conditions, which results during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured. Thus, the main issue is when bodily injury or property damage resulted.
Debtor urges this Court to follow Keene Corp. v. Insurance Co. of N. Am., 667 F.2d 1034 (D.C.Cir.1981), cert. denied, 455 U.S. 1007, 102 S.Ct. 1644, 71 L.Ed.2d 875 (1982), and ACandS, Inc. v. Aetna Cas. & Sur. Co., 764 F.2d 968 (3d Cir.1985), both of which adopted the continuous trigger of coverage.3
*651Although not making any finding as to when bodily injury or property damage may have occurred, this Court finds this issue is not appropriate for summary judgment. Debtor has not cited a single reported decision in the relevant jurisdictions, nor has this Court found any reported decisions in the relevant jurisdictions, which adopt Debtor’s theory of a continuous trigger of coverage for asbestos-related bodily injury claims, asbestos-related property damage claims, or environmental claims. Indeed, the relevant jurisdictions which have considered the issue adopt other triggers of coverage. See, e.g., UNR Indus. v. Continental Cos. Co., 942 F.2d 1101, 1107 n. 2 (7th Cir.1991), cert. denied, — U.S.-, 112 S.Ct. 1586, 118 L.Ed.2d 805 (1992), citing Zurich Ins. v. Raymark Indus., 118 Ill.2d 23, 112 Ill.Dec. 684, 694-695, 514 N.E.2d 150, 160-161 (1987) (both exposure and manifestation are triggers for asbestos-related bodily injury under Illinois law, and continuous trigger is specifically rejected); Abex Corp. v. Maryland Cas. Co., 790 F.2d 119, 121 (D.C.Cir.1986) (injury-in-fact is the trigger for asbestos-related bodily injury under New York law); Eagle-Picher Indus. v. Liberty Mut. Ins. Co., 682 F.2d 12, 25 (1st Cir.1982), cert. denied, 460 U.S. 1028, 103 S.Ct. 1279, 75 L.Ed.2d 500 (1983) (manifestation is the trigger for asbestos-related bodily injury under Ohio law); United States Fidelity & Guar. Co. v. Wilkin Insulation Co., 144 Ill.2d 64, 161 Ill.Dec. 280, 578 N.E.2d 926 (1991) (release of asbestos fibers, not installation of the asbestos-containing material, is the trigger for asbestos-related property damage under Illinois law); Maryland Cas. Co. v. W.R. Grace & Co., 794 F.Supp. 1206, 1226 (S.D.N.Y.1991) (discovery is the trigger for asbestos-related property damage under New York law); Savoy Medical Supply Co. v. F & H Mfg. Corp., 776 F.Supp. 703, 710 (E.D.N.Y.1991) (injury-in-fact is the trigger for environmental claims under New York law).4
Summary judgment is only appropriate if there is no genuine issue as to any material fact and the moving party is enti-*652tied to a judgment as a matter of law. Fed.R.Bankr.P. 7056(c). It appears none of the relevant jurisdictions have ever accepted the continuous trigger of coverage theory. While this Court might adopt a continuous trigger philosophy associated with a risk distribution concept, the Court is reluctant to create one out of whole cloth in the absence of a state-countenanced position. Consequently, Debtor’s Motion for Partial Summary Judgment Declaring that Each Policy at Issue Is Triggered by Bodily Injury or Property Damage During the Policy Period must be denied.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that Debtor’s Motion for Partial Summary Judgment Declaring that Each Policy at Issue Is Triggered by Bodily Injury or Property Damage During the Policy Period is denied.
DONE AND ORDERED.
. The Celotex Corporation and Carey Canada Inc. (collectively referred to as “Debtor”) brought this adversary proceeding against numerous insurance companies and insurance syndicates (collectively referred to as "the Insurance Company").
. Under the Court’s Order granting motion for partial summary judgment on choice of law, entered November 24, 1992, lex loci contractus (the law of the jurisdiction where the contract is executed) is the appropriate choice of law in contract interpretation actions. Accordingly, the laws of the states of Florida, Illinois, New York, and Ohio govern disposition of this Motion.
. There are generally four distinct theories of insurance coverage trigger:
(1) the exposure theory (encompassing exposure for bodily injury claims, installation for property damage claims, and disposal or leakage of the contaminant for environmental claims) (see, e.g., Insurance Co. of N. Am. v. Forty-Eight Insulations, Inc., 633 F.2d 1212 (6th Cir.1980), cert. denied, 454 U.S. 1109, 102 S.Ct. 686, 70 L.Ed.2d 650 (1981); Porter v. American Optical Corp., 641 F.2d 1128 (5th Cir.), cert. denied, 454 U.S. 1109, 102 S.Ct. 686, 70 L.Ed.2d 650 (1981); Commercial Union Ins. Co. v. Sepco Corp., 765 F.2d 1543 (11th Cir.1985); Continental Ins. Cos. v. Northeastern Pharmaceutical & Chem. Co., 842 F.2d 977 (8th Cir.), cert. denied, 488 U.S. 821, 109 S.Ct. 66, 102 L.Ed.2d 43 (1988));
(2) the injury-in-fact theory (encompassing injury-in-fact for bodily injury claims and property damage claims and disposal or leakage of the contaminant for environmental claims) (see, e.g., American Home Prods. Corp. v. Liberty Mut. Ins. Co., 748 F.2d 760 (2d Cir.1984); W.R. Grace & Co. v. Continental Cas. Co., 896 F.2d 865 (5th Cir.1990); New York v. Amro Realty Corp., 697 F.Supp. 99 (N.D.N.Y.1988));
*651(3) the manifestation theory (encompassing manifestation for bodily injury claims, discovery for property damage claims, and discovery of the disposal or leakage of the contaminant for environmental claims) (see, e.g., Eagle-Picher Indus. v. Liberty Mut. Ins. Co., 682 F.2d 12 (1st Cir.1982), cert. denied, 460 U.S. 1028, 103 S.Ct. 1279, 75 L.Ed.2d 500 (1983); Mraz v. Canadian Universal Ins. Co., 804 F.2d 1325 (4th Cir.1986)); and
(4) the continuous trigger or triple trigger or multiple trigger theory (covering the entire period from first exposure or installation or disposal or leakage through ultimate manifestation or discovery or clean-up for bodily injury claims, property damage claims, and environmental claims) (see, e.g., Keene Corp. v. Insurance Co. of N. Am., 667 F.2d 1034 (D.C.Cir.1981), cert. denied, 455 U.S. 1007, 102 S.Ct. 1644, 71 L.Ed.2d 875 (1982); Lac D’Amiante, Ltee. v. American Home Assur. Co., 613 F.Supp. 1549 (D.N.J.1985), vacated as to insolvent defendant only, 864 F.2d 1033 (3d Cir.1988)).
Commentators generally agree that when courts are not otherwise bound by precedent, the theory of coverage adopted is the theory that will provide maximum insurance coverage.
See, generally, John P. Arness & Randall D. Eliason, Insurance Coverage for "Property Damage” in Asbestos and Other Toxic Tort Cases, 72 Va.L.Rev. 943, 944-945 (1986); Development in the Law — Toxic Waste Litigation: VIII. Bankruptcy and Insurance Issues, 99 Harv.L.Rev. 1573, 1579-1581 (1986); Stephen V. Nielsen, The "Second Wave” of Asbestos Litigation (Property Damage): Who Writes the Check Now?, 7 Cooley L.Rev. 491 (1990).
. The parties have not cited, nor has this Court identified, a single reported decision determining trigger of coverage with respect to latent harm situations under Florida law. Trizec Properties v. Biltmore Constr. Co., 767 F.2d 810 (11th Cir.1985), suggests injury-in-fact may be the trigger with respect to property damage in Florida. Yet Trizec does not speak with sufficient certainty that this Court is willing to hold that injury-in-fact is the trigger in Florida. See Porter v. American Optical Corp., 641 F.2d 1128, 1145 (5th Cir.), cert. denied, 454 U.S. 1109, 102 S.Ct. 686, 70 L.Ed.2d 650 (1981), binding precedent on this Court, in which the Fifth Circuit held, with respect to bodily injury, "occurrence” policies are triggered by injurious exposure. Although the Fifth Circuit purported to apply Louisiana law, the court relied solely on Insurance Co. of N. Am. v. Forty-Eight Insulations, Inc., 633 F.2d 1212 (6th Cir.1980), and the language of the insurance policies, language not significantly different from that relied on by Debtor here. See, also, the legislative pronouncement in Fla.Stat. § 440.151(5) adopting the last injurious exposure theory of trigger with respect to occupational diseases, including dust diseases, under the Workers’ Compensation Law. Cf. Grissom v. Commercial Union Ins. Co., 610 So.2d 1299, 1306 (Fla. 1st DCA Dec. 22, 1992). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491639/ | ORDER GRANTING THE INSURANCE COMPANY’S MOTION FOR PARTIAL SUMMARY JUDGMENT THAT DEBTOR BEARS THE BURDEN TO PROVE ITS ENTITLEMENT TO COVERAGE ON A DUTY TO INDEMNIFY STANDARD BASED ON THE ACTUAL FACTS OF THE UNDERLYING BUILDING CLAIMS
THOMAS E. BAYNES, Jr., Bankruptcy Judge.
THIS CAUSE came on for hearing upon *664the Insurance Company’s1 Motion for Partial Summary Judgment that Debtor Bears the Burden to Prove Its Entitlement to Coverage on a Duty to Indemnify Standard Based on the Actual Facts of the Underlying Building Claims. The Court, having heard the argument of counsel and having reviewed the record, finds as follows:
The instant Motion seeks a declaration, with respect to the asbestos-related property damage claims, that Debtor bears the burden of proving it is entitled to be indemnified by the Insurance Company. To carry this burden, the Insurance Company contends, Debtor must prove — on a ease-by-case basis or more generally — that the actual facts (as opposed to the complaint allegations) of the underlying asbestos-related property damage claims fall within the insurance coverage provided.
Debtor does not dispute it bears the burden of proving it is entitled to be indemnified by the Insurance Company. Applicable law2 is clear on this point: an insured seeking to recover on an insurance policy has the burden of proving a loss and demonstrating coverage under the policy. See, e.g., Hudson Ins. Co. v. Double D Mgmt. Co., 768 F.Supp. 1542 (M.D.Fla.1991); Mutual Life Ins. Co. v. Ewing, 151 Fla. 661, 10 So.2d 316 (1942); Hays v. Country Mut. Ins. Co., 28 Ill.2d 601, 192 N.E.2d 855 (1963); Inland Rivers Serv. Corp. v. Hartford Fire Ins. Co., 66 Ohio St.2d 32, 20 O.O.3d 20, 418 N.E.2d 1381 (1981).
One of Debtor’s disputes with the Insurance Company with respect to this particular Motion is whether Debtor must prove the actual facts of each and every one of the underlying asbestos-related property damage claims.3 Debtor agrees with the *665Insurance Company that mere complaint allegations cannot be relied upon to establish entitlement to indemnification. Debt- or, however, perceives the Insurance Company is requesting a repetitive, tedious, case-by-case factual inquiry with respect to each underlying asbestos-related property damage claim.
The Insurance Company, though, is not seeking such a determination here. The Insurance Company has sought a determination that Debtor prove — on a case-by-case basis or more generally — that the actual facts of the underlying claims fall within the insurance coverage provided. The Insurance Company has suggested this Court select some manageable number of underlying claims for presentation of actual facts, postulating that if the Court is able to distill standard fact patterns applicable to a number of the asbestos-related property damage claims, resolution of the coverage provided for asbestos-related property damage claims can proceed along that basis. Similar techniques have been implemented elsewhere in an effort to balance procedural fairness with judicial efficiency in the management of mass tort litigation. See, e.g., Watson v. Shell Oil Co., 979 F.2d 1014 (5th Cir.1992); UNR Indus. v. Continental Cas. Co., 942 F.2d 1101 (7th Cir.1991), cert. denied, — U.S. -, 112 S.Ct. 1586, 118 L.Ed.2d 305 (1992); Jenkins v. Raymark Indus., 782 F.2d 468 (5th Cir.1986).
The Insurance Company’s suggested procedure appears to be exactly what Debtor is seeking as well. Debtor shall select up to eight of the underlying asbestos-related property damage claims which it determines may be representative of a number of underlying claims. At a minimum, Debtor will have to establish with respect to each representative claim: (1) property damage did occur, (2) the property damage that occurred was within the range of risks covered by the insurance policies, and (3) the date the property damage occurred so as to ascertain whether insurance coverage was triggered. If Debtor cannot establish factual scenarios of general application, Debtor shall have to prove on a case-by-case basis that any asbestos-related property damage which did occur was within the range of risks covered by the insurance policies and occurred during the period of insurance coverage.
The only point of contention remaining between the parties with respect to this Motion is whether excess insurers who have no duty to defend but merely have an obligation to pay Debtor’s defense costs as part of Debtor’s ultimate net loss are governed by the duty to indemnify standard. If the obligation to pay defense costs is governed by the duty to indemnify standard, as the Insurance Company contends, the excess insurers need not fund defense costs until the underlying action is adjudicated or settled.
Debtor counters that those excess insurers with no duty to defend, but with the obligation to pay defense costs as part of ultimate net loss, must pay those defense costs as they are incurred and cannot delay payment until the time when the underlying action giving rise to the claim for defense costs is adjudicated or settled. To support its argument, Debtor refers to two representative policies: Continental Casualty Company’s Policy No. RD 9975484 and American Re-Insurance Company’s Certificate No. M-12024-2001. Continental agreed to indemnify Debtor against ultimate net loss:
The term “Ultimate Net Loss” shall mean the total sum which the Insured ... becomes obligated to pay by reason of ... property damage claims, either through adjudication or compromise, and all sums paid ... in respect to litigation, settlement, adjustment and investigation of claims and suits which are paid as a consequence of any occurrence covered hereunder ... [Emphasis added.]
*666American also agreed to indemnify Debtor against ultimate net loss:
ULTIMATE NET LOSS, as used herein, shall be understood to mean the sums paid in settlement of losses for which the Insured is liable after making deductions for all recoveries ... and shall exclude all “Costs.”
THE WORD “COSTS” shall be understood to mean ... investigation, adjustment and legal expenses ... for which the Insured is not covered by the Underlying Insurance ... 4
Debtor, however, neglected the far more revealing language in the American policy. American agreed:
to further indemnify the Insured against ultimate net loss arising out of the hazards covered ... in the underlying insurance ...
...
UPON FINAL DETERMINATION by settlement, award or verdict of the liability of the Insured, the Company shall promptly pay the Insured as the Insured shall pay and shall have actually paid, the amount of any ultimate net loss coming within the terms and limits of this excess insurance. [Emphasis added.]
Debtor asserts the language in these two representative policies requires excess insurers to pay all defense costs without any limitation based on the ultimate disposition of the underlying claims. The plain language upon which Debtor seeks to rely contradicts Debtor’s position. An excess insurer must indemnify Debtor for defense costs paid as a consequence of any covered occurrence or covered hazard. If Debtor is not liable on the underlying claim, there has been no occurrence covered under the policy and, thus, the excess insurer is under no obligation to indemnify Debtor for anything, including defense costs associated with defending the underlying claim. Moreover, the American language flatly states Debtor’s ultimate net loss is payable only upon final determination by settlement, award or verdict of Debtor’s liability.
Debtor admits the excess insurers have promised to indemnify Debtor for ultimate net loss. “The duty to indemnify arises only when the insured becomes legally obligated to pay damages in the underlying action that gives rise to a claim under the policy.” Zurich Ins. Co. v. Raymark Indus., 118 Ill.2d 23, 112 Ill.Dec. 684, 697, 514 N.E.2d 150, 163 (1987). Absent a covered loss, the excess insurers have no duty to indemnify whatsoever.
Debtor’s reliance on cases interpreting directors’ and officers’ liability insurance policies, especially National Union Fire Ins. Co. v. Brown, 787 F.Supp. 1424 (S.D.Fla.1991), aff'd, 963 F.2d 385 (11th Cir.1992), is misplaced. The Brown court determined the insurer, who had written both primary and excess policies for the insured, had to fund defense costs contemporaneously because the loss provisions required mere liability and not indemnity. Here, Debtor admits the excess insurers have undertaken to indemnify Debtor. Moreover, there is authority in the relevant jurisdictions directly contrary to Brown. See National Union Fire Ins. Co. v. Goldman, 548 So.2d 790 (Fla. 2d DCA1989); Luther v. Fidelity & Deposit Co., 679 F.Supp. 1092 (S.D.Fla.1986); Zaborac v. American Cas. Co., 663 F.Supp. 330 (C.D.Ill.1987).
As Debtor correctly points out, this seems an incongruous result: it would be more cost effective for Debtor to lose or settle all underlying litigation because defense costs would be included as part of ultimate net loss, whereas if Debtor prevailed on the underlying claim, defense costs would not be covered by the ultimate net loss provision. This is what Debtor and the Insurance Company contracted for, however, and this is what the plain language of the contract provides. Where the provisions of an insurance contract are clear and unambiguous, as they are here, the terms of the contract will be enforced as written. Shuster v. South Broward *667Hosp. Dist., 570 So.2d 1362 (Fla. 4th DCA1990), aff'd, 591 So.2d 174 (Fla.1992); International Minerals & Chem. Corp. v. Liberty Mut. Ins. Co., 168 Ill.App.3d 361, 119 Ill.Dec. 96, 522 N.E.2d 758 appeal denied, 122 Ill.2d 576, 125 Ill.Dec. 218, 530 N.E.2d 246 (1988); Allen v. Standard Oil Co., 2 Ohio St.3d 122, 443 N.E.2d 497 (1982). In fact, this result is the precise difference between the duty to defend and the duty to indemnify; the former usually born by the primary insurance carrier, not the excess carrier.
Since there is no genuine issue as to any material fact and the Insurance Company is entitled to judgment as a matter of law, it is
ORDERED, ADJUDGED AND DECREED that Defendants’ Motion for Partial Summary Judgment that Debtor Bears the Burden to Prove Its Entitlement to Coverage on a Duty to Indemnify Standard Based on the Actual Facts of the Underlying Building Claims is granted. The Court, however, reserves jurisdiction to modify the mechanics of proof upon an appropriate motion in limine. Such reservation of jurisdiction is necessary in this unique adversary proceeding in order to insure substantive due process. It is further
ORDERED, ADJUDGED AND DECREED that the Motion of Insurance Company of North America and California Union Insurance Company for Partial Summary Judgment that Debtor Bears the Burden to Prove Its Entitlement to Coverage on a Duty to Indemnify Standard Based on the Actual Facts of the Underlying Building Claims is granted.
DONE AND ORDERED.
.The Celotex Corporation and Carey Canada Inc. (collectively referred to as "Debtor") brought this adversary proceeding against numerous insurance companies and insurance syndicates (collectively referred to as "the Insurance Company").
The instant Motion for Partial Summary Judgment was filed by AIU Insurance Company; American Home Assurance Company; American Motorists Insurance Company; Citadel General Assurance Company; Columbia Casualty Company; The Continental Insurance Company; Employers Mutual Casualty Company; Eric Reinsurance Company; Federal Insurance Company; First State Insurance Company; Florida Insurance Guaranty Association, Inc.; Gibraltar Casualty Company; Granite State Insurance Company; Hartford Accident & Indemnity Company; Highlands Insurance Company; Hudson Insurance Company; Lexington Insurance Company; Lumbermens Mutual Casualty Company; National Surety Company; National Union Fire Insurance Company of Pittsburgh, Pennsylvania; Old Republic Insurance Company; The Protective National Insurance Company of Omaha; Royal Indemnity Company; Twin City Fire Insurance Company; and Zurich Insurance Company. Lloyds of London is also a movant. It appears that “Lloyds of London” is in actuality Certain Underwriters at Lloyd’s, London, and London Market Companies (the Plaisted group). In addition, Columbia General Assurance Company is a movant in the instant Motion for Partial Summary Judgment although no such company has ever been a party to this adversary proceeding. It appears the inclusion of Columbia General Assurance Company as a moving party was merely a scrivener's error.
The American Insurance Company; Certain Underwriters at Lloyd’s, London, and London Market Companies (the Barrett group); Continental Casualty Company; Employers Insurance of Wausau; International Insurance Company; Transportation Insurance Company; and United States Fire Insurance Company joined in the above-described Motion for Partial Summary Judgment.
Insurance Company of North America and California Union Insurance Company filed a separate Motion for Partial Summary Judgment that Debtor Bears the Burden to Prove Its Entitlement to Coverage on a Duty to Indemnify Standard Based on the Actual Facts of the Underlying Building Claims. Royal Indemnity Company joined in this separate Motion for Partial Summary Judgment.
. Under the Court’s order granting motion for partial summary judgment on choice of law, entered November 24, 1992, lex loci contractus (the law of the jurisdiction where the contract is executed) is the appropriate choice of law in contract interpretation actions. Accordingly, the laws of the states of Florida, Illinois, and Ohio govern disposition of this Motion. Accord Shure v. Vermont (In re Sure-Snap Corp.), 983 F.2d 1015, 1017 (11th Cir.1993), holding the law in Florida is well settled that the interpretation of contracts is governed by the law of the state where the contract was made, making no reference to Tang How v. Edward I Gerrits, Inc., 961 F.2d 174 (11th Cir.1992); Shapiro v. Associated Int'l Ins. Co., 899 F.2d 1116 (11th Cir.1990); or Hudson Ins. Co. v. Double D Mgmt. Co., 768 F.Supp. 1542 (M.D.Fla.1991).
. On October 12, 1990, the date Debtor filed its voluntary petition for relief under Chapter 11 of the Bankruptcy Code, approximately 120 asbes*665tos-related property damage lawsuits were pending against Debtor. Certain of these asbestos-related property damage law suits have been filed as class actions. No bar date has yet been set for asbestos-related property damage claimants to file proofs of claim, nor are the asbestos-related property damage claimants parties to the instant adversary proceeding.
. Debtor explains this policy language as a convoluted exception to an exclusion which appears within a grant of coverage and ultimately provides that if the underlying policy provides defense costs, the excess policy pays defense costs as part of ultimate net loss. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491640/ | ORDER AUTHORIZING DEBTOR’S USE OF CASH COLLATERAL
SIDNEY M. WEAVER, Chief Judge.
THIS CAUSE came on to be heard by the Court on March 3 and 10, 1993, upon the Emergency Motion of RIVER OAKS INVESTMENT CORP. (“RIVER OAKS” or the “Debtor”), to use Cash Collateral. The Court having heard the testimony, having considered the evidence adduced, having heard the argument of counsel, and being fully advised in the premises, renders its finding of facts and conclusions of law as hereinafter stated.
*685I. FINDINGS OF FACTS
RIVER OAKS commenced this case by filing a Voluntary Petition for Relief under Chapter 11 of the Bankruptcy Code on February 17, 1993 (the “Petition Date”). RIVER OAKS continues to manage its property and operate its business as a Debtor-in-Possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code.
The Debtor’s business is the management and operation of an apartment complex located at 2929 North Dixie Highway, Oakland Park, Florida 33334 (the “Property”). The Property consists of a 219 unit apartment complex which, on the Petition Date, was approximately 90% rented and generated rental income of approximately $90,000.00 on a monthly basis (the “Rents”). RIVER OAKS is the owner of the Property by reason of a Clerk’s Deed conveyed to RIVER OAKS when it foreclosed on its third mortgage which encumbered the Property.
The Property is encumbered by a first mortgage (the “First Mortgage”) which secures a loan made by Amerifirst Savings and Loan Association (“Amerifirst”) on or about December 4, 1986, in the original principal amount of $5,040,000.00 (“Ameri-first Note”) The Amerifirst Note is additionally secured by a Collateral Assignment of Leases, Rents and Profits, dated December 4, 1986 (the “Assignment of Rents”). The First Mortgage, Amerifirst Note, and the Assignment of Rents are collectively referred to hereinafter as the “1986 Loan Documents”.
The Property is further encumbered by a second mortgage (“the Second Mortgage”). The Second Mortgage secures two notes executed in favor of Conanti Investments in the principal amounts of $580,000.00 and $245,000.00. Conanti also claims an interest in the Rents pursuant to a collateral assignment of rents incorporated into the Second Mortgage.
On November 13, 1987, Debtor’s predecessor-in-interest executed a Promissory Note and Mortgage Modification and Assumption Agreement in favor of Ameri-first. The Assumption Agreement provided for inter alia additional guarantors to secure the repayment of the 1986 Loan Documents; for a new interest rate to apply to the 1986 Loan Documents; for a new borrower to be obligated for the repayment of the 1986 Loan Documents; and for a disbursement of funds which were held back pursuant to the terms of the 1986 Loan Documents and which were applied toward a principal reduction of the 1986 Loan Documents; all as part of an assumption, ratification and reaffirmation of all of the terms and conditions of the 1986 Loan Documents.
Amerifirst subsequently went into receivership, and the Resolution Trust Company (the “RTC”), acting in its capacity as Receiver, made a pre-bankruptcy implementation of Florida Statute Section 697.07 (“Section 697.07”) on or about September 9, 1991.
On November 22, 1991, the RTC filed a foreclosure action styled RTC v. Warren Stein, as Trustee, et al, in the Circuit Court in and for Broward County, Florida, Case No. 91-033278(14) (the “Foreclosure Suit”). Pursuant to that certain Order Requiring Deposit of Rents (the “Sequestration Order”), entered by the Honorable Paul M. Marko, III, in the Foreclosure Suit on April 6, 1992, RIVER OAKS was required to deposit all rents, revenues, and other payments derived from its ownership of the Property into a trust account maintained at Northern Trust Bank (the “Trust Account”). Judge Marko entered the Sequestration Order based on the RTC’s assertion in its motion that the RTC had a perfected lien upon the rents and profits by reason of the 1986 Loan Documents and the RTC’s written demand for payment of the rents pursuant to Section 697.07.
The Sequestration Order and the Stipulation applying thereto, (the “Stipulation”) directed the RTC and RIVER OAKS to jointly agree upon and pay the operating expenses and other lawful obligations relating to the Property. Further, each check drawn upon the Trust Account required two signatures: one signature of the designated representative of the RTC’s counsel and one signature of the designated representative of RIVER OAKS.
*686On June 22, 1992, the RTC conveyed to Lennar Florida Partners L.P.,I (“Lennar”) the 1986 Loan documents, Guaranty Agreements applying thereto, and the Assumption Agreement, pursuant to an Assignment of Mortgage.
CONCLUSIONS OF LAW
The bases for Lennar’s opposition to RIVER OAKS’ Motion to Use Cash Collateral are that:
1. The Assumption Agreement, executed in November, 1987, created a novation which brought the 1986 loan documents within the purview of Section 697.07; and
2. The RTC’s pre-bankruptcy implementation of Section 697.07 created an absolute transfer of the Rents to Lennar.
The Court disagrees.
This Court continues to adhere to the opinion that Section 697.07 is intended to create an absolute transfer of the income stream to the mortgagee, upon default and written demand to the mortgagor. In re 163rd Street Mini Storage, Inc., 118 B.R. 87, 90 (Bankr.S.D.Fla.1990).
Inasmuch as Section 697.07 effects a substantive change from the common law with respect to the property rights of an assign- or and assignee to assigned rents, the statute cannot be applied retroactively pursuant to Florida constitutional law. In re AmeriSwiss Associates, 148 B.R. 349 (Bankr.S.D.Fla.1992); In re Thymewood Apartments, Ltd., 129 B.R. 505, 512 (Bankr.S.D.Ohio 1991); In re Camelot Associates Ltd. Partnership, 102 B.R. 161, 165-166 (Bankr.D.Minn.1989).
The precise question presented is whether the Assumption Agreement constituted a novation which extinguished the 1986 Loan Documents and reincorporated the terms and conditions therein into a document originating in November, 1987 and within the effective date of the Section 697.07.
The party asserting the existence of a novation has the burden of establishing it by a clear preponderance of the evidence. Travis v. Central Surety & Insurance Corp., 117 F.2d 595, 596 (5th Cir.1941).
The four elements necessary to demonstrate a novation are:
1) the existence of a previously valid contract;
2) the agreement to make a new contract;
3) the intent to extinguish the original contractual obligations; and
4) the validity of the new contract.
Sink v. Abitibi-Price Sales Corp., 602 So.2d 1313, 1316 (Fla. 4th D.C.A.1992); S.N.W. Corp. v. Hauser, 461 So.2d 188, 189 (Fla. 4th D.C.A.1984).
A review of the Assumption Agreement indicates that the parties intended the 1986 Loan Documents to remain distinct and the terms and conditions therein to remain in full force and effect except as specifically amended in the later document.
The explicit, unambiguous language in the Preamble to the Assumption Agreement, to which both parties assented, states in pertinent part:
“The Borrower desires to assume the [1986 Mortgage] and the Amerifirst Note] secured thereby along with the [Assignment of Rents] and the parties hereto desire to modify certain terms and conditions of the [1986 Loan Documents]..."
A fundamental tenet of mortgage law provides that:
“a person who assumes payment of a mortgage is chargeable with notice of all its terms and provisions and is bound thereby; and he takes the encumbrance subject to all its conditions and limitations excepting such as are inconsistent with the terms of the deed to the grantee ...” 59 C.J.S. Mortgages, Section 413.
The explicit terms incorporated in the Preamble indicating the parties’ intent for there to be an assumption of the 1986 Loan Documents mandate that this Court interpret the Assumption Agreement as a collateral document which merely supplemented and modified certain terms and conditions of the 1986 Loan Documents.
*687In the same vein, paragraph 15 of the Assumption Agreement provides in pertinent part:
The Borrower hereby ratifies and reaffirms all of the terms and conditions of the [1986 Loan Documents], including those commitment letters dated October 28, 1986 and October 23, 1987, and as specifically modified herein ...
“Ratify” means “to authorize or otherwise approve, retroactively, an agreement or conduct either expressly or by implication”. Black’s Law Dictionary 1262 (6th ed.1990) (emphasis added). Similarly, the import of the word “reaffirm” is to recognize the continued validity of a pre-existing obligation. (Black’s defines “reaffirmation” in the Bankruptcy context and states that the term “refers to a post-petition agreement to pay pre-petition obligations”). The Borrower’s explicit ratification and reaffirmation in accordance with the plain meaning of the terms further manifested the parties’ intentions for the 1986 Loan Documents to remain the operative documents with only certain modifications thereto to be implemented by the Assumption Agreement. The explicit language of the Assumption Agreement contemplates the continued effect of preexisting conditions and obligations arising under the 1986 Loan Documents.
In addition to employing terms which recognized the continued operation and effect of the 1986 Loan Documents, the parties’ course of conduct further evidences an intention to continue the operation and effect of the 1986 Loan Documents. Although Lennar obtained the Sequestration Order in the Foreclosure Suit, Lennar never asserted an absolute ownership in the Rents prior to its response in opposition to Debtor’s Emergency Motion to Use Cash Collateral. During the nine months preceding the Petition Date in which RIVER OAKS operated its business under the Sequestration Order, Lennar and RIVER OAKS had a joint interest in the Rents. Lennar and RIVER OAKS stipulated to agree as to what expenditures might necessitate use of the Rents. Further, Lennar and RIVER OAKS established a Trust Account from which disbursements could be made only if consented to by a representative of Lennar’s counsel and a representative of RIVER OAKS.
Accordingly, the Court concludes that the operative loan documents from which Lennar derives an interest in the Rents originated in 1986 and therefore do not come within the purview of Florida Statute 697.07 (1991) which has an effective date of October 1, 1987. The execution of the Assumption Agreement on November 13, 1987 did not constitute a novation, but merely evidenced the parties’ intention to supplement and amend the 1986 Loan Documents.
Having concluded that the RTC’s notice pursuant to Section 697.07 was ineffectual in creating an absolute transfer of the Debtor’s interest in the Rents since the Statute post-dates the operative contracts of assignment, Lennar’s rights in the Rents are governed by applicable common law. In re 163rd Street, supra, at 88-89; White v. Anthony Inv. Co., 119 Fla. 108, 160 So. 881, 882 (1935). Lennar has obtained an Order of Sequestration and therefore has a perfected security interest in the Rents.
It is therefore,
ORDERED AND ADJUDGED as follows:
1. That the Rents constitute cash collateral as that term is defined in Section 363(a) of the Bankruptcy Code;
2. That Debtor shall be and hereby is authorized to use the cash collateral for the ordinary and necessary expenses incurred in the operation of its business and to meet all lawful obligations in connection with the Property;
3. That Debtor shall provide Lennar with a budget listing its expenses; and
4. That Debtor shall be required to place all net proceeds from the Rents into a separate escrow account pending further order of this Court.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491641/ | MEMORANDUM OF DECISION
ALFRED C. HAGAN, Chief Judge.
On January 6, 1993, this Court issued an opinion holding that Sunshine Precious Metals, Inc., the debtor in this Chapter 11 (“SPMI”), did not have an interest to assume or reject in a lease of mining property from Mary Mining Co., Inc. (“Mary Mining”). This matter is again before the Court on Mary Mining’s motion to set aside the January 6 order, and to allow Mary Mining’s supplemental claim for royalty payments due under the lease.
SPMI argues the entire motion is merely an attempt to reargue the issue of assumption or rejection of the lease under 11 U.S.C. § 365. Mary Mining is attempting to reargue that issue since the motion’s caption states that it is brought under the provisions of Federal Rules of Bankruptcy Procedure 9023 and 9024. Mary Mining further asserts the motion contains new matter, that is, a motion to establish Mary Mining’s claim. Accordingly, this discussion will involve the issue of a rehearing on the previous decision that SPMI has no interest in the lease agreement to assume or reject under Section 365, and the Mary Mining claim for past due royalties.
FACTS
This transaction arises out of a complex series of leases. On November 15, 1986, a mining lease was entered into between NCNB National Bank of Florida as lessor (“NCNB”), and Sunshine Mining Co. as lessee. (Hereinafter, this lease shall be referred to as the “NCNB-SPMI lease.”) This lease, of certain properties in Nevada, was for a period of 20 years and required, among other things, that Sunshine Mining Co. pay royalties on ore removed from the property. The lease additionally permitted assignment of the lease without consent.
On August 1, 1988, Sunshine Mining Co. changed its name to Sunshine Precious Metals, Inc. Effective July 1, 1989, SPMI entered into a lease with Zephyr Resources, Inc. (“Zephyr”). (Hereinafter, this lease shall be referred to as the “SPMI-Zephyr sublease.”) This lease included not only the properties subject to the NCNB-SPMI lease, but also other properties owned by the debtor. While the SPMI-Zephyr sublease provided that Zephyr would meet all of the obligations of the leases it was assuming, it was for a period of only two years. This period was later extended to SV2 years by amendment of the SPMI-Zephyr sublease.
On October 21, 1990, Zephyr assigned the SPMI-Zephyr sublease to Homestead Minerals Corporation (“Homestead”). (Hereinafter, this transaction shall be referred to as the “Zephyr-Homestead assignment.”) SPMI consented to this assignment.
Apparently in 1991 (the date is unclear from the record), Mary Mining was assigned NCNB’s interest as lessor in the NCNB-SPMI lease.
*980Homestead subsequently defaulted on royalties and other amounts due under its assigned sublease, and filed a petition under Chapter 11 in the U.S. Bankruptcy Court for the District of Nevada. Homestead desired to assume the lease under the provisions of 11 U.S.C. § 365. As part of this assumption, Mary Mining, SPMI, and Homestead entered into a stipulation. Homestead assumed all the obligations under the original NCNB-SPMI lease, and became liable to Mary Mining directly. Provision was made for repayment of the unpaid royalties and other amounts due under the assigned sublease in the amount of $228,661.13 by Homestead to Mary Mining.1 The parties also agreed the stipulation was not intended to be a novation, and did not relieve SPMI of any obligation it might have to cure the defaults; however, SPMI reserved the right to assert any defense it might have to such liability. Homestead has apparently failed to meet its obligations under the stipulation, and its case was converted from Chapter 11 to Chapter 7 on December 31, 1992.
Mary Mining then brought a motion in SPMI’s pending bankruptcy to require SPMI to assume or reject the NCNB-SPMI lease. This Court concluded that SPMI no longer had an interest to assume or reject under the lease, and denied the motion. Subsequently, Mary Mining filed the current motion.
DISCUSSION
In order to determine the extent of any liability SPMI may have to Mary Mining, the status of the contractual relations between the parties must first be determined.
“A transfer or conveyance by a lessee of his full term, or the remainder thereof, which does not reserve to the lessee a reversionary interest in the leasehold estate, has the legal effect of an assignment of the lease and is not a sublease.” Groth v. Continental Oil Co., 84 Idaho 409, 413, 373 P.2d 548, 549 (1962). Here, SPMI’s estate was a 20-year lease. SPMI conveyed only two years of that estate by the lease to Zephyr (extended to &k years by amendment to the sublease). SPMI had a reversionary interest, and therefore the lease to Zephyr is properly characterized as a sublease, and not an assignment. The transfer from Zephyr to Homestead, in contrast, was an assignment; Zephyr conveyed all of its rights and duties under the SPMI-Zephyr sublease to Homestead, and did not retain any reversion or impose any new terms on Homestead.
While there is no Idaho case on point, it is generally recognized that a sublease of property does not discharge the lessee/sublessor from the obligation to pay rent on the property. See Brosnan v. Kramer, 135 Cal. 36, 66 P. 979, 980-81 (1901) (where lessor accepted rent payments from sublessee, lessee was not released from obligation to pay rent); Annot., “Acceptance of rent from assignee or sub-lessee as relieving assignor or sublessor,” 36 A.L.R. 316, 319-20 (1925); 49 Am.Jur.2d Landlord and Tenant § 500 (1970). “Absent an express novation, a lessee remains in privity of contract with the lessors and is a guarantor for performance of the covenants in the agreement.” George W. Watkins Family v. Messenger, 115 Idaho 386, 766 P.2d 1267, 1271 (App.1988) (assignment; lessee/assignor held liable for as-signee’s defaults on rent, even though lessor consented to assignment). Accordingly, as of the time that SPMI subleased the property to Zephyr, SPMI remained liable for payments due to NCNB regardless of whether it was in possession or not.
This analysis speaks only as to the legal effect of the SPMI-Zephyr sublease as of the time at which it was created, however. SPMI contends that NCNB negotiated directly with Homestead after the Zephyr-Homestead assignment. These negotiations, contends SPMI, reached tentative settlements, deferrals, and/or payment schedules regarding the royalty payments; SPMI was not a party to these negotia*981tions, and did not consent to their terms. SPMI, relying on the general contract principle that subsequent material modifications of the terms of a contract releases a guarantor or surety of the obligor, argues it was released by these negotiations. SPMI cites in support Ore-Ida Potato Products, Inc. v. United Pacific Ins. Co., 87 Idaho 185, 392 P.2d 191 (1964).
In the case of an assignment (which may be though of as a sublease transferring all of the lessee’s interest in the property), the rule has been stated as follows:
‘Regardless of the precise analysis of the theories by which the lessee may be relieved of liability by an assignment, the principle is clear that an agreement between the lessor and the assignee materially varying the terms of the original lease will on one theory or another result in the termination of the lessee’s covenant to pay rent.... The lessee is not discharged, however, by variations which inure to his benefit_ Nor is the lessee discharged by agreements between lessor and assignee which may increase the liability of the lessee, but which are permitted by the terms of the original lease, to the benefits of which the assign-ee is entitled.’
Gerber v. Pecht, 15 N.J. 29, 32-33, 104 A.2d 41, 42-43 (N.J.1954) (citations omitted) (quoting Walker v. Rednalloh Co., 299 Mass. 591, 13 N.E.2d 394 (1938)). See Meredith v. Dardarian, 83 Cal.App.3d 248,147 Cal.Rptr. 761, 763-64 (1978) (lessee/assign- or is “like” a surety as to the obligations between assignee and assignor, but as between lessor and lessee the lessee remains a primary obligor under the lease). See also Ore-Ida, supra, 392 P.2d at 199-200 (compensated surety must show not only that there was a material alteration in the underlying contract, but also that the surety was prejudiced or injured as a result, before surety is discharged from obligations).
The sparse allegations by SPMI that NCNB and Homestead entered into tentative repayment schedules of defaults do not indicate that SPMI’s liability was increased. SPMI was liable for the amount of the defaults regardless; temporary payment schedules, or delays in collection, may very well have permitted Homestead to decrease SPMI’s liability, thus conferring a benefit on SPMI. At the very least, SPMI has failed to show that the extension of time prejudiced its interests. See Ore-Ida, supra, 392 P.2d at 200.
The negotiations between NCNB and Homestead therefore do not appear to have discharged SPMI’s liability under the original lease. SPMI would appear to remain liable for defaults that took place while Homestead operated the property.
Consideration must also be given to the effect of the stipulation and order entered by the U.S. Bankruptcy Court for the District of Nevada in the Homestead bankruptcy. After reviewing both documents, it is concluded the stipulation and order did not release SPMI from its liability to Mary Mining for defaults. Homestead assumed the NCNB-SPMI lease, and was made directly liable to Mary Mining as the successor of NCNB. The stipulation provided that the stipulation and order were not intended to be a novation; Mary Mining expressly reserved the right to seek payment of the default from SPMI, and SPMI specifically reserved the right to assert a novation as a result of earlier transactions.
Taken as a whole, this stipulation and order had the effect of changing the relationships between the parties. Because (1) Homestead assumed the entire NCNB-SPMI lease, (2) Homestead became liable directly to Mary Mining, and (3) SPMI was not released from liability by this transaction, SPMI would appear to have assumed the status of guarantor of the new Mary Mining-Homestead lease. The relationship between the parties is analogous to what would occur if SPMI’s transaction with Zephyr (and subsequently with Homestead) had been an assignment, rather than a sublease. SPMI does not retain an interest in the lease, but apparently remains liable for defaults by the assignee.
In summation then, SPMI holds no lease from Mary Mining that SPMI is obligated to assume or reject under section 365. The issue of SPMI’s liability to Mary Mining is *982another matter as SPMI may be contractually responsible to Mary Mining for Homestead’s defaults. There is a distinction between bringing lease obligations current under section 362 and the existence of a general claim.
Accordingly, the order of January 6, 1993, finding that SPMI has no interest in the lease that it may assume or reject under 11 U.S.C. § 365 is affirmed. The nature and extent of SPMI’s liability to Mary Mining, if any, should be left to the claims process under applicable statutes and Part III of the Federal Rules of Bankruptcy Procedure. For this determination Mary Mining may file a claim if it has not already done so.
A separate order will be entered.
. According to the stipulation later entered in the Homestead chapter 11 case, this amount represents "past-due royalty payments, interest on royalty arrearages, and attorney's fees/ costs.” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491642/ | MEMORANDUM OF OPINION ON STUDENT LOAN
JOHN C. AKARD, Bankruptcy Judge.
Connie E. Mackey (Debtor) seeks a determination that her liability on a student loan made for the benefit of her son, James Mackey, is discharged in her bankruptcy proceeding. Subject to certain limitations, student loans are excepted from a debtor’s discharge under § 523(a)(8) of the Bankruptcy Code.1 This court concludes that § 523(a)(8) does not differentiate between parents and students, and thus, the debt is not discharged.2
STATUTE
The pertinent portions of § 523 read as follows:
§ 523. Exceptions to discharge.
(a) A discharge under section 727 ... of this title does not discharge an individual debtor from any debt—
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(8) for an educational benefit overpayment or loan made, insured or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution, or for an obligation to repay funds received as an educational benefit, scholarship or stipend, unless—
(A) such loan, benefit, scholarship, or stipend overpayment first became due more than 7 years (exclusive of any applicable suspension of the repayment period) before the date of the filing of the petition; or
(B) excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor’s dependents;
*35FACTS3
The parties stipulated that the note in question first became due within seven years of the Debtor’s bankruptcy filing and that excepting this debt from the discharge would not impose an undue hardship on the Debtor or the Debtor’s dependents. The Debtor as “Borrower” and her son, James Mackey, as “Endorser,” both signed the loan application and note dated July 6, 1989. The application reflected that James would attend a school known as Concho Career Institute. The note was in the original principal amount of $4,000.00.
The parties stipulated that the only issue was whether the § 523(a)(8) exception to discharge for student loans applied to a “non-student co-maker or maker.”
DISCUSSION
The parties cited two 1992 cases in support of their positions. The Debtor pointed to Kirkish v. Meritor Sav. Bank (In re Kirkish), 144 B.R. 367 (Bankr.W.D.Mich.1992), which held that the exception to discharge is intended to apply only to students and not to co-makers. The creditor pointed to Dull v. Ohio Student Loan Comm’n (In re Dull), 144 B.R. 370 (Bankr.N.D.Ohio, 1992), which held that the language of § 523(a)(8) is all-inclusive and the fact a debtor received no educational benefit from the loan did not excuse her from the provisions of that section. Both courts cited numerous cases on each side of this issue. The parties did not cite, nor has the court found, any Fifth Circuit authority on this issue.
The Kirkish court based its decision upon the legislative history and its interpretation of Congressional intent. The Dull court pointed out that Congress reviewed this section on more than one occasion and could easily have limited nondis-chargeability to students had it wished to do so. This court agrees with the Dull court’s analysis when it said:
The plain language of Section 523(a)(8) does not limit applicability to educational loans on which the student is the obligor. The section does, however, delineate exceptions to non-dischargeability of educational loans based on length of time the loan has been due and undue hardship. The section, therefore, applies to all educational loan debt whether the ob-ligor under the promissory note is a student or not.
Id. at 372.
In what appears to be the first circuit court decision on this issue, the Third Circuit recently rejected a parent’s claim that § 523(a)(8) does not apply to her as comaker on loans for her children’s education. Pelkowski v. Ohio Student Loan Comm’n (In re Pelkowski), 990 F.2d 737 (3d Cir.1993). The court noted that the statute does not refer to “student debtors” but limits the discharge of any “individual debtor” for “any debt” for covered educational loans. The fact that the student was the maker of the loan and the debtor the co-maker does not change the result. The court concluded that the policy of the statute can only be served by rendering all such loans nondischargeable.
CONCLUSION
Finding the Dull analysis persuasive, the court concludes that the Debtor’s liability on the above described note is not discharged.4
. The Bankruptcy Code is 11 U.S.C. § 101 et seq. References to section numbers are references to sections in the Bankruptcy Code.
. This court has jurisdiction of this matter under 28 U.S.C. § 1334(a), 28 U.S.C. § 157(a), and Miscellaneous Rule No. 33 of the Northern District of Texas contained in Order of Reference of Bankruptcy Cases and Proceedings Nunc Pro Tunc dated August 3, 1984. This is a core proceeding pursuant to 28 U.S.C. §§ 157(a) and (b)(2)(f).
. The Court adopts the parties' Stipulation of Facts filed March 4, 1993 and will state only such facts as are necessary to a decision.
. This Memorandum shall constitute Findings of Fact and Conclusions of Law pursuant to Bankruptcy Rule 7052. This Memorandum will be published. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491643/ | *65OPINION
HENRY L. HESS, Jr., Chief Judge.
This opinion follows the court’s earlier opinion in this case dated and filed on November 13, 1992 and published at 147 B.R. 221 (Bankr.Or.1992). That opinion resulted from a dispute between the standing chapter 13 trustee for Portland, Oregon, Robert W. Myers (“Myers”) and the Executive Office for United States Trustees (“EOUST”). Myers had been sued by a former employee of his office for alleged age discrimination. Myers incurred legal defense costs in defending the lawsuit. Myers sought to be reimbursed for these costs under 28 U.S.C. § 586(e)(2). The EOUST refused to allow the reimbursement and Myers sought court approval of the expenses.
In its earlier opinion, the court held that the determination of what constitute “actual, necessary expenses” under 28 U.S.C. § 586(e)(2)(B)(ii) was not left to the administrative agency, the EOUST. Instead, the court held the determination was one left to the judiciary.1 After reviewing the facts and the law, the court held that the disputed expenses were “actual, necessary” expenses under the statute and should be reimbursed from excess trust funds to the extent they were reasonable. Id.
Alternatively, the court ruled that, even if the determination were left to the EOUST, that determination was governed by the Administrative Procedures Act (“APA”). The court further held that the EOUST’s denial of Myers’s request was “arbitrary and capricious” under the APA and could not stand. Finally, the court gave the EOUST time to review the fee requests of Myers’s counsel for reasonableness. Id.
Myers submitted a fee detail to the EOUST that included the fees and costs of his attorney in bringing this matter before the bankruptcy court. Thus, the question has arisen whether such legal expenses, as distinguished from the attorney fees and costs of defending the age discrimination lawsuit, are also reimbursable.
There appear to be no cases on this issue and the court must rule solely on the basis of the language of the statute and logic. The text of the relevant statutes and this court’s analysis of 28 U.S.C. § 586(e) can be found in the court’s prior opinion. See In re Myers, 147 B.R. 221 (Bankr.Or.1992). In sum, the issue again appears to be not whether the expenses in question are “actual” but whether they are “necessary.”
In its prior opinion, this court concluded that the legal defense costs associated with defending the lawsuit were necessary. Having so concluded, it would be inconsistent to now hold that the legal fees and costs in establishing this fact were not also necessary. If the fees incurred by a standing trustee in successfully litigating a dispute with the EOUST over the functioning of his or her office were not reimbursable, *66it would be a serious, perhaps insurmountable, obstacle to litigating such disputes.2
Further, if the EOUST had simply approved Myers’s request, none of the fees at issue herein would have been incurred. Finally, it seems especially compelling to allow the fees where the EOUST’s actions were determined to be arbitrary and capricious and wholly unsupported in law or logic. Id.
The court believes that Myers’s fees and costs associated with this motion flow logically and inevitably from the operations of the office of a standing trustee and the inappropriate actions of the EOUST in this case. For all the reasons stated herein and in its prior opinion, this court rules that the legal fees and costs in question should be reimbursed.
It appears there is no dispute over the amount of the fees and costs requested by either counsel for Myers. Therefore, Mr. Cosgrove is hereby directed to prepare and present an order allowing the reimbursement of the fees and costs in accordance with this opinion and the court’s prior opinion referenced herein.
Should there be an appeal of the order entered in accordance with this opinion, the question would then arise as to whether the standing trustee’s fees and expenses incurred in defending the appeal would be “actual, necessary” expenses for which he should be reimbursed. This question is not yet before the court. However, to be consistent with the reasoning of this opinion, the standing trustee should be reimbursed for the costs of such defense.
. Support for this conclusion is found in the January, 1993 issue of Norton Bankruptcy Law Adviser, published shortly after the court issued its opinion. In that periodical there appeared an article entitled "The Original Intent of the United States Trustee System." The article was written by Richard B. Levin and Kenneth N. Klee, noted bankruptcy experts. In the late 1970’s, Levin and Klee were, as they put it: "members of the staff of the House Judiciary Committee, responsible for drafting the Bankruptcy Reform Act.” Norton Bankruptcy Law Adviser, Jan., 1993, No. 1, p. 2.
On page 4 of the article, Leven and Klee wrote the following:
Since the Subcommittee had concluded that all disputes, even those relating to matters of administration, should ultimately be decided in the judicial, not in the administrative, forum, the Subcommittee gave the United States Trustee a role as a party in interest and litigant before the bankruptcy judge on administrative matters. (Emphasis added.) Id. at P-4.
Also see In re BDT Farms, Inc., 150 B.R. 795 (Bankr.W.D.Ok.1993) which held that the bankruptcy court retains the power to review the actions of the Attorney General in setting the trustee’s percentage fees under 28 U.S.C. § 586(e).
Support for the proposition that the Administrative Procedures Act applies to the U.S. Trustee’s Office is found in The U.S. Trustee's New Clothes: The Administrative Procedures Act Provides a Remedy, by Kevin C. Gleason, in volume 9, number 1 of the 1993 issue of "NAB Talk", a publication of the National Association of Bankruptcy Trustees, 3008 Millwood Ave., Columbia, SC 29205.
. It could be argued that if the standing trustee were unsuccessful in a dispute with the EOUST, the fees and costs should not, be allowed. But this issue will not arise unless the court should be reversed on appeal. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491644/ | MEMORANDUM OPINION
ARTHUR B. BRISKMAN, Bankruptcy Judge.
At Selma, in Said District this 18th day of November, 1992, before Arthur B. Brisk-man, Bankruptcy Judge.
This matter came before the Court on the debtors’ objection to the claim of the United States of America, Internal Revenue Service. Appearing for the debtors, David Dallas and Debra Dallas, was their attorney Robert H. Turner; and Carol Koehler Ide, attorney for the United States of America, Internal Revenue Service. After review of the testimony, exhibits and arguments of counsel, the Court makes the following findings of fact and conclusions of law.
FINDINGS OF FACT
The debtors, David Dallas and Debra Dallas, were formerly employed in a family business, Dallas Security, Inc. (Dallas Security). Dallas Security was based in Miami, Florida and performed security services for government and private entities. David Dallas was a Junior Vice-President until his resignation on November 21, 1988. Debra Dallas, who resigned concomitantly with her husband, was the corporation’s Personnel Director. David Dallas’ brother, Alfred Dallas, was the President of Dallas Security and his wife, Cora Dallas, was the corporation’s Secretary.
David Dallas’ duties included patrolling job ■ sites, sitting post, attending pre-bid meetings and running errands. He made no business or financial decisions for Dallas Security. Debra Dallas was responsible for interviewing and hiring potential securi*78ty guards and assisting prospective guards obtain their occupational licenses. Debra Dallas maintained a bank account used solely for the collection and remittance of the state license fee for security guards but was not involved in the corporation’s business decisions.
Even though David Dallas signed checks at the direction of his brother, Alfred Dallas made the business and financial decisions for Dallas Security. Alfred Dallas and Cora Dallas also had exclusive control over the corporation’s books and records. During 1987, prior to their resignation, the debtors were apprised of problems Dallas Security was having meeting its obligations to the United States of America, Internal Revenue Service (IRS) for Form 941 withholding taxes. They were informed the situation had been remedied. Because of their respective positions with Dallas Security they had no reason to believe, nor notice to the contrary, that the withholding tax problems had not been resolved. It was not until 1989, after their resignations, that they learned Dallas Security’s problems with the IRS had not been resolved.
The debtors filed their joint chapter 13 bankruptcy petition on October 11, 1991 and listed $180,000.00 as the amount owed to the IRS. The IRS filed a claim against the debtors for $449,510.21, contending that David Dallas and Debra Dallas were responsible persons who willfully refused to collect withholding taxes and therefore subject to penalties pursuant to 26 U.S.C. §§ 6671-72.
CONCLUSIONS OF LAW
The IRS’ claim is comprised of penalties imposed by 26 U.S.C. § 6672. Section 6672 of the Internal Revenue Code imposes a penalty on “[a]ny person required to collect, account for, and pay over any tax ... who willfully fails to collect such tax ...” The term “person” is defined in 26 U.S.C. § 6671(b) as including “an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs.” (emphasis added). A person having such a duty is known as a “responsible person.” See Mazo v. United States, 591 F.2d 1151, 1153 (5th Cir.1979).1 The hallmark of a responsible person is not their title; instead, it is the degree to which they control disbursements. Neckles v. United States, 579 F.2d 938 (5th Cir.1978).2 In Mazo, the former Fifth Circuit Court of Appeals held that before the penalty provided for by § 6672 may be imposed on an individual, that individual must not only be a “responsible person” but such person must have willfully failed to perform the duty to collect, account and pay the tax. Id.
In the context of 26 U.S.C. § 6672, the Eleventh Circuit has held that a party acts willfully “if the responsible person has knowledge of payments to other creditors after he becomes aware of the failure to remit the withheld taxes.” Williams v. United States, 931 F.2d 805 (11th Cir.1991) (citations omitted). Once a responsible person discovers there is a deficiency in payment of taxes to the IRS, he has an obligation to remedy the situation, but only if the means of doing so are in his control. George v. United States, 819 F.2d 1008, 1012 (11th Cir.1987).
Neither David Dallas nor Debra Dallas were responsible persons within the meaning of 26 U.S.C. § 6671(b). Although both may have had knowledge that Dallas Security may have previously had a withholding tax liability, neither David Dallas nor Debra Dallas occupied a position whereby they were under a duty to collect and ensure the withholding taxes were paid *79over to the IRS. That Debra Dallas wrote checks is insufficient of itself to establish responsibility. Her check writing authority was limited to an account specifically established for the collection and remittance of occupational license fees from the employees to the State of Florida. This function was divorced from the business and financial decisions of Dallas Security. Furthermore, after acquiring knowledge of the withholding tax liability she was informed the problem was resolved. Thereafter, her role in the corporation did not change. She still had no duty to collect and remit the withholding taxes. It was not until after her resignation that she learned the withholding tax liability had not been resolved.
David Dallas had no duty under 26 U.S.C. § 6671(b). David Dallas had the title Junior Vice-President, but his duties bore scant relation to his title, which was merely nominal. His responsibilities pertained to the “nuts and bolts” of the daily operation of the corporation and was not involved in the corporation’s business and financial decisions. He supervised employees and performed security functions. He had check signing authority for Dallas Security. However, he only signed checks at the direction of the corporation’s president, who was responsible for the business and financial decisions of Dallas Security and who had exclusive control over the corporation’s books and records. After learning the corporation had run afoul of its withholding tax obligation, David Dallas was apprised the situation had been remedied. Both before and after he acquired this knowledge his position with Dallas Security imposed no duty that would subject him to liability under 26 U.S.C. § 6672.
Not only were David Dallas and Debra Dallas not responsible persons, but the failure to resolve the withholding tax problem was not willful. Although both wrote checks while the withholding taxes were not paid, neither of them knew the indebtedness still existed when the checks were issued. Moreover, the means of correcting the problem were not within their control while employed with Dallas Security or after their respective resignations. George v. United States, 819 F.2d 1008, 1011 (11th Cir.1987). When they discovered that Dallas Security was not meeting its withholding tax responsibilities neither occupied a position in which they were able to control the corporation’s disbursements to its respective creditors.
Consequently, the IRS cannot exact the penalties it deems itself entitled to under 26 U.S.C. § 6672 from David Dallas or Debra Dallas. Therefore, the objection of the debtors is due to be sustained and the IRS’ claim is due to be disallowed.
. In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir.1981) the Eleventh Circuit Court of Appeals adopted as binding precedent all decisions of the former Fifth Circuit rendered prior to October 1, 1981.
. In Williams v. United States, 931 F.2d 805 (11th Cir.1991), the court identified indicia of responsibility. They include the holding of office, control over financial affairs, the authority to disburse corporate funds, stock ownership and the ability to make employment decisions. Williams, 931 F.2d at 810 (citing George v. United States, 819 F.2d 1008 (11th Cir.1987)). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491645/ | *96MEMORANDUM OPINION
JAMES E. YACOS, Bankruptcy Judge.
I.Introduction
This adversarial proceeding has come back before the Court on Shawmut Bank’s (“Shawmut”) motion for reconsideration and vacatur of a final judgment entered by this Court on September 16, 1991 in favor of the defendant holding the debt in question dischargeable. The basis of Shaw-mut’s motion for reconsideration and vaca-tur is its contention that the Court incorrectly applied a subjective standard to gauge the defendant’s state of mind in determining the intent to deceive element of a § 523(a)(2)(B) dischargeability complaint. For the reasons that follow the Court now vacates the original judgment in favor of the defendant and holds that the subject debt is nondischargeable. The following constitutes the Court’s findings of fact and conclusions of law in accordance with Fed.R.Bankr.P. 7052.
II.Applicable Law
§ 523. Exceptions to discharge.
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—
******
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—
******
(B) use of a statement in writing—
(i) that is materially false;
(ii) respecting the debtor’s or an insider’s financial condition;
(iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive; or....
******
III.Facts
According to Shawmut’s adversarial complaint, on or about June 14, 1989 Shawmut entered into a loan arrangement with the defendant whereby Shawmut loaned the defendant $75,000. In connection with the loan transaction, the defendant provided Shawmut with his personal financial statement on or about February 10, 1989. On schedule D of that financial statement, entitled “Real Estate Owned,” the statement contained blank space for the listing of real estate owned by a would-be borrower. In one particular column of said schedule, the applicant was suppose to make an indication to the cue “Title in name of.”
The defendant listed two properties. The first was a property on North Road in West Newbury, Vermont. It was listed as having a market value of $725,000 and as being owned by an entity indicated as “Woodrose Pub.,” by which is apparently meant Woodrose Publications. Plaintiff’s Exh. A-3. At the original trial, the defendant testified he believed he owned 50% of the stock of Woodrose Publications. The other property listed on the financial statement submitted to Shawmut was in West Glover, Vermont. The value assigned was $1,000,000, no encumbrances, and was listed as being owned by “Bruce + Susan Lyons.” 1 Plaintiff’s Exh. A-3.
At trial Shawmut contended that the listing of the property in West Newbury, Vermont as being solely owned by Lyons, either through stock ownership of Woodrose Publications or otherwise, was false in that the West Newbury, Vermont property was wholly owned by the defendant’s wife. Shawmut also contended the financial statement was materially false with respect to the West Glover, Vermont property in that the defendant transferred his interest in the property to his wife in August, 1988.
At trial the defendant gave testimony that he believed he owned all the stock of Woodrose Publications and its property in *97West Newbury, Vermont. In his answer, the defendant stated that he believed he owned at least one-half of the property in West Glover, Vermont based on a prenuptial agreement. However, at trial the defendant admitted that at the time of the February, 1989 financial statement he had no ownership interest in the West Glover, Vermont residence. Trial Transcript, p. 10, lines 18-20.
The original trial was conducted on September 6, 1991 and the Court entered judgment in favor of the defendant determining the subject debt to be dischargeable. At the conclusion of the trial the Court indicated it would entertain a motion for reconsideration if Shawmut could show controlling applicable case law on the issue of whether a debtor’s intent to deceive is measured by an objective or subjective state of mind standard.
On September 26, 1991, Shawmut moved for reconsideration and vacatur of the judgment in favor of the defendant. It is Shawmut’s contention that the Court applied a subjective state of mind standard when the proper standard to determine the debtor’s intent to deceive is the objective state of mind standard.
On December 10, 1991 the Court granted Shawmut’s motion for reconsideration and limited retrial solely to the legal issue of which standard gauges a debtor’s state of mind with respect to the finding of an intent to deceive for purposes of 11 U.S.C. § 523(a)(2)(B)(iv).
Retrial occurred on April 13, 1992 and the parties submitted post-trial memoranda of law.
The Court has now reviewed the post-trial memoranda of law, the transcript of the original trial, and the Court’s notes from the retrial and now determines the debt to be nondischargeable.
IV. Discussion
At the conclusion of the trial on April 13, 1992, the Court made bench findings, inter alia, that the defendant knew that his financial statement was inaccurate with regard to the state of the title of his personal residence. The Court also found that the defendant considered this inaccuracy a pure technicality from a control statement and would not affect his access to that property and the equity in that property if he were forced into a situation to get to the property to cover any debts. The Court also found that the Bank did rely upon that false statement in his financial statement and that this reliance was reasonable.2
During the original trial, it was the Court that interjected into the colloquy of counsel the legal issue of which standard governs the finding of intent to deceive with respect to a nondischargeability complaint. The Court stated:
“Those questions are quite close and it may be that the Bank on a motion for reconsideration can show me some case law that would sway my judgment in that regard; but it does appear to me that in terms of subjective intent here, the — which has to be inferred from all the circumstances — that the debtor, having gone through a $300,000 transaction with the Bank, having dealt with this gentlemen Mr. Loy who he had never actually seen, and got in that transaction, and having got in the $70,000 approved quickly, would not consciously have thought back and thought that, “well they may be relying on that Glover property and maybe that’s misleading.”
Trial Transcript of Court’s Findings, p. 7, lines 11-21.
The submitted post-trial memoranda of law have failed to identify a single case which squarely holds that the intent to deceive element is judged by either an objective or subjective state of mind standard. The Court’s own research has only uncovered two cases where a square holding was made on which standard gauges a debtor’s state of mind. Compare In re Barron, 126 B.R. 255, 260 (Bankr.E.D.Tex.1991) (held, that a debtor’s state of mind with respect to the intent to deceive element is to be gauged by an objective standard) with In re Kantor, No. 84-7116, 1986 *98WL 28904 (Bankr.S.D.N.Y. Oct. 1, 1986) (held, that “subsection 523(a)(2)(B)(iv) requires proof of actual intent to deceive by a subjective, rather than an objective standard ... defining of an intent to deceive basically requires a finding of fact as to the debtor’s state of mind at the time the materially false financial statement was made.” Id. at 16).
Without deciding whether Kantor or Barron has settled upon the appropriate standard to gauge a debtor’s state of mind for purposes of making the 523(a)(2)(B)(iv) finding, this Court now concludes that that legal question has deflected the Court from focusing on the objective facts as already found.
As already noted above, at the conclusion of the April 13, 1992 hearing, the Court found that the debtor knew at the time he submitted the disputed financial statement that it was inaccurate with regard to the state of title of the personal residence. This being so, there is really no overriding need to delve into his subjective state of mind as to his motive or why he left that false statement on the financial statement submitted to plaintiff. Looked at either objectively or subjectively, or both, the Court has already determined that this debtor had a present and personal knowledge that the financial statement he submitted to Shawmut was false as a matter of fact. This finding requires a conclusion that he had the requisite intent to deceive under § 523(a)(2)(B)(iv).
Like the present case, Judge Berk’s slip opinion in In re Kantor, No. 84-7116, 1986 WL 28904 (S.D.N.Y. October 1, 1986), addressed a § 523(a)(2)(B) complaint on facts virtually identical to the case at bar. In Kantor, the debt was held nondischargeable by applying a subjective state of mind standard. The Kantor debtor had represented in at least three different sections of a financial statement that all his assets were solely owned. Kantor, at 3. Like the present case, the financial statement in Kantor included a column whereby the applicant was to indicate the nature of any ownership interest(s) in real property. No indication of joint ownership was made. However, at trial, the Kantor defendant testified that more than two-thirds of his reported total assets were owned jointly with his wife. Kantor at 4. Judge Berk found with respect to a certain loan dated October, 1982 that the “material falsity consisted of Cantor’s failure to disclose the joint interest of his wife and his principal assets, namely the real estate, furniture, art, jewelry and clothing.” Kantor at 9.
Likewise, the defendant in this case knowingly made the same kind of material misrepresentation with respect to the ownership of his personal residence in West Glover, Vermont. A material misrepresentation knowingly made as to the nature of an ownership interest in an asset listed on a financial statement has been held to satisfy the 523(a)(2)(B)(iv) element. In re Hodges, 116 B.R. 558, 562 (Bankr.N.D.Oh.1990) (held, debt nondischargeable pursuant to 523(a)(2)(B) upon a finding that debtor knew of false contents of financial statement which represented debtor’s sole ownership of $185,000 in stock and joint ownership of two parcels of land with his wife when in fact debtor never owned any of subject assets); Long Island Trust Co. v. Rodriguez, 29 B.R. 537, 541 (Bankr.E.D.N.Y.1983) (held, debt nondischargeable pursuant to 523(a)(2)(B) upon a finding that debtor knew of false contents of financial statement which represented debtor’s sole ownership of $650,000 in real assets when in fact subject assets had been transferred to debtor’s wife); In re Ricky, 8 B.R. 860 (Bankr.M.D.Fla.1981) (held, debt nondis-chargeable pursuant to 523(a)(2)(B) upon a finding that debtor knew listing of sole ownership of real property on financial statement was false where subject property was owned in the entirety); see also In re Winfree, 34 B.R. 879, 884 (Bankr.M.D.Tn.1983) (rejecting the debtor’s claim of subjective good intent, the court held debt nondischargeable pursuant to 523(a)(2)(B) upon a finding that the debtor knew that several tracts of land listed as assets on financial statement were not assets but were merely a “wish list” of properties that the debtor hoped to eventually acquire); In re Brown, 32 B.R. 554, 556-57 (Bankr.E.D.Tn.1983) (rejecting debtor’s tes*99timony of subjective good intent and a belief that he “totally controlled” certain real assets, the court held debt nondischargeable pursuant to 523(a)(2)(B) upon a finding that the debtor knowingly omitted from financial statement his wife’s entirety interest in four of six tracts of land listed on financial statement); contra In re Fritts, 26 B.R. 43 (Bankr.E.D.Tn.1982) (held, debt dischargeable upon a finding that bank had failed to establish that debtor intended to deceive bank by failing to note his wife’s entirety interest in their personal residence on financial statement).
While each § 523(a)(2)(B) adversary proceeding is sui generis in that the parties will have varying degrees of financial and/or commercial transactional expertise and varying degrees of familiarity with the use of financial statements to obtain loans, the debtor is nonetheless expected to know that he is required to state true facts in such statements in order to obtain a loan. Such things as “secret reservations” or “undisclosed motives” are not an acceptable substitute for true and honest disclosure on the financial statement.
Even if the Court were required to consider the debtor’s subjective thinking with regard to the submission of the financial statement he delivered to Shawmut as it pertains to the title of the property in question, it would not help this debtor in the present case. It has been held that even where the debtor does not know of the actual falsity of an item on a financial statement, the debtor may still be found guilty of an intent to deceive pursuant to § 523(a)(2)(B)(iv) if such debtor evidenced a reckless indifference to the accuracy of the information in the financial statement. In re Coughlin, 27 B.R. 632, 636 (1st Cir. BAP 1983). In discussing the difficulty, if not impossibility of establishing direct proof of “intent to deceive”, the Coughlin BAP panel stated:
A creditor can establish intent to deceive by proving reckless indifference to, or reckless disregard of, the accuracy of the information in the financial statement by the debtor. Id.; Merrill, Lynch, Pierce, Fenner & Smith, Inc. v. Kimberly, 13 B.R. 145, 146 (Bankr.S.D.Fla.1981). Courts may assume that debtors intend the natural consequences of their acts. First Westside National Bank v. Voeller, 14 B.R. 857, 860 (Bankr.D.Mont.1981). Intent to deceive is present when the debtor has ‘seen the financial statement and the errors were such that he knew or should have known of their falsity.’ Modern Distributors, Inc. v. Gray, 22 B.R. 676 (Bankr.W.D.Wisc.1982).
With regard to the present debtor and the present debt, the debtor’s reckless indifference was not as to the status of the title of the property, which the Court has already found the debtor knew to be false in that it was held by the wife only. Rather, it was the defendant’s assumption that he and his wife would continue forever in the marriage state and that divorce might not occur. At a minimum, in my opinion, if subjective mind and motive were relevant, in this case, which under my conclusion above it is not, the debtor was obligated to advise the Bank of the state of the title and his reasons for believing that he could control the property. The Bank could then have either accepted his reasons or would have been put on notice that they should have also obtained the signature of his then wife on the loan in question to preserve its rights to proceed against the collateral if the loan went into default. See In re Brown, 32 B.R. at 557.3
*100
V Conclusion
Based on the foregoing, the Court vacates the final judgment dated September 16, 1991, and determines that the debt in question is nondischargeable. A separate final judgment will be entered in accordance with the holding of this memorandum opinion.
. The Court notes that the residence in West Glover, Vermont was the most valuable asset listed on defendant's financial statement.
. See Footnote 3 infra.
. The Court at the original trial, on September 16, 1991, made an oral finding that the requisite reliance by the bank was not shown, partly because the bank had not sought to have the wife sign on the note. While the order granting the retrial limited the issues to the “intent to deceive” question the parties actually adduced evidence at the retrial regarding the bank's reliance as well. Based upon the entire record from both trials the Court recedes from the original oral finding and finds that the requisite reliance on the financial statement was shown by the bank. While they might have more fully protected themselves by having the wife sign there is no legal requirement that they do so. They were entitled to rely on the truthfulness of the debtor’s statements on the financial statement. The reliance is further shown by the amplification of the details of the loan application, the time of the faxing of a copy of the financial statement by the debtor to the bank *100officer, and the actions of the bank personnel thereafter as developed in the April 13, 1992 retrial. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491646/ | MEMORANDUM OPINION AND ORDER
JAMES E. YACOS, Bankruptcy Judge.
These adversary proceedings came before this court on the call for a one-day trial on March 16, 1993. This trial date was set by pretrial orders entered June 19, 1992. All-day trial dates are difficult to obtain on this Court’s crowded calendar and therefore continuances are not lightly granted because they, in effect, deny other litigants their opportunity for appropriate trial dates. The plaintiffs appeared at the call of the trial with their witnesses ready to proceed. The debtor-defendants appeared through counsel with a representation that the debtors were unable to travel to New Hampshire for this trial date due to the recent snowstorm this past Saturday and Sunday. Counsel proffered a fax message from his clients to that effect. The Court, however, did not accept that brief and facile statement by the debtors as sufficient to justify a continuance of the trial. The Court is aware from press reports that Logan Airport in Boston reopened during Sunday and it is not apparent that the debtors’ original flights though delayed or cancelled would not have put them in a priority position for later flights on Sunday or Monday. Moreover, there is no indication that they pursued any alternative ground transportation opportunities. The Court, accordingly, received proffers of the evidence and testimony of witnesses from the plaintiffs in support of the entry of default judgments.1
Upon the proffers and showing by the plaintiffs as to what their witnesses would testify to, and the documentary evidence available, and upon taking judicial notice of matters of record in this bankruptcy file as well as in the related bankruptcy filing of the Mary H. Kinchla Realty Trust, BK No. 91-12616, in this Court, the plaintiffs have shown the following chronology of transactions and events involving these bankruptcy debtors:
(1) On May 28,1991, after a note came in default to Lawrence Savings Bank earlier in 1991, David Kinchla pledged a Smith Barney brokerage account having a $22,-500 value to cover the corporate debt of a plumbing company that he operated. David Kinchla himself was not obligated on the note and debt in question.
(2) On September 9, 1991, the debtors caused to be filed a chapter 11 petition for the Mary H. Kinchla Realty Trust.
(3) It became apparent after the filing of the trust bankruptcy proceeding that the creditors of the trust would proceed independently against Mary and David Kinchla on their personal guarantees and that it would be necessary for them to file individual cases. (Objection to motion to convert, Court document No. 9, paragraph one, filed March 13, 1992).
(4) On September 11, 1991, The Lawrence Savings Bank filed a petition for attachment with notice against David and Mary Kinchla on September 11, 1991 with regard to their unpaid debt.
(5) On October 21, 1991, the debtors transferred a three-acre parcel of land located in Kingston, New Hampshire to their son with no cash consideration but taking back a $30,000 note and mortgage from the son. Appraisal indicates the value of that property at $48,000.
(6) On October 22, 1991, the debtors transferred a condominium apartment in *105Deerfield Beach, Florida to their daughter with no cash consideration but taking back a $60,000 note and mortgage from the daughter. Appraisal shows the value of the property to be $95,000. The condominium apartment before and after this transfer has been used for family purposes in which all family members, including these debtors, have been and continue to be able to use the condominium apartment for vacations and other purposes.
(7) On November 19, 1991, David Kinch-la transferred a half-interest in a residential property located in East Kingston, New Hampshire to his mother, who was a joint owner with the debtor prior to the transfer. The asserted consideration for the transfer was that the mother would assume a $17,-000 debt owing to Fleet Bank. The assessment on the property by the town was in the amount of $88,000 at the time of the transfer. The mother was already jointly liable with David Kinchla on the Fleet Bank debt.
(8) On January 6, 1992 the debtors filed their present bankruptcy cases.
The foregoing showing by the plaintiffs establishes a prima facie case of transfers with intent to hinder, delay or defraud creditors within one year before the date of the filing of the bankruptcy case pursuant to § 727 of the Bankruptcy Code sufficient to bar the discharge of the debtors. From the timing and pattern of transfers involved the Court can infer they were made in contemplation of this bankruptcy filing and were made with intent to at least hinder and delay their creditors.2 From the showing of a lack of reasonably equivalent value received in exchange for the transfers the Court can also infer an intent to defraud their creditors by these transfers.3 On both grounds therefore a sufficient showing has been made to support the entry of judgment against the debtors. Accordingly, it is hereby
ORDERED, ADJUDGED and DECREED as follows:
1. Default is hereby entered against the debtors with regard to the complaints against them under § 727(a)(2)(A) of the Bankruptcy Code.
2. A separate judgment shall be entered determining that discharge of the debtors is barred pursuant to the aforesaid section of the Bankruptcy Code.
. While it is open for the defendants to file a motion to set aside these default judgments any such motion will have to be accompanied by affidavits detailing in full their efforts to secure transportation travel to New Hampshire for this trial date.
. It has been held that an intent to hinder or delay alone is sufficient to establish the requisite cause of action. In re Colburn, 145 B.R. 851, 859 (Bankr.E.D.Va.1992); In re Cycle Accounting Services, 43 B.R. 264, 271 (Bankr.E.D.Tn.1984). Moreover, as noted in the Colburn decision, "[b]ecause the language of Section 727(a)(2) relating to intent is in the disjunctive, an intent to hinder or delay creditors suffices." Colburn, 145 B.R. at 859. See U.S. v. Ron Pair Enterprises, 489 U.S. 235, 241-42, 109 S.Ct. 1026, 1030-31, 103 L.Ed.2d 290 (1988).
. The debtors would not be entitled to a contrary judgment even if they were able to show at a full trial that due to unpaid tax or other liens the amounts of the notes and mortgages taken from the son and daughter approximated the actual equity in the respective properties. By their actions immediately before bankruptcy they converted current realizable equity values into long-term note and mortgage obligations. Accordingly, the creditors and this estate will either be delayed in realizing the value of the assets or will have to offer a discount for a cash payoff. Alternatively if the estate requires litigation to avoid the transactions there will be costs and expenses for that effort. The effect of a debtor’s actions in transferring assets to insiders immediately before bankruptcy in almost every case will be to at least hinder and delay creditors and permit the debtor and the insiders to "negotiate from a position of strength” concerning the assets in question. Debtors who throw the burden to the creditors by transfers to insiders in that fashion should not be rewarded with a discharge in bankruptcy. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491647/ | MEMORANDUM OPINION
THOMAS M. TWARDOWSKI, Chief Judge.
This matter is before us on a motion by defendant-movant SPEDD, Inc. (“movant”) in the alternative for dismissal, abstention, a more definite statement or for summary judgment. For reasons that follow, these motions are DENIED.
I PROCEDURAL HISTORY
Plaintiff/debtor Birdsboro Ferrocast, Inc. (“debtor”) filed an adversary complaint against movant demanding judgment in the amount of $23,000.00, arising out of the sale of a mixer from movant to debtor. The complaint alleges that the mixer had a defect which movant knew or should have known about and that this defect was not discoverable by debtor until after the transaction. Movant responded to the complaint by the timely filing of the motions under consideration here. Both parties have filed supporting affidavits and well-researched briefs.
*155II DISCUSSION
A.Motion to Dismiss and For a More Definite Statement
“In deciding whether a complaint should be dismissed, the allegations of the complaint and all reasonable inferences therefrom must be accepted as true and viewed in the light most favorable to the non-moving party.” John L. Motley Associates, Inc. v. Rumbaugh, 104 B.R. 683, 685 (Bankr.E.D.Pa.1989). “Dismissal is warranted only if the non-moving party can prove no set of facts in support of his claim that would entitle him to relief.” Motley, 104 B.R. at 685; Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). Applying this standard to the interpretation of debtor’s complaint, we find that the complaint sets forth actionable facts, which, if proven, could result in an award of damages. Similarly, the allegations of the complaint withstand the motions for a more definite statement. Federal Rule of Civil Procedure 8, incorporated by Federal Rule of Bankruptcy Procedure 7008, requires a short and plain statement of the claim showing that the pleader is entitled to relief. Debtor’s complaint alleges that movant sold debtor a mixer with a material defect and debtor’s alleged claim against movant is sufficiently clear from the pleadings.
B.Motion for Abstention
Movant asserts that this complaint is based upon state law warranty issues and could be dealt with more expeditiously in the Pennsylvania court system. Abstention under 28 U.S.C. § 1334(c)(1) lies in our discretion. We acknowledge that the Pennsylvania state courts have expertise in the application of the Uniform Commercial Code; however, so do we. Judicial economy would be best served if jurisdiction is retained here and the case is permitted to proceed to judgment. Debtor’s financial affairs are presently before this court and the complaint herein represents an integral part of those affairs. “It must be considered that there is only a ‘narrow sphere’ of cases in which discretionary abstention should be granted under § 1334(c)(1).” In re West Coast Video Enterprises, Inc., 145 B.R. 484, 488 (Bankr.E.D.Pa.1992); In re United Church of the Ministers of God, 74 B.R. 271, 288 (Bankr.E.D.Pa.1987).
C.Motion for Summary Judgment
Movant has also requested summary judgment in its favor as a matter of law. To be entitled to this remedy, movant must demonstrate that there is no genuine issue as to any material fact. Federal Rule of Bankruptcy Procedure 7056. “The evidence and all reasonable inferences which may be drawn therefrom must be viewed in the light most favorable to the party opposing the summary judgment motion.” Bouldis v. U.S. Suzuki Motor Corp., 711 F.2d 1319, 1324 (6th Cir.1983). In deciding upon such a motion, we are not weighing the evidence to resolve the issues. We are merely examining the evidence in the proceedings before us to determine if any issues of material fact exist which would necessitate a trial. Rosenthal v. Rizzo, 555 F.2d 390 (3rd Cir.1977). The complaint and affidavit filed by the debtor raise genuine questions of fact which require a trial. An appropriate order will follow.
ORDER
AND NOW, this 12th day of April, 1993, it is hereby ORDERED that defendant’s motion, in the alternative, for dismissal, abstention, a more definite statement, or for summary judgment is DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491648/ | OPINION AND ORDER FINDING COMPLAINT TIMELY FILED
WALTER J. KRASNIEWSKI, Bankruptcy Judge.
This matter is before the court upon the parties’ briefs in support of their positions regarding the statute of limitations defense asserted by the defendant to the filing of plaintiff/trustee’s complaint to avoid preferential transfers pursuant to 11 U.S.C. § 547(b). Upon consideration of the record herein, the court finds that said complaint was timely filed and that a pretrial upon the remaining issues presented in plaintiff’s complaint should be scheduled.
FACTS
The parties have stipulated to the following facts:
1. Wikel Manufacturing Co., Inc. [Debt- or] filed for relief under chapter 11 on November 20, 1986.
2. After [Debtor] lost a case in the Ohio Supreme Court on October 11, 1989 that it needed to win in order to reorganize, the activities of that company in bankruptcy went from an effort to reorganize to a liquidation mode.
3. On December 29, 1989 [Debtor] filed a motion for authority to sell its business assets used by it in all its operations to Seal Coat Service, Inc.
4. The court issued an order allowing [Debtor] to sell substantially all of its business assets on January 31, 1990.
5. The sale of [Debtor’s] business assets took place on February 6, 1990.
6. [Debtor] was converted from chapter 11 to chapter 7 by an order entered by this court on April 10, 1990.
7. [Plaintiff] was appointed as interim trustee by the Office of U.S. Trustee upon [Debtor’s] conversion.
8. The first meeting of creditors was scheduled for May 16, 1990 at 11:00 a.m., and was held at that date and time.
9. The complaint against [defendant] was filed on April 17, 1992.
10. The certification of service for the complaint was filed with the court on May 6, 1992, and it reflects that the “green card” was signed by an agent of [defendant] on May 4, 1992.
Stipulation of Facts for Court Determination on the Issue of Statute of Limitations (Dec. 8, 1992). The parties agreed to submit determination of the timeliness of plaintiff’s complaint upon briefs.
Plaintiff asserts that the instant complaint was timely filed on April 17, 1992, within two years after his appointment on May 16, 1990, the date of § 341 meeting. Defendant argues that the statute of limitations set forth in § 546 has run as Debtor operated a chapter 11 for some three years; the two years established by that code section prohibits plaintiff from pursuing a cause of action to recover a preferential transfer.
DISCUSSION
The sole issue before the court concerns application of 11 U.S.C. § 546(a)(1) which provides as follows:
(a) An action or proceeding under section ... 547 ... of this title may not be commenced after the earlier of—
(1) two years after the appointment of a trustee under section 702, 1104 ... of this title....
The court is persuaded by the reasoning in In re Sandra Cotton, Inc., 1989 WL 98851 (W.D.N.Y.1989). (Defendant cites In re Sandra Cotton, Inc., 92 B.R. 595 (Bkrtcy.W.D.N.Y.1988) in support of its position. However, this decision was reversed and remanded by the district court by the memorandum and order referenced *185above.) Indeed, the facts of that case are analogous to those of the instant situation, to-wit:
December 14, 1984 chapter 11 petition January 17,1985 trustee appointed under chapter 11
January 14, 1986 conversion to chapter 7 April 6, 1986 chapter 7 § 341 held December 17, 1987 § 547 complaint filed
Id. at 1. The issue presented to the Sandra Cotton court was:
whether section 546(a)(1) allows the two-year period of limitations to begin anew upon the appointment of a trustee under chapter 7 following the conversion thereto from a chapter 11 proceeding in which a trustee has been appointed.
Id. at 2. The Sandra Cotton court found that the plain language of § 546(a)(1) failed to provide the answer. Id. at 3. That court then applied statutory construction, reviewed the differing objectives of chapters 11 and 7 and concluded that “the period of limitations begins anew upon the ‘reappointment’ of the trustee under chapter 7 after conversion of the proceeding from chapter 11.” Id. at 4.
This court is persuaded by the analysis of the Sandra Cotton court and finds that plaintiff timely filed the instant complaint; the period of limitations began to run from the date of his appointment as the permanent trustee, May 16, 1990, the date of the chapter 7 § 341 meeting. As plaintiff argues, and as the Sandra Cotton court discussed, the objectives of chapters 11 and 7 differ; the motivations to obtain the differing objectives may impact a Debtor’s decision to pursue recovery of preferential transfer. Additionally, § 546(a)(1) details that the limitations period begins to run after the appointment of a trustee under § 702. Plaintiff was appointed pursuant to § 702(d) on May 16, 1990; plaintiff filed the instant complaint on April 17, 1992, within two years after his appointment.
In re Korvettes, Inc., 67 B.R. 730 (S.D.N.Y.1986), reached this same conclusion, but found that the language of § 546(a)(1) was not ambiguous and that it “specifies that the two year period is to begin to run when a trustee is appointed under specific sections of the Code.” Id. at 733. The court explained, quoting Collier on Bankruptcy, that:
the two year limitations period runs from the appointment of a trustee under section 702, 1104, 1163 or 1302. Thus if a Debtor in possession is serving in a case under chapter 11 and no trustee has been appointed, the two year period will not begin to run unless and until a trustee is appointed. The better view is that [§] 1107(a), which gives the Debtor powers of a trustee and subjects the Debtor in possession to the limitations placed on a trustee, does not equate service of the Debtor in possession with the appointment of a trustee for those purposes of [§] 546(a). If a trustee is appointed in a case under chapter 11 or in a case converted from chapter 11, he will have two years from the date of his appointment to commence actions pursuant 546(a).
Id. (quoting 4 Collier on Bankruptcy § 546.02 at 546-8 to 546-9 (15th ed. 1984)). Considering either the plain language as expressed by Korvettes or the analysis as discussed by Sandra Cotton, this court concludes that the statute of limitations defense asserted by defendant is not well taken.
Defendant cites this court’s decision in In re Lill, 116 B.R. 543 (Bkrtcy.N.D.Ohio 1990) in support of its position. Notwithstanding the analysis and holding of that case, this court finds Lili inapposite to the instant case. In Lili, Debtor filed a complaint to recover a preferential transfer more than two years after the filing of the chapter 11 petition. This court found that Debtor could not pursue recovery of the transfer for several reasons, including expiration of the statute of limitations under § 546(a) and estoppel. Id. at 546-47. The instant complaint was filed by the chapter 7 trustee within two years of the conversion of Debtor’s chapter 11 case and his appointment as permanent trustee. Debtors, in Lili, filed and continued as a chapter 11 case; no conversion to a chapter 7 case occurred. The facts are not analogous and the analysis pertinent to resolution of the Lili issue is not applicable.
*186Because the court finds that the statute of limitations defense is without merit, a pretrial upon the remaining issues presented in plaintiff’s complaint should be scheduled. It is therefore
ORDERED that the statute of limitations defense pursuant to 11 U.S.C. § 546 asserted by defendant Seneca Petroleum Co., Inc., be, and hereby is, denied. It is further
ORDERED that a pretrial conference be held on Thursday, May 6, 1993 at 11:15 o’clock A.M. Courtroom No. 1, Room 103 United States Courthouse, 1716 Spielbusch Avenue, Toledo, Ohio. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491650/ | FINDINGS OF FACT, CONCLUSIONS OF LAW & ORDER
MITCHELL R. GOLDBERG, Bankruptcy Judge.
FINDINGS OF FACT
This matter comes before the Court on the Debtor’s objection to the claim of Tower Medical on the grounds that the claimant did not file its proof of claim timely. Claimant argues that it filed an informal proof of claim and that its subsequent formal filing should be deemed either an amendment of the timely filed informal claim or as a timely filed claim under the circumstances of this case.
Facts
Debtors filed a petition for relief under Chapter 13 of the United States Bankruptcy Code on June 30,1987. The bar date for filing a proof of claim was set for November 10, 1987.
Debtors failed to include Doctor Hugh Sanders of Tower Medical as a creditor. On June 8,1988, Doctor Sanders mailed the Debtors an itemized invoice indicating that the amount of $1021.20 was due for medical services, most of which was incurred pre-petition. At the time, Doctor Sanders did not know the Debtors had already filed a petition for relief.
Sanders sued the Debtors in the Fontana Small Claims Court and obtained a judgment for $1067.20 on September 19, 1989. On that same date of September 19, the Debtors filed an amendment to the Chapter 13 schedules and included Doctor Sanders as a creditor. Notice of his inclusion in the schedules was the first Sanders learned of the Bankruptcy filing. In addition to the notice of the amended schedules, Debtors included a copy of the original notice of the 341(a) hearing, which indicated the bar claims date of November 10, 1987.
Sanders then sought the proper form from the trustee’s office. Sanders obtained the form in May, 1991 and filed a formal proof of claim on May 10, 1991 (in the amount of $1067.20). The Debtors objected to the claim, on the basis of untimeliness, on August 18, 1992.
Issue
The issue before the Court is whether Doctor Sanders’ mailing of the invoice to the debtors constitutes an informal proof of claim, which Doctor Sanders then amended in May, 1991 or in the alternative, whether the formal claim filed May, 1991 can be considered a timely filed claim under the specific facts of this case.
Proof of Claim
The Ninth Circuit has “consistently applied the ‘so-called rule of liberality in amendments’ to creditors’ proofs of claim.” In re Anderson-Walker Industries, Inc., 798 F.2d 1285, 1287 (9th Cir.1986) (citations omitted); see also In re Franciscan Vineyards, Inc., 597 F.2d 181, 182 (9th Cir.1979) (per curiam) (citing In re Patterson-MacDonald Shipbldg. Co., 293 F. 190, 191 (9th *302Cir.1923) and Sun Basin Lumber Co. v. United States, 432 F.2d 48, 49 (9th Cir.1970) (per curiam)) (Ninth Circuit has long applied “liberality in amendments” rule). Under this rule, a creditor may amend a timely filed informal proof of claim with the filing of a formal claim even if the formal claim is filed after the bar date.
In Franciscan Vineyards, the court found that a letter to the chapter 11 trustee was sufficient to qualify as an informal proof of claim. Franciscan Vineyards, 597 F.2d at 182. The court explained that “the intention to collect from the estate was implicit” in the letter. Id. at 183. (quoting Sun Basin Lumber Co. v. United States, 432 F.2d 48, 49 (9th Cir.1970) (per curiam)). The ninth circuit emphasized that “there must [be] presented, within the time limit, by or on behalf of the creditor, some written instrument which brings to the attention of the court the nature and amount of the claim.” Franciscan Vineyards, 597 F.2d at 183 (quoting Perry v. Certificate Holders of Thrift Savings, 320 F.2d 584, 590 (9th Cir.1963)). Thus, a document will constitute an informal proof of claim if it states “an explicit demand showing the nature and amount of the claim against the estate,” and demonstrates an “intent to hold the debtor liable.” Anderson-Walker, 798 F.2d at 1287 (citing In re Sambo’s Restaurants, Inc., 754 F.2d 811, 815 (9th Cir.1985)).
Essentially, the Ninth Circuit requires the presentation of some document within the filing period that can then be amended beyond the bar date. The Ninth Circuit has provided that its reasons for the liberal rule reflect a “preference for resolution on the merits, as against strict adherence to formalities.” Anderson-Walker, 798 F.2d at 1287. The court noted that “Bankruptcy courts are courts of equity, and must assure ‘that substance will not give way to form, [and] that technical considerations will not prevent substantial justice from being done.’ ” Id. (quoting Pepper v. Litton, 308 U.S. 295, 305, 60 S.Ct. 238, 244, 84 L.Ed. 281 (1939) and In re International Horizons, Inc., 751 F.2d 1213, 1216 (11th Cir.1985)).
In deciding whether Doctor Sanders’ invoice constitutes an informal proof of claim, this court has little difficulty in concluding that the document itself demonstrated an explicit demand on the bankruptcy estate, showing the nature and the amount of the claim. Debtors filed their petition in 1987, excluding Doctor Sanders as a claimant in their petition. Doctor Sanders, however, mailed his invoice in June 1988 directly to the Debtors. The request for payment came to the Debtors after they filed for bankruptcy and were well into the execution of their chapter 13 plan. In addition, Sanders reinforced the significance of the invoice when he obtained the judgment against the Debtors in small claims court. The judgment incited the Debtors to amend the schedules to include Sanders.
Filing of Claim
Once it is determined that a document is sufficient in quality to constitute an informal proof of claim, a court must decide if the claim has been properly filed under Bankruptcy Rule 5005. Rule 5005(a) states that “proofs of claim shall be filed with the clerk in the district where the case under the Code is pending. The judge of the court may permit the papers to be filed with the judge ...” The comments following the rule note that 5005(a) “makes it clear that all proceedings in a bankruptcy case ... as well as all other papers required by the Rules, such as proofs of claims of interest and objections, must be filed with the Clerk of the court ...”
Rule 5005(c) provides that “a paper intended to be filed with the clerk but erroneously delivered to the United States trustee, the trustee, the attorney for the trustee, a bankruptcy judge, a district judge or the clerk of the district court shall, after the date of its receipt has been noted thereon, be transmitted forthwith to the clerk of the bankruptcy court.” Thus, Rule 5005(c) allows a claim delivered to an official of the court to be considered a filing with the clerk. Under such circumstances, the rule authorizes the court to order “[i]n the interest of justice ... that a paper erroneously *303delivered shall be deemed filed with the clerk ... as of the date of its original delivery.”
The Ninth Circuit has approached the requirements of Rule 5005 in the same liberal manner it approached the quality of an informal proof of claim. The court has concluded that for an informal claim to be deemed filed under Rule 5005(c), the creditor must intend that the paper become part of the bankruptcy proceedings and receive some official action, which is demonstrated by directing the document to an official related to the estate or the court. See, e.g., In re Town and Country Home Nursing Services, Inc., 963 F.2d 1146, 1153 (9th Cir.1991) (creditor’s actions of offsetting its claim against estate assets and giving notice to debtor-in-possession of such offset was equivalent to informal proof of claim); In re Anderson-Walker Industries, Inc., 798 F.2d 1285, 1288-89 (9th Cir.1986) (correspondence with chapter 7 trustee’s attorney constitutes a filing); In the Matter of Pizza of Hawaii, Inc., 761 F.2d 1374, 1381 (9th Cir.1985) (complaint of creditor filed in United States District Court, creditor’s correspondence with chapter 11 debtor’s attorney and joint motion with debtor to transfer case to bankruptcy court established informal proof of claim); In re Sambo’s Restaurants, Inc., 754 F.2d 811, 816-17 (9th Cir.1985) (communications with debtor-in-possession and motion to transfer wrongful death case to bankruptcy court show intent to file with bankruptcy court and satisfies rule 5005); In re Franciscan Vineyards, Inc., 597 F.2d 181, 182 (9th Cir.1979) (per curiam) (letter sent to the chapter 11 trustee demonstrating an intent to assert a claim against the bankruptcy estate constitutes filing).
The Ninth Circuit, in In re Town and Country Home Nursing Services, Inc., 963 F.2d 1146, 1153 (9th Cir.1991), summarized its understanding of Rule 5005 as follows:
We have held that even though no document is filed with the bankruptcy court, an informal proof of claim may arise out of demands against the estate or out of correspondence between a creditor and the trustee or debtor-in-possession which demonstrate an intent on the part of the creditor to assert a claim against the bankruptcy estate.
The dilemma the court encounters in this case is the hurdle presented by Rule 5005(c). The rule allows a claim that is misdelivered to a representative of the court or the estate to be deemed a “filing.” Each of the decisions in which the Ninth Circuit addressed the filing requirement involved this type of official representative (i.e., trustee, debtor-in-possession, or trustee’s attorney).
Doctor Sanders, however, delivered his invoice to the debtor in a Chapter 13 case. Section 1303 of the Bankruptcy Code governs the duties of a debtor in chapter 13. (Compare 11 U.S.C. section 704 and 11 U.S.C. section 1107 with 11 U.S.C. section 1303) Can delivery to a chapter 13 debtor, post confirmation, constitute a filing under rule 5005(c)?
Two recent bankruptcy court decisions involve the delivery of an informal claim to a person other than an estate or court representative. In In re Banchik, 115 B.R. 231, 232 (Bankr.D.Ariz.1990), the court concluded that a letter sent to a debtor in a Chapter 7 case could not be considered an informal proof of claim. The debtors originally filed under Chapter 11, but at the time the creditor sent the letter, the court had already converted the case to Chapter 7 and debtors were no longer acting with the responsibilities of a trustee. Id. The court acknowledged that the letter presented the necessary demands on the estate, but the failing factor was that it was not sent to a trustee or other court official. Id. at 232-33.
In In re Daystar, 122 B.R. 406, 409-10 (Bankr.C.D.Cal.1990), the court held that standard invoices sent to a debtor in a chapter 7 case were informal claims amendable after the bar date. The Daystar court did not expressly address the requirement of filing with an official of the court. Instead, the court focused on what it deemed the controlling factor, which was that the evidence indicated that claimants were not aware of the bankruptcy proceeding. *304Daystar, 122 B.R. at 409. The court noted that “[c]ourt documents show they were not listed on formal notices mailed during the pendency of either the Chapter 11 filing or the Chapter 7.” Id. Since claimants failure to file a formal proof of claim was a result of lack of knowledge of the bankruptcy proceedings, their demand on the estate via invoices to the debtor are considered informal claims. Id.
Neither of these decisions involve Chapter 13 cases, and thus, this court must decide, as a case of first impression, if presenting an informal proof of claim to a Chapter 13 debtor, post confirmation, can constitute a filing under Rule 5005(c). An analysis of the role of the post confirmation debtor in Chapter 13 under the Bankruptcy Code and Rules permits an affirmative answer to this question.
Bankruptcy Rule 4002 provides that “[i]n addition to performing other duties prescribed by the Code and rules, the debtor shall ... (4) cooperate with the trustee in the preparation of an inventory, the examination of proofs of claim, and the administration of the estate; ...” Thus, all debtors, regardless of the Chapter under which relief is requested, have a duty to assist the trustee in the review of proofs of claim and the administration of the estate.
Furthermore, section 1302 and 1303 of the Bankruptcy Code outline the respective duties of the trustee and debtor in a Chapter 13 case. Essentially, the trustee must perform the same duties as a Chapter 7 trustee relating to investigation of finances, accountability for the property in the estate and examination' of proofs of claims. 11 U.S.C. Section 1302. The debt- or in a Chapter 13 case has more expansive power than a liquidation debtor. The Chapter 13 debtor has exclusive power in governing the use, sale and lease of the property. 11 U.S.C. Section 1303.
The confirmation of the Chapter 13 plan apparently increases the obligations of the debtor. Under section 1327, “the confirmation of a plan vests all of the property of the estate in the debtor.” 11 U.S.C. 1327(b). The trustee, on the other hand, continues to oversee the estate, but the duties are reduced to ensuring that debtor makes payments in accordance with the plan. The heightened control of and responsibility toward the estate post confirmation transforms the Chapter 13 debtor’s role to one similar to the debtor-in-possession in Chapter 11.
Therefore, if the debtor’s general duty to cooperate with the trustee in examining proofs of claim and administering the estate is combined with the post confirmation obligations of controlling the estate, it logically proceeds that demand by a creditor on the post confirmation debtor is similar to demand on the debtor-in-possession. The post confirmation Debtor, in this respect, can be considered an official representative of the estate.
In the case presently before the Court, I conclude the Debtors originally had a duty to inform the Trustee of the invoice sent by Doctor Sanders. Ultimately, the Debtors were forced to acknowledge Doctor Sanders when he obtained the small claims judgment. Perhaps the Debtors perceived they had fulfilled their duty to cooperate with the Trustee and, in fact, they may have. But the act of including Doctor Sanders in the amended schedules also demonstrates that Debtors, in whom the property of the estate was vested, were fully aware of the claim. This court finds that Doctor Sanders invoice, sent in June, 1988, constitutes an informal proof of claim and the demand on the post confirmation Debtors constitutes a filing in accordance with the Bankruptcy Rules.
Timely Filing of Claim
In addition, even if the invoice could not be amended as an informal claim under the law, this Court finds that under the unique circumstances of this case, Doctor Sanders filed a timely proof of claim on May 10, 1991. In the Central District, when the clerk’s office sends notice to creditors of the 341(a) hearing in a Chapter 13 case, it attaches a proof of claim form. Thus, the Creditor simultaneously receives notice and a claim form. The mailed form simplifies the claim process for the Chapter 13 creditor.
*305Doctor Sanders, however, never obtained the proof of claim form from the clerks office, since the Debtors failed to include him as a creditor until almost two years after they filed the original petition. Instead of the clerk’s office informing Doctor Sanders of the bankruptcy as it generally would, the Debtors, on September 19,1989, simply sent Sanders a copy of the amended schedules and a copy of the 341(a) hearing sheet (but no proof of claim form). Under these facts, the Court finds that Sanders’ initial notice of the bankruptcy occurred on September 19, 1989.
Sanders’ only information about a bar date was in the outdated 341(a) notice, indicating November 10, 1987 as the final date to file a claim. No additional bar date was noted. Therefore, Sanders was forced to obtain a proper claim form, which he sought from the "trustee’s office. Upon receipt of the proof of claim form, he promptly completed and filed it. This Court finds that under these circumstances it was more difficult for Sanders to fulfill his obligations. Notwithstanding these additional difficulties, Sanders proceeded reasonably and with his best efforts, and thus, his filing on May 10, 1991 must be considered timely.
CONCLUSIONS OF LAW
For the reasons set forth above, I conclude that Dr. Sanders is entitled to be paid on his claim. He has filed a proper informal claim with the debtors post-confirmation. Such action meets the criteria set forth in Ninth Circuit case law and Rule 5005 of the Federal Rules of Bankruptcy Procedure. In addition, the factual circumstances justify a finding that Dr. Sanders’ formal claim was “timely” filed.
ORDER
IT IS ORDERED that the claim of Dr. Sanders is an allowable claim in the Estate and that the objection to this claim is overruled. It is further
ORDERED, that the Trustee shall keep this Estate open to allow debtors to pay said claim for a period not to exceed four months. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491651/ | MEMORANDUM ON PLAINTIFF’S MOTION TO VACATE ORDER DENYING MOTION TO AMEND FINDINGS
RICHARD S. STAIR, Jr., Bankruptcy Judge.
The court has before it a motion filed by the plaintiff, Pioneer Investment Services Company (Pioneer), on March 5, 1993, entitled “Motion Of Pioneer Investment Services Company To Vacate Order Of February 25, 1993 Denying Motion To Amend Findings And To Make Additional Findings” (Motion To Vacate). By the Motion To Vacate, Pioneer asks the court to vacate the Order entered on February 25, 1993, denying its “Motion Of Pioneer Investment Services Company To Amend Findings And To Make Additional Findings” (Motion To *530Amend) filed February 12, 1993, as untimely-
The following events preceded the filing of Pioneer’s Motion To Vacate:
1. On February 1,1993, subsequent to a bench trial, the court filed a Memorandum and entered a Judgment dismissing the Complaint commencing this adversary proceeding filed by Pioneer on November 20, 1991, as amended on June 10, 1992.
2. On February 12, 1993, Pioneer filed its Motion To Amend pursuant to Fed. R.Civ.P. 52(b), incorporated into Fed. R.Bankr.P. 7052, requesting the court to amend the findings set forth in its February 1, 1993 Memorandum and to make additional findings.
3. On February 25, 1993, the court entered the Order denying Pioneer's Motion To Amend as untimely.
4. On March 5, 1993, Pioneer filed its Motion To Vacate, requesting the court to vacate the February 25, 1993 Order denying its Motion To Amend and to consider and dispose of the Motion To Amend on the merits.
For reasons hereinafter discussed, Pioneer’s Motion To Vacate must be denied.
The February 25, 1993 Order denying Pioneer’s Motion To Amend was grounded upon Pioneer’s failure to timely file the Motion To Amend within the ten (10) days required by Fed.R.Civ.P. 52(b).1 In its Motion To Vacate, Pioneer contends, correctly, that the Motion To Amend contains a certificate of service showing that it was mailed to counsel for the defendants on February 11, 1993. Pioneer argues that Fed.R.Civ.P. 5(b), incorporated into Fed. R.Bankr.P. 7005, which provides that “[s]ervice by mail is complete upon mailing,” when read in conjunction with Fed. R.Civ.P. 5(d), which provides that “[a]ll papers after the complaint required to be served upon a party, together with a certificate of service, shall be filed with the court within a reasonable time after service,” establishes that its Motion To Vacate was, in fact, “made,” as required by Rule 52(b), within ten (10) days. Pioneer, under the authority of the Sixth Circuit’s decision in Keohane v. Swarco, Inc., 320 F.2d 429 (6th Cir.1962), contends that a motion for amended and additional findings is timely under Rule 52(b) when served within ten (10) days after entry of the judgment, notwithstanding that the motion is not filed until after the ten (10) days.
Indeed, the Sixth Circuit in Keohane held that the ten-day requirement under Rule 52(b), when applied to an appealable order entered by the district court, is satisfied on the basis of service alone. The same result, however, cannot be reached when the appealable order is one entered by the bankruptcy court.
Rule 52(b) cannot be read in isolation. A Rule 52(b) motion is integral to the appeal process in that, if timely filed, it tolls'the time within which a notice of appeal must be filed. Thus, when confronted with an appealable order entered by the bankruptcy court, Rule 52(b) must be read and construed within the framework of Fed.R.Bankr.P. 8002. Bankruptcy Rule 8002 governs the time for filing a notice of appeal from a final order or judgment of the bankruptcy judge. As is hereinafter discussed, to apply Keohane to an appeal-able order entered by the bankruptcy court produces an incongruous and impossible result.
Keohane involved appeals from two orders entered by the United States District Court for the Northern District of Ohio. It was decided in conjunction with former Rule 73(a) of the Federal Rules of Civil Procedure, which provided for the taking of an appeal thirty (30) days from entry of the district court order or judgment appeal*531ed from.2 Rule 73(a) also provided in material part that the
running of the time for appeal is terminated by a timely motion made pursuant to any of the rules hereinafter enumerated, and the full time for appeal fixed in this subdivision commences to run and is to be computed from the entry of any of the following orders made upon a timely motion under such rule: ... granting or denying a motion under Rule 52(b) to amend or make additional findings of fact... .[3]
The facts giving rise to the Sixth Circuit’s decision in Keohane are germane to the issues raised by Pioneer in its Motion To Vacate. These facts are: on November 30, 1962, the district court entered an order dismissing the plaintiffs complaint; on December 10, 1962, the plaintiff, by mail, served the defendant's counsel with a motion for amended and additional findings; on December 11, 1962, the plaintiff filed his motion for amended and additional findings; and on December 28, 1962, the plaintiff, concerned that his motion to amend was untimely under Rule 52(b) on account of its filing eleven (11) days after entry of the order dismissing his complaint, filed a notice of appeal. The defendants, contending that the motion to amend was timely filed, moved to dismiss the appeal as premature. The Sixth Circuit concluded that as service of the motion to amend was made within ten (10) days after entry of the dismissal order, the motion was timely under Rule 52(b) and thus the thirty-day appeal time under former Rule 73(a) was tolled and the plaintiff’s appeal was accordingly premature.4
In determining that service of the motion to amend rather than the filing of the motion was the decisive factor on the issue of when the motion was “made” under Rule 52(b), the court reached three conclusions: (1) Rule 52(b) does not require that the motion to amend be “filed” within ten (10) days; (2) Rule 52(b), which provides that the motion to amend may be made with a motion for a new trial pursuant to Fed. R.Civ.P. 59, is to be read in conjunction with Rule 59(b), which states that the motion for a new trial shall be “served” not later than ten (10) days after the entry of the judgment; and (3) there would not be much reason to have Rule 5(d), which grants a “reasonable time after service” to file the motion, if the Rule 52(b) motion must be both served and filed within the ten-day period. Keohane, 320 F.2d at 430-31. Thus, the court interpreted the word “made” under Rule 52(b) as synonymous with the word “served” under Rule 59(b). The court noted, however, that other rules are geared specifically to a filing requirement, rather than a service requirement.5 Id. at 432.
The Keohane construction of Rule 52(b) can only be made in conjunction with former Rule 73(a) of the Federal Rules of Civil Procedure and its present day successor, Rule 4(a) of the Federal Rules of Appellate Procedure. It cannot be made in conjunction with Bankruptcy Rule 8002.
Fed.R.App.P. 4(a)(1) provides for the filing of a notice of appeal with the clerk of the district court “within 30 days after the date of entry of the order or judgment appealed from.” However, Fed.R.App.P. 4(a)(4) provides that “[i]f a timely motion under the Federal Rules of Civil Procedure *532is filed in the district court by any party: ... under Rule 52(b) to amend or make additional findings of fact ... the time for appeal for all parties shall run from the entry of the order ... granting or denying ... such motion.” Keohane holds that the thirty-day appeal time is tolled by service of a motion to amend findings under Rule 52(b) within ten (10) days after entry of the judgment provided the motion is filed, as provided in Rule 5(d), “within a reasonable time after service.” A motion to amend served within the ten (10) days and filed on the eleventh day is, under Keohane, timely. This result can be accommodated because of the thirty-day appeal time under Fed. R.App.P. 4(a)(1). If the motion to amend is served within the ten (10) days, notwithstanding that it is not filed until the eleventh day, the thirty-day appeal period is not impacted. The motion can thus be considered timely filed under Fed.R.App.P. 4(a)(4). The ■ Bankruptcy Rules are not so flexible.
Bankruptcy Rule 8001(a) provides in material part:
An appeal from a final judgment, order, or decree of a bankruptcy judge to a district court or bankruptcy appellate panel shall be taken by filing a notice of appeal with the clerk within the time allowed by Rule 8002.
Fed.R.Bankr.P. 8001(a) (emphasis added).
Bankruptcy Rule 8002 provides in material part:
(a) TEN-DAY PERIOD. The notice of appeal shall be filed with the clerk within 10 days of the date of the entry of the judgment, order, or decree appealed from....
(b) EFFECT OF MOTION ON TIME FOR APPEAL. If a timely motion is filed by any party: (1) under Rule 7052(b) to amend or make additional findings of fact, whether or not an alteration of the judgment would be required if the motion is granted; (2) under Rule 9023 to alter or amend the judgment; or (3) under Rule 9023 for a new trial, the time for appeal for all parties shall run from the entry of the order denying a new trial or granting or denying any other such motion.
Fed.R.Bankr.P. 8002 (emphasis added).
The Sixth Circuit has held that former Bankruptcy Rule 802(a), the predecessor to Bankruptcy Rule 8002(a), is jurisdictional and that “a district court lacks jurisdiction over an appeal that is not timely filed....” Walker v. Bank of Cadiz (In re LBL Sports Center, Inc.), 684 F.2d 410, 412 (6th Cir.1982) (citations omitted).6 Accord, In re Abdallah, 778 F.2d 75, 77 (1st Cir.1985), cert. denied, 476 U.S. 1116, 106 S.Ct. 1973, 90 L.Ed.2d 657 (1986); In re Universal Minerals, Inc., 755 F.2d 309, 312 (3rd Cir.1985); Matter of Ramsey, 612 F.2d 1220, 1221-22 (9th Cir.1980). The court further held that “the filing date, not the mailing date, determines whether an appeal is timely filed.” Cadiz, 684 F.2d at 413. Thus, to be timely under Bankruptcy Rule 8002(a), a notice of appeal must be “filed” within ten (10) days after entry of the order appealed from. If a notice of appeal is not filed within ten (10) days, the judgment of the bankruptcy court becomes final and unappealable. Id. at 412.
Bankruptcy Rule 8002(b), in identifying Rule 52(b) as one of those motions which serves to toll the ten-day appeal time under Bankruptcy Rule 8002(a), does not use the words “made” or “served.” Rather, it provides that the ten-day appeal time is tolled when a “timely motion is filed." (emphasis added). Given the jurisdictional nature of Bankruptcy Rule 8002(a), this court can reach no other conclusion but that the Rule 52(b) motion to amend findings, to be timely, must, as is required by Bankruptcy Rule 8002(b), be “filed” prior to expiration of the ten-day appeal period. The filing of a Rule 52(b) motion to amend on the eleventh day, notwithstanding that service may have been accomplished within the ten-day period, simply does not comply with the dictates of Bankruptcy Rule 8002(b) that the motion, to toll the ten-day appeal time un*533der Bankruptcy Rule 8002(a), must be timely “filed.”
The Sixth Circuit in Keohane recognized and discussed the fact that service of a motion to amend and filing of the motion are separate and distinct acts. This distinction is maintained and followed in Cadiz. While Rule 52(b) lends itself to the construction afforded it by the court in Keo-hane within the context of the thirty-day appeal period under Fed.R.App.P. 4(a)(1), it does not lend itself to that construction within the context of the ten-day appeal period required under Bankruptcy Rule 8002(a). It is impossible to construe Rule 52(b) within the confines of Bankruptcy Rule 8002(a) and (b) to accommodate Keo-hane. To give credence to Keohane within the context of Bankruptcy Rule 8002(a) and (b) produces an incongruous result: a Rule 52(b) motion to amend findings filed on the eleventh day after entry of the bankruptcy judge’s final order or judgment serves to reinstate and toll the ten-day appeal time which expired the preceding day. To state it another way, an order which became final and unappealable due to the failure of a party to file a notice of appeal within the ten (10) days required by Bankruptcy Rule 8002(a) is magically restored to an appeal-able status. Such a construction renders meaningless the mandate of Bankruptcy Rule 8002(a) and (b), respectively, that a notice of appeal shall be “filed” within ten (10) days after entry of the order appealed from unless the appeal time is tolled by a “timely” motion “filed” under Rule 52(b). It also ignores the jurisdictional nature of Rule 8002(a) as established by the Sixth Circuit in Cadiz.
On February 12, 1993, the date Pioneer filed its Motion To Amend, there was no appeal time to toll: that time expired on February 11,1993, ten (10) days after entry of the Order dismissing Pioneer’s Complaint.7 The February 1, 1993 Judgment dismissing Pioneer’s Complaint was final and unappealable on February 12, 1993.
In the February 25, 1993 Order denying Pioneer’s Motion To Amend as untimely, the court cited the Sixth Circuit case of Torras Herreria v. M/V Timur Star, 803 F.2d 215 (6th Cir.1986). This case, unusual on its facts, is nonetheless instructive. Herrería involved an appeal from a judgment entered by the district court on November 4, 1984, dismissing the plaintiff’s action. The district court granted the plaintiff two successive extensions, through November 30, 1984, in which to file a motion under Rule 52(b) to amend or make additional findings.8 Plaintiff’s counsel mailed a Rule 52(b) motion to the district court on November 30, 1984. The court did not receive the motion until December 5, 1984, one day after the thirty-day appeal time had expired, and five days after expiration of the second extension. The district court denied the plaintiff’s Rule 52(b) motion on December 17, 1984. The plaintiff filed its notice of appeal on January 11, 1985, within thirty days of the entry of the order denying the Rule 52(b) motion. The Sixth Circuit, finding that the plaintiff’s Rule 52(b) motion filed December 5, 1984, was untimely, and thus did not toll the thirty-day appeal time, stated in material part:
Plaintiff filed its notice of appeal on January 11, 1985, clearly after expiration of the general 30-day time limit for filing *534a notice of appeal, which runs from the date on which final judgment is entered (in this case, November 5, 1984). Fed. R.App.P. 4(a)(1). However, an exception to the general rule provides that a “timely” Rule 52(b) motion will delay the running of the time to file a notice of appeal until the order granting or denying the motion is entered. Fed.R.App.P. 4(a)(4). Since plaintiff filed its notice of appeal to this Court within 30 days of the district court’s denial of its Rule 52(b) motion, the only issue is whether plaintiffs Rule 52(b) motion in the district court was “timely.”
“Filing with the court” is defined as filing with the clerk of the court, or, if the judge permits, with the judge. Fed. R.Civ.P. 5(e). If mailed, the filing is accomplished only when actually received by the clerk or when placed in the clerk’s post office box. Filings reaching the clerk’s office after a deadline are untimely, even if mailed before the deadline.
The record indicates that although plaintiff’s counsel mailed the Rule 52(b) motion from New York on November 30, 1984, the district court did not receive the motion until December 5, 1984 — five days too late. Thus, even assuming that the district court properly granted the extensions of time, the motion was not timely filed. Similarly, plaintiff’s appeal to this Court was untimely, and we accordingly dismiss the appeal for lack of jurisdiction.
Herrería, 803 F.2d at 216 (citations omitted).
Thus, in construing Fed.R.App.P. 4(a)(1) and (4), from which Bankruptcy Rule 8002(a) and (b) are adapted, the Sixth Circuit held in Herrería that when it is the expiration of the time for appeal which is at issue, the Rule 52(b) motion, to be timely, must, as Fed.R.App.P. 4(a)(4) demands, be “filed” within the thirty-day appeal time. The fact that the Rule 52(b) motion to amend in Herrería was mailed, and thus presumably “served,” prior to expiration of the appeal period, was of no significance to the court.9
In sum, Keohane has application to those motions identified in Fed.R.App.P. 4(a)(4) which may be “made” or “served” and filed within the thirty-day appeal time required under Fed.R.App.P. 4(a)(1). It has no application to the extent Pioneer would have the court construe it to authorize the filing of one of the tolling motions identified in Bankruptcy Rule 8002(b), specifically, Rule 52(b), beyond the ten-day appeal time required under Bankruptcy Rule 8002(a). To toll the appeal time under Bankruptcy Rule 8002(a), a motion to amend findings under Rule 52(b) must, to be timely, be filed with the clerk prior to expiration of the ten-day appeal period. Thus, the requirement under Rule 52(b) that the motion to amend must be “made” within ten (10) days must yield to the dictates of Bankruptcy Rule 8002(b) that the motion, to toll the ten-day appeal time, must be timely “filed” within the ten-day appeal period fixed under Bankruptcy Rule 8002(a). Any other construction of Rule 52(b) makes no sense. Pioneer was accordingly required to file its Motion To Amend on or before February 11, 1993. Because it did not do so, the Motion To Amend was untimely.
For the reasons set forth herein, Pioneer’s Motion To Vacate must be denied. An appropriate order will be entered.
. Rule 52(b) provides that "[ujpon motion of a party made not later than 10 days after entry of judgment the court may amend its findings or make additional findings and may amend the judgment accordingly.” The Judgment dismissing Pioneer’s Complaint was entered on February 1, 1993. The Motion To Amend was filed on *531February 12, 1993, eleven (11) days after entry of the Judgment.
. Former Rule 73(a) has been superseded by Rule 4(a) of the Federal Rules of Appellate Procedure. This Rule, at paragraph (1), also provides for the filing of a notice of appeal within thirty (30) days after the entry of the district court order or judgment appealed from.
. This tolling provision is perpetuated in Fed. R.App.P. 4(a)(4).
. Notwithstanding this determination, the court, stating that "[t]he making of the motion to amend was not a prerequisite to appellate review,” nonetheless assumed jurisdiction to review the order dismissing the complaint without consideration of the motion to amend. 320 F.2d at 432.
.Within the category of rules requiring filing, the court referenced Rule 3 (filing a complaint); Rule 41(a)(1) (filing a notice of dismissal); and former Rule 73(a) (filing a notice of appeal). These rules, in their current form, still include a filing requirement.
. As material to the issue presently before the court, former Bankruptcy Rule 802(a) and Bankruptcy Rule 8002(a) are identical.
. The Bankruptcy Rules provide for an extension of the ten-day period. Bankruptcy Rule 8002(c) provides:
(c) EXTENSION OF TIME FOR APPEAL. The bankruptcy judge may extend the time for filing the notice of appeal by any party for a period not to exceed 20 days from the expiration of the time otherwise prescribed by this rule. A request to extend the time for filing a notice of appeal must be made before the time for filing a notice of appeal has expired, except that a request made no more than 20 days after the expiration of the time for filing a notice of appeal may be granted upon a showing of excusable neglect....
Fed.R.Bankr.P. 8002(c). This provision does not merit discussion here as Pioneer did not move for an extension of the time for filing its notice of appeal either before or after expiration of the ten days.
. The court did not find it necessary to reach the issue of whether the district court could properly grant these extensions. 803 F.2d at 216, n. 1. See Fed.R.Civ.P. 6(b), which provides, inter alia, that a district court may not extend the time for making a Rule 52(b) motion.
. Had former Rule 73(a), which provided for the tolling of the thirty-day appeal period upon a "timely” motion "made” under Rule 52(b), been in place when Herrería was decided, rather than Fed.R.App.P. 4(a)(4), Keohane might have commanded a different result, assuming the propriety of the district court's extensions of time for filing the Rule 52(b) motion to amend findings. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491652/ | MEMORANDUM
JOHN C. MINAHAN, Jr., Bankruptcy Judge.
Pinnacle Point Development Co. (“Pinnacle”) objects to the Debtor’s homestead exemption on the ground that the Debtor, a divorced individual without children, is no longer a “head of family” under Nebraska law and is thus not eligible to claim a homestead exemption. The objection is overruled.
FACTS
On July 19,1979, the Debtor purchased a house with his wife, Jeanette Bartlett (now Jeanette Hugelman). However, the Debtor and his wife did not purchase the real property on which the house was situated. Instead, they entered into an agreement to lease the real property for a term ending on August 1, 2027. The Debtor, his wife, and their four minor children resided in the house on the leased property.
On August 25, 1980, the District Court of Lancaster County, Nebraska, entered a divorce decree terminating the Debtor’s marriage. Debtor was awarded the house and leasehold interest by the divorce decree, and he has lived on the property continuously since that time. Jeanette Bartlett *882was awarded custody of the four minor children. She and the children moved from the property at the time of the divorce.
Sometime after the divorce decree was entered, custody of two of the minor children was changed to the Debtor. These two minor children lived with the Debtor at his home on the leasehold property.
On July 7, 1992, the Debtor filed a Chapter 7 bankruptcy petition. The Debtor claimed his house exempt under Neb.Rev. Stat. §§ 40-101 and 40-102 as a homestead. Pinnacle objected to the Debtor’s homestead exemption on the basis that the Debt- or was not eligible to claim a homestead under § 40-102 because Debtor was not a “head of family” under § 40-115. At the time the bankruptcy case was commenced, the debtor was single and resided alone on the leasehold property. Although the Debtor’s children are now adults, he owes his former spouse delinquent child support and alimony payments.
DISCUSSION
Under Nebraska law, a homestead exemption may only be asserted by a married individual or a “head of family”. See Neb.Rev.Stat. § 40-102 (Reissue 1988). A “head of family” is an individual who “has residing on the premises with him or her, and under his or her care and maintenance”, certain family members designated in that statute. See Neb.Rev.Stat. § 40-115 (Reissue 1988).
The Nebraska Supreme Court has addressed the question whether a divorced individual who lives alone can continue to claim the homestead exemption after his wife and children have left the property. In Dougherty v. White, 112 Neb. 675, 200 N.W. 884 (1924), a divorced husband residing alone was permitted to claim the homestead exemption. However, the husband had previously resided on the property as a homestead with his wife and children. The wife obtained a divorce and was awarded custody of the children. The wife and children moved off the property. The husband remained on the land. The court held that the homestead character of the land and the husband’s “head of family” status continued even after the divorce because the husband was still liable for the support of his minor children. Furthermore, the court noted that the husband had not voluntarily abandoned his homestead interest. The Nebraska Supreme Court has repeatedly held that once a homestead is established, the homestead character of land continues until sale or abandonment. McIntosh v. Borchers, 196 Neb. 109, 241 N.W.2d 534 (1976); Struempler v. Peterson, 190 Neb. 133, 206 N.W.2d 629 (1973); Dorrington v. Meyers, 11 Neb. 388, 9 N.W. 555 (1881). In Dougherty, the court held that the divorced husband residing alone was entitled to claim a homestead exemption. Dougherty, 200 N.W. at 886. See also Federal Credit Co. v. Reynolds, 132 Neb. 495, 272 N.W. 397 (1937); Dorrington v. Meyers, 11 Neb. 388, 9 N.W. 555 (1881).
The Dougherty case leaves open the question whether an individual must be a “head of family” at the time the homestead exemption is claimed. On the facts of the Dougherty case, the divorced husband qualified as a “head of family” at the time the homestead exemption was claimed because he had minor children and was making child support payments. However, other Nebraska Supreme Court cases make clear that a person need not be “head of family” at the time a homestead exemption is asserted. In Palmer v. Sawyer, 74 Neb. 108, 103 N.W. 1088 (1905), the Nebraska Supreme Court held that a widower whose minor children had grown up and moved from the homestead property was still eligible to claim a homestead. Although the widower was “head of family” when the property was purchased, he lived alone on the property at the time the homestead exemption was asserted. The court held that the widower should not be involuntarily divested of his homestead interest once he had qualified for that right. In Palmer, the widower was allowed to assert the homestead exemption even though he was not a “head of family” or making child support payments at the time the exemption was asserted.
At the time the Nebraska homestead exemption is claimed, it is thus not *883necessary for the debtor to be a “head of family”. Furthermore, it is not necessary that the debtor be obligated to make child support or alimony payments at the time the homestead exemption is claimed. Once acquired, a homestead interest continues until voluntarily sold or abandoned. See Palmer v. Sawyer, 74 Neb. 108, 103 N.W. 1088 (1905).
Based on these Nebraska decisions, I conclude that the Debtor in this case is entitled to claim a homestead under §§ 40-102 and 40-115. The homestead property was occupied by the Debtor as a “head of family”, his spouse, and children. Upon such occupancy, the homestead character of the land was established. The homestead character of the land did not change when the Debtor was divorced or when his children moved out of the homestead. From the time the homestead was established, the Debtor continuously occupied the land, and it was never sold or abandoned.
The repeal of Neb.Rev.Stat. § 40-117 (repealed 1974) is not relevant to the facts of this case. Under that statute, a wife was given a statutory life estate in homestead property upon the death of her husband. The Nebraska Supreme Court’s holdings that land retains its character as a homestead after a divorce were not dependent on Neb.Rev.Stat. § 40-117. The homestead statutes which the Nebraska Supreme Court relied on in Palmer and Dougherty are substantially the same as the homestead statutes in place today.
Neither is it relevant that the home in question is located on leasehold property. The Nebraska Supreme Court has held several times that a homestead can be claimed on leased property. See Mainelli v. Neuhaus, 157 Neb. 392, 59 N.W.2d 607 (1953).
The homestead character of the Debtor’s land was established when the Debtor resided with his wife and children on the property. The homestead character of the land continues even though the Debtor currently lives on the property alone. However, I note that the Debtor may not be permitted to assert the homestead against the claims of his dependents for support. See Matter of Weaver, 98 B.R. 497, 501-02 (Bkrtcy.D.Neb.1988); Best v. Zutavern, 53 Neb. 604, 74 N.W. 64 (1898).
The objection to exemption by Pinnacle Point Development Co. is hereby overruled.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491653/ | ORDER SETTING ASIDE DEFAULT JUDGMENT AGAINST GARNISHEE
JAMES A. PUSATERI, Chief Judge.
This proceeding is before the Court on the motion of garnishee Manufacturer’s Hanover Bank (Delaware), now known as Chemical Bank Delaware (hereafter “MHB”), to set aside a default judgment entered against it when it failed to respond to an order of garnishment. MHB appears by counsel Larry G. Karns. American Freight System, Inc. (AFS), the plaintiff-debtor, appears by counsel Kurt Stohlgren. The Court has reviewed the relevant pleadings and is now ready to rule.
FACTS
The materials submitted to the Court indicate the following facts. AFS obtained a default judgment for about $29,000 against defendant American Electric, Inc. It later caused an order of garnishment to be issued to MHB. The order was served by certified mail directed only to MHB and not to any individual’s attention. Although MHB had moved its office in 1988 from the address AFS used to try to effect service, some unidentified person at that old address signed for the mailing. MHB did not respond to the garnishment. About nine months later, AFS sought and obtained a default judgment against MHB for the amount owed by American Electric, Inc. A copy of the judgment was mailed to MHB at the same address. About six weeks later, MHB filed a motion to set aside the default, attacking various alleged defects in the service of the garnishment order and claiming it owed American Electric no money at the time of the garnishment.
CONCLUSIONS
Although MHB raises numerous issues, the Court need only address one. MHB contends that, to be effective, the garnishment order had to be served on it in the manner provided by Federal Rule of Bankruptcy Procedure 7004(b)(3) or by K.S.A. 1992 Supp. 60-717(b), K.S.A. 60-706(b)(l), and K.S.A. 1992 Supp. 60-304 for serving a summons and complaint. AFS contends all that is required is service in the manner provided by FRBP 7005, incorporating Federal Rule of Civil Procedure 5, for serving pleadings on parties. The manner of service that AFS used clearly did not comply with FRBP 7004(b)(3) or the cited Kansas statutes, but might have complied with FRBP 7005.
To support its method of service, AFS claims FRBP 7004(b)(3) governs service on a “defendant” corporation only, while FRBP 7005 governs service here. Presumably, AFS means 7004(b)(3) is not *908applicable because MHB is not a “defendant” in this proceeding. If AFS were correct, although an order of garnishment (1) potentially imposes full liability for a judgment on the garnishee simply because the judgment creditor thinks the garnishee may have money or property belonging to the judgment debtor and (2) is served on an entity that ordinarily will have had no prior connection with a case whatsoever, the garnishment order need not be served as formally as the original summons and complaint directed to the person or entity truly responsible for the judgment creditor’s damages. The Court certainly hesitates to conclude the drafters of the procedural rules would have intended such an anomalous result. It seems much more likely they would have intended to require at least as formal service on a garnishee as they did on primarily liable people and entities.
While it relies solely on a narrow definition of the word “defendant” in FRBP 7004, AFS conveniently overlooks a potentially narrow word in 7005, “parties.” The leading civil procedure treatise states:
The service provisions of Rule 5 apply only to parties who have appeared. Thus it is clear that amended or supplemental pleadings must be served on parties who have not appeared in conformity with Rule 4. Comparably, if the pleading seeks to add a new party — for example, an answer containing a counterclaim against plaintiff and a third person over whom the court has not previously acquired jurisdiction — the pleading also must be served on the new party to the action together with a summons pursuant to Rule 4.
4A Wright & Miller, Fed.Prac. & Pro. Civil 2d, § 1146 at 423-24 (1987). The Court believes this passage offers the more reasonable interpretation of the word “parties” in FRCP 5, that is, it refers to entities that have appeared in the action. FRBP 7004(b)(3) and FRCP 4(d)(3) (and the rest of both rules, for that matter) can then be interpreted as using the word “defendant” to mean “any entity against whom relief is sought” without regard to whether the entity might ordinarily be labelled a “defendant.” Indeed, the leading legal dictionary states that “defendant” means: “The person defending or denying; the party against whom relief or recovery is sought in an action or suit or the accused in a criminal case.” Black’s Law Dictionary 377 (5th ed. 1979). Clearly, service on MHB had to be made as required by FRBP 7004(b)(3), and could not be made under FRBP 7005.
FRBP 7004(b)(3) requires service of process to be mailed “to the attention of an officer, a managing or general agent, or to any other agent authorized by appointment or by law to receive service of process.” In a case under FRCP 4(d)(3) involving personal service on a person who did not meet that rule’s equivalent requirements, the Seventh Circuit vacated a default judgment obtained by the federal government. United States v. Mollenhauer Laboratories, Inc., 267 F.2d 260 (7th Cir.1959). In that case, a man named Mollenhauer was the secretary of Mollenhauer Sales, Inc. (Sales), and the president of Mollenhauer Laboratories, Inc. (Labs). When Labs was sued, the marshal went to a retail store owned by Sales and met the Chief Clerk there. She told him Mollenhauer was sick and at home. The marshal called and Mol-lenhauer told him to leave the papers with the clerk for Mollenhauer to pick up later. Although the clerk was not an officer or employee of Labs or authorized to receive service of process for it, the marshal did as Mollenhauer suggested. Mollenhauer then received the papers four or five days later. A default judgment was entered a short time later. The district court concluded the service was proper because the marshal could reasonably expect the process would be delivered to Mollenhauer and it was in fact delivered to him. 267 F.2d at 262. The Seventh Circuit reversed because the Chief Clerk was not an officer, managing or general agent, or an agent authorized by appointment or law to receive service of process for Labs, and even if Mollenhauer appointed her to receive the service, there was no showing or reason to believe Mol-lenhauer was authorized to make such an appointment on Labs’ behalf. 267 F.2d *909at 262. The service in Mollenhauer Laboratories was certainly more likely to, and in fact did, bring the suit to Labs’ attention than the service directed to MHB, yet the Seventh Circuit set aside the default judgment based on that service. This Court concludes it must do the same.
The Court agrees with AFS that, although FRBP 7069 and FRCP 69 incorporate Kansas garnishment procedures for enforcing judgments, the federal rules control the method of service of the garnishment pleadings. Still, Kansas law also demonstrates that garnishment orders must be served like the process that commences a lawsuit. In Briscoe v. Getto, 204 Kan. 254, 462 P.2d 127 (1969), the Kansas Supreme Court ruled that service of a garnishment order which did not substantially comply with the Kansas procedure for the service of process required to obtain personal jurisdiction over an individual did not give the trial court personal jurisdiction over an individual garnishee. In that case, the garnishment order was served at the garnishee’s office on his secretary, who told the garnishee that day about the service. When the garnishee failed to answer the garnishment, the judgment creditor sought a default judgment against him. The parties conceded that the garnishee’s secretary had never been appointed process agent for him and that his office was not his residence. The court affirmed the trial court’s refusal to grant the default judgment because, although the garnishee became aware of the proceeding, the service did not satisfy the state statute governing service of process on an individual. 204 Kan. at 256-57, 462 P.2d 127.
For these reasons, the Court hereby sets aside the default judgment entered against MHB because the method of service of the garnishment order was inadequate to give the Court personal jurisdiction over MHB.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491654/ | ORDER ON MOTIONS FOR SUMMARY JUDGMENT
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 case and the matters under consideration are two Motions *926for Summary Judgment. One is filed by the Chapter 7 Trustee (Trustee), who is the Plaintiff, and the other by Wilma Hines (Hines) one of the named Defendants in the above-captioned adversary proceeding. It is the contention of both parties that there are no genuine issues of material fact and, therefore, this adversary proceeding may be resolved as a matter of law in their favor respectively.
The Court has considered the Motions, together with the record, and finds the undisputed facts relevant to a resolution of the issues are as follows:
On July 12, 1989, Hines initiated a lawsuit in the Pinellas County Circuit Court against Floyd Newton Cooper (Debtor) in which she sought to recover funds she claimed to have loaned the Debtor. In connection with that lawsuit, Hines obtained a pre-judgment writ of garnishment which in due course was served on Paine Webber, Incorporated (PW), a registered securities dealer, and well known stock brokerage firm. PW filed a response to the pre-judgment writ of garnishment and acknowledged that it held a securities account on behalf of the Debtor containing stocks valued at $44,536.
On January 10, 1991, the Circuit Court entered an order modifying the pre-judgment writ of garnishment, and ordered immediate distribution to the Debtor of any and all current and future income, interest or dividends earned by the securities held by PW for the Debtor since the date of the pre-judgment garnishment, pending further order of the court.
On November 11, 1991, the Circuit Court entered a final judgment in favor of Hines and against the Debtor in the principal amount of $89,128.00 on her contract claim against the Debtor. It is without dispute that the Debtor’s account with PW throughout the state court proceeding through entry of the final judgment, remained titled in his name.
On December 23, 1991, the Debtor filed the Petition for Relief under Chapter 7 of the Bankruptcy Code and in due course R. Jay Harpley was appointed to serve as Trustee for the Debtor’s estate. The Trustee filed the instant complaint seeking turnover of the funds in the Debtor’s account held by PW. The Trustee also sought a declaratory order by the Court determining the rights and liabilities of the parties with reference to the funds held by PW in the account of Hines. Finally, Trustee sought in the alternative to avoid the garnishment lien held by Hines on the account at PW pursuant to 11 U.S.C. § 547.
These are the basic uncontested facts which according to the defendant, Hines, warrants a determination as a mater of law that she has a valid unavoidable lien on the funds held in the PW account. This is so, according to Hines, because under applicable law when the Final Judgment was entered it related back to the date the original writ was served.
Under the laws of this State, which are controlling in this proceeding, a lien upon property is created, albeit an inchoate lien, when a writ of garnishment is served upon the garnishee, who has control and possession of the property. A Final Judgment entered subsequent to the creation of the lien, in favor of a creditor will relate back to the day on which the garnishment was served upon the garnishee. In re Demountable House Corp., 58 F.Supp. 955 (S.D.Fla.1945); Florida East Coast Railway Co. v. Consolidated Engineering Co., 95 Fla. 99, 116 So. 19 (1928); Matter of Brogdon, 75 B.R. 79 (Bankr.M.D.Fla.1987); In re Snedaker, 39 B.R. 41 (Bankr.S.D.Fla.1984).
In the case at bar, Hines served the writ of garnishment on the account of the Debtor, which was held by the garnishee, PW. The Hines did not obtain a final judgment on the writ of garnishment against the garnishee, but instead obtained a final money judgment against the Debtor within the preference period. Based on the foregoing, this Court holds that Hines’s final money judgment does in fact relate back to the date of service of the writ of garnishment.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Trustee’s Motion for Sum*927mary Judgment is hereby denied. It is further
ORDERED, ADJUDGED AND DECREED that the Motion for Summary Judgment filed by Hines is hereby granted, and the Complaint is hereby dismissed.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491655/ | ORDER ON DEBTOR’S MOTION FOR ORDER APPROVING A COMPROMISE AND SETTLEMENT AGREEMENT WITH VARIOUS BANKS
ALEXANDER L. PASKAY, Chief Judge.
THESE ARE yet-to-be-confirmed Chapter 11 cases instituted by Hillsborough Holdings Corporation, et al. (Debtors), now known as Walter Industries, Inc. (WII), and its 31 wholly-owned subsidiaries. The matter under consideration is a Motion in which the Debtors seek an Order Approving a Compromise and Settlement Agreement. In their Motion, the Debtors requests an order approving the Compromise and Settlement Agreement between the Debtors and several banking institutions (Banks) which are parties to the Credit Agreement dated September 10, 1987, as amended (Revolving Credit Agreement), and/or the Working Capital Credit Agreement, dated December 29, 1987, as amended (Working Capital Credit Agreement). The Motion was set for hearing in due course with appropriate notice to all parties. Having considered the Motion and several Objections, together with the relevant part of the record, the Court now finds the following facts and concludes as follows:
On December 27, 1989, the Debtors and thirty-one of its affiliates each filed their Petition for Reorganization under Chapter 11 of the Bankruptcy Code. On December 3, 1990, JW Resources, Inc., also an affiliate of WII, filed its Petition for reorganization under Chapter 11 of the Bankruptcy Code. Since the filing date, the Debtors remained Debtors-in-Possession (DIP), and have continued to manage their respective businesses and their properties pursuant to §§ 1107 and 1108 of the Bankruptcy Code and pursuant to the customary DIP order entered by this Court. No trustee or ex*938aminer has been appointed in any of the Debtors’ Chapter 11 cases.
As of the filing date, the Debtors and twenty-two Banks were parties to the Revolving Credit Agreement and the Working Capital Credit Agreement (Credit Agreements). Under the Credit Agreements, the Debtors were obligated to the Banks in the aggregate approximate principal amount of $321,792 million ($79.5 million under the Working Capital Credit Agreement and $242,292 million under the Revolving Credit Agreement). Since the filing date, by virtue of letters of credit, the principal amount has been increased by $2.9 million to approximately $324,692 million ($82.4 million under the Working Capital Credit Agreement and $242,292 under the Revolving Credit Agreement).
The obligations of the Debtors to the Banks are secured by security interests in the following: (a) all of the stock of most of the Debtor subsidiaries of WII; (b) the stock of two non-Debtor subsidiaries of WII; (c) the stock of Beijer Industries AB; (d) pledges of certain inter-company notes between WII and most of the other Debtor and non-Debtor subsidiaries; (e) the corporate headquarters of WII and related land in Tampa, Florida; (f) pledges of certain notes payable to the Debtors; and, (g) funds held in accounts with two of the banks subject to rights of setoff which were applied against the obligations pursuant to a previous order of this Court.
In addition to the $324,692 million owed to the Banks, some of the Debtors are also indebted to the holders of Series B Senior Extendible Reset Notes in the aggregate principal amount of $176.3 million and to the holders of Series C Senior Extendible Reset Notes in the aggregate principal amount of $5 million. Some, but not all, of the collateral also secures the Debtors’ obligations to the holders of the Senior Notes.
The proposed Compromise and Settlement Agreement provides for the following: (a) the amounts of principal, pre-petition accrued interest and pre-petition fees due under the respective Credit Agreements as of the filing date, as such principal amount may be increased by letter of credit draws and reduced by the application of the Contingent Principal Reductions (the Adjusted Claims); (b) the interest (Stub Period Interest) to be added to the Adjusted Claims, computed exclusively at the Prime Rate of the Banks in effect from the filing date through October 31, 1992, (the Stub Period) plus llk% per annum (Interest Rate); (c) the interest will accrue at the Interest Rate (Accrued Interest) on the sum of the Adjusted Claims and the Stub Period Interest on November 1, 1992 (the Commencement Date); (d) the Accrued Interest will be payable by the Debtors to the Banks on the last day of each calendar quarter following the Commencement Date; (e) upon the receipt of each Accrued Interest payment, the Banks will waive their claim for Default Rate Interest for that quarter and l/16th of their claims for Compound Interest and Default Rate Interest for the Stub Period, and that the entirety of such claims for the Stub Period will be waived if the Debtors make payments for 16 consecutive quarters or, if shorter, through the date of consummation of the Debtors’ plans of reorganization; (f) the payment of post-petition Bank expenses, subject to the approval by this Court and the standards established by this Court in the Debtors’ Chapter 11 cases; and (g) a reservation of the Banks’ Claims for adequate protection.
The proposed compromise further provides that, if approved by the Court, it will be binding not only upon the Banks, but also on their assignees and any institutions which might have purchased, or may purchase, some or all participation interests in loans outstanding under the respective Credit Agreements from any of the Banks. It is important to note that the Credit Agreements will be terminated upon the occurrence of any of the following termination events: (a) the Debtors fail to make Accrued Interest payments to the Banks when due or within 60 days thereafter; (b) the Debtors terminate the Compromise *939and Settlement Agreement or cease to propose plans of reorganization under which the Banks’ claims would be paid in full, in cash, upon consummation of such plans; or (c) the Bankruptcy Court takes action which results in the Debtors being financially or legally unable to pay the Banks’ claims in full, in cash, upon consummation of such plans.
In addition, the proposed compromise also provides that the Banks may terminate the Agreement prior to the date on which the first payment of Accrued Interest is required to be made, at the discretion of the Banks holding more than 66%% of the aggregate dollar amount of Bank claims, while the stay of the Order approving the Agreement is in effect. Also, the Debtors may discontinue payments of Accrued Interest at any time.
However, the Banks would waive all of their Stub Period disputed claims and any claim for application of the contingent principal reductions in interest, if, prior to the occurrence of a Termination Event, the requisite majority of Banks take one of the following actions: (1) oppose the Debtors’ right to an extension of exclusivity; (2) fail to accept affirmatively, the Debtors’ plan of reorganization; (3) fail to indicate to this Court their intent to accept affirmatively the plan; or, (4) fail to rebut an indication of acceptance with respect to an alternative plan of reorganization which does not resolve the disputed asbestos claim issues in the Debtors’ Chapter 11 cases in a manner satisfactory to the Debtors and the Official Committees.
In addition, if, prior to the occurrence of a Termination Event, a Bank or a group of Banks constituting less than the requisite majority of banks takes the actions described above with respect to opposition to an extension of exclusivity or support of a plan or reorganization other than the Debt- or’s plan, such bank or banks would waive all of their Stub Period disputed claims, any claim for application of the contingent principal reductions to interest, default rate interest and compound interest for all future periods and would cease receiving its share of Accrued Interest under the Compromise and Settlement Agreement. Such bank or banks would, however, retain their claims in respect of such Accrued Interest.
The Debtors contend that approval of the proposed Compromise and Settlement Agreement is in the best interest of the Banks, the Debtors’ estate and the Debtors’ other creditors because it would resolve all disputed matters with the Banks, leaving the Debtors free to devote their time to finalizing viable plans of reorganization. However, there is very strong opposition to the Motion. The Official Committee of Bondholders (Committee) and AI-FII, L.P., Altus Finance (Altus) and Fidelity Management & Research Company, (Fidelity), creditors, have each filed an Objection to the Motion.
The Committee argues the following in opposition to the Motion: (1) no basis exists in the Bankruptcy Code and Rules to authorize current payment of post-petition interest to the Banks; (2) in the event that this Court approves the payment of post-petition interest to the Banks, any award of current post-petition interest is premature in light of the pending asbestos-related litigation; (3) the Compromise and Settlement Agreement does not meet the standard of review required by the Eleventh Circuit for approval of a proposed settlement as set forth in In re Justice Oaks II, Ltd., 898 F.2d 1544, 1549 (11th Cir.1990), cert. denied, 498 U.S. 959, 111 S.Ct. 387, 112 L.Ed.2d 398 (1990), which includes the probability of success of litigation, the difficulties, if any, to be encountered in the matter of collection, the complexity of the litigation involved, and the expense, inconvenience and delay necessarily attending it, and the paramount interest of the creditors and a proper deference to their reasonable views in the premises; and finally (4) the real motivation for seeking approval of the Compromise and Settlement Agreement is the Debtors’ desire to maintain control over the asbestos litigation and the plan process *940with no real interference from the Banks. In effect, the Committee considers the Agreement to be a bribe to silence the Banks from acting negatively in the plan process and from interfering with the conduct of the asbestos litigation.
AIFII, L.P., Altus and Fidelity, acting on behalf of various bonds issued by the Debtors, also take the position that the interest of bondholders may be substantially prejudiced if the Motion is granted. Specifically, they object to the Agreement on the following grounds: (1) it purports to dictate the future terms of a plan of reorganization for the Debtors in contravention of applicable case law and provisions of the Bankruptcy Code; (2) it fails to meet the judicial standards for approval of a compromise and settlement pursuant to Bankruptcy Rule 9019; (3) it indefinitely perpetuates the already unlevel playing field by giving the Debtors’ equity holder improper leverage in the reorganization process; and (4) it will substantially delay the Chapter 11 case because, if approved, the Banks will be receiving current interest payments and will be unwilling to participate in the reorganization process.
Upon review of these Objections, this Court is satisfied that it would not be appropriate to approve the Compromise and Settlement Agreement for several reasons. First, it is apparent that no controversy exists with regard to the Banks and, therefore, a Compromise and Settlement Agreement is premature. Second, it is well established that a Court should not allow a Debtor to circumvent the requirements of Chapter 11 by authorizing action by the Debtor which would serve to dictate the terms of a future plan of reorganization. See In re Braniff Airways, Inc., 700 F.2d 935, 940 (5th Cir.), reh’g denied, 705 F.2d 450 (5th Cir.1983). This Court is satisfied that approval of the present Motion would do just that. Approval of the Agreement would only predetermine the rights of the Banks and the treatment of the Banks’ claims prior to the Confirmation hearing. This is clearly not a practice endorsed by the Bankruptcy Code, the Bankruptcy Rules or this Court. Third, this Court agrees with the Committee and finds that approval of the Agreement would only make the negotiation process uneven, excluding the Banks from the negotiation process and leaving the other creditors to fend for themselves. Inasmuch as the Banks are usually the most influential creditors in a Chapter 11, this Court is satisfied that if they were removed from the playing field, the negotiation process would only be further delayed because the Debtor would have less incentive to put a viable plan forward. On the other hand, if the Banks did not receive current interest payments, they would be more likely to push the plan process forward to a faster conclusion. Clearly that would be an end result which is beneficial to all of the Debtors’ creditors, not just the Banks. Fourth, this Court will not permit the development of a plan of reorganization in a piecemeal fashion without complying with the required disclosure and solicitation provisions of the Bankruptcy Code, inasmuch as piecemeal development of a plan would put creditors at a disadvantage in plan negotiations. For these reasons, this Court is satisfied that approval of this Compromise would be a substantial detriment to the Debtors’ estate and therefore, is inappropriate.
One last comment. This Court is satisfied that the Committee’s reliance on In re Justice Oaks II, Ltd., supra, is misplaced in the present situation because it is inapplicable. This is so because there is no pending litigation, no continuing collection efforts, and no controversy between the parties. Rather, it is an attempt to preordain the treatment of creditors without the benefit of the confirmation process and to bind the other parties to it, something this Court will not allow.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Order Approving A Compromise And Settlement Agreement with Various Banks be, and is hereby, denied and the Compromise is hereby disapproved.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491656/ | ORDER ON REMAND GRANTING WEINTRAUB’S, RODRIGUEZ’S AND KARLAN’S MOTION TO QUASH SUBPOENAS DUCES TE-CUM
A. JAY CRISTOL, Bankruptcy Judge.
THIS CAUSE was heard March 10, 1992 and April 15, 1992 on remand from the United States District Court for the Southern District of Florida.
On October 11, 1991, the District Court vacated an order by a visiting judge which denied Benson Weintraub’s and Carlos Rodriguez’s motion to quash the subpoenas duces tecum served upon them by Paul Nordberg, the trustee of Alberto Duque’s bankruptcy estate. In re Duque, 134 B.R. 679 (S.D.Fla.1991). Weintraub was then, and remains, criminal defense counsel for Alberto Duque (the “Debtor”). Rodriguez was then, but is no longer, criminal defense counsel for the Debtor. Weintraub and Rodriguez objected to the subpoenas duces tecum on the grounds that:
a) the information sought is not needed and is available from reasonable alternatives; and
b) they impermissibly infringe on the — 1
1) Sixth Amendment right to counsel,
2) Fifth Amendment privilege against self-incrimination,
3) attorney-client privilege,
4) work-product privilege, and
5) ethical obligation to guard client confidences.
Around the time of the District Court’s decision, the Debtor retained Sandy Karlan as bankruptcy counsel. Karlan was served with a subpoena duces tecum similar to those served on Weintraub and Rodriguez and has objected for similar reasons. Thus, Karlan’s objections are considered herein. On remand, this Court was ordered to
determine whether the subpoenas are unreasonable and oppressive within the meaning of Rule 45(b), Federal Rules of Civil Procedure; in making this determination, the court shall balance the trustee’s interest in procuring the information against the burden imposed by appellants’ [ (Weintraub, Rodriguez, and now Karlan) ] compliance with the subpoenas, considering, inter alia, the need for and unavailability of the information and the *95danger inherent in subpoenaing criminal counsel regarding clients’ affairs.
134 B.R. at 688.
Former Fed.R.Civ.P. 45(b),2 on which the District Court based its decision, provided that a court “may (1) quash or modify [a] subpoena if it is unreasonable and oppressive.” In December of 1991, Rule 45 was amended and now provides, in relevant part:3
(c)(3)(A) On timely motion, the court by which a subpoena was issued shall quash or modify the subpoena if it
(iii) requires disclosure of privileged or other protected matter and no exception or waiver applies, or
(iv) subjects a person to undue burden.
The changes to Rule 45 do not appear to materially affect this Court’s duties on remand as a similar type of balancing of the parties’ interests occurs under both the old rule (“unreasonable and oppressive”) and the new rule (“subjects a person to undue burden”). Although Weintraub, Rodriguez and Karlan (the “Attorneys”) argue otherwise, case law clearly indicates that the party seeking to quash a subpoena has a heavy burden of proof.4
According to the Trustee, the purpose of the subpoenas is to gather information regarding the origin of the fees paid to the Attorneys for their representation of the Debtor (the “information sought”). The Trustee argues that the information sought is necessary for him to fulfill his duties as trustee pursuant to 11 U.S.C. § 704 since property of the estate may have been used to pay the Attorneys’ fees. Moreover, the Trustee argues that since the Debtor’s criminal sentence did not include restitution, public policy particularly favors disclosing the information sought. Apparently, the judge in the Debtor’s criminal case relied, in part, on this Court to compensate those financially affected by the Debtor’s criminal acts.5
The Attorneys argue that their interests in not being subpoenaed outweigh the Trustee’s need for the information sought since the information sought is, allegedly, not needed and is available from a reasonable alternative. At a deposition of the Debtor by the Trustee, the Debtor swore that his Attorneys’ fees have been paid by his family.6 Thus, the Attorneys argue that the Trustee has an adequate answer with regard to the information sought. The Duque Attorneys argue that the information sought is reasonably available through discovery in a Colombian action commenced by the Trustee against the Debtor, certain family members and certain entities.
*96Responding to the Attorneys’ argument that the information sought is not needed, the Trustee argues that the credibility of the Debtor’s deposition answers is dubious at best given this Court’s and other courts’ experiences with him. Moreover, the Trustee argues, even if the fees were directly paid by the family, they might have been paid indirectly (via financial conduit) with property of the estate. Responding to the Attorneys' argument that the information sought is reasonably available from the Colombian action, the Trustee relies on an affidavit of Keith S. Rosenn, a Professor of Law and both Director of the Foreign Graduate Law Program and the Masters Program in Inter-American Law at the University of Miami Law School, as evidence that this action is not an alternative source of the information sought.
This Court is not persuaded by Keith S. Rosenn’s affidavit as to the unavailability of discovery in the Colombian action. Ro-senn concludes that “no discovery to locate a defendant’s assets will be available in exequatur proceedings before the Civil Cas-sation Chamber of the Colombian Supreme Court.” However, Rosenn stops short of making a similar conclusion as to the unavailability of discovery at the next step in the judgment domestication process, viz., “the court of first instance in Bogota.” Further, the Trustee may ask the Debtor to produce copies of the checks transmitted to the Attorneys.7 Clearly, there are other avenues of inquiry open to the Trustee.
This Court is deeply concerned over the danger inherent in subpoenaing criminal defense counsel regarding clients’ affairs. This Court has considered this danger and has concluded that the basic idea of attacking an opponent by dragging his or her attorney into the fray is offensive. The chilling effect of hauling in attorneys engaged in the performance of their constitutional duties of providing a counsel under the Sixth Amendment of our constitution should only be allowed under the most extraordinary circumstances. The allegations of the Trustee that property of the estate may have been used to pay the Attorneys’ fees is not enough. The Trustee is to be commended for his zeal in his efforts to perform his duties. But in this case, violence to a constitutional right will not be done in the name of good intentions. There are other means for the Trustee to obtain the information he needs. Accordingly, it is
ORDERED that Weintraub’s, Rodriguez’s and Karlan’s motions to quash subpoenas duces tecum are granted.
DONE AND ORDERED.
. The District Court found the subpoenas facially valid as to the following grounds. 134 B.R. at 687-88.
. The corresponding bankruptcy rule is F.R.Bankr.P. 9016.
. The "Notes of Advisory Committee on December 1991 amendment of Rule [45]” state, in relevant part:
The purposes of this revision are (1) to clarify and enlarge the protection afforded persons who are required to assist the court by giving information or evidence.
Subdivision (c). This provision is new and states the rights of witnesses. It is not intended to diminish rights conferred by Rules 26-37 or any other authority. Paragraph (c)(3) explicitly authorizes the quashing of a subpoena as a means of protecting a witness from misuse of the subpoena power. It replaces and enlarges on the former subdivision (b) of this rule and tracks the provisions of Rule 26(c).
. See, e.g., Kostelecky v. NL Acme Tool/NL Industries, 837 F.2d 828, 833 (8th Cir.1988); Truswal Systems Corp. v. Hydro-Air Engineering, Inc., 813 F.2d 1207, 1210 (Fed.Cir.1987); Northrop Corp. v. McDonnell Douglas Corp., 751 F.2d 395, 403 (D.C.Cir.1984); Horizons Titanium Corp. v. Norton Co., 290 F.2d 421, 425 (1st Cir. 1961); Sullivan v. Dickson, 283 F.2d 725, 727 (9th Cir.1960), cert. denied, 366 U.S. 951, 81 S.Ct. 1906, 6 L.Ed.2d 1243 (1961).
. See Judgment and Probation/Commitment Order, No. 84-777-Cr-PAINE, entered May 7, 1986 by the United States District Court for the Southern District of Florida ("ORDERED AND ADJUDGED that in accordance with the Victim/Witness Protection act of 1982, the Court recognizes the outstanding financial losses of various victims. However, in the light of bankruptcy and civil litigation pending and the complexity of the matter, an order on restitution would have minimal practical impact.”).
. This deposition took place in August and September of 1989 which was before Karlan became bankruptcy counsel for the Debtor. Thus, the Debtor’s responses therein do not show the origin of the funds used to pay Karlan’s fees.
. If the Debtor responds that the Attorneys were paid in cash, then the entire matter might be subject to further review. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491657/ | HELEN S. BALICK, Bankruptcy Judge.
This is the court’s decision on the cross-motions for summary judgment by the Plaintiff TIE Communications, Inc. and the Defendants NYNEX Corporation and NYNEX Business Information Systems Company (collectively “NYNEX”).
I.The court has jurisdiction to enter a final order.
NYNEX consents to the entry of a final judgment in this matter. 28 U.S.C. § 157(c)(2). In response to a recent interrogatory by the court, TIE takes the position that it does not consent to entry of a final judgment. The court concludes, however, that TIE's attempt to avoid the court’s jurisdiction to enter final orders comes too late.
TIE voluntarily filed its Chapter 11 bankruptcy petition and later filed this adversary action in this court. No stay barred TIE from filing this action in another court of competent jurisdiction. TIE thus chose this court for the filing of this adversary. The filings waive any objection TIE might have to the jurisdiction of this court to enter final orders. Commodity Futures Trading Comm’n v. Schor, 478 U.S. 833, 848-50, 106 S.Ct. 3245, 3255-56, 92 L.Ed.2d 675 (1986) (party who opts to initiate administrative proceeding to adjudicate dispute waives right to Article III Court).
Of independent significance, TIE’s complaint itself indicates TIE’s consent. TIE’s jurisdictional statement in its complaint avers that this is a proceeding under 28 U.S.C. § 157(b)(1). Docket No. 1, ¶ 10. Section 157(b)(1) deals only with matters regarding which the bankruptcy court can enter final orders. E.g., 1 Collier on Bankruptcy ¶ 3.01, at 3-40 (1992). TIE’s prayer for relief contained in its complaint did not ask for a report and recommendation to the United States District Court for these elements of relief. The prayer requested that this court award it legal damages and equitable relief.1
II. Procedural Background
TIE filed this proceeding against NYNEX seeking damages in the range of ten to twelve million dollars for an alleged breach of contract. The subject matter of the alleged contract was TIE’s purchase of NYNEX’s business customer base relating to previously-installed computer and telephone systems (NYNEX subsequently agreed to sell this customer base to a competitor of TIE, WilTel Communications). NYNEX argues a binding contract was never formed with TIE and that furthermore, the New York Statute of Frauds bars its enforcement. The court agrees with NYNEX’s first argument and does not reach the second argument.
III. Legal Standard
In considering a motion for summary judgment, the court views the record in the light most favorable to the non-movant, and determines whether the mov-ant is entitled to judgment as a matter of law. Where there are cross-motions for summary judgment, each motion must be *184considered separately, and both motions will be denied if any genuine issues of material fact exist. E.g., United Associates of Delaware, L.P. v. Delaware Solid Waste Authority (In re United Associates of Delaware, L.P.), 140 B.R. 368, 371 (Bankr.D.Del.1992). The record is sufficiently developed to rule upon NYNEX’s motion for summary judgment. The court will view the record and the inferences therefrom in the light most favorable to TIE.
IV. Discussion
The parties agree that New York law applies to this contract dispute. NYNEX argues that, assuming TIE can ultimately prove at trial the existence of an oral agreement, the agreement would be unenforceable because NYNEX and TIE did not intend to be bound by an oral agreement absent the execution of a formal, written document. Such a document does not exist here. NYNEX has the burden of proof on this issue of whether the parties intended to be bound only upon the execution of a written agreement. E.g., V’Soske v. Barwick, 404 F.2d 495, 499 (2d Cir.1968), cert. denied, 394 U.S. 921, 89 S.Ct. 1197, 22 L.Ed.2d 454 (1969).
TIE has raised no genuine issue of fact with respect to NYNEX’s argument, and the record is more than sufficient to satisfy NYNEX’s burden. TIE has pointed to four factors it argues New York courts consider in determining whether the parties intended to be bound only upon the execution of a written agreement: explicit statements of the parties not to be bound without a signed writing, partial performance by the party attempting to enforce the alleged agreement, the existence of unresolved contract issues, and whether the contract was of the type that typically would be in writing. E.g., R.G. Group, Inc. v. Horn & Hardart Co., 751 F.2d 69, 75-76 (2d Cir.1984).
These four factors all strongly favor NYNEX. The parties’ March 18, 1991 letter of intent explicitly required such a writing. Docket No. 58, Ex.G, ¶ B.2 & B.9. TIE’s subsequent contract draft sent to NYNEX on April 1 contained similar language requiring a writing. Id., Ex. H, ¶ 6.3. E.g., Reprosystem, B.V. v. SCM Corp., 727 F.2d 257, 262 (2d Cir.1984) (draft contract language requiring executed writing objective evidence of intent not to be bound). TIE’s suggestion that NYNEX is required in its communications with TIE to reiterate its intent not to be bound absent an executed writing is wholly unreasonable and inconsistent with New York law. See e.g. R.G. Group, Inc. v. Horn & Hardart Co., 751 F.2d 69, 75 (2d Cir.1984) (citing cases).2
TIE’s argument that it partly performed the contract is also without merit. For example, the drafting of a press release concerning the sale was at best unilateral conduct not known or bargained for by NYNEX. Also, the conduct was of a type that could precede rather than follow the formation of a contract. Gracie Square Realty Corp. v. Choice Realty Corp., 305 N.Y. 271, 113 N.E.2d 416, 421 (1953); see Teachers Ins. and Annuity Ass’n v. Tribune Co., 670 F.Supp. 491, 502 (S.D.N.Y.1987);
Open contract issues existed at all relevant times. The letter of intent states that “all of the material terms of such proposed transaction are not yet agreed upon between NYNEX and TSI and must still be agreed upon to the mutual satisfaction of NYNEX and TSI.”3 DX-G, ¶ B. 6. The expiration date of this letter, April 12, passed without resolution of the material issues.
These issues were not resolved later. Negotiators for TIE (and not surprisingly negotiators for NYNEX) believed there was no binding oral agreement prior to April 23.
*185Moreover, on April 24, TIE met with NYNEX to resolve three contract issues— calculation of royalties, assignability of customer contracts, and a penalty clause for insufficient royalties. Randolph Pie-chocki, President of TSI, conceded that the royalty provision “was an essential part of the deal.” Docket No. 58, Ex. F, at 73. Finally, on May 3, Eric Carter, President of TIE, wrote to Douglas J. Mello, President of NYNEX, asking him to allow the parties to continue and conclude the negotiations.
With respect to the fourth R.G. Group factor, Piechocki conceded that contracts of this type were normally reduced to writing. He further conceded that TIE would have not closed the transaction contemplated here without a written contract.
This case presents a much easier set of facts than those in Reprosystem, B.V. v. SCM Corp., 727 F.2d 257 (2d Cir.1984) (a decision NYNEX and TIE discuss). There the parties had resolved all contract issues and had orally approved a draft contract. Yet the Reprosystem court refused to find a binding contract had been formed, in part because of the presence of language in the draft requiring its formal execution as a condition precedent.
Y. Conclusion
In summary, as a matter of New York law, the parties did not enter into a binding contract. NYNEX’s motion for summary judgment is GRANTED. TIE’S motion for summary judgment is DENIED.
IT IS SO ORDERED.
. TIE’s position embedded in this complaint filed on May 24, 1991—that this court feas jurisdiction to enter final orders—remained consistent in its subsequent pleadings filed during the next one and a half years. Only on February 11, 1993 did TIE first assert its current position.
. NYNEX argues that where this first factor clearly indicates the parties' intent, it is not necessary to consider the other factors. Arcadian Phosphates, Inc. v. Arcadian Corp., 884 F.2d 69, 72-73 (2d Cir.1989). The court will not rule on this legal issue, as it will not affect the outcome of NYNEX’s motion for summary judgment.
. TSI is an abbreviation for TIE Systems, Inc., the relevant operating subsidiary in the proposed transaction. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491658/ | MEMORANDUM OPINION ON DEFENDANT’S MOTIONS TO DISMISS
JACK B. SCHMETTERER, Bankruptcy Judge.
Debtor Plaintiff Lamar Chapman filed this pro se adversary complaint seeking to disallow the claim filed by defendant Currie Motors, Inc. (“Currie Motors”) and to force Currie Motors to pay a judgment allegedly due to Debtor. Currie Motors moved to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), and for sanctions under Fed.R.Bankr.P. 9011. For reasons stated below, the motion of Currie Motors is allowed. By separate order, debtor’s complaint is dismissed, and the motion for sanctions is set for hearing.
PROCEDURAL BACKGROUND
Mr. Chapman filed a petition for relief pursuant to Chapter 13 of the Bankruptcy Code, 11 U.S.C. §§ 1301 et seq., jointly with his wife Vanessa Chapman, on June 30, 1992. As of this date, no plan has been confirmed.
Currie Motors filed its proof of claim in this bankruptcy proceeding on October 29, 1992, claiming an unsecured debt in the amount of $710.35. The basis for this claim is a judgment order entered on May 22,1992 by the Circuit Court of Cook County in Chapman v. Currie Motors, Case No. 90 Ml 134636, which states:
This cause coming on the 2 petitions of defendants Currie Motors ... for sanctions[,] fees [and] costs[;] the court having [sic] arguments from Mr. Chapman and the attorney for defendants:
It is hereby ordered that the defendants Currie Motors ... are awarded [illegible] costs in the amount of $710.35, and Judgment is hereby entered in their favor and against Lamar Chapman III in the amount of $710.35 and execution to issue thereon....
FACTUAL ALLEGATIONS
Paragraphs 6 through 15 of Chapman’s complaint purports to respond to this claim. Chapman admits that Currie Motors has a judgment against him by admitting to I1111-5 of the proof of claim. The only assertion that Chapman denies is the statement in II 6 of the form which states, “[t]he amount of all payments on this claim has been credited and deducted for the purpose of making this proof of claim. In filing this claim, claimant has deducted all amounts that claimant owes to debtor.” The basis for Chapman’s position is that Currie Motors owes him money for a judgment allegedly entered in that same state court ease.
Chapman then goes on to allege that he was formerly employed by Currie Motors and obtained a judgment against it based on a default judgment entered on May 4, 1992. Attached to the complaint is a docket entry in Case No. 90 Ml 134636 which states that “Default and Conditional Judgment vs. (employer) defendant Currie Motors ($204,621.79) ... ”. There is also a notation in the entry which states, “EMPLOYER SUM.FLD.RET.SERV[the remainder of this word is illegible]”. This order was allegedly entered because Currie Motors failed to appear in court or answer a summons. Based on this conditional default judgment, Chapman alleges that Cur-rie Motors owes him $204,621.79 which must be set off against Currie’s claim and the balance paid to him. Complaint, ¶ b. Based on his prayer for relief, the Court treats Chapman’s request for payment on *269his judgment as a counterclaim filed in response to Currie Motors’ claim.
Jurisdiction
This matter is before the Court pursuant to 28 U.S.C. § 157 and is referred here under Local District Court Rule 2.33. Subject matter jurisdiction lies under 28 U.S.C. § 1334(b).
Since Chapman is objecting to Currie Motors’ proof of claim as well as filing a counterclaim thereto, the controversy between them is a core proceeding under 28 U.S.C. § 157(b)(2)(B) and (C). In re Chapman, 132 B.R. 132, 142 (Bankr.N.D.Ill. 1991).
Procedural Standards for Motions to Dismiss
In order for the defendant to prevail on its motion to dismiss, it must appear from the pleadings that the plaintiff can prove no set of facts in support of his claims which would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957); Gorski v. Troy, 929 F.2d 1183, 1186 (7th Cir.1991). The issue is not whether the plaintiff can ultimately prevail, but whether he has pleaded a cause of action sufficient to entitle him to offer evidence in support of his claims. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974); Perkins & Gaynor v. Silverstein et al., 939 F.2d 463, 466 (7th Cir.1991). When reviewing a motion to dismiss, the court must consider both well-pleaded facts and reasonable inferences drawn therefrom in a light most favorable to the plaintiff. Gorski v. Troy, 929 F.2d at 1186; Corcoran v. Chicago Park District, 875 F.2d 609 (7th Cir.1989).
Facts Outside the Complaint Argued by Defendants
In its arguments, Currie Motors referred to facts and documents outside of the complaint which are asserted to establish that Mr. Chapman’s asserted judgment against it was later voided by subsequently entered state court orders. These facts were not referenced in Chapman’s complaint. Therefore, they are outside of the pleadings. See Venture Associates Corp. v. Zenith Data Systems Corp., 987 F.2d 429 (7th Cir.1993) (“Documents that a defendant attaches to a motion to dismiss are consideréd part of the pleadings if they are referred to in the plaintiff’s complaint and are central to her claim”).
Rule 12(b), Fed.R.Civ.P. (Fed.R.Bankr.P. 7012) provides,
If, on a motion ... to dismiss for failure. of the pleading to state a claim upon which relief can be granted, matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56.
Rule 12(b) thus presents a trial court with a choice when movants present materials beyond the pleadings. A court can either accept the materials and treat the motion as one for summary judgment under Fed.R.Civ.P. 56, or refuse the materials and exclude them from consideration. A court has “complete discretion” in deciding which option to choose. Fonte v. Bd. of Managers of Continental Towers Condo., 848 F.2d 24, 25 (2nd Cir.1988); Isquith v. Middle South Utilities, Inc., 847 F.2d 186, 193 n. 3 (5th Cir.), cert. denied, 488 U.S. 926, 109 S.Ct. 310, 102 L.Ed.2d 329 (1988); 5A Wright & Miller, Federal Pract. & Proc. § 1366. In this case, following a hearing with all parties present, after defendant’s counsel made clear there was no intent to seek summary judgment, the Court exercised its discretion not to treat the defendant’s pleading as a motion for summary judgment. Therefore, factual references in Currie Motors’ motion, and arguments that are outside the Complaint, as well as the documents attached thereto which lie outside the pleadings, were and are excluded and not considered for purposes of deciding this motion. Likewise, plaintiff’s new factual assertions contained in his “sur Reply” are not considered for *270purposes of passing on the motion to dismiss complaint.
DISCUSSION
This complaint fails to state a claim for one simple reason: Chapman’s complaint does not show or plead that he has a final and enforceable judgment against Currie Motors. The full basis for the May 4, 1992 order is not detailed in the complaint. However, by its terms, the alleged order purports to be a “Default and Conditional Judgment”. Chapman alleges that it was entered pursuant to 735 ILCS 5/2-1301 (formerly Ill.Rev.Stat. ch. 110, § 2-1301), the provision in the Illinois Code of Civil Procedure that provides generally for the entry of judgments. However, this is merely a legal conclusion, and there are no facts to support this. More likely, based on the notations in the docket entry, this order was entered pursuant to 735 ILCS 5/12-807 (formerly Ill.Rev.Stat. ch. 110, § 12-807). This provision provides for entry of a conditional judgment against employers for failing to answer wage deduction summonses. Such orders do not ripen into enforceable judgments until an order confirming the conditional judgment is entered. Id., 5/12-807. There is no allegation showing that such a confirmation order was ever entered in Chapman’s case. Therefore, no facts are pleaded to indicate that this conditional judgment ripened into a final judgment. Cf. Peters v. Welsh Dev. Agency, 920 F.2d 438, 439 (7th Cir.1990) (an order that anticipates further proceedings concerning conditions imposed on a judgment is not a final order).
Without a final, enforceable judgment, Chapman has no right to collect his asserted judgment debt from Currie Motors. He has not asserted here the underlying claim asserted by him in the state court case. Consequently, there is no basis for Chapman’s demand in this case for money from Currie Motors or for his objection to its proof of claim that rests on the conditional judgment.
Sanctions
Currie Motors asks for sanctions under Fed.R.Bankr.P. 9011 as part of its motion to dismiss. For reasons discussed in this Court’s Memorandum Opinion dismissing the complaint in plaintiff’s other adversary case, Chapman v. Burton Berger & Associates, 154 B.R. 258, there are grounds for considering this request. A hearing to do so is set by separate order.
CONCLUSION
Accordingly, by order entered today, Chapman’s complaint is entirely and finally dismissed against Currie Motors, and the objection to its claim is overruled. However, a further hearing is set to consider defendant’s request for sanctions, and the Court reserves jurisdiction to do so. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491659/ | ORDER GRANTING MOTION FOR RECONSIDERA TION
LINDA B. RIEGLE, Bankruptcy Judge.
A hearing was held on February 18,1993 on the Motion for Reconsideration submitted by the United States of America (“United States”). After having considered the papers and pleadings on file herein, and *318having considered the oral argument of counsel, the Court finds it appropriate to grant the United States’ Motion for Reconsideration.
Factual and Procedural Background
The Debtor, Doris D. Coby (“Coby”), filed a voluntary petition under Chapter 13 on September 24, 1987. Coby listed her residence as an asset of the estate, and indicated that she intended to continue to reside at that residence. The Internal Revenue Service (“IRS”) filed a proof of claim in the amount of $35,959.60. Coby objected to the IRS’s proof of claim, and a hearing was held before this Court on December 11, 1989. The Court entered a Memorandum Decision and Order on January 26, 1990 sustaining Coby’s objection, holding that Coby was entitled to deduct hypothetical costs of sale from the fair market value of her residence in determining the value of that asset with respect to the IRS’s secured claim. See In re Coby, 109 B.R. 963 (Bankr.D.Nev.1990) (“Coby I”).
The United States appealed the Court’s decision. On appeal, the district court affirmed this Court’s decision in pertinent part, but remanded to determine the appropriate percentage of fair market value to be used to establish the amount of hypothetical costs. In re Coby, 126 B.R. 593 (D.Nev.1991) (“Coby II”). The United States appealed Coby II to the Ninth Circuit Court of Appeals, but its appeal was voluntarily dismissed without prejudice because it was filed prematurely. On remand, this Court orally ruled that 11% of fair market value would fairly represent hypothetical costs that would be incurred upon disposition of Coby’s residence, but no written order was ever entered by this Court, or submitted by the parties.
Issues
1. Whether the Court must or may reconsider its order entered January 24,1990, which was affirmed in relevant part by the United States District Court.
A. Whether the law-of-the-case doctrine is applicable to the instant motion, and, if so, whether its application is discretionary.
B. Whether the Ninth Circuit Court of Appeals’ decision in Lomas Mortgage USA v. Wiese, 980 F.2d 1279 (9th Cir. 1992) constitutes “an intervening change in the law”.
Legal Discussion
The United States filed its motion to reconsider this Court’s decision in Coby I, pursuant to Rule 59(e) of the Federal Rules of Civil Procedure. That rule provides that a motion to alter or amend a judgment shall be served no later than 10 days after entry of the judgment. The Ninth Circuit has held that an untimely motion for reconsideration shall be construed as a motion for relief from judgment in accordance with Rule 60(b). See Mt. Graham Red Squirrel v. Madigan, 954 F.2d 1441 (9th Cir.1992). Rule 60(b) provides that the motion must be filed within “a reasonable time, and for reasons (1), (2), and (3) not more than one year after the judgment ... was entered or taken.” 1 The Lomas decision was entered on December 4, 1992, and the United States filed its motion for reconsideration on January 19, 1993. The Court finds that the motion was filed within a reasonable time.2
The United States is correct in its contention that this Court must reconsider its original judgment if the Ninth Circuit’s decision in Lomas is “intervening controlling law.” Under the law-of-the-case doctrine, a court is generally precluded from reconsidering issues which have been previously decided by the same or a higher court in the identical case. See Thomas v. Bible, 983 F.2d 152 (9th Cir.1993). Although application of the doctrine is discretionary (United States v. Mills, 810 F.2d 907, 909 (9th Cir.1987), cert denied, 484 U.S. 832, 108 S.Ct. 107, 98 L.Ed.2d 67 (1987)], a *319eourt properly exercises its discretion to reconsider an issue previously decided in only three instances: (1) when the first decision was clearly erroneous and would result in manifest injustice; (2) when the evidence on remand was substantially different; or (3) when an intervening change in the law has occurred. Milgard Tempering, Inc. v. Selas Corp. of America, 902 F.2d 703 (9th Cir.1990).
The Ninth Circuit has recognized that a prior decision should not be followed if “controlling authority has since made a contrary decision of the law applicable to such issues.” Toussaint v. McCarthy, 801 F.2d 1080, 1093 (9th Cir.1986), quoting Kimball v. Callahan, 590 F.2d 768, 771-772 (9th Cir.1979), cert. denied, 444 U.S. 826, 100 S.Ct. 49, 62 L.Ed.2d 33 (1979). See also Handi Investment Co. v. Mobil Oil Corp., 653 F.2d 391 (9th Cir.1981); Amen v. City of Dearborn, 718 F.2d 789 (6th Cir.1983).
The issue thus becomes whether Lomas constitutes an intervening change in the law. The facts of Lomas are essentially identical to the facts in Coby. Lomas Mortgage held a security interest in the Wieses’ residence. On appeal, the Wieses argued that the district court erred by holding that, because the residence would be retained by the debtor, it would be inappropriate to deduct transaction costs from the value. The Ninth Circuit agreed, holding that hypothetical costs of sale shall not be deducted from the value of the secured claim if the residence is being retained; sales costs are to be deducted only if there is an actual sale. Lomas, 980 F.2d at 1285, 1286.
This Court and the district court on appeal followed the Ninth Circuit Bankruptcy Appellate Panel’s decision in In re Malody, 102 B.R. 745 (9th Cir.BAP 1989), in holding that hypothetical costs of sale should be deducted from the IRS’ secured claim even though Coby was retaining her residence. Although this Court may be required to follow the decisions rendered by the Bankruptcy Appellate Panel, the district court is not. Both courts, however, must follow rules of law announced by the Ninth Circuit. Zuniga v. United Can Co., 812 F.2d 443, 450 (9th Cir.1987). This Court would have followed the holding in Lomas if that decision had been rendered at the time the judgment in Coby I was entered. Accordingly, since Lomas is directly on point and contradicts the decision in Coby I, Lomas constitutes an “intervening change in the law.” This Court has the discretion to reconsider its earlier decision, even though it has been affirmed in pertinent part on appeal. In fact, it may be an abuse of discretion for the Court not to do so. See LSLJ Partnership v. Frito-Lay, Inc., 920 F.2d 476 (7th Cir.1990).3
Finally, Coby has argued that the Ninth Circuit is the more appropriate court to “explain” and “interpret” its holding in Lo-mas. While that may be true, this Court must follow the holdings of the Ninth Circuit so long as there is no contrary United States Supreme Court decision. Zuniga, 812 F.2d at 450. Since the issue regarding the value of the IRS’s secured claim in Coby’s residence has not yet been appealed to and considered by the Ninth Circuit, the parties still have the opportunity to bring this matter before that court for its consideration and interpretation in light of Lo-mas.
Conclusion
For the reasons stated above, and in the interest of judicial economy, the Court finds it appropriate to grant the IRS’s motion for reconsideration, and to render a new and final decision that hypothetical costs of sale shall not be deducted from the IRS’s secured claim, overturning Coby I.
IT IS SO ORDERED.
. The United States' motion is not based upon any of the enumerated grounds for relief set forth in Rule 60(b). The only grounds upon which the motion could be considered are set forth in subsection (6); i.e., for any other reason justifying relief from the operation of the judgment.
. The Debtor has not objected to the timeliness of the United States’ motion for reconsideration.
. The Court agrees with the Debtor that the holdings in Lomas and in In re Mitchell, 954 F.2d 557 (9th Cir.1992), cert. denied, G.M.A.C. v. Mitchell, - U.S. -, 113 S.Ct. 303, 121 L.Ed.2d 226 (1992), at first glance at least, appear to be conflicting. However, the facts set forth in Lomas are almost identical to the facts in the instant case, and the holding in Lomas is directly on point with the issues to be reconsidered herein. The Court cannot ignore the Ninth Circuit’s holding simply because it may arguably be criticized. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491663/ | OPINION
PERRIS, Bankruptcy Judge:
Under a marital settlement agreement, the debtor, Thelma Spirtos, assumed one-half of a judgment debt owed by her ex-husband, Dr. Basil Spirtos (“Dr. Spirtos”) to the appellee, Irene Moreno. The debtor objected to Moreno’s proof of claim, contending that Moreno’s claim against her should be precluded or reduced by the damages she suffered because of Dr. Spirtos’ breach of the settlement agreement. The debtor appeals from the bankruptcy court’s order allowing Moreno’s claim for one-half of the amount of the judgment. We AFFIRM the bankruptcy court’s decision.
FACTS
On April 18, 1983, Moreno, as the guardian ad litem for Raymond Guerna, obtained a state court medical malpractice judgment against Dr. Spirtos in the approximate amount of $826,000. The debtor was not a party to the malpractice action and was not named in the judgment. In 1985, Moreno’s judgment against Dr. Spirtos was affirmed on appeal.
The debtor and Dr. Spirtos were married through April of 1983. In 1982, however, the debtor filed a petition in state court to dissolve their marriage. On July 1, 1983, the debtor and Dr. Spirtos entered into a Marriage Settlement Agreement (“MSA”), which divided their substantial liabilities and community property assets. Under the MSA, the debtor agreed, inter alia, to assume, pay, indemnify, and hold Dr. Spir-tos harmless from several debts, including the following:
An undetermined amount not to exceed one-half of the Civil Judgment in the ease of Moreno v. Spirtos, Case No. C242972. Husband and wife acknowledge that the community estate is liable for the payment of the judgment ... and that each party takes the property hereunder subject to said judgment, both individually and jointly.
In addition, the agreement contemplated the sale of several community assets in order to pay certain community debts and imposed upon Dr. Spirtos several continuing obligations, including the obligation to pay spousal and child support and to pay monthly mortgage payments, taxes and insurance on properties awarded to the debt- or pending the sale of certain other community assets. The MSA also provided that in the event the parties obtained an interlocutory judgment in the dissolution proceeding, the MSA would be submitted - to the court for its approval and all executory provisions of the MSA would be incorporated in and become part of the judgment.
On December 23, 1983, the state court entered an interlocutory judgment in the dissolution proceeding (“the interlocutory judgment”). The interlocutory judgment incorporated all pertinent provisions of the MSA.1 Pursuant to the interlocutory judgment, the debtor was awarded substantial community property. On March 2, 1984, the state court entered the final judgment of the dissolution of the marriage of Dr. Spirtos and the debtor. The debtor was represented by counsel at all phases of the dissolution proceeding, including the negotiation of the MSA.
The debtor contends that Dr. Spirtos failed to perform his obligations under the MSA in several substantial respects. The debtor contends that Dr. Spirtos’ breach of the MSA caused the foreclosure or forced sale of several properties, damaged the debtor in excess of $3,000,000 and precipitated the filing of her Chapter 11 petition.
The debtor filed her voluntary Chapter 11 petition on June 28, 1984.2 Moreno filed *553a proof of claim against the debtor’s estate in the amount of $828,576.78 plus interest and post-judgment costs. The debtor objected. The bankruptcy court initially determined that Moreno did not have a judgment lien against the debtor’s property and that the debtor’s property was not liable for the Moreno judgment by virtue of the fact that it was formerly community property.3 After trial,4 the bankruptcy court further determined that one-half of the Moreno judgment was assigned for payment by and unconditionally assumed by the debtor under the MSA. According to the court, this created a direct debtor/creditor relationship between the debtor and Moreno and the debtor, therefore, was not allowed to offset against the amounts due Moreno any damages arising from any breach of the MSA by Dr. Spirtos. The debtor filed this timely appeal from the bankruptcy court’s order allowing Moreno an unsecured claim for one-half of her judgment plus interest.
ISSUE
Whether the bankruptcy court erred in determining that Moreno’s enforcement against the debtor of that portion of the judgment debt assumed by the debtor under the MSA was not precluded or affected by any breach by Dr. Spirtos of his obligations under the MSA.
STANDARD OF REVIEW
This appeal turns upon questions of law concerning the interpretation and effect of the MSA under applicable law. We review such questions of law de novo. See In re U.S. Financial Securities Litigation, 729 F.2d 628, 631-32 (9th Cir.1984); In re Patterson, 86 B.R. 226, 227 (9th Cir. BAP 1988).
DISCUSSION
The debtor contends that Dr. Spirtos’ breach of the MSA prevents or impairs Moreno’s enforcement of the assumption provision of the MSA, which is the sole source of her liability to Moreno, for the following reasons: (1) the debtor’s agreement to assume part of the Moreno judgment was conditioned upon Dr. Spirtos’ performance under the MSA; and (2) the defenses or offsets that the debtor could assert against Dr. Spirtos because of his breach may be asserted against Moreno as a third party beneficiary of the MSA.5 Moreno contends that the debtor is not entitled to rely upon any breach of the MSA by Dr. Spirtos nor offset any damages arising from such breach against sums owed Moreno because the debtor unconditionally assumed liability for one-half of the Moreno judgment, thereby creating a direct debtor/creditor relationship with Moreno.6
*554Our resolution of this appeal turns upon the parties’ rights and obligations under the MSA and Cal.Civ.Code § 5120.160 (West Supp.1993) and whether the debtor’s assumption of the obligation was unconditional.
A. Section 5120.160(a).
California Civ.Code § 5120.160(a) provides that property received by a person in the division of community property is liable for a debt incurred by the person’s spouse during the marriage, and the person is personally liable for the debt, if the debt was assigned for payment by the person in the division of property.7 The parties do not dispute the bankruptcy court’s determination that § 5120.160(a) applies to this attempt to enforce the debt after the effective date of the section. See E.R. at 227-29; see also In re Chenich, 87 B.R. 101 (9th Cir.BAP 1988).
The plain language of section 5120.-160(a) imposes personal liability on a non-debtor spouse if payment of the debt is assigned to the nondebtor spouse in the division of community property. Although there is a paucity of cases construing this section, if the section is to have any meaning at all, it must necessarily confer upon creditors the right to enforce the personal liability of a nondebtor spouse to the extent the debt is assigned to that spouse for payment.
The debtor’s reliance upon the limitations of contract principles attempts to read into this section limitations which are not there. If the debt is assigned to a person for payment, the rights to enforce the personal liability of the assignee are created by section 5120.160(a)(3) and do not depend upon principles of contract law. The assignment or assumption of a debt pursuant to a division of property and section 5120.160(a)(3) create a direct debt- or/creditor relationship without regard to the rights of a creditor as a third party beneficiary of a marital settlement agreement.8 The determinative question, therefore, is whether the debtor unconditionally assumed part of the Moreno judgment or whether the assignment of the judgment to the debtor was contingent upon some unperformed condition.
B. Was the assumption conditional?
The MSA provides that one-half of the Moreno judgment is assumed by and assigned to the debtor for payment. We reject the debtor’s contention that her assumption was conditioned upon Dr. Spirtos’ performance under the MSA and since Dr. Spirtos breached the MSA, the assumption is not enforceable.
A condition is a fact, the happening or nonhappening of which creates or extinguishes a duty of performance on the part of the promisor. E.g., 1 B.E. Witkin, Sum *555mary of California Law, Contracts, § 721 (9th Ed.1987) (hereafter “Within, Contracts”)- A condition is distinguished from a covenant or promise to perform, the breach of which will give rise to a right of action for damages, but will not necessarily extinguish the obligation of performance. Within, Contracts, § 723.
There are essentially three types of conditions: (1) express conditions — those that are determined by the intention of the parties as disclosed in the agreement; (2) conditions implied in fact by the interpretation of the agreement and surrounding circumstances; and (3) constructive conditions, or conditions implied by law, irrespective of the parties’ intent, to avoid injustice. See Within, Contracts §§ 722, 739-741, 753, 757. Conditions are not favored and an intent to create a condition must appear expressly or by clear implication in the agreement. See, e.g. In re Bubble Up Delaware, Inc., 684 F.2d 1259, 1264 (9th Cir.1982); In re Marriage of Hasso, 229 Cal.App.3d 1174, 1181, 280 Cal.Rptr. 919, 923 (1991); Langford v. Eckert, 9 Cal.App.3d 439, 445, 88 Cal.Rptr. 429, 432 (1970).
There are two bases upon which courts find constructive conditions. The first is in bilateral contracts where the duties are to be performed at the same time and place, the law will ordinarily imply concurrent constructive conditions making each party’s obligation dependent upon the performance by the other. Within, Contracts § 753. This test looks to whether the covenants at issue are dependent or independent, which turns upon the intention of the parties as reflected in the agreement.9 See Verdier v. Verdier, 133 Cal.App.2d 325, 334, 284 P.2d 94, 99-101 (1955) (covenant in separation agreement “not to molest” spouse is not dependent upon covenant to pay support and breach of covenant not to molest will not bar action to recover support). Under another theory, in bilateral contracts for an agreed exchange, when one party has materially failed to perform his promise and the failure is excusable and therefore not a breach which would justify an action for damages, the other party’s duty to perform is discharged. See Within, Contracts, § 757. Thus, failure of consideration operates as a constructive condition on the theory that it is unjust to compel one party to perform when he does not receive the other’s performance and cannot recover damages on account of the other’s failure to perform. Id.
The debtor’s promise to pay part of the Moreno judgment is not conditional under any of these tests. The intent to condition the debtor’s obligation to Moreno upon Dr. Spirtos’ performance does not appear expressly in the agreement nor is there any sort of implication arising from the language or surrounding circumstances that such is the parties’ intent. Although the debtor’s promise to pay part of the Moreno judgment is part of the agreed exchange of property rights and obligations between the parties, there is no indication this particular promise is dependent upon the promises to pay support and make mortgage, property tax and insurance payments that Dr. Spirtos is alleged to have breached. The MSA does not require these promises to be performed at the same time or place. Given the principle that courts favor a construction of promises as independent, see Within, Contracts, § 756; Verdi-er, 284 P.2d at 100, a constructive condition does not exist on the basis that these promises are dependant.
Neither does a constructive condition exist on the basis that a failure of consideration makes it unjust to compel one party to perform when he does not receive the other’s performance. While this theory may apply in an action between the debtor and Dr. Spirtos, it should not apply as between the debtor and Moreno. The debt- or received substantial community property pursuant to the MSA which, at the time of the dissolution proceeding, was subject to Moreno’s judgment, as the MSA acknowledged. Even though .the debtor has not received all of the agreed performance *556from Dr. Spirtos, the debtor retains her rights to pursue Dr. Spirtos for any damages suffered by virtue of his failure to perform. Given these circumstances, there is nothing unjust about applying a portion of the community property received by the debtor to satisfy one-half of Moreno’s judgment. This is especially true given that fact that nothing in the MSA made the debtor’s obligation to Moreno contingent or conditional upon performance by Dr. Spir-tos. Any subsequent breach by Dr. Spirtos should not be used to imply a condition.
Because the debtor unconditionally assumed and agreed to pay one-half of the Moreno judgment, she became personally liable on the judgment pursuant to section 5120.160(a)(3). This section created a direct debtor/creditor relationship between the debtor and Moreno. Moreno’s rights under this section supports the allowance of her claim against the estate.
CONCLUSION
For the reasons set forth above, we AFFIRM the bankruptcy court’s order allowing Moreno’s claim for one-half of the amount of the judgment.
. All further references to the MSA refer to the agreement as incorporated into the dissolution judgment, unless the context indicates otherwise.
. Dr. Spirtos filed a Chapter 11 petition in 1987, which was converted to Chapter 7 in 1989. Moreno pursued collection of her judgment against Dr. Spirtos and in 1989 obtained $490,-*553076.56 from the sale of certain property owned by Dr. Spirtos.
. The parties do not dispute that under the law as it existed prior to 1985, the community property received by the debtor in the dissolution proceeding would have been liable for the Moreno judgment by virtue of the fact that it was formerly community property. The law, however, was changed by the enactment of Cal.Civ. Code § 5120.160(a) effective January 1, 1985.
. The debtor submitted several trial declarations detailing Dr. Spirtos’ breaches of the MSA. The bankruptcy court sustained Moreno’s objections to almost all of this evidence, determining that the debtor’s assumption of one half of the Moreno judgment was not dependent upon Dr. Spir-tos' performance or breach of the MSA.
. The debtor also argues that any contention that the MSA created a direct debtor/creditor relationship is contrary to the court’s initial ruling on the objection to the claim and the joint pre-trial order, which indicate that the debtor did not become personally liable on the judgment. This argument misconstrues the earlier ruling and the pre-trial order. The ruling and pre-trial order essentially establish that the debtor’s liability did not arise solely by virtue of the judgment against Dr. Spirtos. The liability of the debtor under the assumption in the MSA and Cal.Civ.Code § 5120.160 was not addressed.
.Moreno also contends that the merger of the MSA into the interlocutory judgment extinguished any executory conditional provisions of the agreement, thereby replacing the future performance obligations under the MSA with the obligations imposed by the judgment and effectively eliminated any conditions or contract defenses as a barrier to the enforcement of the interlocutory judgment. Because we determine that Moreno has a statutory rather than a contractual right to enforce her claim against the debtor and that the debtor unconditionally as*554sumed one half of the Moreno judgment, we need not address the effect of such a merger on the obligations under the MSA, on Moreno's rights as a third party beneficiary or on the availability of contract defenses arising from any breach by Dr. Spirtos.
. Section 5120.160(a) provides, in pertinent part, as follows:
Notwithstanding any other provision of this article, after division of community and quasi-community property pursuant to Section 4800:
(2) The separate property owned by a married person at the time of the division and the property received by the person in the division is not liable for a debt incurred by the person's spouse before or during the marriage, and the person is not personally liable for the debt, unless the debt was assigned for payment by the person in the division of the property....
(3) The separate property owned by a married person at the time of the division and the property received by the person in the division is liable for a debt incurred by the person's spouse before or during marriage, and the person is personally liable for the debt, if the debt was assigned for payment by the person in the division of property. (Emphasis added).
. The debtor contends that any right that Moreno has to enforce the debtor’s liability under the MSA and under the interlocutory judgment must necessarily be as a third party beneficiary of the MSA because persons who are not parties to litigation do not have the right to enforce judgments rendered in the litigation. Although the debtor may be correct that third parties may not generally enforce judgments, this argument ignores the rights granted to creditors under section 5120.160(a)(3).
. Because this type of constructive condition turns upon the intent of the parties as reflected in the agreement and surrounding circumstances, it is more properly characterized as an implied in fact condition rather than an implied in law or constructive condition. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491664/ | OPINION ON COMPLAINT
A. POPE GORDON, Bankruptcy Judge.
The debtor commenced this adversary proceeding on April 28, 1992 to determine the dischargeability of income taxes under 11 U.S.C. § 523(a)(1).
The parties submitted this proceeding to the court based on documentary evidence, oral arguments, and the parties’ joint pretrial statement filed November 2, 1992.1
The debtor filed a petition under chapter 7 on March 4, 1992. On April 2, 1992, Internal Revenue Service issued a statutory notice of tax deficiency to the debtor for the years 1981, 1982 and 1983 in the amounts of $6,762.50, 6,762.50, and $6,586.34, respectively.2
11 U.S.C. § 523(a)(1)(A) does not discharge income taxes “... not assessed before, but assessable, under applicable law or by agreement, after[], [sic] the commencement of the case.” 11 U.S.C. § 507(a)(7)(A)(iii).
The Service did not assess the income taxes referenced above prior to the commencement of the bankruptcy case.
The issue is whether the taxes are currently “assessable.” If the taxes are currently assessable, the taxes are excepted from discharge.
Generally, the Service has three years after a tax return is filed to assess a tax. 26 U.S.C. § 6501(a). However, the Service and taxpayer may agree in writing to extend the time for assessment. The agreement must be executed before the expiration of the time for assessment. See 26 U.S.C. § 6501(c)(4).
In the instant case, the debtor signed an agreement for each tax year in question designated “Special Consent to Extend the Time to Assess Tax” (Form 872-A). The *591debtor signed the agreements within the applicable limitation periods.3
With specified exceptions, the agreements extended indefinitely the time for the Service to assess the taxes.4 See In re Youngcourt, 117 B.R. 689 (M.D.Fla.1990) (similar agreement upheld).
The Service contends that the taxes are currently assessable because the extension agreements are in full force and effect.
The debtor concedes his execution of the extension agreements but contends that the agreements terminated in February 1987 or shortly afterward pursuant to paragraph 2 of each of the three agreements which provides in part as follows:
This agreement ends on the earlier of ... the assessment date of an increase in the above tax that reflects the final determination of tax and the final administrative appeals consideration.
The debtor is referring to the disposition of litigation relating to his tax liability for the years 1979 and 1980. The litigation ended in February 1987 by a ruling of the Eleventh Circuit Court of Appeals.5
If the debtor signed the agreements pending resolution of the above-referenced litigation, the debtor simply failed to terminate the agreements once the litigation ended.6
The debtor has not pointed out how under paragraph 2 the end of the litigation could otherwise have terminated the agreements. Indeed, the 1983 agreement was executed after the Eleventh Circuit case was decided.7
Under the debtor’s argument, the extension agreement relating to tax year 1983 terminated before it was executed. The debtor’s argument is inconsistent with his actions.
Even though the automatic stay currently prohibits the making of an assessment,8 the taxes are still “assessable” because the limitation period for assessments has not run.9
The taxes are not discharged.
A separate order in consonance with this opinion will enter.
. This is a core proceeding under 28 U.S.C. § 157(b)(2)(I).
. The filing of a petition does not operate as a stay of "the issuance to the debtor by a governmental unit of a notice of tax deficiency." 11 U.S.C. § 362(b)(9).
.The filing dates of the debtor’s returns, the assessment bar dates, and the dates of the extension agreements are as follows:
Tax Year Date of Agreement Tax Return Filing Date Assessment Bar Date
1981 December 27, 1984 April 15, 1982 April 15, 1985
1982 December 13, 1985 April 15, 1983 April 15, 1986
1983 August 17, 1984 May 11, 1987 August 17, 1987
. For example, either the debtor or the Service could terminate the agreements upon 90 days notice by executing a "Notice of Termination of Special Consent to Extend the Time to Assess Tax” (Form 872-T). Neither party elected to terminate the agreements by executing a Form 872-T.
. See Blake v. Commissioner, 808 F.2d 1454 (11th Cir.1987), decided February 2, 1987. At issue was the debtor’s tax liability on periodic payments pursuant to a divorce settlement. The parties assert that the ruling is applicable to the debtor’s tax liability for the years 1981 through 1983 on similar payments.
. See supra note 4.
. The extension agreement for 1983 taxes was executed in May 1987; the case was decided in February 1987. See supra note 3.
U.S.C. § 362(a)(6) stays "any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title.” 8.
. The agreements provide the following:
[I]f a notice of deficiency is sent to the taxpayer(s), the time for assessing the tax ... will end 60 days after the period during which the making of an assessment was prohibited.
This provision is consistent with 26 U.S.C. § 6503(a) which provides as follows:
The running of the period of limitations provided in section 6501 or 6502 on the making of assessments ... [shall] be suspended for the period during which the Secretary is prohibited from making the assessment ... and for 60 days thereafter. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491665/ | MEMORANDUM DECISION AND ORDER DENYING MOTIONS OF JOSEPH R. BERGMANN, ASAD BAK-IR AND CHARLES J. TREMONTI PURSUANT TO BANKRUPTCY RULE 9014 TO MAKE BANKRUPTCY RULE 7023 APPLICABLE
A. JAY CRISTOL, Bankruptcy Judge.
THIS CAUSE came before the Court in Miami, Florida on January 19, 1993 and February 16, 1993, upon Motions (“Motions”) filed by Joseph R. Bergmann, Asad Bakir and Charles J. Tremonti (collectively the “Claimants”) (C.P. 4998, 5246) pursuant to Federal Rule of Bankruptcy Procedure 9014 to make Federal Rule of Bankruptcy Procedure 7023 applicable to their respective responses to claims objections filed by Atlantic Gulf Communities Corporation, f/k/a General Development Corporation and its Debtor Subsidiaries (the “Debtors”). The Court has considered the Motions, the argument of counsel and the legal memoranda which have been submitted by counsel for the Debtors, the Claimants, and the Claims Committee. For the reasons stated below, the Court declines to apply the Class Action procedure set forth in Fed.R.Bankr.P. 7023 to the Claimants’ responses to claims objections.
BACKGROUND
These Motions come before the Court in conjunction with the response filed by each of the Claimants to one of three objections to claims filed by the Debtors, captioned respectively:
1. Debtors’ First Omnibus Objection to Certain Pre-1983, Third Party and Not-In-System Housing Claims for Purposes of Distribution and Allowance Under Plans (the “Pre-1983 Objection”);
2. Debtors’ Omnibus objection to Certain Non-Restitution Program Housing Claims for Purposes of Distribution and Allowance Under Plans (the “Non-HRP objection”); and
3. Debtors’ Omnibus Objection to Certain Non-Resolved Homesite Claims for Purposes of Distribution and Allowance Under Plans (the “Homesite Claims Objection”).
As evidenced by certificates of service filed by Debtors’ counsel, service of each Objection was made upon each claimant listed in each objection and each was served with notice of the procedure and time deadline for responding to the Objection, all in accordance with the Court’s *603Standing Order Establishing Procedures For Objections To Claims And Estimation Of Claims (“Standing Order”) entered July 31, 1991.
Bergman filed a response to the Pre-1983 Objection; Bakir filed a response to the Non-HRP Objection; and Tremonti filed a response to the Homesite Claims Objection. Each of the responses, in addition to responding to the objection to the claim of the named respondent, also asserted a class response on behalf of certain other claimants named in the respective Objections.
In the Pre-1983 Housing Objection, the Debtors objected to the allowance of certain proofs of claim filed by claimants who had purchased houses from the Debtors prior to 1983 on the grounds that the Debtors did not have any liability to those claimants or, that if any liability did at one time exist, such liability was extinguished by the applicable statute of limitations.1
In the Non-HRP Objection, the Debtors objected to and sought to reduce claims filed by certain claimants who purchased houses from the Debtors subsequent to January 1, 1983, to amounts which were consistent with the treatment afforded similarly situated claimants who participated in the Housing Restitution Program administered by Special Master Thomas Wood.
The Debtors’ Homesite Claims Objection sought to either reduce or disallow, where appropriate, certain non-resolved homesite claims which were filed as a result of terminated or rejected homesite contracts. Of the claims originally listed in this Objection, approximately 105 claims arose from homesite contracts which were terminated as a result of the purchasers' default under the homesite contracts; the remaining claims arose from homesite contracts which were rejected by the Debtors pursuant to Section 365 of the Bankruptcy Code.
Tremonti’s “class response” was originally filed on behalf of all claimants listed in the Homesite Claims Objection. Tremon-ti’s response is now limited to the claimants whose claims arose from terminated, as opposed to rejected, homesite contracts.2
The number of responses filed to each objection, based upon the record in the Court, are:
1. Pre-1983 Objection (including Berg-mann) — 40
2. Non-HRP (including Bakir) — 10
3. Homesite Objection (including Tre-monti) — 6
DISCUSSION
The Court’s consideration of the relief requested in the Motions focuses on two main issues:
(a) whether a class response to objections to individual proofs of claim is appropriate; and
(b) whether class action procedures are appropriate under the facts pertaining to these Objections.
After considering both of these issues, the Court finds that the application of class action procedures is neither warranted nor appropriate and declines to apply Fed. *604R.Bankr.P. 7023 to the Claimants’ responses to the Objections.
A. Propriety of A Class Response
Fed.R.Bankr.P. 7023 provides that Fed.R.Civ.P. 23, which governs class actions, automatically applies in adversary proceedings. An objection to a proof of claim is a contested matter, not an adversary proceeding, and is not subject to Fed. R.Bankr.P. 7023, unless it is coupled with a demand for relief under Fed.R.Bankr.P. 7001. No such relief is sought in any of the Objections. The Court, however, in its discretion may direct that Fed.R.Bankr.P. 7023 apply to a contested matter. In Matter of GAC Corp. 681 F.2d 1295, 1299 (11th Cir.1982). For the reasons set forth below, the Court elects not to exercise such discretion as to the Objections.
Each claimant listed in each Objection was served with a copy of the Objection and with a notice setting forth the procedures for responding to the Objection. The notice clearly advised claimants of the need and requirement that each file a written response should such claimant wish to contest the relief sought by the Debtors in the Objection. Some of the claimants named in each Objection elected to file timely responses and thus preserve their right to contest the objection to their claims. Others elected not to respond for reasons the Court has no knowledge of and does not believe necessary to make inquiry of.
The Court does not accept Claimants’ argument that the Court should disregard its Standing Order and apply class procedures to the Objections simply because certain claimants elected not to file responses to the Objections. To the extent that certain claimants elected not to contest the disallowance or reduction of their claims as sought by the Debtors in the Objections, this Court does not believe that it is appropriate to permit the resurrection of those claims by the Claimants’ filing of class responses.
The Court is well aware of the utilization of class procedures in bankruptcy. See, e.g., Matter of Retirement Builders, 96 B.R. 390 (Bankr.S.D.Fla.1988). However, in Matter of Retirement Builders, which was decided by this Court, as well as the cases of In re Charter Co., 876 F.2d 866 (11th Cir.1989) and Matter of American Reserve Corp., 840 F.2d 487 (7th Cir.1988), the issues addressed by the courts was whether to permit the filing of a class proof of claim, not a class response.3 Moreover, the Courts were not asked, as here, to address class issues which were raised for the first time nine months after confirmation of a plan of reorganization.
In these cases, the proof of claim originally filed by each of the Claimants was filed as an individual and not as a class proof of claim. In conjunction with the filing of the Motions, the Claimants also filed a joint motion for leave to amend each of those individual proofs of claim to class proofs of claim. This Court on February 26, 1993, entered an Order Denying Motion For Leave to Amend, in which each of the Claimants was denied the right to amend their respective individual proof of claim to a class proof of claim. As the proof of claim filed by of each of the individual claimants is not a class proof of claim the cited cases are not determinative of the issue here presented.
Claimants have asserted that each of the Objections is a “class objection.” It is clear from a review of each of the Objections that each is an objection to individual claims. The fact that certain objections were combined in a single pleading does not convert those individual objections to a “class action.” Moreover, Federal Rule of Civil Procedure 23 speaks in terms of “actions,” not “responses.” The Rule provides that a class “may sue or be sued.” *605The Rule does not address the issue of a class response to individual objections.
Although counsel for the Claimants was unable to direct the Court to any legal authority which addresses the issue of filing a class response to a claim objection, counsel for the Claims Committee did identify two decisions by Judge Galgay in which the issue was raised. See In re REA Express, Inc., 10 B.R. 812 (Bankr.S.D.N.Y.1981); In re W.T. Grant, Co., 24 B.R. 421 (Bankr.S.D.N.Y.1982). Neither of these cases lend support .to the Claimants’ position. Indeed, Judge Galgay’s reasoning, especially in In re W.T. Grant, supports this Court’s conclusion that a class response is not appropriate under the facts of this case.
In In re REA Express, approximately 1,000 non-unionized employees filed individual claims. Rather than object to these individual claims, the trustee filed a motion to disallow, reduce and reclassify all of the claims. Two of the affected employees then asserted a class response, asserting as a basis for such action that the trustee’s motion did not address the claims of specific individuals. Based upon findings that the trustee did not oppose a class response and that the issues presented were of a nature applicable to all affected claimants, Judge Galgay permitted the class response to stand. The facts in this case differ from those presented in In re REA Express in three fundamental respects. First, here the Debtors have objected to individual claims. Second, and dispositively, the issues presented to this Court are primarily fact intensive as to each claimant. Third, each claimant whose claim is objected to by the Debtors received notice of a bar date for filing a response to such claims objection and thus was provided the opportunity to respond.
Judge Galgay’s decision in In re W.T. Grant is even more instructive. In that case, 3,393 terminated employees filed proofs of claim for severance benefits. 3,331 of the original 3,393 terminated employees accepted the trustee’s calculations of the amounts due them and received checks containing a “full settlement” recitation. When the remaining employees and the trustee did not reach agreement as to the allowable amount of their claims, the trustee filed objections. One of the claimants, Massey, as to whose claim an objection was filed sought class certification not only on behalf of those employees whose claims had been objected to but also on behalf of the 3,331 employees who had accepted the trustee’s checks. Massey asserted the “settlement” checks should not estop those 3,331 employees from being part of the class because their “waiver” of any further claims was the result of mistake or procured by fraud. Judge Galgay, in denying class certification, rejected these arguments, and concluded that as Massey was not one of those who had waived their claims, she was not representative of such class. 24 B.R. at 425. Additionally, the Court determined that only 33 employees had responded to the trustee’s objections, and stated:
The putative class, then, which Massey could represent, properly comprises only those 33 former Grant employees who were of retirement age at the time of their discharge and who have disputed the trustee’s calculations of their severance pay claims, (emphasis added)
Id. at 425. The Court then denied class representation for lack of numerosity. Id. at 426.
Here, those claimants who did not elect to file responses to the Debtors’ claims objection have waived their right to contest the treatment afforded their claims by the Debtors. The Claimants, all of whom have filed timely responses, cannot be deemed representative of these parties merely because they are all identified on the same exhibit attached to the Debtors’ claims objections.
Having determined that Claimants cannot represent those claimants who did not file timely responses to the Debtors’ claims objections, the Court next must address whether a class response should be permitted on behalf of those claimants who have already preserved their right to contest the Debtors’ objections to claims by filing a response. The Court is sensitive to *606the rights and ability of claimants who have filed responses to the Debtors’ claims objections to have their day in court. Even if Claimants can meet the numerosity requirement for class actions under Fed. R.Civ.P. 23(a), which the Court does not believe they can, the Court is not persuaded that allowing class action procedures is appropriate as to those claimants who have elected to file independent responses, and especially when several of the claimants who have filed responses are already represented by counsel. Others have filed responses which provide significant information supporting the validity of their original proofs of claim. As those responding claimants have already shown themselves capable of filing their own independent responses it is unnecessary to impose class procedures which may have the effect of prolonging rather than expediting resolution of the Objections.
Accordingly, the Court does not find that the facts presented to it warrant the application of class procedures, even limited to the population of claims where responses to claims objections have been filed.
B. Class Action Procedures Are Not Appropriate For The Adjudication Of Fraud Claims In These Cases
The Court is aware of the Claimants’ claim that they will be able to establish a systematic scheme of fraudulent behavior perpetrated by the Debtors in connection with the sale of houses and home-site lots. While the Court does not find that class actions are not appropriate, under any circumstances, in connection with fraud actions, the Court is concerned with respect to the instant cases, which involve individual sales transactions. The Court notes that other courts have found that the necessity for individualized proof in fraud cases makes maintenance of a class action inefficient and impracticable. See Darms v. McCulloch Oil Corp., 720 F.2d 490, 493 (8th Cir.1983). The Florida Supreme Court has held that actions alleging fraud based upon separate contracts present, as a matter of law, inherently diverse issues which make the application of class action procedures inappropriate. Lance v. Wade, 457 So.2d 1008, 1011 (Fla.1984).
Here, even if Claimants could demonstrate that the alleged fraudulent representations and practices of which they complain were uniform as to all affected claimants, the Court has serious doubts as to whether such uniformity could be established with respect to the elements of reliance, causation or damages which would need to be established with respect to each class member. While there indeed may be evidence which could be applicable to the sales transactions of each affected claimant, it is the potential factual distinctions which permeate each sales transaction which the Court finds fatal to the Claimants’ ability to prosecute affirmative class claims based upon fraud.
Accordingly, the Court having considered the arguments presented by counsel and being otherwise duly advised in the premises, and for the reasons set forth above, it is
ORDERED AND ADJUDGED as follows:
1. That the respective Motions of Joseph R. Bergmann, Asad Bakir and Charles J. Tremonti pursuant to Federal Rule of Bankruptcy Procedure 9014 to make Federal Rule of Bankruptcy Procedure 7023 applicable to their responses to claims objections filed by the Debtors be and hereby are DENIED, without prejudice to the right of the Claimants to obtain adjudication of their individual responses to the Objections to their respective proofs of claim;
2. That the Debtors’ Objections to the claims of those claimants who have filed timely responses to the Debtors’ Pre-1983 Objection, Non-HRP Objection and Home-site Claims Objection will be scheduled for further evidentiary hearing before the Court;
3. That the Debtor’s Pre-1983 Objection, Non-HRP Objection, and Homesite Claims Objection are each sustained as to the claimants named therein who failed to timely file responses to such Objections, *607and the Debtors shall submit separate orders sustaining each of said Objections.
DONE AND ORDERED.
. The Debtors had also objected to certain housing claims filed by claimants who purchased their houses from parties other than the Debtors, or whose claims failed to provide sufficient information to permit the Debtors to identify the underlying housing contract or confirm the validity of such claims. The Bergmann "class response” did not seek to include these claimants; and on February 2, 1993, the Court entered an Order sustaining the Pre-1983 Housing Objection as to such claims if no response had been timely filed.
. On February 2, 1993, the Court entered an Order Sustaining Debtors' Omnibus Objection to Certain Non-Resolved Homesite Claims, which Order disposed of the Debtors' objection to non-resolved homesite claims arising from rejected contracts as to which no responses had been filed. Debtors also withdrew their objection as to certain of the homesite claims originally the subject of their Homesite Claims Objection. The Debtors have advised the Court that they will be withdrawing their Objection as to an additional 41 homesite claims arising from terminated contracts based upon the Debtors’ identification of these claims as having been resolved by this Court’s October 23, 1992 Order (1) Approving Terms of Settlement of Say Class and (2) Authorizing 6DC to Make Interim Distributions to Say Class Members and Certain Other Creditors ("Say Order”) and January 27, 1992 Standing Order Granting Authority to Designate Certain Claims as Released on Official Claims Registry ("HPAP Claims Release Order”).
. As pointed out by this Court in Matter of Retirement Builders, the filing of a class action proof of claim by a class representative "would avoid the necessity of clerks processing several thousand claims.” 96 B.R. at 397. Here, the hundreds of proofs of claim at issue have already been filed and processed. As stated by the bankruptcy court in In re Woodmoor, 4 B.R. 186, 189 (Bankr.D.Colo.1980), these "claims can be conveniently and expeditiously managed by following normal bankruptcy procedures.” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491666/ | No opinion found. Click here to view source material. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491677/ | ORDER ON MOTION TO DISMISS
ALEXANDER L. PASKAY, Chief Judge.
THIS is a Chapter 7 liquidation case and the matter under consideration is a Motion to Dismiss this Chapter 7 case. The Motion is filed by James R. Yeskett (Yeskett), a creditor of Gregory F. Limpert (Debtor) who contends that the Debtor is ineligible for relief under the Bankruptcy Code inasmuch as he had a previous Chapter 13 case, which was dismissed within 180 days of the date of the filing of this case. The facts relevant to resolution of this controversy as established by the record are as follows:
The Debtor filed for relief under Chapter 13 of the Bankruptcy Code on February 16, 1992. This ease was assigned case number 92-2490-8P3. On October 26, 1992, this Court held a confirmation hearing to consider the Debtor’s Chapter 13 plan. The United States Government (Government) filed an Objection. The Government objected to the Debtor’s Plan on the ground that the Debtor’s Plan made no provision for the payment of the priority tax claim of the Government. On November 9, 1992, this Court entered an Order and denied Confirmation of the Debtor’s Plan and dismissed the Chapter 13 case.
It is without dispute that the present case was filed within 180 days of the dismissal of the first Chapter 13 case. On December 23, 1992, the Debtor filed the present case, but at this time under Chapter 7 of the Bankruptcy Code.
Based on the foregoing undisputed facts, Yeskett contends that the Debtor is not eligible for relief pursuant to § 109(g) of the Bankruptcy Code, which provides in pertinent part, as follows:
§ 109. Who may be a debtor
(g) Notwithstanding any other provision of this section, no individual or family farmer may be a debtor under this title who has been a debtor in a case pending under this title at any time in the preceding 180 days if—
(1) the case was dismissed by the court for willful failure of the debtor to abide by orders of the court, or to appear before the court in proper prosecution of the case; or
(2) the debtor requested and obtained the voluntary dismissal of the case following the filing of a request for relief from the automatic stay by section 362 of this title.
Upon review of the record of both the first Chapter 13 case and the second Chapter 7, it is clear that the first chapter 13 *794case was dismissed because of the Debtor s failure to propose a Plan which provided for proper and adequate treatment of the Government’s tax claim, and therefore, failed to meet the requirements of § 1322(a)(2). This being the case, it appears that the Chapter 13 case was not dismissed because the Debtor willfully disobeyed an order of this Court, but instead the first case filed by the Debtor was dismissed based on the finding that the proposed Chapter 13 plan and did not meet the requirements set .forth in § 1322 of the Bankruptcy Code.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion to Dismiss filed by James Yeskett is hereby denied.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491678/ | ORDER DENYING MOTION FOR EX-PARTE HEARING
MARY D. SCOTT, Bankruptcy Judge.
THIS CAUSE is before the Court upon a document entitled “Motion for Ex-Parte Hearing” filed on June 1, 1993. Although the debtor is now represented by counsel, the motion was filed in a pro se manner on behalf of both Mrs. and Mr. Robinson. Once again, Mrs. Robinson is confused by the procedure which must be followed. First, this adversary proceeding was dismissed and is a closed case. Secondly, as she was previously advised, since she is not an attorney, she may not represent her husband. In addition, she may not submit documents representing herself while she is represented by counsel. Thirdly, it appears from the content of her motion that her counsel has given her correct information, but the debtor imperfectly understands the import of the information. Fourth, a motion for an ex-parte hearing is improper in these circumstances. Were this an open case, it would proceed in the manner contemplated by the Federal Rules of Bankruptcy Procedure absent the proper showing for emergency relief. In this instance, the debtor has failed to set forth sufficient facts or circumstances to provide the relief requested. Inasmuch as there is no basis for the motion, it is
ORDERED that the “Motion for Ex-parte Hearing” filed on June 1, 1993, is DENIED.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491679/ | MEMORANDUM OF DECISION
JAMES A. GOODMAN, Chief Judge.
This Court must decide whether to dismiss this involuntary bankruptcy petition for failure of the requisite number of petitioners to file the petition in accordance with 11 U.S.C. § 303. The simple, uncontested facts are taken from the parties’ joint stipulation and the record of this case.
Dragon Products Company (“Petitioner”) filed this involuntary Chapter 7 petition pursuant to § 303 against Structure & Design, Inc. (“S & D”) on November 25, 1992. Petitioner holds a non-contingent, undisputed claim of $6,896.19 against S & D, and was the sole petitioner at the time of filing.1 As its sole defense, S & D has al*4leged that it has twelve or more creditors and that the petition should be dismissed due to Petitioner’s failure to comply with § 303(b), which requires an involuntary petition to be filed by at least three qualified creditors if the debtor has twelve or more creditors. S & D in fact had approximately one hundred creditors at the time of filing.
Prior to filing the petition, Petitioner’s counsel contacted his client’s credit manager to inquire of his knowledge of the number of S & D’s creditors. The credit manager indicated “that he was unaware of any such claims against the debtor, other than that of [the Petitioner.]” Stipulation of Fact, Dkt. # 18 at 1. This was the only effort taken by either Petitioner or its counsel to verify the number of S & D’s qualified creditors. While unaware of the specific number of creditors, Petitioner and its counsel both believed there were fewer than twelve.
There is no allegation that Petitioner engaged in bad faith or fraudulently attempted to confer jurisdiction on this Court by filing the petition alone, hoping to later remedy the deficiency with intervening creditors; nor does S & D claim that Petitioner knew the large number of existing creditors. Rather, S & D contends that the petition should be dismissed because Petitioner and its counsel could have easily discovered the large' number of creditors, and therefore should have known that there were twelve or more.
F.R.Bky.P. 1003(b) anticipates this very situation:
If the answer to an involuntary petition filed by fewer than three creditors avers the existence of 12 or more creditors, 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. If it appears that there are 12 or more creditors as provided in § 303(b) of the Code, the court shall afford a reasonable opportunity for other creditors to join in the petition before a hearing is held thereon.
In this case, two creditors joined the involuntary petition within a reasonable time. Both creditors intervened within fifteen days of S & D’s answer wherein it first asserted its defense and at least three weeks before S & D had even filed its list of creditors.
Despite creditors’ general right of intervention pursuant to § 303(c) and the language in Rule 1003(b) which contemplates joinder of additional creditors in all circumstances, many courts have carved out a “bad faith” exception. “While an involuntary petition may be cured after filing when a single creditor files in good faith believing the debtor has fewer than twelve creditors, a single creditor may not file an involuntary petition knowing the debtor has twelve or more creditors.” Basin Electric Power Coop. v. Midwest Processing Co., 769 F.2d 483, 486 (8th Cir. 1985) cert. denied, 474 U.S. 1083, 106 S.Ct. 854, 88 L.Ed.2d 894 (1986). Thus, if Petitioner filed this involuntary petition alone in bad faith, this Court should prevent other creditors from curing the defect.
However, there is no indication that Petitioner acted in bad faith. A debtor who asserts this as an affirmative defense has the burden of overcoming the general presumption that a petitioning creditor acted in good faith. In re LaRoche, 131 B.R. 253, 256 (D.R.I.1991), affd., 969 F.2d 1299 (1st Cir. 1992) (citations omitted); See also In re Crown Sportswear, Inc., 575 F.2d 991 (1st Cir.1978). S & D has not alleged that Petitioner acted in bad faith, but has simply referred the Court to all the steps Petitioner could have taken to discover the large number of creditors.
The facts of this case closely resemble those in Crown Sportswear, wherein the petitioner’s attorney contacted a woman in his client’s credit department who had no information regarding the number of creditors. The attorney also obtained a copy of the debtor’s assignment for the benefit of creditors, which also proved to be of no use in determining the number of creditors. Upon reviewing debtor’s allegation of bad *5faith, the Court of Appeals for the First Circuit found that there was no evidence of bad faith despite the “cursory investigation” undertaken by the petitioner.
Here, S & D has not claimed bad faith, let alone sustained its burden of proving its existence. Petitioner mistakenly believed that S & D had fewer than twelve creditors. Although there were several simple steps Petitioner could have taken to dispel that belief, it does not change the fact that Petitioner filed the involuntary petition in good faith.
S & D’s motion to dismiss the involuntary petition pursuant to Rule 1003(b) is denied.
The foregoing constitutes findings of fact and conclusions of law pursuant to F.R.Bky.P. 7052.
. Subsequently, two additional creditors moved to join the involuntary petition — American Arbi*4tration Association on December 16, 1992 and W.W. Grainger, Inc. on December 29, 1992— both which hold admittedly non-contingent, undisputed claims against S & D. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491680/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
MARY D. SCOTT, Judge.
THIS CAUSE came before the Court upon the complaint to determine discharge-ability, filed on October 21, 1992. The plaintiff, Robert Jeremy Hawk, the son of the debtor Robert Follett, alleges that the debtors defrauded him by misappropriating insurance proceeds he received in settlement of a damage claim. See 11 U.S.C. § 523(a)(2)(A), (a)(4). In addition to objecting to the dischargeability of the debt, the plaintiff requests that this Court reduce the debt to judgment.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(a), 1334. The objection to dischargeability is a “core proceeding” within the meaning of 28 U.S.C. § 157(b) as exemplified by 28 U.S.C. § 157(b)(2)(I) such that the Bankruptcy Court may enter judgment on the dis-chargeability claim. However, the request to reduce the debt to judgment is a noncore proceeding, judgment for which must be entered by the district court. 28 U.S.C. § 157(c).
The plaintiff in this case is Robert Jeremy Hawk, a resident of the State of New Hampshire, and the son of the debtor Robert Bruce Follett. Plaintiff was previously known as Robert Stephen Follett. Plaintiff, now twenty-four years of age, was seriously injured at the age of ten when he was struck by a car. As a result of the injuries sustained in the accident, the plaintiff suffers certain cognitive disabilities which impair his judgment, his ability to learn and ability to reason. Subsequent to the accident, he resided with his father, Robert Follett.
As a result of the automobile accident, a structured settlement was entered into by the parents of the plaintiff, through an attorney, Mr. Joel Labell, of Lawrence, Massachusetts. As a final payment on the structured settlement, Aetna Life and Casualty issued a check dated May 1, 1987, in the sum of $39,585, payable to “Robert Follett, Jr.” On May 11, 1987, Robert Fol-lett and his fiancee, Ginger, took plaintiff, now eighteen years old, to the attorney’s office at which time Mr. Labell delivered the check to the plaintiff.
From the attorney’s office, the debtors drove plaintiff to the bank where plaintiff was directed by his father to endorse the check to the father. Later, when plaintiff quizzed the debtors about the monies, he was advised that the debtors were going to “borrow” it to buy property or “invest” it for plaintiff by buying certain property. On June 9, 1987, the debtors purchased land in Milan, New Hampshire for $28,000. No purchase money mortgage was recorded in connection with that transaction; they paid cash. Debtors claim that they saved the money to purchase the house.
In January 1988, the debtor attended a meeting at his son’s school regarding his son’s special education needs. When directly questioned regarding an insurance settlement, he stated that he had “invested” the money in land in Milan. The property in Milan was later sold for $55,000. April 1989, the defendants left the state of New Hampshire, moving to Arkansas, leaving plaintiff in New Hampshire.
*32The elements of fraud in a dis-chargeability issue are as follows:
(1) the debtors made the representations;
(2) that at the time the debtors made the representations, they knew them to be false;
(3) that the debtors made the representations with the intention and purpose of deceiving the creditor;
(4) that the plaintiff relied on such representations;
(5) that the plaintiff sustained the alleged loss and damage as the proximate result of the representations having been made. See Thul v. Ophaug, 827 F.2d 340, 342 & n. 1 (8th Cir.1987).
Generally, fraudulent intent is the most difficult element for the plaintiff to prove because it must be established by circumstantial evidence. When the creditor introduces circumstantial evidence proving the debtor’s intent to deceive, the debtor cannot overcome that inference with an unsupported assertion of honest intent. In this instance, the Court is presented with a situation in which the plaintiff is of a lower learning capacity. Proof of fraud in this case was further complicated by the fact that the plaintiff suffers from certain cognitive impairments as a result of the motor vehicle accident.
Despite the difficulties of proof inherent in such a fact situation, the evidence was clear that the debtors committed fraud. The defendants induced or otherwise compelled the plaintiff to pay over his insurance proceeds to them. The debtors represented to plaintiff that they were borrowing or investing funds for his benefit, but in fact they had no intent to repay the plaintiff. Robert and Ginger Follett took the money of the plaintiff, an impaired young man, for their own benefit. They left him penniless, and dependent upon only a small Social Security check.
Not only did the debtors misrepresent with an intent to defraud, the debtors were acting in a fiduciary role. Robert Follett is the natural father of the plaintiff; Ginger Follett is the step-mother of the plaintiff. Plaintiff, an impaired individual requiring extensive supervision and assistance in life skills as well as money management, lived with the debtors at the time he received the insurance settlement. No more protective role can be found in fact or under the law than that of a parent to a child, particularly a child who suffers cognitive impairment. In this instance, the father and his wife took the only material asset which the plaintiff had. A trust relationship existed when the proceeds were taken and continued throughout the course of events described in the complaint. See generally Consolidated Oil & Gas, Inc. v. Ryan, 250 F.Supp. 600 (W.D.Ark.1966), aff'd, 368 F.2d 177 (8th Cir.1966).
While the debtors deny they had anything to do with the check, their testimony is not credible. The Court finds the debtors to be untruthful. For example, Robert Follett’s denial that he endorsed the check or the receipt for the monies is belied by a comparison with signatures he admits are his. Robert Follett flatly denied even taking his son to the bank. This statement was contradicted by the one truthful statement uttered during the proceedings: Ginger Follett excitedly indicated that they had taken plaintiff to the bank. At that point, the Court observed Mr. Follett signal to his wife to change her testimony, whereupon she quickly recanted her previous sentence. This behavior, as well as their demeanor and the content and inconsistencies in their testimony, evidences the debtors’ indifference to the oath administered in the proceedings.
Further evidence of the debtors’ untruthfulness is Ginger Follett’s testimony regarding tax fraud. Ms. Follett claimed to have saved over $10,000 in the course of a year, all of which was paid to her “under the table.” This money was purportedly saved in order to purchase the property in Milan, New Hampshire. These admittedly unreported funds were purportedly the source of the funds for purchase of the property, not the son’s insurance proceeds. While the Court does not believe the debtors saved $28,000 for the Milan, New Hampshire property, the Court can believe the debtors committed tax fraud.
*33It is overwhelmingly clear to the Court that the debtors appropriated the plaintiffs money, misrepresenting to him that they were merely “borrowing” or “investing” the funds for him. These statements were false when they were made, and the debtors knew they were false. They intended to appropriate the insurance proceeds for their own benefit to the detriment of a virtual child, their own child. As a result, the plaintiff was damaged in the sum of $39,585. Accordingly,
ORDERED that judgment will be entered determining that the debt owed by the debtors to plaintiff is nondischargeable. It is
FURTHER ORDERED that the clerk shall prepare a transcript of the trial in this matter and deliver it to the Office of the United States Attorney for investigation of the tax matters with regard to which Mrs. Follett testified.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491682/ | ORDER ON MOTION FOR SUMMARY JUDGMENT
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 liquidation case and the matter under consideration is a Complaint to avoid certain payments by the Debtor as preferential transfers pursuant to § 547(b) of the Bankruptcy Code. The one-count complaint against Pen Air Conditioning, Inc., (Defendant) was originally filed by Winsco Builders, Inc. (Debtor). Subsequently, because the Chapter 11 case converted to one under Chapter 7, the Chapter 7 Trustee of the estate substituted herself as Plaintiff in this adversary proceeding.
The Complaint originally filed by the Debtor alleges that within the 90-day preference period the Debtor paid the Defendant a total of $18,564.75 by five separate checks; that these payments were made while the Debtor was insolvent; and were made on account of an antecedent debt owed to Defendant by the Debtor. Finally, it is alleged that if these payments are not avoided, the Defendant would receive on its claim more than it would receive in this Chapter 7 case.
The Defendant concedes in its Answer that it did receive payments within the 90 day preference period, but it contends that it only received four payments totaling $12,690.42. The Defendant asserts two affirmative defenses: first, that two of the checks represented construction draws issued by the owner payable to both the Debtor and the Defendant and thus, are not property of the estate; and second, that the Defendant furnished “new value” to the Debtor subsequent to the payments by the remaining two checks in the amount of $14,236.94, and that this amount should be offset against the funds it received during the 90 day preference period pursuant to § 547(c)(4).
The Debtor filed a Motion for Summary Judgment contending that there are no genuine issues of material facts and that it is entitled to a judgment in its favor, as a matter of law. The facts relevant to the resolution of this controversy, as set forth in the record, are as follows:
At the time relevant, the Debtor was engaged as a general contractor, building new or improving previously-built real properties. During the course of its business, the Debtor entered into a contract with the Defendant for the purchase of materials on open account. It was understood between the parties that the Debtor would pay the Defendant the outstanding balance on about the 20th of every month following the work completed during the previous month. It is without dispute that the Debtor failed to live up to the arrangement. On December 26, 1991, the Defendant requested payment in the amount of $20,868.00 based on the initial draw on a construction project known as the Doane Building. On February 19, 1992, the Debt- or made only a partial payment by check # 1254 of the amount requested in the amount of $1,500.00.
On December 31, 1991, the Defendant submitted another invoice in the amount of $5,874.36, regarding payment based on the initial draw on another construction project, known as the Penzo project. On January 3, 1992, the Defendant submitted another invoice in the amount of $2,316.06 for the initial draw on a third construction project known as the Dickerson project. The Penzo and Dickerson property owners, in order to avoid the imposition of mechanic's liens upon their property by the Defendant, paid for the material furnished by the Defendant on their respective projects by way of checks made payable jointly to the Debtor and to the Defendant. The Debtor requested that the Defendant endorse the joint checks in order to deposit same into its general account. The Defendant complied. On January 3, 1992, the Debtor issued two checks payable to the Defendant, check # 10453 in the amount of $2,316.06 *100and check # 10442 in the amount of $5,874.36, respectively. Both checks were dishonored by the Bank because of insufficient funds in the Debtor’s account. Two additional checks # 1097 and # 1098 were issued by the Debtor for the identical amounts on January 31, 1992 to replace checks # 10453 and # 10442. These two checks were honored by the Bank. In addition, on December 20, 1991, the Debtor made a payment to the Defendant by check # 10292 in the amount of $3,000.00 as final payment on a project known as Design Lighting project. Subsequently, on March 16, 1992, the Debtor filed its Petition for Relief under Chapter 11 of the Bankruptcy Code.
The record further reveals that between February 24, 1992, and March 12, 1992, or before the commencement of the Chapter 11 Case, the Defendant provided material on three construction projects on which the Debtor acted as a subcontractor, the total value of which is estimated to be $14,-236.94. The Defendant subsequently received payment from the Penzo and Dickerson property owners in full satisfaction of its respective claims and 70% of the Doane project.
Based upon these facts, the Trustee contends that these payments were voidable preferential transfers pursuant to Section 547(b) of the Bankruptcy Code, which provides in pertinent part:
§ 547. Preferences
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(b) Except as provided in subsection (c) of this section, the trustee may avoid any transfer of an interest of the debt- or 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; ...
(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 purpose of avoidance of preferential transfers is to prevent a debtor from diminishing, to the detriment of some or all creditors, funds that are generally available for distribution to creditors. Consequently, any funds under the control of the debtor, regardless of the source, are properly deemed to be the debtor’s property, and any transfers that diminish that property are subject to avoidance.
In the instant case, it is without dispute that the Defendant was a creditor of the Debtor and the payments made by the Debtor to the Defendant in the amount of $12,690.42 were on account of an antecedent debt. However, check # 10442 in the amount of $5,874.36 is improperly claimed as a preference by the Trustee because this check was not honored by the bank and, therefore, the Defendant never received this money. Since all operating elements of the remaining four checks are without dispute, the Trustee should prevail on those checks unless the exception set forth in § 547(c) claimed by the Defendant qualifies as a valid exception.
The Defendant initially contends that the funds represented by the joint checks issued on the Dickerson and Penzo projects were not properties of the estate. This Court is satisfied that the proposition is well taken. It is generally recognized that where the payee controls the application of the funds by requiring dual endorsement before the check can be negotiated, the funds are claimed to be earmarked funds insured on the specific condition that a joint payee shall receive the proceeds, the Debt- or who is already a named payee is merely deemed to be a conduit for those funds, *101which did not become the property of the Debtor’s estate. The fact that the check which was made payable jointly to the Debtor and another was deposited in the Debtor’s account who, in turn, issued his own check payable to the creditor who was a jointly-named payee, is of no consequence. In re Chase & Sanborn, 813 F.2d 1177 (11th Cir.1987) (quoting Smyth v. Kaufman, 114 F.2d 40, 42 (2nd Cir.1940)); Keenan Pipe and Supply Co. v. Shields, 241 F.2d 486, 490 (9th Cir.1956).
In the instant situation, the payments by the owners of the two projects were made by checks payable jointly to the Debtor, and the Defendant. There is hardly any doubt that the owners of the two projects clearly “earmarked” the funds for the specific purpose of paying the Defendant for the material delivered and used on the two projects. From this it follows that the proceeds of these two checks never became property of the estate and, these two payments could not be' avoided as preferential transfers.
This leaves for consideration the remaining two payments which, according to the Defendant are also not subject to avoidance, because subsequent advances of new value by the Defendant. This is an affirmative defense commonly referred to as the “new value” exception set forth in § 547(c)(4) of the Bankruptcy Code. This Section provides:
§ 547(c)(4). Preferences
(c) The trustee may not avoid under this section a transfer—
(4) to or for the benefit of a creditor, to the extent that, after such transfer, such creditor gave new value to or for the benefit of the debtor—
(A) not secured by an otherwise unavoidable security interest; and
(B) on account of which new value the debtor did not make an otherwise unavoidable transfer to or for the benefit of such creditor.
The new value defense is premised upon the theory that a creditor who, subsequent to the receipt of a payment, advances to the estate new value in an amount equal to the preference payment which otherwise could be avoidable, in effect returns the preference to the estate. In re Formed Tubes, 46 B.R. 645 (Bankr.E.D.Mich.1985). To successfully assert such a defense, the Defendant has the burden to establish by a preponderance of the evidence that:
1 — the creditor extended new value after receiving the challenged payment;
2 — the new value was unsecured; and
3 — the new value is still unpaid.
In re Jet Florida System, Inc., 841 F.2d 1082 (11th Cir.1988).
The new value defense takes a novel twist in this instance and is unique in that the “new value” was not extended by the Defendant to the Debtor but to the owner of the two projects, who was actually paid for material needed to complete the projects. Thus, it is obvious that the third prong of the test is not satisfied because the “new value,” i.e., the material furnished as “new value” did not remain unpaid, but instead was paid by the owner of the project, albeit not by the Debtor.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Trustee’s Motion for Summary Judgment is hereby granted in part and denied in part. The payments represented by checks #1254 and # 10292 are avoided as preferential payments, and the Defendant is hereby directed to remit to the Trustee the amount of these payments within thirty days of the entry of this Order.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491684/ | 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 admittedly due and owing by Joseph and Barbara Jackson (Debtors) to Chemical Bank (Bank). The Bank brought the claim of nondischargeability in a two count complaint, both counts based upon § 523(a)(2)(A) of the Bankruptcy Code. The parties have stipulated to the dismissal of Mrs. Jackson from this proceeding.
The Bank’s claim of nondischargeability is based on the allegations set forth in the Complaint that the Debtors are indebted to the Bank in the amounts of $2,000.00 and $4,766.94, respectively; that the Debtors incurred these debts by use of two Visa credit cards issued by the Bank to the Debtors; that the cash advances of $6,525.00 and purchases of $339.94 were incurred at a time when the Debtors knew or should have known that they could not meet these obligations and that the Debtors obtained money and property by false pretense, false representation, or actual fraud. The facts relevant to this claim of nondischargeability as established at the final evidentiary hearing are as follows:
At the time relevant, Jackson had been employed as a bus driver for Jamaica Buses, Inc. in Jamaica, N.Y. According to his Statement of Financial Affairs, he earned $27,087.00 in 1991 and $19,561.00 in 1990, respectively. His wife did not contribute financially to the household. In early 1992, Jackson became disabled due to a severe diabetic condition and applied for and received a disability compensation of approximately $250.00 per week beginning in June of that year.
In August of 1991, prior to Jackson’s illness, the beginning balance on both credit cards was zero. It is undisputed that between September and November of 1991, Jackson obtained four cash advances total-ling $6,525.00 through the use of the Bank’s credit cards. Jackson also purchased various goods totalling $339.94 between September, 1991 and March, 1992. All these charges are without dispute with the exception of a charge of $49.00 which, according to the Debtor, was not authorized by him or his wife.
On April 15, 1992, Jackson and his wife filed their joint Petition for Relief under Chapter 7 of the Bankruptcy Code. At the time of the commencement of this case, the Debtors owned real property with a market value of $40,503.00 and had total liabilities of $60,779.29. The Debtors’ unsecured debts, as they appear from the Schedules, were from the use of fifteen credit cards, including the two cards issued by the Plaintiff, and three unsecured lines of credit in the amount of $98,065.77. According to the Debtors’ Schedule of Current Income and Expenses, at the time of the commencement of this case the Debtors had a net disposable monthly income of $1,000.43, and their monthly expenses totalled $1,304.12, not including any payments on the fifteen credit cards and on the three lines of credit. This left the Debtors with a monthly shortfall of approximately $300.00.
These are the facts upon which the Bank’s claim of nondischargeability under § 523(a)(2)(A) is based. Section 523(a)(2)(A) of the Bankruptcy Code provides in pertinent part:
§ 523. Exceptions to Discharge.
(a) A discharge under section 727, 1141, 1228(a), 1228(b) of this title does not discharge an individual debtor from any debt—
*318(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;
The standard of proof required to prove a viable claim under this Section of the Code is that of a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). To prove actual fraud, the Bank must show by a preponderance of the evidence that the Debtor used the charge cards either with no intention to ever repay the debt or knowing he had no ability to meet the obligations incurred through the use of the cards because of his financial condition. In re Stewart, 91 B.R. 489 (Bankr.S.D.Iowa 1988); In re Lay, 29 B.R. 258 (Bankr.M.D.Fla.1983).
The classic scenario under the first proposition is when a debtor consults an attorney for the purpose of filing bankruptcy and then makes charges on credit cards before filing a petition for relief. Under the second situation, the debtor either has no income or insufficient income to meet his monthly obligations and has no realistic basis to anticipate a substantial increase in his income in the near future. In re Dorsey, 120 B.R. 592 (Bankr.M.D.Fla.1990).
This record leaves no doubt that the Debtors had no realistic basis to believe they could meet their monthly obligations and pay off the $98,000.00 of unsecured debt they had amassed. Even assuming that the Debtors will be able to maintain the peak gross income level of $27,000.00 per year, which can only be achieved by stripped down living expenses of $1,300.00 per month or to the bare bones $15,600.00 per year, there is no question that the Debtors could not have reasonably expected to even meet the monthly interest expenses on the total of their immediate obligations. This is so because interest payments alone on a principal balance of $98,-000.00 of unsecured debt would have consumed, at a minimum, an additional $1,000.00 per month in expenses, leaving the Debtors with a cash surplus of $300.00 per month to survive. Considering Mr. Jackson’s poor health, and the earning capacity of his wife, there is hardly any doubt that the Debtors could not have a reasonable basis to expect a meaningful increase in their disposable income to meet the minimum expenses to survive, let alone to meet even the minimum monthly payments of these unsecured creditors. Based on the foregoing, this Court is satisfied that the record warrants the conclusion that the Debtor obtained monies through the fraudulent use of the credit cards, and the outstanding liability to the Bank shall be excepted from the general bankruptcy 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/8491685/ | ORDER ON MOTION FOR SUMMARY JUDGMENT
ALEXANDER L. PASKAY, Chief Judge.
This is a converted Chapter 7 liquidation case and the matter under consideration is a seven count Complaint filed by International Paper, et. al. (Plaintiffs) against the Debtor, seeking to deny the Debtor his discharge pursuant to § 727(a)(2)(A), (a)(2)(B), (a)(3), and (a)(4)(A) of the Bankruptcy Code, and seeking a determination by this Court that the debt owed to Plaintiffs is nondischargeable pursuant to § 523(a)(2)(A), (a)(2)(B), and (a)(6). The Plaintiffs have bifurcated the consideration of this Complaint, and are currently only pursuing the § 727 counts, abating the § 523 counts until resolution of the § 727 counts is completed.
The claim of the Plaintiffs in Count I is based upon allegations that the Debtor, with intent to hinder, delay, and defraud the Plaintiffs transferred or permitted to be transferred property, and concealed or permitted to be concealed property of the Debtor or estate within one year before the commencement of the Debtor’s Chapter 11 case filed on April 10, 1990. Those properties allegedly included Debtor’s racing yacht, an interest in a limited partnership, an interest in some equipment, and an interest in thirty-one entities. The Plaintiffs allege in Count II that the Debtor with intent to hinder, delay, and defraud the Plaintiffs transferred or permitted to be transferred, and concealed or permitted to be concealed property of the Debtor or estate after the filing of the petition, namely Debtor’s interest in the yacht.
Count III alleges that the Debtor concealed, destroyed, falsified and failed to keep or preserve any recorded information from which his financial condition or business transactions might be ascertained. In Count IV the Plaintiffs allege that the Debtor should be denied his discharge for making a false oath in conjunction with his Bankruptcy Schedules, Statements of Affairs, and Disclosure Statements by failing to disclose specific assets, liabilities, and creditors, related to, among others, the property described above. The facts relevant to the resolution of this controversy as set forth in the record are as follows:
The Debtor was involved in a variety of business opportunities prior to the commencement of this case. The Debtor filed his Petition for Relief under Chapter 11 of the Bankruptcy Code on April 10, 1990. Notwithstanding the filing of a Plan of Reorganization and Disclosure Statement, the Plaintiffs filed a Motion to Appoint Chapter 11 Trustee, or in the Alternative to Convert the Case to Chapter 7 on April 2, 1991, and amended on July 3, 1991. This Court heard the Motion, and took ten hours of testimony. Subsequently, this Court entered an Order denying the Motion to Appoint a Chapter 11 Trustee, but granting the Motion to Convert the Case. In the Order, this Court made numerous findings of fact with regard to the Debtor’s omissions and false statements, but made no finding of intent or fraud in relation to the factual findings.
Upon these facts, the Plaintiffs contend that there are no material issues of fact, and they are entitled to Summary Judgment in their favor as a matter of law. In support of their Motion for Summary Judgment, the Plaintiffs argue that the findings of fact included in the Order converting the case to Chapter 7 act with preclusive effect as to the litigation of the § 727 action and represent the law of the ease. As such, the Plaintiffs assert that these findings support the conclusion that the Plaintiffs have satisfied their burden and established with the requisite degree of proof all the operating elements of § 727(a)(2)(A). Therefore, the Plaintiffs contend that the Debtor should be denied his discharge.
In opposition, the Debtor contends that, although this Court did make findings of fact which would help support a § 727 action, the Court did not find the actions taken by the Debtor were taken with the intent necessary to prevail on a § 727 complaint. Therefore, according to the Debtor, collateral estoppel does not support the Plaintiff’s Motion for Summary Judgment.
*334The doctrine of collateral estoppel, also referred to as issue preclusion, prohibits relitigation of an issue which was already litigated and determined by a court of competent jurisdiction. See Parklane Hosiery Co. v. Shore, 439 U.S. 322, 99 S.Ct. 645, 58 L.Ed.2d 552 (1979). The Eleventh Circuit has recognized the principle of collateral estoppel and has held that a bankruptcy court is precluded from relitigating issues by the doctrine of collateral estoppel only if:
-the issues at stake in the bankruptcy proceeding were identical to those involved in the prior litigation;
-the issues at stake in the bankruptcy proceeding were actually litigated in the prior proceeding;
-the determination of the issues in the prior proceeding were a critical and necessary part of the judgment; and -the standard of proof is that the prior action must have been at least as strong as the standard of proof in the later case.
In re St. Laurent, 991 F.2d 672 (11th Cir.1993). See, also, In re Yanks, 931 F.2d 42 (11th Cir.1991); In re Halpern, 810 F.2d 1061 (11th Cir.1987); In re Held, 734 F.2d 628 (11th Cir.1984); Deweese v. Town of Palm Beach, 688 F.2d 731 (11th Cir.1982).
The specific findings made by this Court in resolving the Motion to Appoint Trustee or in the Alternative to Convert the Case, upon which the Plaintiffs rely, relate to the Debtor’s failure to disclose certain assets, or certain transfers of assets. The Plaintiffs claim these findings support a claim under § 727(a)(4) and § 727(a)(2). To prevail on a claim under § 727(a)(4) or § 727(a)(2), the Plaintiffs must show that the Debtor undertook this conduct with the intent to hinder, delay or defraud creditors.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Plaintiffs Motion for Summary Judgment on Counts I, II, III, and IV is hereby denied. A pre-trial conference shall be scheduled before the undersigned in Courtroom A of the United States Bankruptcy Court, 4921 Memorial Highway, Tampa, Florida, on July 7, 1993 at 4:15 p.m.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491687/ | ORDER ON MOTION TO VACATE ORDER GRANTING DEBTORS’ MOTION TO MODIFY CONFIRMED PLAN
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a confirmed Chapter 11 reorganization case and the matter under consideration is a Motion to Vacate Order which granted the Debtor’s Motion to Modify the confirmed Plan of Reorganization. The Motion is filed by Waterford South, Inc. (Waterford) who contends that this Court exceeded its jurisdiction by entering an Order Granting a Motion to Modify Con*337firmed Plan because the Order improperly affected Waterford’s lien right encumbering a tract of land owned by the Debtors. In opposition, Colbert M. and Elizabeth K. Chisolm (Debtors) contend that this Court had jurisdiction to enter the Modified Confirmation Order and in any event, Waterford failed to file its Motion for Reconsideration of the Order prior to the 10 day expiration period as required by Fed.R.Civ. Pro. 59 as adopted by F.R.B.P. 9023. Therefore, the Debtors claim the Motion is untimely and should be denied. The facts relevant to the resolution of this matter, as appear from the record, are undisputed and are as follows.
On May 9, 1991, this Court entered an Order Granting the Sale of one of the assets of these Debtors, commonly referred to as the Mitchell Tract B property, to Waterford for a purchase price of $8,230,-800.00. The sale was to close on or before December 31, 1991. On July 22, 1991, this Court held a hearing to consider confirmation of the Debtors’ Chapter 11 Plan of Reorganization. On August 30, 1991, this Court entered an Order and confirmed the Debtors’ Plan of Reorganization. The Plan provided for the sale of the Mitchell Tract B property to Waterford. Subsequent to the entry of the Order confirming the Plan, Waterford filed suit in the Circuit Court of Sarasota County, Florida against the Debtors seeking damages for breach of the contract to sell the Mitchell Tract B property to it, and also asserted a vendee’s lien on the Mitchell Tract B property. In addition, Waterford recorded a Notice of Lis Pen-dens in the Public Records of Sarasota County, Florida describing the Mitchell Tract B Property, in order to provide record notice of its vendee’s lien.
The contract for the sale of the Mitchell Tract B property to Waterford never closed by the December 31, 1991 deadline. Instead, the Debtors sought and obtained a new purchaser, Wen Y. Chung (Chung). On April 15, 1992, the Debtors and Chung entered into a contract for the purchase and sale of the Mitchell Tract B property for the sum of $6,000,000.00. On July 11, 1992, the Debtors filed their Motion to Approve Sale of Real Property Free and Clear of Liens and Encumbrances. On July 13, 1992, the Debtors filed their Motion to Modify Confirmed Plan seeking the approval of this Court to substitute Chung for Waterford in the purchase and sale of the Mitchell Tract B property. Following a hearing on September 16, 1992, this Court denied as moot the Motion to Approve the Sale of the Mitchell Tract B property to Chung and also entered a separate order authorizing the Debtors to sell the Mitchell Tract B property to Chung free and clear of all liens and encumbrances, including the lis pendens filed by Waterford. The Order further provided that “all valid liens and encumbrances shall attach to the proceeds of sale.” On January 12, 1993, Waterford filed its Motion to Vacate this Court’s order of September 16, 1992 on or about four months after the Order under consideration.
As noted earlier, the Debtor challenged Waterford’s right to seek the relief claiming that the Motion is time-barred and should not be considered at all. Obviously, this contention presents a threshold question which must be resolved before the question of lack of jurisdiction can be considered. F.R.B.P. 9024 is an adaptation of Fed.R.Civ.Pro. 60 with some exceptions not relevant here. Fed.R.Civ.Pro 60(b) provides that a Motion for Relief from a judgment or Order may be filed on the ground that the judgment is void. Fed.R.Civ.Pro. 60(b)(4). The Motion for Relief must be made within a reasonable time following the entry of the order. The present Motion under consideration is based on the contention of Waterford that the Court had no jurisdiction to modify the confirmed Plan; thus, it is evident that the Motion is based on the contention, albeit not very well articulated, that the Order is void. From all these it follows that the 10-day time limit set forth in F.R.B.P. 9023 as adopted from Fed.R.Civ.Pro. 59 has no application. Therefore, the Motion to Vacate the Order of Waterford is not time barred.
This leaves for consideration the question of whether this Court had the jurisdiction to modify the confirmation or*338der. According to § 1141(b) of the Bankruptcy Code, the confirmation of a plan vests all of the property of the estate in the Debtor:
Except as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor.
As a general proposition, it is true that after confirmation of a plan, the bankruptcy court has limited jurisdiction and should exercise post-confirmation jurisdiction only for compelling reasons. See In re A.R.E. MFG. Co., Inc., 138 B.R. 996 (Bankr.M.D.Fla.1992); In re Good Hope Refineries, Inc., 9 B.R. 421, 423 (Bankr.D.Mass.1981). The right of the Debtors to deal with the revested assets is circumscribed only by the terms of the confirmed Plan, if the property was dealt with in the confirmed Plan. It is without dispute that the confirmed Plan contemplated the sale of the Mitchell Tract B and a mere substitution of a buyer for the one originally named, i.e., Waterford, could have been a permissible modification. However, a modification of a confirmed Plan in this instance did more than substitute one buyer for another. Instead it was designed to cut off and foreclose the rights of Waterford vis-a-vis the property which arose after confirmation. This modification is a far cry from a mere substitution of a buyer. It is clear that this Court lacks jurisdiction to permit the Debtor to accomplish this in the guise of a modification of a confirmed Plan.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that Motion to Vacate Order Granting Motion to Modify Confirmed Plan filed by Waterford South, Inc. be, and is hereby, granted and the Order Granting Motion to Modify Confirmed Plan is vacated.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491689/ | ORDER
CUMMINGS, District Judge.
Upon consideration of the United States of America’s Motion to Vacate Order and to Remand, the Court finds:
1.The United States of America filed a Notice of Appeal January 4, 1993 with the United States Bankruptcy Court indicating its intention to appeal the Bankruptcy Court’s “Order on Debtors’ Motion to Avoid Liens” and the “Memorandum of Opinion on Lien Avoidance, both of which are dated December 21, 1992 and were entered on December 24, 1992. The Memorandum of Opinion has been reported at 148 B.R. 468.
2. This appeal was docketed on March 11, 1993.
3. This appeal is now moot because of the settlement between the parties.
4. The debtors do not oppose the Motion.
The United States of America’s Motion is well-founded and should be granted. It is therefore
ORDERED that the Bankruptcy Court’s “Order on Debtors’ Motion to Avoid Liens” and its supporting “Memorandum of Opinion on Lien Avoidance” are hereby vacated; and it is further
ORDERED that this proceeding is remanded to the Bankruptcy Court with instructions to dismiss the Debtors’ Motion to Avoid Non-Possessory, Non-Purchase Money Security Interest Pursuant to the Texas Property Code and 11 U.S.C. § 522(f)(2). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491690/ | MEMORANDUM OPINION AND ORDER ON PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
BERNICE BOUIE DONALD, Bankruptcy Judge.
This cause is before the Court on a Motion for Summary Judgment filed by plaintiff/debtor, Jeffrey Dobisch. On September 5, 1991, the debtor filed a voluntary petition under chapter 13 of the Bankruptcy Code. Under the debtor’s confirmed chapter 13 plan, the Internal Revenue Service (“IRS”) was listed as a priority creditor to receive $159.00 per month. On December 27, 1991, the debtor filed this adversary proceeding seeking to have the claim filed by the IRS disallowed. On February 6, 1992, this court entered an “Order Granting Petition for Temporary Restraining Order” enjoining the chapter 13 trustee from making any disbursements to the IRS and ordering it to hold all payments to the IRS pending a final determination in the adversary proceeding with regard to the claim of the IRS. On March 17, 1992, the defendants filed their response to the plaintiff’s complaint and petition for temporary injunction.
Plaintiff argues in his motion for summary judgment that there is no genuine issue of material fact and moves the Court to enter an Order declaring that, as a matter of law:
*5471. The United States of America is liable to plaintiff for $342.00 illegally levied upon by the IRS;
2. The Notice of Federal Tax Lien filed by the IRS which constitutes a lien on 1448 Merrycrest Drive, Memphis, Tennessee is null and void and that said lien be set aside;
3. The claim filed by the IRS in the instant case is not valid and should be disallowed and all funds held by the bankruptcy trustee pursuant to “Order Granting Petition for Temporary Restraining Order” be returned to plaintiff.
A remaining issue is whether the plaintiff is entitled to recover damages, costs, expenses and attorney’s fees pursuant to 26 U.S.C. § 7430, 26 U.S.C. § 7432, 26 U.S.C. § 7433 and 28 U.S.C. § 2412.
BACKGROUND FACTS
Plaintiff is the surviving son of Donald Dobisch who died intestate on May 16, 1984. Pursuant to the Tennessee Laws of Intestate Succession, the plaintiff acquired an undivided interest in 1448 Merrycrest Drive, Memphis, Tennessee which was owned by Donald Dobisch at the time of his death.
Jeffrey Dobisch testified that either on April 15, 1985 or shortly before, he mailed a final Form 1040 on behalf of his deceased father for the tax year ending December 31, 1984. On June 13, 1985, the IRS sent a form letter to Jeffrey Dobisch explaining that it either needed more information or did not have the fully completed forms that were required. Specifically, he had either failed to file a Form 1310 or the Form 1310 did not contain enough information. See, Ex. 1. Dobisch was also to send other required documents such as a court certificate evidencing the plaintiffs appointment as personal representative and a copy of the death certificate. Id. The IRS received the additional information required on July 12, 1985. See Ex. 2 to Jeffrey Dobisch Affidavit.
On August 19, 1985, the IRS assessed the tax against the estate of Donald Do-bisch. The notice indicated that Donald Dobisch’s income tax liability was $2,887 for the tax year 1984. The Service Center also assessed a late filing penalty of $398.27, an under payment penalty of $163.28, a late penalty of $26.55 and interest of $129.67. See Ex. 2. On May 18, 1987, the Service Center abated the late filing penalty for “reasonable cause shown.” See Request for Adjustment.
On April 12, 1989, the IRS issued a Notice of Deficiency to the debtor in the amount of $2,975.00 as a transferee of assets of the deceased. Debtor did not file a petition with the Tax Court to contest the deficiency notice. The IRS avers it assessed the transferee’s liability of the tax owed by the deceased to Jeffrey Dobisch on October 2, 1989. Subsequently, the IRS filed a “Notice of Federal Tax Lien Under Internal Revenue Law” in the Shelby County Register’s Office and on July 8, 1991, wrote a letter to the debtor giving notice of intent to levy on the property. On August 15, 1991, the IRS gave notice of levy against the property and seized it on August 16, 1991.
SUMMARY JUDGMENT
Summary Judgment is available for a moving party only when, after consideration of the evidence presented by the pleadings, affidavits, answers to interrogatories, and depositions in a light most favorable to the non-moving party, there remain no genuine issues of material fact. F.R.B.P. 7056(c). The mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment, the requirement being that there be no genuine issue of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Street v. J.C. Bradford & Co., 886 F.2d 1472 (6th Cir.1989).
ISSUES
The debtor requests summary judgment on the following three issues:
1. If the IRS assessed tax liability against Jeffrey J. Dobisch on October 2, 1989, was the assessment barred by *548the statute of limitations set forth in Internal Revenue Code (“I.R.C.”) § 6901(c)?
2. Did the IRS assess transferee tax liability against Jeffrey J. Dobisch on October 2, 1989?
3. Did the IRS give proper notice of intent to levy against Jeffrey J. Do-bisch’s property as required by I.R.C. § 6631(d)?
DISCUSSION
A discussion of the issues will be taken in the order presented by the debtor. Thus, the Court will first consider whether the IRS timely assessed the transferee tax against Jeffrey Dobisch for the liability owed by Donald Dobisch.
I.R.C. § 6501(a) and § 6901(c) provide that the period of limitations for assessing tax against the transferee is one year after the expiration of the period for assessment against the transferor, which is three years. Furthermore, pursuant to I.R.C. § 6503(a)(1), the statute of limitations on assessment is suspended while the IRS is prohibited from assessing the tax (90 days) and for 60 more days following the prohibition of assessment. Thus, the IRS had four years plus 150 days from the time the IRS received a completed and signed final Form 1040 filed by the debtor on behalf of his deceased father in which to assess the transferee tax. Under the provisions of the Internal Revenue Code, the statute of limitations for assessment of a tax imposed under the Code commences to run on the date the return is actually filed. Automobile Club of Mich. v. C.I.R., 353 U.S. 180, 77 S.Ct. 707, 1 L.Ed.2d 746, rehearing denied, 353 U.S. 989, 77 S.Ct. 1279, 1 L.Ed.2d 1147 (1957). In order for a return to be deemed “filed” for purposes of determining the statute of limitations for assessments, it must both contain all the information necessary for a determination of tax liability and be properly signed or verified. See, Haring v. U.S., 142 F.Supp. 782 (D.C.Ohio 1956) and I.J. Knight Realty Corp., 431 F.Supp. 946 (D.C.Pa.1977).
The debtor contends that he filed the final return of Donald Dobisch on April 15, 1985. The IRS, on the other hand, argues that a signed and completed return was not filed until July 12, 1985. Debtor testified that on April 15, 1985, he filed his father’s 1984 final income tax return, along with the debtor’s own personal return, by dropping both in a U.S. Mailbox. (Transcript, p. 51). Debtor, further testified that he did not file a statement of refund due a deceased taxpayer (Form 1310) with his father’s return since the return showed a tax owing for that year. (Transcript, p. 52).
A letter sent to the debtor by the IRS dated June 13, 1985 (Ex. 1) states in pertinent part as follows:
In processing your federal income tax for the year ended above, we find we need more information or do not have the fully completed forms that are required. The required Form 1310 is missing, or the Form 1310 attached does not contain enough information. Please complete, sign, and return the enclosed form. If you are an administrator or executor, also send a court certificate currently in effect showing your appointment as personal representative. If you are not court appointed, please mark Box C, as claimant. Complete Schedule A, and send a copy of the death certificate.
The debtor testified that, in response to the letter, he sent a copy of the death certificate and a signed Form 1310 back to the IRS (Transcript, p. 52).
The IRS does not refute that the debtor sent the return on April 15, 1985, but instead argues that the return mailed on April 15, 1985 was not complete because it lacked Form 1310. Thus, the IRS contends that the statute of limitations did not begin to run until the debtor mailed Form 1310 which, according to the IRS, did not occur until July 12, 1985.
Elizabeth Jeu, a tax examiner with the IRS, testified on behalf of the IRS that Form 1310 must be included and attached to a deceased taxpayer’s return even if no refund is requested. (Transcript, p. 34). The instructions to Form 1040, however, make no mention of a requirement that *549Form 1310 needs to be included. These instructions, under the heading “Death of a Taxpayer,” state in pertinent part as follows:
The person who files the return should write “DECEASED,” the taxpayer’s name, and date of death across the top of the return.
The instructions to Form 1310 further state as follows:
Purpose of Form
Use Form 1310 to claim a refund on behalf of a deceased taxpayer.
Who Must File
If you are claiming a refund on behalf of a deceased taxpayer, you must file Form 1310 unless either of the following applies:
—You are a surviving spouse filing an original joint return with the decedent, OR
—You are a personal representative (see back of form) filing an original Form 1040, Form 1040A, Form 1040EZ, or Form 1040NR for the decedent and a court certificate showing your appointment is attached to the return. .
These instructions clearly indicate that one only needs to file a Form 1310 if one is claiming a refund.
As previously stated, in order for a return to be complete so as to be deemed “filed” for purposes of determining the statute of limitations for assessments, it must meet two requirements: (1) it must contain all the information necessary for a determination of tax liability, and (2) be properly signed or verified. See, Haring v. U.S., and I.J. Knight Realty Corp., supra. The IRS does not aver that these two requirements were not met, but instead imposes a third requirement, that Form 1310 must be included.
The Court finds in view of the fact that the debtor was not requesting a tax refund for his deceased father, and in light of the language on the instructions on Forms 1310 and 1040, that Form 1310 is superfluous and thus not necessary for the return to be complete. As a result, the Court concludes that, as a matter of law, the tax return mailed on behalf of Donald Dobisch by the debtor on April 15, 1985 was complete so as to be deemed “filed” for purposes of the statute of limitations.
The IRS thus had four years plus 150 days from April 15, 1985 (until September 12, 1989) to assess the transferee tax. Both the Notice of Federal Tax Lien and the Levy indicate that an assessment was made on the property in question on October 2, 1989. Since the assessment was made after September 12, 1989, the Court finds that the assessment of taxes against Jeffrey Dobisch is invalid.
In light of the Court’s finding that the assessment was not timely made, the Court need not consider the issue of whether the IRS gave proper notice of intent to levy as required by I.R.C. § 6331(d).
CONCLUSION
In summary, this Court concludes that there is no genuine issue of material fact and that, as a matter of law, the return mailed on April 15, 1985, was a complete and signed final return so as to be deemed “filed” for purposes of the statute of limitations. Therefore, the court finds that the assessment of the debtor’s property made by the IRS on October 2, 1989 was not timely.
As a result, the Court orders that the lien on 1448 Merrycrest Drive, Memphis, Tennessee be set aside.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491691/ | MEMORANDUM OPINION ON THE MOBIL DEFENDANTS’ MOTION TO DISMISS COUNT II OF DEBTOR’S COMPLAINT
JACK B. SCHMETTERER, Bankruptcy Judge.
Plaintiff Barton Chemical Corporation (“Barton”) is debtor-in-possession of its ongoing business in the related bankruptcy proceeding that it filed under Chapter 11 of the Bankruptcy Code, Title 11 U.S.C. It filed this two-count Amended Adversary Complaint against Mobil Petrochemical Sales and Supply Corporation (“Mobil Sales”); Mobil Polymers International Ltd., now known as Mobil Plastics Recycling Corporation (“Mobil Polymers”) (collectively, the two Mobil defendants are referred to as “Mobil”); and American National Bank & Trust Company of Chicago (“American National”). In Count II, Barton seeks declaratory and injunctive relief to prevent Mobil from drawing on a letter of credit that was established by Barton in favor of defendants at American National. Barton has moved for a preliminary injunction seeking the relief requested in Count II.
Mobil filed answers to Barton’s pleadings and motion, and then moved to dismiss Count II of the Complaint and the preliminary injunction motion pursuant to Fed. R.Civ.P. 12(b)(6) (Fed.R.Bankr.P. 7012).
Pending ruling on this motion to dismiss, a trial date was set on the injunction request. The parties agreed to hold the status quo until this ruling, or until trial if the motion were denied. Having considered the pleadings and legal memoranda submit*564ted by Mobil and Barton, by separate order the Court allows Mobil’s motion. Count II of the Adversary Complaint is dismissed, and Barton’s Motion for Preliminary Injunction is denied.
FACTUAL ALLEGATIONS
Barton filed its Chapter 11 proceeding on February 19, 1993. Prior to that date, Barton owed Mobil $1,998,196.87 from the unpaid purchase of ethylene glycol by Barton from Mobil.
Barton’s debt to Mobil is secured by a Letter of Credit issued by American National.1 The document is entitled an “Irrevocable Standby Documentary Credit”. Complaint, Ex. A. It names Mobil Sales as the beneficiary, and allows that entity to draw $515,000 “against presentation of the documents detailed herein and of your drafts at sight drawn on us”. Id. One of the documents required for a draw on the Letter of Credit is the “Beneficiary’s signed statement certifying that ‘applicant [Barton] has not paid the invoice for the shipment of monoethylene glycol ... Barge # Art 937B.’ ” Id.
The original expiration date of the Letter of Credit was in December of 1992. Id. However, the expiration date was extended to March 31, 1993 by an amendment dated December 4, 1992. Complaint, Ex. B.2 It has since been extended to June 30, 1993.
Prior to the March extension, Barton sent a letter dated November 23, 1992 to Mobil Polymers stating:
We propose to return ethylene glycol to you for credit to our account in the approximate amount of $1,275,000 which will result in a new unpaid balance of $210,822 not secured by a letter of credit. We agree to liquidate this amount by March 31, 1993 by paying it in $50,000 monthly installments.
Id. Paragraph 12 of the Amended Complaint alleges that Barton “agreed to return ethylene glycol to Mobil for credit to Barton’s account ..., resulting in a new unpaid balance of $210,822.00”. However, the actual letter sent by Barton stated that returning glycol to Mobil would result in “a new unpaid balance of $210,822 not secured by a letter of credit.” Id. The November 23 letter further stated that “[t]he amount due Mobil secured by the Letter of Credit in the amount of $515,000 will be repaid by June 30, 1993.” Id. Thus, the letter clearly provided that return of glycol would not affect the Letter of Credit, that Barton would still owe Mobil about $725,000 after return of the glycol, and that $515,000 of that debt would remain secured by the Letter of Credit. The November 23 letter has no other reasonable interpretation. It is not ambiguous.
It is alleged (and deemed admitted for purposes of this motion) that in December of 1992 Barton returned to Mobil $1,274,-261.45 worth of the glycol originally obtained from Mobil and that Barton also made payments to Mobil totalling $100,000.
That left a substantial debt still due to Mobil.3 The issue here is whether that debt is subject to the Letter of Credit or apart from it. Barton alleges that its “payment and the return of glycol extinguished the debt owed to Mobil secured by the Letter of Credit.” Amended Complaint, 1117. It further alleges that,
Despite Barton’s adherence to the agreement dated November 23, 1992, which constituted payment of Mobil’s invoice secured by the Letter of Credit, and the return of the glycol secured by the Letter of Credit, Mobil has made a demand as of March 19, 1993, upon [American *565National] for payment pursuant to the Letter of Credit.
Amended Complaint, ¶ 18.
Based on these allegations, Barton seeks the following relief in Count II of its Amended Complaint:
A. injunction against American National from paying out on the Letter of Credit to Mobil, and against Mobil to bar it from drawing thereon;
B. declaratory judgment that the November 23, 1992 letter from Barton to Mobil constitutes an enforceable contract which was breached when Mobil earlier sought payment on the Letter of Credit; and
C. declaratory judgment that the glycol referred to in the Letter of Credit was returned to Mobil, and that such return thereby terminated Mobil’s rights under the Letter of Credit.
Jurisdiction
This matter is before the Court pursuant to 28 U.S.C. § 157, and is referred under Local District Court Rule 2.33. The Court has subject matter jurisdiction under 28 U.S.C. § 1334, and this is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (0).
DISCUSSION
A motion to dismiss pursuant to Fed. R.Civ.P. 12(b)(6) should be granted only if it appears from the pleadings that the plaintiff cannot prove any set of facts in support of its claim that would entitle it to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957); Gorski v. Troy, 929 F.2d 1183, 1186 (7th Cir.1991).
To determine whether to grant a preliminary injunction motion, it must be considered whether (1) the movant has an adequate remedy at law, (2) the movant will suffer irreparable harm if the injunction is not issued, (3) the harm suffered by the movant in not issuing the injunction outweighs the harm suffered by the defendant as a result of the injunction, and (4) the movant has a reasonable likelihood of success on the merits. Matter of L & S Industries, Inc., 989 F.2d 929, 932 (7th Cir. 1993) (and cases cited therein). See also In re Leber, 134 B.R. 911, 917 (Bankr.N.D.Ill.1991) (collective Seventh Circuit authority establishing these elements).
In this case, Barton is seeking to enjoin a beneficiary from drawing upon a letter of credit. Such an injunction interferes with the well-established legal principle which separates the payment of letters of credit from disputes over the underlying contracts. See 810 ILCS 5/5-114 (UCC § 5-114), and Eakin v. Continental Ill. Bank & Trust Co., 875 F.2d 114, 116 (7th Cir.1989):
Letters of credit are designed to avoid complex commercial disputes about how much beneficiaries ‘really’ owe. The promise and premise are ‘pay now, argue later’ ... under the Illinois version of the UCC ... the issuer must pay without regard to the rights and defenses available on the underlying contract.
Thus, such injunctions can only be issued to prevent a fraud. As noted in Stringer Construction Company, Inc. v. American Ins. Co., 102 Ill.App.3d 919, 430 N.E.2d 1, 6 (1st Dist.1981) (citations omitted),
An injunction against honor, which interferes with business transactions freely negotiated between the parties ..., should be limited to situations where the wrongdoing of the beneficiary so vitiated the entire transaction that the legitimate purposes of the independence of the issuer’s obligation would no longer be served.
If a debt secured by a Letter of Credit were fully paid, it would likely work a fraud for the former creditor to draw on the Letter. However, Mobil’s motion to dismiss must be granted because it appears from the pleadings that Barton could not prove any facts to establish that the debt protected by the Letter of Credit was fully paid.
The basis asserted for Count II and the preliminary injunction motion is that (1) the Letter of Credit was only payable if the invoice for the shipment contained on “Barge # Art 937B” was not paid; but that (2) that very invoice was in fact fully paid *566via the return of glycol to Mobil; and (3) therefore, the Letter of Credit cannot be drawn upon, and any attempt to do so would impair Barton’s credit during the reorganization and work a fraud upon it.
However, Barton effectively admits in its own pleadings that the Letter of Credit was not cancelled by the return of glycol. The November 23 letter, which was incorporated into the pleadings, states that returning glycol to Mobil would result in “a new unpaid balance of $210,822 not secured by a letter of credit,” and that “[t]he amount due Mobil secured by the letter of credit ... will be repaid by June 30, 1993.” Ex. B. If the full return of glycol in the amount of $1,274,261.45 is fully credited against the original debt of $1,998,196.87 along with payment of $100,000, there is a balance of $623,935.42 yet due. Since only $210,882 is “not secured by the letter of credit”, a debt of $412,379.45 remains secured thereby, according to the Amended Complaint.
The extension of the Letter of Credit’s expiration date in the very month that the glycol was returned further supports the conclusion that the Letter of Credit was intended to be left intact and effective. If Mobil’s rights under the Letter of Credit were to be cancelled by the return of glycol, then there would be no need to obtain the extension. The only reasonable reading of the November 23 letter, both by its express terms and in context, is that Barton was proposing that the Letter of Credit be left intact after the glycol was returned. Thus, if the Court grants Barton’s request to declare that this letter is an enforceable contract, then the effect must be given to the above quoted language so as to find that the Letter of Credit remained effective and could be drawn upon by Mobil.
The only way in which Barton could prevail on Count II would be for it to prove that the November 23 letter was not an enforceable contract and that Mobil agreed to apply the proceeds from returned glycol to pay the balance due on the specific invoice referenced in the letter of credit. However, there are no factual allegations made to support any inference that Mobil had or agreed to such an obligation.
Furthermore, such an obligation does not exist as a matter of law. When a creditor holds various accounts of a debtor, and that debtor has not directed how a payment is to be applied, then that creditor may apply payments received to its best advantage. Herget National Bank v. U.S. Life Title Ins. Co., 809 F.2d 413, 418 (7th Cir.1987); In re Annde Foods, Inc., 110 B.R. 346, 349 (Bankr.N.D.Ill.1989). See also Skach v. Gee, 137 Ill.App.3d 216, 484 N.E.2d 441, 444 (1st Dist.1985) (citations omitted):
[A]bsent direction from the debtor, payments may be applied by the creditor in the manner chosen by him. ... The general rule is that where a creditor holds both secured and unsecured debts of a debtor, he may apply payments made to the unsecured debts because it would be contrary to public policy to require a creditor to apply unspecified payments to secured debts, thereby depriving a creditor of his lien.
However, there is no need to rely on such principles. The November 23 letter directed Mobil to apply proceeds from the return of glycol to unpaid accounts in a way that preserved the Letter of Credit protection to Mobil. At the time, Mobil could have drawn on the Letter of Credit rather than reach any accommodation. Instead, it refrained from exercising this right, but retained the right to do so in the future. Barton has not alleged any facts to demonstrate that Mobil gave up a valuable protection (worth up to $515,000) when it accepted an accommodation by which its right to draw upon the Letter of Credit was deferred but preserved.
CONCLUSION
A declaratory judgment cannot be entered in favor of Barton for two reasons. First, if the November 23 letter constitutes an enforceable agreement, it leaves Mobil free to be able to draw on the Letter of Credit. Second, if the November 23 letter is not an enforceable agreement, there is no other pleaded ground on which it can be *567inferred that Barton ever directed or Mobil ever agreed that credit from return of glycol was to be applied to the invoice referred to in the Letter of Credit. Absent such direction or agreement, Mobil had the right, as a matter of law, to direct the credit to satisfy invoices other than the one referred to in the Letter of Credit. Indeed, the November 23 letter itself authorized such an application of credit for returned glycol. Therefore, Barton retains the right to draw on the Letter of Credit issued by American National Bank. Since that is demonstrated in the pleading, Count II of the Amended Complaint fails to state grounds for relief.
The request for injunctive relief must be denied since there is no legal basis pleaded on which to prevent the exercise of rights under the Letter of Credit. Barton has no chance of prevailing on the merits, and therefore it has no right to an injunction.
Accordingly, by order entered separately this day, Mobil’s Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b)(6) (Fed.R.Bankr.P. 7012) is granted. Count II of Barton’s Amended Complaint will be dismissed, and Barton’s Motion for Preliminary Injunction will be denied. Since the Letter of Credit expires on the date of this order, it is appropriate that the Court act sua sponte to modify the statutory automatic stay under 11 U.S.C. § 362, if that be necessary to allow a draw today on the Letter of Credit. Otherwise, Mobil will lose its rights from expiration of the Letter despite prevailing here. Accordingly, the order provides for such limited stay modification.
. This letter of credit was attached to the original complaint and incorporated by reference into the pleadings by Barton’s Amended Complaint, ¶ 10.
. Exhibit B to the Complaint consists of an amendment to the Letter of Credit and a letter from Mr. Jerome Engerman at Barton to Mr. George Hidalgo at Mobil Polymers. Like Exhibit A, both parts of this exhibit were incorporated by reference into the pleadings by Barton. Amended Complaint, ¶ 12.
.Barton admits that $210,822 is owing. Amended Complaint, ¶ 12. However, on the original debt of $1,998,196.87, return of glycol in the amount of $1,274,261.45 (if fully credited) plus payment of $100,000 would leave a balance of $623,935.42. For purposes of this ruling, the precise amount need not be fixed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491692/ | ORDER DENYING DEFENDANTS’ MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM UPON WHICH RELIEF CAN BE GRANTED
STOTLER, District Judge.
I.
INTRODUCTION
On August 14, 1992, defendants filed a Motion to Dismiss for Lack of Subject Matter Jurisdiction and for Failure to State a Claim Upon Which Relief can be Granted. On September 24, 1992, plaintiff filed opposition. Defendants filed a reply on November 16, 1992.
After hearing oral argument on November 23, 1992 the Court ruled as follows: defendants request for judicial notice was granted; defendants motion to dismiss for *657lack of subject matter jurisdiction was denied; defendants’ motion to dismiss for failure to state a claim was treated as one for summary judgment pursuant to Fed. R.Civ.P. 12(b); insofar as the motion challenged plaintiffs claim for injunctive relief, it was denied. In order to resolve the remainder of the defendants’ motion, which challenges plaintiff's claim for restitution, the Court called for a supplemental briefing on the following issues:
(1) Whether referral of plaintiff’s claim for restitution to the bankruptcy court pursuant to 28 U.S.C. § 157 is appropriate and/or advisable, or whether such referral is inappropriate because the issues presented fall within the mandatory withdrawal of reference provision of 28 U.S.C. § 157(d);
(2) Whether plaintiff’s claim in fact is the type of debt described in 11 U.S.C. § 523(a)(4); and
(3) Whether a creditor, which does not affirmatively deny receiving notice of a debtor’s bankruptcy proceeding, may avoid summary judgment on the issue of dischargeability of a debt under 11 U.S.C. § 523(a)(3)(B) by producing evidence that, even if it had received notice in a timely fashion, it would not have known that it had a claim to pursue at that time. See e.g., In re Braun, 84 B.R. 192 (Bankr.D.Or.1986).
Plaintiff filed its supplemental memorandum on December 21, 1992; defendants filed theirs on January 11, 1993. The matter was set for further hearing on the Court’s January 25, 1993 calendar. The Court, having received, read and considered the foregoing, finds the matter appropriate for submission on the papers without oral argument. See Local Rule 7.11 (the Court may dispense with oral argument on any matter unless otherwise required); Fed. R.Civ.P. 78. The matter is, therefore, removed from the Court’s January 25, 1993 calendar.
II.
DISCUSSION
A.Referral to the Bankruptcy Court
In its supplemental memorandum, plaintiff argues that if its claim for restitution were referred to the bankruptcy court, it would have to be promptly removed under the mandatory withdrawal provisions of 28 U.S.C. § 157(d). Defendants chose not to contest plaintiff’s argument and instead “submit to jurisdiction pursuant to 28 U.S.C. § 157(d).”
Since plaintiff’s claim may be determined by this Court, and since defendants no longer seek the venue of the bankruptcy court, the Court will not refer plaintiff’s restitution claim to the bankruptcy court.
B. The Applicability of 11 U.S.C. § 523(a)(4)
Plaintiff urges that its claim falls squarely within section 523(a)(4) since “defalcation while acting in a fiduciary capacity” encompasses breaches of fiduciary duties under ERISA. Despite the Court’s specific request that both parties address this issue, defendants do not even mention the issue or attempt to rebut plaintiff’s argument.
Accordingly, pursuant to Fed.R.Civ.P. 56(d), and in light of the authorities cited by plaintiff, the Court finds that it is without substantial controversy that plaintiff's claim falls within the ambit of section 523(a)(4). The Court does not reach the issue of whether defendants, in fact, breached their fiduciary duties under ERISA, but merely finds that plaintiff’s restitution claim, which is based on such alleged breaches, is one for “fraud or defalcation while acting in a fiduciary capacity.”
C. The Adequacy of Notice to PBGC of Defendants’ Bankruptcy Proceeding
The remaining issue to be decided is whether plaintiff’s restitution claim against defendants is precluded by the fact that defendants’ debts were discharged in bankruptcy nearly four years before the filing of the complaint and the fact that defendants listed plaintiff as a creditor on their schedule of creditors and mailing matrix. Defendants have previously submitted the *658bankruptcy clerk’s Certificate of Mailing, which creates a presumption of receipt by plaintiff, who was listed. In re Bucknum, 951 F.2d 204 (9th Cir.1991).
Plaintiff argues, however, that defendants’ alleged debt to plaintiff should not be considered discharged since (1) even if plaintiff had proper notice of defendants’ bankruptcy case, plaintiff could not have known that it had a claim against defendants until after the bankruptcy because of defendants’ previous misrepresentations to plaintiffs; (2) the rationale of In re Braun, 84 B.R. 192 (Bankr.D.Or.1986), which led the court in that case to the opposite conclusion, should be rejected; and (3) even if notice was properly given to plaintiff, no notice was given to the United States Attorney as required by Bankruptcy Rule 2002(j)(4).
Plaintiff also submits the supplemental declaration of Jacqueline Washington who asserts that she has found no evidence that plaintiff received any documents relating to defendants’ bankruptcy despite a record search and that to the best of her knowledge, no one working for plaintiff knew of the defendants’ bankruptcy until late 1989. Finally, plaintiff submits the declaration of Matthew Vitello, who states that mail sent to plaintiff’s Atlanta address (the address used by defendants to notify plaintiff of their bankruptcy) which is unrelated to premium payments is routinely forwarded to plaintiff’s main office in Washington, D.C.
Defendants assert that, based on Mr. Vitello’s declaration, notice of defendants’ bankruptcy should have reached plaintiff's Washington, D.C. office, thus vitiating plaintiff’s prior complaint that the notice had been sent to the incorrect address. Defendants also challenge the probative value of Ms. Washington’s declaration. Finally, defendants urge the Court to follow the rationale of Braun, which defendants assert is designed to provide debtors with a fresh start. Defendants do not respond, in their supplemental memorandum, to plaintiff’s argument that notice of defendants’ bankruptcy should have been sent to the U.S. Attorney; however, in their previously submitted reply brief, defendants argued that Bankruptcy Rule 2002(j)(4) places a duty on the bankruptcy clerk, not the debtors.
Defendants have not shown that they are entitled to judgment, as a matter of law, on plaintiff’s claim for restitution. Fed.R.Civ.P. 56(c). First, the Court declines to follow Braun, which held that so long as a creditor received notice or had actual knowledge of the bankruptcy proceeding in time to file a dischargeability complaint, 11 U.S.C. § 523(a)(3)(B) bars an untimely filed complaint, even though the nature of the debt was not listed on the debtor’s schedules, and the creditor had no knowledge of its claim against the debtor due to the debtor’s fraudulent activity. The Court recognizes that the application of the holding in Braun to this case would bar plaintiff’s claim assuming proper notice was provided to plaintiff of the defendants’ bankruptcy case. The Braun court noted that it had uncovered no authority to the contrary.
In this case, however, plaintiff has pointed to the decision in In re Dewalt, 961 F.2d 848 (9th Cir.1992), in which the Ninth Circuit reversed a decision of the Bankruptcy Appellate Panel which had upheld the dismissal of an untimely filed dischargeability complaint. Although the factual circumstances of Dewalt differ slightly from the ease at bar, the rationale is applicable. The Court of Appeals reasoned that the language of section 523(a)(3)(B) should not be interpreted strictly where the creditor's untimely filing was a direct result of the debtor’s negligence. Assuming that the facts which plaintiff has introduced thus far are true, plaintiff’s long delay in bringing this action, in which it must establish that its debt is nondischargeable, was caused directly by defendants’ fraudulent misrepresentations to plaintiff regarding the status of defendants’ ERISA plan.1 *659Applying the logic of Dewalt, defendants should not be able to avoid plaintiffs claim for restitution to the ERISA plan based on its untimely filing, where that untimely filing appears to have been the result of defendants’ own misconduct.
Moreover, defendants have failed to convince the Court that they gave proper notice of their bankruptcy case. While the notice to the plaintiff, PBGC, appears to have been sufficient in light of the holding of Bucknum, defendants did not give notice to the United States Attorney as required by Bankruptcy Rule 2002(j)(4). See In re Divco Philadelphia Sales Corp., 60 B.R. 323 (Bankr.E.D.Pa.1986) (refusing to bar late filed claim of PBGC where debtor had not listed the U.S. Attorney on its mailing list, even though notice had arguably been given to PBGC).
III.
CONCLUSION
In light of the foregoing, the Court denies defendants’ motion to dismiss, which the Court has treated as a motion for summary judgment. Defendants are directed to file and serve their answer to plaintiff’s complaint not later than 30 days from the date of this order.
IT IS SO ORDERED.
IT IS FURTHER ORDERED that the Clerk shall serve a copy of this Order on counsel for all parties in this action.
. In its response to defendants' motion to dismiss, filed September 24, 1992, plaintiff submitted the declaration of Ms. Washington who asserted that plaintiff did not discover its claim against defendants until after the conclusion of defendants’ bankruptcy proceeding due to earli*659er misrepresentations by defendants that their ERISA plan was fully funded. Defendants have yet to contradict this evidence. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491693/ | ORDER ON OBJECTION TO CLAIM # 19
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 liquidation case which originally commenced as a Chapter 11 case filed by Roy Lee Schmidt and Dorothy Ann Schmidt (Debtors) on August 20, 1991. Due to the Debtors’ inability to achieve reorganization, the case was converted to a Chapter 7 liquidation case on June 26, 1992. The matter under consideration is an Objection to Claim # 19 of Stotts C. Boozer (Boozer).
The claim of Boozer is composed of the following: $6,420.00 unsecured, and $5,280.00 as a priority, or a total of $11,-700.00. The priority portion of the claim is asserted as administrative rent based on § 503 of the Bankruptcy Code and in turn, claimed to be entitled to priority pursuant to § 507(a) of the Bankruptcy Code. The unusual feature of this contested matter is that the Objection is not interposed by the Chapter 7 Trustee, but by Roy L. Schmidt (Schmidt), one of the two Debtors, who contends that inasmuch as there are sufficient funds in the estate to pay all claims in full, including the cost of administration of the aborted chapter 11 case and cost of administration of the Chapter 7 ease, he has standing to challenge the claim of Boozer because if he is successful he is entitled to the surplus pursuant to § 726(a)(6) of the Bankruptcy Code.
The facts which are without dispute and as appear from the record can be summarized as follows: On January 10, 1991, Boozer, the owner of an office building, executed a 24-month lease for the premises. The Lease Agreement (Agreement) named Schmidt as tenant. (Schmidt’s composite Exh. # 1). Although the Agreement has certain initialed hand-written changes, there are no initialed changes concerning the most crucial part of the Agreement, the controversial signature. The Agreement is signed by Boozer as lessor and Schmidt as, “Pres.” (sic), but above his signature are typewritten the two words “American Therapeutic.” The record further reveals that all rent payments to Boozer between April 2, 1991 up to and including May 20, 1992, were made by American Therapeutic Massage Clinic, Inc., a Florida corporation, and signed by Schmidt as President and Secretary-Treasurer of that corporation. It further appears that in the Chapter 7 case, Boozer filed a Proof of Claim in the amount of $18,060.00. This claim was filed as a secured claim. (Schmidt’s Exh. # 2). The composite exhibit also includes the Complaint filed in the Circuit Court for Pinellas County by Boozer against American Therapeutic Massage Clinic, Inc. in which Boozer sought damages against the corporation for breach of lease, describing the corporation as the tenant and Boozer as the landlord.
The claim in Count II of the Complaint was based on Fla.Stat. § 83.08, and sought a landlord lien against the personal properties of the corporation, American Therapeutic Massage Clinic, Inc., located on the premises. Boozer also filed a Motion for Temporary Restraining Order against American Therapeutic Massage Clinic, Inc. The Motion was accompanied by an affidavit of Boozer in which he contended that the employees of American Therapeutic Massage Clinic, Inc. are removing furniture and fixtures from the leased premises.
It is without doubt and conceded by counsel for Boozer that neither Roy L. Schmidt nor Dorothy A. Schmidt, his wife, ever used and occupied the premises owned by Boozer either before or after commencement of the Chapter 11 case. Thus, this *682Court is satisfied that Boozer is not entitled to any administrative rent against the estate of the Debtors pursuant to § 503(a) of the Bankruptcy Code. This leaves for consideration whether or not the claim of Boozer may be allowed in the estate of Schmidt and his wife for pre-petition rent earned but unpaid.
Boozer contends that, under the controlling legal principles, the Agreement was between Boozer and Schmidt individually, and Schmidt is liable individually under the Agreement and therefore, Boozer’s claim for pre-petition rent earned but not paid shall be allowed as a general unsecured claim against the estate of Schmidt. In support of this proposition, counsel for Boozer cites the general principle that a mere description of the status or position of a signatory, such as the addition of the designation “Pres, or President” does not absolve the individual from the obligation undertaken with the execution of the document in question, in this case the lease, citing Central National Bank of Miami v. Muskat Corporation of America, Inc., 430 So.2d 957 (Fla.App. 3 Dist.1983). In Central National, the corporation executed a promissory note and security agreement and a mortgage in favor of Central National. In addition, there was a separate guaranty agreement executed the same day. The first three documents were properly typed for signature: “Muskat Corporation of America, Inc.” Below this there was a line for written signature on which had been typed “Adolfo Muskat, President.” The guaranty agreement had a place for signature which was signed by Muskat as an individual but added after his name the word “President.” Based on the foregoing, it has urged that the debt was solely a corporate obligation and Muskat should not be held individually liable because he added after his signature the noun “President.” The Third Circuit Court of Appeals rejected this proposition as a matter of law and held that an individual who adds any language describing his capacity cannot defeat the purpose of the guaranty agreement, citing, Ray v. Davidson Equipment, Inc., 423 So.2d 496 (Fla. 4th DCA 1982); Stein v. Miss Franie’s, Inc., 417 So.2d 726 (Fla. 1st DCA 1982); Sabin v. Lowe’s of Florida, Inc., 404 So.2d 772 (Fla. 5th DCA 1981); Vacation, Inc. v. Southeast First Leasing, Inc., 358 So.2d 105 (Fla. 3d DCA 1978); Manufacturer’s Leasing, Ltd. v. Florida Development & Attractions, Inc., 330 So.2d 171 (Fla. 4th DCA 1976).
Counsel for Boozer also relies on the case of Robinson v. St. John Advertising and Public Relations, Inc., 557 So.2d 908 (Fla.App. 1st Dist.1990), which involved two contracts engaging the services of the advertising agency and the defendant, Slender World. Slender World was a properly-registered fictitious name for Professional Management Training, Inc., a Florida corporation. While the contracts, which were in letter form, identified the contracting parties as Ms. Jan Lane Silcox, President, Slender World, the contract was signed without reference to title or reference to the fact that Slender World was a fictitious name. In Robinson, the First District Court of Appeals held that the discovery of the fictitious trade name for the corporation is insufficient notice of a corporate principal’s identity and the individual’s liability on the contract. Counsel for Schmidt cited no authority in opposition to the authorities cited by Boozer. In addition, counsel for Boozer points out that the authorities cited dealt with the validity, vel non, of the guarantee of an individual who signed a guarantee by adding a description of his or her corporate activity. The soundness of the holding of this case cannot be questioned, and for no other reason that it would be clearly an absurd proposition, that the prime obligation of the corporation is guaranteed by the prime obligor, i.e., the corporation. This construction would clearly defeat the very purpose of the guarantee. The fact that the guarantee was signed by an individual but with the addition of his status in the corporation, such as adding “President” to his signature, would not and should not absolve the individual of liability created by the guaranty.
The difficulty in this particular case, however, is that none of the authorities cited are persuasive and controlling. There is no doubt that this lease is ambiguous *683and thus, the Court must consider extrinsic evidence to determine who shall, in fact, be considered the tenant of the premises leased by Boozer. The record reveals the following facts which are basic and without dispute.
First, Boozer did, in fact, file a Proof of Claim in the corporate case of American Therapeutic Massage Clinic, Inc.; second, he expected rent payments through the relevant period of time from American Therapeutic Massage Clinic, Inc.; third, the Complaint filed in the Circuit Court named only American Therapeutic Massage Clinic, Inc., the tenant, and not Schmidt individually; fourth, while it is true that a literal reading of the lease would indicate that Schmidt signed as “president,” it was signed as president of a non-existent corporation; and, fifth, the corporation, and not Schmidt, occupied the premises at all times; and the rent was paid at all times by the corporation. In view of the totality of the relevant facts, this Court is satisfied that the tenant was American Therapeutic Massage Clinic, Inc., and not Schmidt. Based upon the foregoing, the Objection should be sustained.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Objection to Claim # 19 of Stotts C. Boozer filed by Roy Lee Schmidt and Dorothy Ann Schmidt is hereby sustained, and the claim is hereby disallowed.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491695/ | MEMORANDUM OF OPINION AND ORDER
RANDOLPH BAXTER, Bankruptcy Judge.
I.
In this involuntary Chapter 7 ease, Plaintiff, Industrial Plants Corporation (IPC) seeks to compel performance on a contract. An order for relief was entered on March 26, 1992. During the period between the filing of the involuntary petition and the Court’s entry of an Order for Relief (the Gap Period), a quantity of steel product (110 tons of galvalume steel) was sold to a third party known as Dove Die and Stamp*990ing Company (Dove Die). Upon entry of the Order for Relief, Marvin A. Sicherman was appointed as the interim trustee (the Trustee) in the case for the purpose of liquidating the Debtor’s estate. Subsequent to his appointment, the Trustee was authorized by the Court to continue the Debtor’s business operations for a limited period in order to complete certain work-in-progress and to facilitate the collection of the Debtor's accounts receivable for the estate’s benefit. (J.X.-l). During this period of limited operation, the Trustee negotiated a bulk sale of steel inventory to Herman Enterprises, Ltd. of Stamford, Connecticut (HEL). Plaintiff IPC is the assignee of HEL. The principal terms of the offer were embodied in a Term Sheet Sale of Inventory (Term Sheet) dated June 3, 1992. (J.X.-2). In pertinent part, the Term Sheet contained the following language:
Quantity: 18,187,676 lbs. or more of steel inventory of Manchester Steel, Inc., wheresoever situated, except approximately 323,000 lbs. of .035 galvanized coils purchased by Manchester Steel, Inc. for Manchester Steel, L.P. for sale to the U.S. Navy located at California Finished Metals and/or Santa Fe Railroad Warehouse.
Price: $1,740,000.00 (approximately $9.57 per cwt.) Net FOB — and if weight short pro rata for shortage.
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Delivery: Removal by Purchaser from premises at 20900 St. Clair Avenue, Euclid, Ohio....
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Mise.: Commencing day after Closing, Purchaser responsible for all post-closing “off-site” expenses incurred. Estate to pay for same prior to date of Closing, with respect to all of the off-site locations. (Emphasis added.)
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Warranty: Trustee ... warrants that sale shall be free of all liens ... makes no warranties or representations whatsoever, except for express terms contained above, and sale is “as is and where is”.
The Term Sheet was signed by Ronald S. Herman, HEL’s principal, on June 3, 1992, as offeror. Notedly, the Term Sheet was not counter-signed by the Trustee or his agent. This Court approved the sale procedure to be utilized on June 4, 1992. An auction sale was conducted on June 30, 1992, wherein HEL was the highest bidder for the steel inventory. Following a hearing, the sale was confirmed by this Court on July 2, 1992. July 15, 1992 was the established Closing Date.
II.
Among IPC’s several Complaint allegations, it alleges that the steel inventory it purchased on June 30, 1992 should have included the 110 tons of galvalume steel which were sold during the gap period to Dove Die, as it was listed on a perpetual inventory sheet provided by the Trustee upon which it relied. IPC further contends that it learned the galvalume steel was not included in its acquired inventory until after the auction sale had occurred. In fact, it learned that such steel had been purchased by and transferred to Dove Die on April 2, 1992. Further, it learned that the Dove Die invoice was back-dated from a June 16, 1992 date to the date of April 2, 1992 to reflect the actual delivery date.
Additionally, IPC contends that it was required to retrieve some of the purchased steel inventory from certain off-site storage locations. In this regard, one such site was the Auburn Correctional Facility (ACF) which allegedly required IPC to pay an amount of $4,500.00 in storage charges before it would release a quantity of the Debtor’s steel it had earlier rejected but had not returned. IPC alleges that the Debtor’s estate is responsible for a portion of that storage charge pursuant to provisions of the Term Sheet. In summary, IPC seeks damages totalling $80,134.26 as compensation for the omitted galvalume steel, in addition to $2,700.00 as reimbursement for one-half the amount it paid to ACF for release of steel stored at ACF’s location.
*991In response, the Trustee states that the galvalume steel sold to Dove Die was not estate property at the time of the inventory bulk sale to HEL and that, consequently, IPC has no right to that particular steel. Further, the Trustee alleges that neither the Term Sheet, nor the Notice of Sale, specified galvalume steel. Both simply address “steel inventory” in an amount of 18,187,676 lbs. or more. He further asserts that neither document referenced any inventory computer print-out.
III.
The dispositive issues are two-fold: (1) Whether the Trustee fully performed on IPC’s offer to acquire the Debtor’s steel inventory; and (2) Whether IPC is entitled to be reimbursed for pre-closing off-site storage costs it paid to the ACF. As the complainant, the burden of proof rests upon IPC to prove its cause of action by a preponderance of evidence standard.
An examination of the Notice of Sale (Notice) (J.X. 3) pertaining to the Trustee’s sale of the Debtor’s steel inventory shows that such inventory was proposed to be sold to HEL for $1,740,000.00, subject to adjustment, for 18,187,676 pounds or more of non-specified steel. The Notice further provided that the Term Sheets, which were attached to the Notice, addressed “the general terms and conditions of the proposed sales.” Additionally, the Notice indicated clearly that “Any party submitting a written bid, must do so on one or more applicable Term Sheet(s), and must sign the same.”
As indicated above, the Term Sheet signed and tendered on behalf of HEL reflects the same quantity of non-specified steel inventory and at the same purchase price addressed in the Notice of Sale. There was no reference to any type of specified steel in the Term Sheet (J.X. 2), other than “323,000 lbs. of .035 galvanized coils” excepted from the bulk sale which belonged to the U.S. Navy. Neither the Notice of Sale nor the Term Sheet signed on behalf of HEL made any reference to galvalume steel. Even the purchase price provisions of the Notice of Sale and the Term Sheet did not address a specific type of steel being purchased by HEL. These documents only provided for price adjustments in the event of “weight” shortages, not on account of any specific type of steel shortages. Finally, this Court’s Order Confirming Sale, issued on July 2, 1992 (J.X. 4) provided the following, in pertinent part:
All of the Inventory as described in the Notice of Sale and applicable Term Sheet, for the sum of $1,770,000.00 to Industrial Plants Corporation of 211 East 43rd Street, New York, N.Y. as the des-ignee of Herman Enterprises, Ltd., without relieving Herman Enterprises, Ltd. of its obligation to consummate the purchase. (Emphasis added).
From the above language in the Order Confirming Sale, it is further evinced that the terms set forth in the Notice of Sale and the applicable Term Sheet embodied precisely what was being offered for sale by the Trustee.
As stated above, IPC contends that the Term Sheet did not fully manifest the parties intentions, as HEL relied also on a computerized print-out containing a perpetual inventory of the Debtor’s inventory (P.X. 9) which was provided to HEL by one Irwin Haber, the Trustee’s agent who negotiated the sale on behalf of the Trustee. In support of that contention, IPC asserts that, without a merger or integration clause in the Term Sheet, there was no final expression of the parties’ intent and consideration of the print-out would not be precluded under an application of the parole evidence rule.
IY.
Applicable non-bankruptcy law on express warranties provides:
(A) Express warranties by the seller are created as follows:
(1) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.
*992(2) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.
(3) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.
(B) It is not necessary to the creation of an express warranty that the seller use formal words such as “warrant” or ' “guarantee” or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller’s opinion or commendation of the goods does not create a warranty.
O.R.C. § 1302.26
It is not necessary that the seller make the description to create an express warranty. The seller need only be responsible for introducing the description into the bargaining process. Slyman v. Pickwick Farms, 15 Ohio App.3d 25, 15 OBR 47, 472 N.E.2d 380 (1984).
Whether or not the statement made forms a part of the basis of the bargain between the parties requires the court to consider the circumstances surrounding the sale, the reasonableness of the buyer in believing the seller, and the reliance placed on the seller’s statement by the buyer. Price Bros. Co. v. Philadelphia Gear Corp., 649 F.2d 416, 422 (6th Cir.1981); Slyman v. Pickwick Farms, 15 Ohio App.3d 25, 28, 15 OBR 47, 50, 472 N.E.2d 380 (1984).
The U.C.C. does not require that express warranties be made a part of the written agreement of the parties, and express warranties may be added by proof of oral warranties so long as the writing is not itself a complete integration of the agreement.
Price Bros. Co. v. Philadelphia Gear Corp., supra, at 422.
Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of section 1302.05 of the Revised Code on parol or extrinsic evidence, negation or limitation is inoperative to the extent that such construction is unreasonable.
O.R.C. § 1302.29(A).
V.
This adversary proceeding adjudicates a dispute arising out of a court ordered sale of estate assets and as such is a core proceeding. 28 U.S.C. § 157(b)(2)(A) and (N). Accordingly, this Court has original jurisdiction to hear this matter and enter a final order resolving the dispute. 28 U.S.C. § 1334(b); General Order No. 84.
The Court has reviewed the testimony adduced during the trial proceeding, in addition to the evidence admitted and the record, generally. Therein Marvin A. Sich-erman (the Trustee) testified that he hired Irwin Haber to assist in liquidating the Debtor’s remaining inventory. This was accomplished by filling open purchase orders and by selling steel piecemeal for cash. (Haber, Direct.) The Trustee also sought to sell the remaining inventory, wherever situated, in bulk, with the exception of that steel specifically held for a U.S. Navy contract. As the Debtor’s former chief financial officer, Haber,was familiar with the Debtor’s computerized inventory system and its contents. Specifically, he testified that the Debtor owned galvanized, hot rolled, and special coated steels, but no aluminum.
The Trustee negotiated the sale of the Debtor’s steel inventory to HEL through Haber. (Herman, Direct; Sicherman, Direct.) Herman negotiated the sale on behalf of HEL. Herman has been in the business of purchasing/brokering steel for 30 years and has personally engaged in thousands of steel transactions both domestically and internationally. (Herman, Direct and Cross.).
The Trustee directed Haber to distribute computer generated printouts of the Debt- *993or’s perpetual inventory to prospective purchasers to use as a framework in soliciting bids. (Sicherman, Direct.) Herman received computer printout INV11R, dated April 29, 1992, and computer printout DMO60R, dated April 27, 1992, on or about April 30 or 31, 1992. (Herman, Direct.) Computer printout INV11R represented steel located at the Debtor’s main facility at 20900 St. Clair Avenue, Cleveland, Ohio. (Id.) Computer printout DMO60R represented steel located at off-site locations. (Id.).
There was conflicting testimony as to what representations were made regarding the computer printouts. Herman testified that Haber represented the computer printouts were accurate listings of the steel inventory of the Debtor. Haber testified he told Herman that historically the computer printouts were accurate, but with the recent “chaos,” they could not be relied upon.
The computer printouts may be considered in construing the parties’ agreement. Sicherman testified that all of Herman’s verbal and written offers were rejected with the exception of that offer contained in the Term Sheet dated June 3, 1992. (Sicherman, Direct.) Herman believed that the Term Sheet was a bankruptcy form required by the Court, summarizing the purchase agreement he believed he had previously reached with the Trustee via a letter of May 15, 1992. (Herman, Direct.) The significance of this contention is IPC’s attempt to incorporate the computer printouts into the purchase agreement for the Debtor’s inventory as IPC contends the computer printouts created a warranty with respect to that sale. The Term Sheet did not reference the computer printouts; the May 15, 1992 letter did.
In order for the Court to preclude reference to the computer printouts, the Court must find the parties intended the Term Sheet to be a complete and exclusive statement of their agreement. O.R.C. § 1302.-05(B); Camargo Cadillac Co. v. Garfield Ent., Inc., 3 Ohio App.3d 435, 3 OBR 514, 445 N.E.2d 1141 (1982). The evidence does not support the Trustee’s contention that the parties intended the Term Sheet to be a complete and exclusive statement of their agreement. First, the Term Sheet does not contain a merger or integration clause. Secondly, the Term Sheet is incomplete and ambiguous. Even Haber testified that one could not determine what steel was being sold by reference to the Term Sheet alone. Finally, Herman testified that the Term Sheet was a summary of an oral agreement which terms were detailed in a letter of May 15, 1992. (PX3). See, Camargo Cadillac Co., supra (a determination of whether a writing is a complete and exclusive statement of the terms of the agreement between the parties is made by considering all the evidence presented by the parties about their intentions). Accordingly, parol evidence may be considered to explain or supplement the Term Sheet. O.R.C. § 1302.05. The computer printouts serve just that purpose.
The computer printouts do not constitute a warranty. IPC contends that the computer printouts constituted a description of goods which was made part of the basis of the bargain therefore creating an express warranty that all goods shall conform to the description. See, Slyman v. Pickwick Farms, supra; and Price Bros. Co. v. Philadelphia Gear Corp., supra. Indeed, the Trustee admits introducing the description into the bargaining process. Moreover, the warranty disclaimers made at the auction and in the Term Sheet do not serve to effectively disclaim any alleged express warranty as to the type, condition or quantity of steel being sold as that general disclaimer is inconsistent with the alleged express warranties asserted by IPC. Barksdale v. Van’s Auto Sales, Inc., 62 Ohio App.3d 724, 577 N.E.2d 426 (1989). After considering the facts and circumstances surrounding the transaction, however, it is clear that Herman did not reasonably rely upon the computer printouts as representing an express warranty as to the type, condition and quantity of steel he was purchasing. Thus, no warranty was created.
Computer printout INV11R listed 110 tons of galvalume steel as part of the Debt- *994or’s steel inventory. (Haber, Cross; Herman, Direct; PX9.) This type of steel, valued on a price per pound basis, was the most valuable steel in the inventory. (Herman, Direct.) This steel was listed in computer printout INV11R erroneously as it had been sold to Dove Die in either March or April of 1992 and had been shipped out of the Debtor’s facility. (Haber, Direct and Cross; Young, Cross.) Haber first learned that the galvalume steel was no longer in the Debtor’s steel inventory in mid-June, 1992.1 The parties, however, gave conflicting testimony as to when Haber notified Herman that the galvalume steel was no longer part of the Debtor’s steel inventory. Herman maintains that said notice was after confirmation of the sale, thus he had no opportunity to object to the sale on that basis. Haber maintains that he notified Herman prior to the sale, on or about June 18, 1992 and further contends that Herman then asked for a credit. Notwithstanding this testimony, it was uncontradicted that Herman was notified prior to the sale that the Debtor could not locate the galvalume steel in the main facility. Thus, HEL was notified that computer printout INV11R was inaccurate and could not be relied upon notwithstanding any alleged representations previously made by Haber to the contrary as INV11R was allegedly a listing of all steel in the main facility.
Herman knew that the computer printouts were standard steel perpetual inventories.2 (Herman, Cross.) Perpetual inventories are a written record to which incoming steel is recorded and outgoing steel is deleted. (Haber, Cross.) Herman understood that physical inventories are taken to correct inaccuracies in perpetual inventories. (Herman, Cross.) The only way to confirm that the steel listed in the perpetual inventory was missing was to take an actual physical inventory. (Haber, Cross.) With this knowledge of industry practice and, while in possession of the inventory data,'Herman made no request for a physical inventory.
Although Herman visited the Debtor’s warehouse on three occasions and physically inspected the warehouse and its contents, Herman never inspected the warehouse for the express purpose of confirming the existence, quantity or condition of the galvalume steel. (Herman, Cross.) Rather, he inspected the steel inventory with an eye toward checking the general condition of the steel, ie., whether it was rusted, banded, etc. (Herman, Direct.) This testimony was incredible, in view of Herman’s earlier testimony that the galva-lume steel was the most valuable of the Debtor’s inventory. If it was so valuable, Herman’s walk-through physical inspection should have revealed the absence of any galvalume steel. Herman testified that a walk-through inspection was his general practice prior to acquiring an inventory of steel. This testimony further revealed that Herman did not rely upon the computer printouts at all as they pertained to the condition of the steel. The computer printouts contained descriptions of the condition of the steel, yet Herman found it necessary to confirm the condition of the steel by physical inspection.
The foregoing evidence reflects that any reliance that Herman may have had on the computer printouts was unreasonable. Therefore, the computer printouts were not *995a part of the basis of the bargain between the Trustee and HEL. Price Bros. Co. v. Philadelphia Gear Corp., supra; Slyman v. Pickwick Farms, supra. Thus, no warranty was created and no breach of warranty occurred. O.R.C. § 1302.26.
The Complaint also alleges breach of contract for failure to deliver all of the steel as required in the parties’ agreement. The Term Sheet states that HEL agreed to buy, and the Trustee agreed to deliver, a minimum of 18,187,676 pounds of the Debt- or’s steel inventory, wheresoever situated, except for that steel carved out for a military contract. The computer printouts were not a basis of the bargain and do not set forth binding contractual terms as to the quantity, type or condition of the steel. HEL did purchase and the Trustee did deliver the minimum quantity of steel. In fact, the Trustee delivered approximately 200,000 pounds of steel in excess of the minimum quantity. There is no evidence that the Trustee failed to deliver the agreed quantity of steel.
IPC presented evidence that it paid $4,500.00 for storage costs with respect to steel it purchased from the Debtor and which was located at ACF. The Trustee failed to present any evidence in rebuttal. Rather, he relied on his argument that the $4,500.00 did not really constitute storage charges but was a method by which ACF, a creditor, sought to obtain payment on its prepetition claim. The Trustee failed to present any evidence substantiating his argument.
The Term Sheet obligates the Trustee to pay off-site storage costs incurred prior to the close of the sale. IPC presented unre-butted evidence that the Trustee’s share of these costs is $2,700.00. Such charges constitute an administrative expense under 11 U.S.C. § 503(b)(1)(A).
Accordingly, judgment on the Complaint is entered in favor of the Trustee on IPC’s cause of action for breach of contract (Count I) and breach of express warranty (Count II). Judgment is entered in favor of IPC in the amount of $2,700.00 on its cause of action for reimbursement of an administrative expense (Count III) and breach of contract (Count IV). Each party is to bear its respective costs.
IT IS SO ORDERED.
. Haber discovered that an invoice generated by the Debtor on June 16, 1992 was backdated to April 2, 1992 to address the Dove Die shipment. That occurrence was not surprising to him as it was the proper thing to do for the purpose of correlating the invoice date with the delivery date. He further testified that the Debtor’s invoices are normally dated as of the bill of lading date. It is significant to note that other invoices were generated on June 16, 1992 and pertained to sales other than to Dove Die. Exhibit PX5 reflects that the Debtor’s estate received |82,-000.00 for the Dove Die sale, and the dated Dove Die invoice was not an attempt to defraud or mislead anyone. Haber’s testimony was credible.
. "Perpetual inventory” has been defined as an "inventory accounting system whereby book inventory is kept in continuous agreement with stock on hand; also called ‘continuous inventory’. A daily record is maintained of both the dollar amount and the physical quantity of inventory, and this is reconciled to actual physical counts at short intervals. Perpetual inventory contrasts with 'periodic inventory’.” Dictionary of Finance and Investment Terms, 2d Ed. 1987. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491696/ | ORDER GRANTING “MOTION FOR SUMMARY JUDGMENT”AND STRIKING TRIAL
MICKEY DAN WILSON, Chief Judge.
Plaintiff Carmen Haas (“Haas”) brought her complaint commencing this adversary proceeding against defendant Thomas V. Huddleston (“Huddleston”), seeking exception to discharge under 11 U.S.C. § 523(a)(6). That statute excepts from discharge “any debt ... for willful and malicious injury by the debtor to another entity ...” On July 16, 1993, Haas filed her “Motion for Summary Judgment.” Ten days later, Huddleston filed his “... Brief in Response ...” thereto.
Haas had previously sued Huddleston for damages for invasion of privacy in the United States District Court for the Northern District of Oklahoma (“the District Court”). On January 27, 1993, the District Court filed its “Findings of Fact and Conclusions of Law” and a “Judgment” pursuant thereto. The District Court held Hud-dleston liable for $5,000 in actual and $1,000 in punitive damages. In its “Findings of Fact and Conclusions of Law,” p. 5 ¶ 30, the District Court determined as follows:
Defendant Huddleston’s conduct was willful and wanton and demonstrated a conscious indifference and disregard for Plaintiffs rights entitling Plaintiff to $1,000.00, as and for punitive damages.
Haas moves for summary judgment in this Court on the basis of the findings and judgment in the prior action in the District Court. According to Haas, the District Court’s determinations suffice to establish that Huddleston’s actions were “wilful and malicious” for purposes of 11 U.S.C. § 523(a)(6); that such prior determination by the District Court precludes relitigation of these matters in this Court; and that accordingly, Huddleston’s debt “for wilful and malicious injury” to Haas must be excepted from discharge under 11 U.S.C. § 523(a)(6) as a matter of law. Huddleston responds that “reckless disregard” of rights does not suffice to establish “malice” for purposes of 11 U.S.C. § 523(a)(6).
Huddleston’s proposition of law is correct as far as' it goes: under current law, recklessness is not “malice” for purposes of § 523(a)(6). On the other hand, “malice” is shown by
evidence that the debtor had knowledge of the creditor’s rights and that, with that knowledge, [the debtor] proceeded to take action in violation of those rights,
In re Culp, 140 B.R. 1005, 1014 (B.C., N.D.Okl.1992) quoting In re Posta, 866 F.2d 364, 367 (10th Cir.1989).
The present dispute does not involve recklessness. The District Court found that Huddleston acted with “conscious ... disregard for [Haas’] rights” (emphasis added). “Conscious” disregard necessarily implies “that [Huddleston] had knowledge of [Haas’] rights and that, with that knowledge, [Huddleston] proceeded to take action in violation of those rights,” In re Posta, supra.
Under the rule of In re Posta, supra, the District Court determinations herein are sufficient to establish the elements of exception to discharge under § 523(a)(6). Res judicata does not apply in actions for exception to discharge, Brown v. Felsen, 442 U.S. 127, 134-139, 99 S.Ct. 2205, 2211-213, 60 L.Ed.2d 767, 773-776 (1979). But collateral estoppel does, Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 658, 112 L.Ed.2d 755, 763. The elements of collateral estoppel exist here, Murdock v. Ute Indian Tribe, 975 F.2d 683 (10th Cir.1992); U.S. v. Rogers, 960 F.2d 1501 (10th Cir.1992); In re Laing, 945 F.2d 354 (10th Cir.1991); In re Wallace, 840 F.2d 762 (10th Cir.1988); Jeffrey Thomas Ferriell, The Preclusive Effect of State Court Decisions in Bankruptcy, 58 Am.Bankr.L.J. 349 et seq. (1984). The parties herein are *37collaterally estopped from re-litigating these matters.
Therefore, the plaintiff Haas’ “Motion for Summary Judgment” must be, and the same is hereby, granted. Judgment in favor of Haas and against Thomas v. Huddle-ston (but not against his co-debtor in bankruptcy Lori M. Huddleston) shall be entered accordingly. Haas shall prepare and submit an appropriate form of judgment.
Trial scheduled for August 9, 1993 at 9:15 o’clock A.M. is stricken as moot.
AND IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491697/ | MEMORANDUM OF DECISION ON VALIDITY OF TAX SALE
FRANCIS G. CONRAD, Bankruptcy Judge.
This matter1 is before us on Bank’s Motion for Judgment on the Pleadings in regard to Count I of Bank’s Complaint for Declaratory Judgment and Recovery of Property. The motion arises out of discussions among the parties and the Court at the June 14, 1993 hearing on Brentwood’s Motion to Dismiss Count II of the Com*85plaint, which we denied. Because the parties have submitted affidavits and matters outside the pleadings for our consideration, we will treat the motion as one for summary judgment, pursuant to F.R.Civ.P. 12(c), as made applicable to this proceeding by F.R.Bkrtcy.P. 7012.
The principal issue before us is whether a tax collector’s failure to obtain a warrant before levying on property for past due taxes voids a subsequent tax sale ab initio. We hold that it does.
The material facts are apparently undisputed. The property in question is a 3.4-acre parcel located in a Town of Williston (“the Town”) industrial zone, which requires a minimum lot size of two acres. The property was originally owned by Joseph G.E. Senesac, who granted Bank a mortgage on the property. Senesac later conveyed the property by warranty deed to John B. Senesac as trustee of the Joseph G.E. Senesac Trust Fund # 1 (“the Trust”). The Trust failed to pay real estate taxes on the property during the 1990-91 tax year, and the Town issued a Notice of Tax Sale for the property. The Notice of Tax Sale was properly recorded, published and sent to lienholders, including Bank. The tax collector, however, neglected to extend a warrant against the property, or to file a copy of such a warrant with the Town Clerk, both of which are required by 32 Vt.Stat.Ann. § 5252(1)2 as prerequisites to a tax sale.
On November 7, 1991, Brentwood purchased the parcel at the tax sale for $5,269.57. At the time of the tax sale, the parcel’s value was somewhere in the range of $350,000 to $450,000. Brentwood listed Joseph M. Senesac, a relative of both John B. Senesac and Joseph G.E. Senesac, as its president and sole director.
After the sale, the tax collector failed to file and record the report of sale in the Town Clerk’s office, as required by 32 Vt. StatAnn. § 5255.3 On March 27, 1992, more than five months after the sale, Bank undertook a title search in preparation for a foreclosure action. This search failed to uncover the tax sale. A telephone call by Bank’s counsel to the Town Clerk resulted only in the Clerk’s advice that no sale had taken place according to the Town’s land records, and that taxes were still due on the property. On April 10, 1992, Bank commenced an action for foreclosure in Chittenden Superior Court, and obtained a judgment and decree of foreclosure on August 11, 1992, for $240,852.65.
Subsequently, on December 4, 1992, Wil-liston’s tax collector conveyed the property to Brentwood by Tax Collector’s Deed, which was recorded on December 12, 1992. An undated Report of Tax Sale was recorded in the Town’s records on January 8, 1993. On January 25, 1993, the tax collector executed a warranty deed conveying the property to Brentwood, and recorded the deed the next day. No party redeemed the property prior to the final date of redemption of February 23, 1993.
Bank seeks a declaratory judgment that Brentwood has no legal or equitable interest in the property, the sale being void ab initio due to the tax collector’s failure to record the sale within thirty days of its occurrence. Bank argues that it could have exercised its right of redemption if the tax collector had properly recorded a *86report of sale, which Bank would have discovered during its March 27, 1992 title search. Bank relies on Peterson v. Moulton, 120 Vt. 439, 442, 144, 144 A.2d 717 (1958) (citing Brush v. Watson, 81 Vt. 43, 46, 69 A. 141 (1906)), asserting that one who claims under a deed based upon a tax sale sustains the burden of proving the regularity of every antecedent act necessary to the validity of the tax, the levy, and the sale. In addition, Bank claims that the proper statute of limitations to apply is the three-year period applicable to the sale of real estate to collect taxes under 32 Vt. Stat.Ann. § 5263.4 Even if we should find that the one-year statute of limitations of 32 Vt.Stat.Ann. § 52945 applies, however, Bank argues that the defects in procedure are of such jurisdictional dimensions that the sale should be rendered void ab initio. Finally, Bank argues that as a matter of law the transaction is void because the consideration paid was inadequate, and the tax collector should have sold off only so much of the property as was necessary to satisfy the taxes, interest, and costs. Bank relies on Price v. Eland, 149 Vt. 518, 523, 546 A.2d 793 (1988) to posit that when the consideration paid on a tax sale is so inadequate as to lead any fair-minded person to the conclusion that it was unnecessary to sell the entire property for the payment of the taxes and costs, that by itself is enough to establish that the collector sold more than was necessary. Id. (citing Bogie v. Town of Barnet, 129 Vt. 46, 53, 270 A.2d 898 (1970) (opinion on reargument)).
Brentwood responds that the statute does not state that the owner or mortgagee must be provided with a copy of the report of sale, or that it must be published. Brentwood also argues that literal compliance with the statutory requirements of a tax sale is no longer necessary because recent cases require merely substantial compliance with the statute, and the instant sale did in fact substantially comply with the statute. Bank received the notice of sale, so the report of sale was not necessary to provide notice of the sale’s occurrence. Furthermore, Bank could have sent a representative to the sale or contacted the tax collector. Finally, Brentwood argues that the tax collector could not have sold any smaller portion of the lot due to zoning restrictions, and that the applicable statute of limitations is one year, as dictated by 32 Vt.Stat.Ann. § 5294(4).
DISCUSSION
To prevail on a motion for summary judgment, the movant must satisfy the criteria set forth in F.R.Civ.P. 56 as made applicable by Rules of Practice and Procedure in Bankruptcy Rule 7056. F.R.Civ.P. 56 provides 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.
See, Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986); Eastman Machine Company, Inc. v. United States, 841 F.2d 469 (2d Cir.1988); Hossman v. Spradlin, 812 F.2d 1019, 1020 (7th Cir.1987); Clark v. Union Mutual Life Ins. Co., 692 F.2d 1370, 1372 (11th Cir.1982); United States Steel Corp. v. Darby, 516 F.2d 961, 963 (5th Cir.1975).
The primary purpose for granting a summary judgment motion is to avoid unnecessary trials where no genuine issue of material fact is in dispute. Farries v. Stanadyne/Chicago Div., 832 F.2d 374, 378 (7th Cir.1987). Thus, the function of a Bankruptcy Court when considering a motion for summary judgment is not to resolve disputed issues of fact but only to determine whether there is a genuine issue to be resolved. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-50, 106 S.Ct. 2505, 2509-11, 91 L.Ed.2d 202; Knight v. U.S. Fire Insurance Co., 804 F.2d 9, 11 (2d Cir.1986), cert. denied, 480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987). Sum*87mary judgment in favor of Bank is warranted in this ease because the undisputed facts establish that Bank is entitled to judgment as a matter of law.
The first issue we must decide is which statute of limitations applies. If Brentwood is correct and the one-year statute applies, then we need proceed no further with our analysis. Bank argues for the three-year period provided by 32 Yt. Stat.Ann. § 5263, which states that
[a]n action for the recovery of lands, or the possession thereof, shall not be maintained against the grantee of such lands in a tax collector’s deed, duly recorded, or his heirs or assigns, when said grantee, his heirs or assigns have been in continuous and open possession of the land conveyed in such deed and have paid the taxes thereon, unless commenced within three years after the cause of action first accrues to the plaintiff or those under whom he claims.
Bank claims that because this action is one against a grantee of land by tax deed, § 5263 applies directly. Brentwood argues that the one-year limitations period of 32 Vt.Stat.Ann. § 5294(4) applies because this action concerns the validity of the tax collector’s acts. This section states that
[ujnless commenced within one year from the time that collection is sought to be enforced against the taxpayer by arrest, distraint or levy, an action shall not lie wherein a taxpayer may question the validity of ...
(4) Acts of the tax collector relating to the collection of the tax either before or after the tax became delinquent.
Our task here is one of simple statutory construction, which begins with language of the statute itself. Where the meaning is clear, we need proceed no further.6 We hold that the three-year period applies. Section 5294(4) applies only to actions by the taxpayer, whereas § 5263 applies to anyone claiming under the taxpayer. Bank in this action is claiming under the taxpayer, so only § 5263 applies. In addition, § 5263 is in Article 5 of Title 32, Chapter 133, which specifically deals with the sale of real estate, while § 5294 is in Article 6 and deals with the much more general topic of taxpayer defenses. The topic of real estate sales is more closely and specifically related to the issue at hand. Finally, the limitations period in § 5294 applies for one year from the point that collection is sought to be enforced against the taxpayer. As collection was never sought to be enforced against Bank, § 5294 does not apply in this case; § 5263 applies, and Bank’s action is not time-barred.
The next issue is the validity of the tax sale. The tax collector’s failure to extend a warrant on the property made the tax sale void ab initio. The warrant gives the tax collector the power to sell a delinquent taxpayer’s property to collect taxes. Without the warrant, the tax collector has no legal right to sell the property. This requirement, explicitly mandated by Vermont’s statutes, is generated by due process requirements. Not only does § 5252(1) unequivocally require a warrant as a precondition for a tax sale, the statutory scheme as a whole assumes compliance with the warrant requirement. For example, a municipality may only become a purchaser at a tax sale after a warrant is extended on the land. 32 Vt.Stat.Ann. § 5259.7 In addition, 32 Vt.Stat.Ann. § 52558 contains a prototype report of sale which must be filed by the tax collector after the sale. This prototype begins, “By virtue of a warrant ... lawfully committed to me ...” This language plainly assumes that the warrant is a prerequisite to any sale by the tax collector. The same statute later refers to the tax collector “ex-tendpng] and levypng] [the] said warrant.” *8832 Vt.Stat.Ann. § 5255. The levy against the property is actually a levy by virtue of the warrant; therefore, without the filing of a warrant, there can be no levy. Consequently, in the instant case, the tax collector never obtained the right to sell the property, so Brentwood never obtained enforceable title. In addition, 32 Vt.Stat.Ann. § 52589 which concerns tax sales of real estate, refers to a single fee for the levy and extending of the warrant on the property. This implies that the two must go together, and that the tax collector may not levy against the property unless he has first extended the warrant.
Black’s Law Dictionary defines a land warrant as “[t]he evidence which the state, on good consideration, gives that the person therein named is entitled to the quantity of land therein specified....” Black’s Law Dictionary, 5th Ed. (1979). Because the tax collector failed to extend a warrant against the land, there is no record evidence that the tax collector was entitled to the property. Consequently, the tax collector could not sell the property.
The tax collector’s failure to extend the warrant against the subject property is of itself sufficient grounds for granting summary judgment to Bank. This Chapter 11 case and its related proceedings, however, have been hotly contested. Several of our bench decisions have been appealed. To ensure a full record in the event a District Court Judge on appeal disagrees with our holding on the warrant, we lay out the other procedural irregularities that we believe require granting summary judgment to Bank.
The tax collector failed to record a report of the tax sale with the Town Clerk’s office within thirty days of the sale, as required by 32 Vt.Stat.Ann. § 5255.10 Bank claims that it could have exercised its right of redemption within the one-year redemption period if the report of sale had been filed, because it would have appeared in the Town’s records when Bank’s counsel searched title prior to initiating the foreclosure action.
Bank argues that a person receiving title under a tax deed has the burden of proving that all requirements of law have been strictly complied with. Peterson v. Moulton, 120 Vt. 439, 442, 144 A.2d 717 (1958) (citing Brush v. Watson, 81 Vt. at 46, 69 A. 141 (1908)). Brentwood counters that the cases requiring strict compliance with the law at every step of the way in the process of conveying property by tax sale are old, and that more recent cases require only substantial compliance with the statute. Brentwood looks for support for this argument to Turner v. Spera, 140 Vt. 19, 433 A.2d 307 (1981). In Turner, the plaintiff taxpayer challenged a tax sale on the grounds that the tax collector only published notice of the tax sale for two consecutive weeks, not the three required by the statute. The Vermont Supreme Court held that the efforts taken by the tax collector to provide the taxpayer with actual notice exceeded the statutory requirements. Turner, supra, 140 Vt. at 22, 433 A.2d 307. In the course of its discussion, Turner specifically distinguished its earlier decision in Peterson, holding that the two opinions were consistent. Peterson held that “{a} person claiming title to real estate under a tax collector’s deed has the burden of proving every act necessary to the validity of the tax, levy, and sale.” Peterson, supra, 120 Vt. at 442, 144 A.2d 717.
With this in mind, we hold that the tax collector’s course of conduct in this transaction falls far short of the procedural requirements of the statutes. Here, unlike in Turner, those procedural shortcomings deprived Bank of the notice the procedures were intended to ■ provide. The warrant issue aside, the tax collector’s failure to file a report of tax sale within thirty days as required by 32 Vt.Stat.Ann. § 5255 prevented the discovery of the sale by Bank’s attorney during the pre-foreclosure title search. While the plaintiff was put on notice of the impending sale by the tax collector’s compliance with 32 Vt.Stat.Ann. *89§§ 5252(2) and (4), requiring publication of the sale for three weeks prior to the sale, as well as notice to all resident lienholders at least 10 days prior to the sale, any number of occurrences could have caused cancellation of the proposed tax sale.
The purpose of public record keeping is to ensure that everyone can easily gain notice of actual transactions simply by checking the public records. Equipped with notice that a tax sale was pending, Bank checked the place where the law requires that reports of sale be recorded, and checked by phone with the official responsible for maintaining those records. Bank had no responsibility to verify the occurrence of the sale with the tax collector or any other source of information about the sale. Rather, § 5255 requires that the tax collector bear responsibility for properly recording the report of sale with the Town Clerk. Bank’s counsel looked where Vermont law requires the record to be kept, and thereby acted with due diligence. Were we to overlook the tax collector’s glaring failure to provide the notice required by law and hold that Bank should have contacted the tax collector directly, we would undermine the record notice system implemented by Vermont’s legislature and impose heavy new burdens on those who buy and sell real estate in Vermont. Bank also argues that the sale is void as a fraudulent conveyance because the price paid was less than two percent of the parcel’s value.11 Our holding that the sale itself was void ab initio makes it unnecessary for us to decide this issue. We also find it unnecessary to decide whether the tax collector’s failure to divide the property into smaller parcels prior to the sale is sufficient to void the sale.
Counsel for Bank is to settle an order consistent with the views expressed in this opinion on five days’ notice to Brentwood.
. We have jurisdiction to hear this matter under 28 U.S.C. § 1334(b) and the general reference to this Court by the United States District Court for the District of Vermont. This is a core proceeding under 28 U.S.C. § 157(b)(2)(K) and (0). This Memorandum of Decision constitutes findings of fact and conclusions of law under F.R.Civ.P. 52, as made applicable by F.R.Bkrtcy.P. 7052.
. 32 Vt.Stat.Ann. § 5252 provides, in pertinent part:
When the collector of taxes of a town or of a municipality within it has for collection a tax assessed against real estate in the town and the taxpayer is delinquent, the collector may extend his warrant on such land. If he so extends his warrant, the collector shall:
(1) File in the office of the town clerk for record a true and attested copy of his warrant and so much of the tax bill committed to him for collection as relates to the tax against the delinquent taxpayer, a sufficient description of the land so levied upon, and a statement in writing that by virtue of the original tax warrant and tax bill committed to him for collection, he has levied upon the described land....
. 32 Vt.Stat.Ann. § 5255 provides, in pertinent part:
Within thirty days after such sale of the land, the collector shall make a complete return of his doings and file the same for record in the town clerk's office of the town wherein such land lies, which return shall be prima facie evidence of the facts therein stated....
. See page 87, infra.
. See pages 87-88, infra.
. The Vermont Supreme Court has repeatedly reminded us that words in a statute without definition must be given their plain and commonly accepted meaning. See, e.g., Callahan & Sons, Inc. v. Armstrong, 125 Vt. 213, 216, 214 A.2d 70 (1965).
. Section 5259 provides, in pertinent part:
By the act of its mayor or selectmen, when a tax warrant is extended on any land in this state, the city or town by which the tax is assessed may become the purchaser at the tax sale thereof, if a bid not equal to the tax and costs is made at such sale....
.See note 3, supra.
. Section 5258 provides, in pertinent part:
The fees and costs allowed in the sale of lands for taxes shall be as follows: Levy and extending of warrant $10.00; recording levy and extending of warrant in town clerk's office, $10.00, to be paid the town clerk_
. See note 3, supra.
. We previously denied a motion for summary judgment on Bank’s fraudulent conveyance count (Count II of the Complaint). Our holding today will dispose of the entire adversary proceeding and Count II will be dismissed upon submission by Bank of the Order called for by this Memorandum. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491698/ | MEMORANDUM DECISION
SUSAN PIERSON SONDERBY, Bankruptcy Judge.
This matter comes before the Court on the cross-motions for summary judgment filed by the United States of America and the State of Illinois. The debtor, W.F. Monroe Cigar Co., filed an interpleader action. In the motion for summary judgment, the United States of America (Department of the Treasury, Internal Revenue Service) contends it has a prior perfected security interest in funds held by W.F. Monroe Cigar Company (Debtor). The State of Illinois (Departments of Revenue and Employment Security) on the other hand asserts a prior perfected security interest in the same funds. Based on the following, the Court denies the cross-motions for summary judgment.
JURISDICTION
The Court has jurisdiction over this matter pursuant to 28 U.S.C. Section 1334 and General Rule 2.33(A) of the United States District Court for the Northern District of Illinois. This matter constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A), (K) and (0).
UNDISPUTED FACTS
The facts giving rise to this action are relatively undisputed. The Debtor holds approximately $310,000 in escrow that is available for distribution. The Internal Revenue Service (IRS), the Illinois Department of Revenue (IDR) and the Illinois Department of Employment Security (IDES) are creditors of the Debtor. Each of these three parties asserts an interest in a portion or all of the funds. There are insufficient funds to satisfy all of the parties’ claims. Consequently, the parties have asked this Court to determine their respective interests in the funds held.
The Debtor has been involved in two bankruptcies. W.F. Monroe filed a petition for relief under Chapter 11 on December 24, 1984 and a plan was confirmed on July 29,1986. On December 3,1990, W.F. Monroe filed the pending petition under Chapter 11.
Nature of IRS’s claim
The IRS made the first assessments against the Debtor prior to the filing of its first bankruptcy in 1984 and made its next assessment on May 25, 1987. The IRS made a number of additional assessments *127in the period preceding this bankruptcy.1 The IRS failed to record its notice of lien for these assessments until October 1990. The amounts assessed are also in dispute.
Nature of IDR’s claim
The IDR’s first assessment occurred during the Debtor’s first bankruptcy and prior to the date Debtor’s first plan was confirmed. (IDR Exhibit B). The remaining IDR assessments occurred after the IRS’s 1987 assessment and were recorded at various times subsequent.2 The amounts assessed have not been disputed.
*128
Nature of WES’s claim
Like the IDR, the IDES’s initial assessments were made and recorded during the pendency of the Debtor’s first bankruptcy. (IDR Exhibit A). The remaining assessments occurred during the period between 1988 and 1990.3 The amounts assessed have not been disputed.
*129SUMMARY JUDGMENT STANDARD
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, 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 to find for the non-moving party. Matsushita, 475 U.S. at 587, 106 S.Ct. at 1356. “If the evidence is merely colorable or is not significantly probative, summary judgment may be granted.” Anderson, 477 U.S. at 249-250, 106 S.Ct. at 2510-2511 (citations omitted); see also Valley Liquors, Inc. v. Renfield 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 2552-53; Matsushita, 475 U.S. at 587, 106 S.Ct. at 1356; Patrick v. Jasper County, 901 F.2d 561, 564-566 (7th Cir.1990). 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. Chicago, 841 F.2d 186, 189 (7th Cir.1988); Marine Bank, Nat. Ass’n v. Meat Counter, Inc., 826 F.2d 1577, 1579 (7th Cir.1987); De Valk 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 *130(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. Donald v. Polk County, 836 F.2d at 379; Wallace v. Greer, 821 F.2d 1274, 1276 (7th Cir.1987); Egger v. Phillips, 710 F.2d 292, 296 (7th Cir.1983) (en banc), cert. denied, 464 U.S. 918, 104 S.Ct. 284, 78 L.Ed.2d 262 (1983).
Rule 56(d)4 provides for the situation when judgment is not rendered upon the whole case, but only a portion thereof. The relief sought pursuant to subsection (d) is styled partial summary judgment. Partial summary judgment is available only to dispose of one or more counts of the complaint in their entirety. Commonwealth Ins. Co. v. 0. Henry Tent & Awning Co., 266 F.2d 200, 201 (7th Cir.1959); Biggins v. Oltmer Iron Works, 154 F.2d 214, 216-217 (7th Cir.1946); Quintana v. Byrd, 669 F.Supp. 849, 850 (N.D.Ill.1987); Arado v. General Fire Extinguisher Corp., 626 F.Supp. 506, 509 (N.D.Ill.1985); Capitol Records, Inc. v. Progress Record Distributing, Inc., 106 F.R.D. 25, 28 (N.D.Ill.1985); In re Network 90°, Inc., 98 B.R. 821, 823 (Bankr.N.D.Ill.1989) aff'd In re Network 90 Degree, Inc., 126 B.R. 990 (N.D.Ill.1991); Strandell v. Jackson County, 648 F.Supp. 126, 136 (S.D.Ill.1986). Rule 56(d) provides a method whereby a court can narrow issues and facts for trial after denying in whole or in part a motion properly brought under Rule 56. Capitol Records, Inc. v. Progress Record Distributing, Inc., 106 F.R.D. at 29. However, the Court may not enter a final “partial summary judgment” under Rule 56(d) when such judgment would not entirely dispose of the claim or any count therein. See In re Farley, Inc., 146 B.R. 739, 743 (Bankr.N.D.Ill.1992) and collected citations.
DISCUSSION
The Internal Revenue Code provides that if any person liable to pay any tax neglects to pay that tax after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person. 26 U.S.C. § 6321. This lien arises at the time of assessment and continues until the liability is paid. 26 U.S.C. § 6322. As to third parties, the lien is not valid against “any purchaser, holder of a security interest, mechanic’s lienor, or judgment lien creditor until notice thereof ... has been filed” by the IRS. 26 U.S.C. § 6323(a). Similarly, state tax liens also arise upon assessment. See Ill.Rev.Stat. ch. 120, 11 11-1101(b); Ill. Rev.Stat. ch. 120,11444a. Courts have allocated priority between assessments based upon “the first in time is the first in right.” United States v. City of New Britain, 347 U.S. 81, 85, 74 S.Ct. 367, 370, 98 L.Ed. 520.
The IRS’s position is simple. It asserts that as long as its assessment has come first, no other assessment can prime the IRS assessment even if recorded prior to the IRS recording its assessment. According to the IRS’s reasoning, therefore, if it assessed a tax on Day 1 and subsequently recorded its assessment on Day 10, no other taxing authority’s subsequent assessment could have priority even if that assessment were made and recorded on Day 2. By virtue of the IRS’s assessment occurring first, it always has priority over all subsequent assessments.
*131The IDR and IDES agree with the IRS’s assertion. In fact, the IDR asserts the same position as to its tax assessments visa-vis subsequent assessments. An IDR assessment, therefore, takes priority over a subsequent assessment even when the subsequent assessment is recorded first.
The IDES argues a slightly different position from either the IRS or the IDR. The IDES claims a priority interest over any subsequent assessment only if the IDES records its assessment prior to any subsequent assessment’s recording. In other words, if the IDES assessed a tax on Day 1 and subsequently recorded its assessment on Day 10, a subsequently assessed and recorded tax on Day 2 would have priority.
Relying on the first in time is first in right approach, the IRS argues that its 1984 and 1987 assessments have priority because they occurred prior to any other assessments. The IDR and IDES concede that the date of assessment establishes the relevant date for determining lien priority but they argue two scenarios which they claim defeat the IRS’s claimed priority. First, they contend that assessments 1 through 5 are unsecured priority tax claims. Even though the IRS recorded these tax assessments, the IDR and IDES argue that these assessments are incapable of being secured by the IRS’s subsequent recording because any such lien right was extinguished upon confirmation of the plan. Consequently, the IDR and IDES assert their subsequently recorded assessments make them secured creditors, and thus entitled to priority.
Second, the IDR and IDES argue that assessments 6 through 9 arise from pre-petition tax liabilities for which the IRS failed to file a claim in the first bankruptcy, and consequently have been discharged. Because invalid, the IDR and IDES argue their secured assessments occurred first.
The logical starting point in this Court’s analysis is Section 11415 of the Code. Confirmation of a Chapter 11 plan has three effects. First, the plan provisions bind all creditors whether or not the creditor is impaired and whether or not the creditor files a claim. 11 U.S.C. § 1141(a). Second, all property vests in the debtor, 11 U.S.C. § 1141(b), “free and clear of all claims and interests of creditors ... except as otherwise provided in the plan or in the order confirming the plan.” 11 U.S.C. § 1141(c). Third, a debtor is discharged of all debts arising before confirmation, whether or not a proof of claim is filed. 11 U.S.C. § 1141(d). The provisions of Section 1141 are not to be taken lightly because after confirmation the plan operates to redefine a creditor’s interest in the debtor’s property. A creditor no longer can enforce its pre-confirmation lien rights but rather may enforce only those rights granted in the plan. In re Arctic Enterprises, Inc., 68 B.R. 71, 79 (D.Minn.1986).
A number of courts have addressed the effect of confirmation under Section 1141 and have recognized that confirmation operates to bind all parties to the terms of the plan. See, e.g., In re Laing, M.D., 146 B.R. 482, 484 (Bankr.N.D.Okla.1992); In re Riverside Nursing Home, 137 B.R. 134 (Bankr.S.D.N.Y.1992). In a thorough discussion of the binding effect of a confirmed plan, the court in In re Blanton Smith *132Corp., 81 B.R. 440 (Bankr.M.D.Tenn.1987) stated:
[T]he Supreme Court [has] determined that the order confirming a plan of reorganization is res judicata. Stoll v. Gottlieb, 305 U.S. 165, 59 S.Ct. 134, 83 L.Ed. 104 (1938), reh. den’d, 305 U.S. 675, 59 S.Ct. 250, 83 L.Ed. 437 (1938).
In subsequent decisions, the courts of other circuits, relying on Stoll, have held a confirmation order to be equivalent to a judgment. In Miller v. Meinhard-Commercial Corporation, 462 F.2d 358, 360 (5th Cir.1972), the Fifth Circuit stated:
An arrangement confirmed by a bankruptcy court has the effect of a judgment rendered by a district court, and any attempt by the parties or those in privity with them to relitigate any of the matters that were raised or could have been raised therein is barred under the doctrine of res judicata, (citations omitted).
81 B.R. at 442.
Additionally, Section 1141 provides that a confirmed Chapter 11 plan works to discharge a debtor from all pre-confirmation debts “[ejxcept as otherwise provided ... in the plan, or in the order confirming the plan....” 11 U.S.C. § 1141(d)(1). The Third Circuit addressed the impact of this discharge language and noted that:
the discharge provided by Section 1141(d) presumes that, in the process of formulating and voting on a reorganization plan, all classes of claimants will be able to use whatever leverage they may have, such as priority status, to effect the best treatment they can obtain for their particular claims. However, once the reorganization plan is approved by the bankruptcy court, each claimant gets a “new” claim, based upon whatever treatment is accorded to it in the plan itself. Thereafter, each claimant’s remedies for any future nonpayment of claims acknowledged in the plan are limited to the usual remedies for the type of claim granted by the plan’s provisions.
In re Benjamin Coal Co., 978 F.2d 823, 827 (3rd Cir.1992).
In this case, the Debtor’s plan treated the IRS’s 1984 assessments for tax liability as unsecured priority tax debts to be paid under the terms of the plan within six years. Thus, the IRS’s tax assessments were transformed into a “new” unsecured priority claim. The IRS, however, recorded those tax assessments after confirmation of the plan, and now claims that it has standing as a secured creditor, and thus has a prior secured interest over the claims of the IDR and IDES. The IRS is not a secured creditor and cannot defeat the terms of the plan (and its status as an unsecured creditor) by subsequently recording its pre-petition assessments. Any failure on the part of the Debtor to comply with the terms of the plan entitled the IRS to seek compliance with the terms of the plan or conversion or dismissal of the case. The IRS cannot subsequently record its tax assessments in an attempt to" obtain secured status.
Adopting the IRS’s position that it can leapfrog over other plan participants would result in parties recording their pre-petition unsecured judgments or unperfected lien rights after confirmation in hopes of elevating the status of their claim. Allowing such activity without plan approval would wreak havoc upon contemplated reorganizations.
The IRS cites In re White Farm Equipment Co., 943 F.2d 752 (7th Cir.1991) for support of their position that its prior assessments enjoy the same priority in the second bankruptcy as the first. In White Farms, the Seventh Circuit held that an unsecured priority tax claim for withholding taxes in a debtor’s first Chapter 11 case retains its priority claim status in the debt- or's second Chapter 11 case. Id. at 756. In this case, the IRS held an unsecured priority tax claim in the first bankruptcy, and according to White Farms, holds the same unsecured priority claim in this case. The White Farms decision did not address, and thus does not support the IRS’s contention that it may now assert a secured interest by its subsequent recording of its assessment. The Court finds that IRS as*133sessments 1 through 5 are unsecured priority tax debts.6
The Court next turns to the IRS assessment numbers 6 through 9. As noted, these assessments occurred after confirmation in the first case but were for pre-petition tax debts owed. Section 1141(d) provides:
Except as otherwise provided in this subsection, in the plan, or in the order confirming the plan, the confirmation of a plan—
(A) discharges the debtor from any debt that arose before the date of such confirmation, and any debt of a kind specified in section 502(g), 502(h), or 502(i) of this title, whether or not—
(i) a proof of the claim based on such debt is filed or deemed filed under section 501 of this title;
(ii) such claim is allowed under section 502 of this title; or
(iii) the holder of such claim has accepted the plan; and
(B) terminates all rights and interests of equity security holders and general partners provided for by the plan.
11 U.S.C. § 1141(d)(1). Because assessments 6 through 9 arose from pre-petition tax liabilities, those debts were discharged upon confirmation of the plan. The IRS’ subsequent recording of its notice of tax liens in no way changed the status of these discharged debts. The Court finds that IRS assessments 1 through 9 are not secured against property of this estate. Having disposed of IRS assessments one through nine, the Court turns to the next earliest assessments which are held by the IDR and IDES.
IDR and IDES Assessments
IDR assessment 1 was made during the Debtor’s first bankruptcy which renders it void ab initio. In re BNT Terminals, Inc., 125 B.R. 963 (Bankr.N.D.Ill.1990) (actions taken in violation of the stay are void ab initio). Similarly, the IDES issued assessments 1 through 7 in violation of the automatic stay, and thus they are void. All parties concede these assessments are not enforceable against the estate.
After these unenforceable assessments comes IRS assessment number 10. Using the first in time is first in right approach, this IRS assessment has first priority. The IDR and IDES, however, dispute the amount of the assessment which creates a substantial issue of fact. Although the Court finds that IRS assessment number ten has priority over the assessments of the IDR and IDES, the Court is unable to grant summary judgment absent a hearing to determine the amount assessed on October 19, 1987. The Court turns to the next earliest assessment which is held by the IDR.
IDR assessments 2 through 16 occurred during the period March 4, 1988 through and including July 8, 1988. Because these assessments were made prior to the IRS’s next assessment of September 4, 1989 and the IDES first assessment of September 23, 1988, the IDR 2 through 16 assessments have priority. Next in line would come the IDES assessments 8 through 22 because they were recorded prior to when the IRS’s subsequent assessments were recorded. IRS assessments 11 through 14 would follow as they occurred prior to IDR’s next assessment of September 6, 1989 and before the IDES next assessment of November 2,1989. IDR assessments 17 *134through 82 would be next followed by IRS assessment 15. The Court need not go any further because the funds have been exhausted. The following table will recap the priority of assessments:
[[Image here]]
See IDR Exhibits A, B & C. Although the Court has established priority for purposes of exhausting the fund, there exists a dispute as to the amount assessed by the IRS.
As earlier noted, Rule 56 allows the Court to frame and narrow the triable issues if the court finds that such an order would be helpful to the progress of the litigation. Farley, 146 B.R. at 743. In this proceeding, the entry of an interlocutory order in the form of a pre-trial order would be appropriate. Such an order will conserve judicial time and resources. Further, such an order would significantly advance the resolution of the factual and legal matters involved which, in turn, would further the pending litigation as well as the completion of the Debtor’s case. Consequently, the Court will deny both motions for summary judgment and this matter will be set for an evidentiary hearing pursuant to the accompanying order.
CONCLUSION
The cross-motions for summary judgment filed by the United States of America and the State of Illinois are denied. Pursuant to Rule 56(d), “upon the trial of the action the facts so specified shall be deemed established, and the trial shall be conducted accordingly.” In other words, the facts established in this opinion are deemed determined and are not to be re-litigated at trial. The sole issue to be heard by the Court at trial is the amount assessed by the IRS on the dates in question. By order entered separately this day, the Court will set a status date of August 26, 1993 at 10:30 a.m. for the purpose of setting a date for an evidentiary hearing.
. The table of the IRS assessments and recordings is as follows:
[[Image here]]
(IDR Exhibit C).
. The table of the IDR assessments is as follows:
[[Image here]]
*128[[Image here]]
(IDR Exhibit B).
. The table of the IDES assessments ings is as follows: and record-
[[Image here]]
*129[[Image here]]
. Rule 56 is incorporated in Bankruptcy Rule 7056. It states in pertinent part:
(d) Case Not Fully Adjudicated on Motion. If on motion under this rule judgment is not rendered upon the whole case or for all the relief asked and a trial is necessary, the court at the hearing of the motion, by examining the pleadings and the evidence before it and interrogating counsel, shall if practicable ascertain what material facts exist without substantial controversy and what material facts are actually and in good faith controverted. It shall thereupon make an order specifying the facts that appear without substantial controversy, including the extent to which the amount of the damages or other relief is not in controversy, and directing such further proceedings in the action as are just. Upon the trial of the action the facts so specified shall be deemed established, and the trial shall be conducted accordingly.
Fed.R.Bankr.P. 7056(d).
. Section 1141 provides in pertinent part:
(a) Except as provided in subsections (d)(2) and (d)(3) of this section, the provisions of a confirmed plan bind the debtor, any entity issuing securities under the plan, any entity acquiring property under the plan, and any creditor, equity security holder, or general partner in the debtor, whether or not the claim or interest of such creditor, equity security holder, or general partner is impaired under the plan and whether or not such creditor, equity security holder, or general partner has accepted the plan.
[[Image here]]
(c) Except as provided in subsections (d)(2) and (d)(3) of this section and except as otherwise provided in the plan or in the order confirming the plan, after confirmation of a plan, the property dealt with by the plan is free and clear of all claims and interests of creditors, equity security holders, and of general partners in the debtor....
11 U.S.C. § 1141(a) and (c).
. This Court is aware of the Seventh Circuit case of In re Tarnow, 749 F.2d 464 (7th Cir.1984) which neither party has cited. In Tamow, the Court of Appeals recognized that liens pass through bankruptcy unaffected unless a party in interest requests the court to allow or disallow the claim on which the lien is based. See Tarnow, 749 F.2d at 465 (collecting cases). This line of case law is predominantly composed of cases construing chapter 7 which justifies the rationale for allowing liens to pass through bankruptcy unaffected because unlike a Chapter 11 there is no other method of avoiding lien rights in a Chapter 7 absent a Section 506 lien avoidance proceeding. In contrast is Chapter 11 where the debtor and creditors naturally look to the plan of reorganization as the final determination of the parties’ rights. Moreover, the Tamow reasoning deals with perfected liens passing through bankruptcy unlike the present proceeding which involves an unperfected lien right allegedly passing through confirmation. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491700/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court on the Request for Payment of Administrative Expense of Wild Wings, Inc. (hereafter “Wild Wings”). In response, John J. Hunter, Trustee (hereafter “Trustee”), believing the matter to be unusual, requested a Hearing. At the Hearing, the parties were afforded the opportunity to present evidence and arguments they wished the Court to consider in reaching its decision. The Trustee was granted leave to file a written statement regarding the conditions, if any, which apply to transference of the liquor license. The Court has reviewed the written arguments and statements of counsel, the relevant case and statutory law, as well as the entire record of the case. Based on that review, and for the following reasons, this Court finds that Wild Wings’ Request for Payment of Administrative Expense should be Granted.
FACTS
J.R. & C, Incorporated (hereafter “J.R. & C”) is an Ohio Corporation doing business as Grumpy’s Deli and Grumpy’s Marathon. Wild Wings is a creditor of J.R. & C. One of J.R. & C’s assets is Ohio Liquor License No. 62-013634. J.R. & C accrued delinquent sales/use taxes on the liquor license for the months of September and October, 1991 in the amount of One Thousand Thirty-Five Dollars and Forty-Four Cents ($1,035.44). On March 6, 1992, J.R. & C filed a voluntary petition for relief pursuant to Chapter 7 of the United States Bankruptcy Code. On April 24, 1992, Wild Wings paid J.R. & C’s delinquent tax liability, minus a credit totalling Eighty Eight Dollars and Sixty Five Cents ($88.65). On August 21, 1992, Wild Wings filed a Proof of Claim for unsecured nonpriority debt totalling Three Hundred Fifteen Thousand *341Four Hundred Eighty Five Dollars and Fifty Six Cents ($315,485.56).
Wild Wings seek reimbursement for payment of J.R. & C’s delinquent taxes as an administrative priority expense. Pursuant to a purported agreement with the Trustee, Wild Wings’ payment of the tax liability should be deemed an allowed administrative claim. Wild Wings’ claim regarding the agreement or the treatment of the payment has not been refuted by the statement of the Trustee.
LAW
The case before the Court concerns whether a creditor’s payment of delinquent sales/use taxes is an allowable administrative priority expense. Since proceedings related to the determination of administrative expenses are core proceedings under 28 U.S.C. § 157(b)(1)(A), this case is a core proceeding.
Administrative expenses and claims, allowed under 11 U.S.C. § 503(b), take first priority in distribution under 11 U.S.C. § 507(a)(1). What constitutes an administrative expense is more fully defined in 11 U.S.C. § 503(b)(1)(A) as including—
the actual, necessary costs and expenses of preserving the estate, including wages, salaries, or commissions for services rendered after the commencement of the case;
DISCUSSION
This Court will consider whether (1) the liquor license is an asset of debtor’s estate; (2) payment of delinquent tax liabilities preserves the estate; and (3) Wild Wings is entitled to an allowed administrative priority for payment of prepetition debt after the commencement of the case.
The Sixth Circuit has determined that a liquor license, issued under the auspices of the Ohio licensing statute, is ‘property’ with unique value. In re Terwilliger’s Catering Plus, Inc., 911 F.2d 1168 (6th Cir. (Ohio), 1990), cert. denied by Ohio Depart. of Taxation v. IRS, — U.S. -, 111 S.Ct. 2815, 115 L.Ed.2d 987 (1991) (citing Paramount Finance Company v. United States, 379 F.2d 543 (6th Cir.1967)). Upon filing of the bankruptcy petition, the license becomes property of the bankrupt’s estate within the meaning of 11 U.S.C. § 541. Terwilliger’s Catering, supra at 939 (citing In re Mason, 18 B.R. 817 (Bankr.W.D.Tenn.1982)).
Ohio Rev.Code § 4301.26(B) provides in part, that the Liquor Control Commission shall cancel permits in the event of bankruptcy of the holder, except as otherwise provided in the Department of Liquor Control’s (hereafter “DLC”) rules relative to the transfer of permits. Under Ohio Rev.Code § 4301.03(F), no holder of a permit shall sell or transfer a permit without the written consent of the DLC. The DLC shall not transfer ownership of the permit until returns known to be delinquent are filed and until any such tax delinquency is resolved. Ohio Rev.Code § 4303.26(B)(1).
In the instant case, J.R. & C’s unencumbered liquor license is property. Absent payment of the delinquent taxes, J.R. & C’s liquor license would have been terminated when it filed bankruptcy. In order to preserve this asset for the benefit of the creditors, all tax arrearages had to be paid before transfer to the estate. Payment of the tax arrearage salvaged an asset for the estate.
This Court must then determine whether payment of the prepetition tax liability after the commencement of the case constitutes an allowable administrative expense under 11 U.S.C. § 503(b). If Wild Wings’ claim is deemed an allowable administrative expense under 11 U.S.C. 503(b), it will have first priority in distribution under 11 U.S.C. § 507(a)(1).
An expense is administrative only if it arises out of a transaction between the creditor and the trustee or debtor-in-possession, and only to the extent that the consideration supporting the claimant’s right to payment was both supplied to and beneficial to the trustee or debtor-in-possession in the operation of the business. Trustees of Amalgamated Ins. Fund. McFarlin’s Inc., 789 F.2d 98 (2nd Cir. (N.Y.), 1986). Priority *342is given to administrative expense payments for the reason that they either help preserve and administer the estate or assist with the rehabilitation of the debtor for the benefit of all creditors. In re Jeurissen, 85 B.R. 531 (Bkrtcy.D.Minn.1988) (citing In re Armorflite Precision Inc., 43 B.R. 14, 16 (Bktcy.D.Me.1984) aff'd, 48 B.R. 994 (D.Me.1985)).
To qualify as an administrative expense under 11 U.S.C. § 503(b), the claimant must prove that (1) consideration supporting the right to payment must have been given to the debtor-in-possession; and (2) payment must directly and substantially benefit the estate. In re White Motor Corp. 831 F.2d 106 (6th Cir. (Ohio), 1987).
A creditor provides consideration to the bankrupt estate only when the debtor-in-possession induces the creditor’s performance and performance is then rendered to the estate. If the inducement comes from a prepetition debtor, then consideration was given to that entity rather than to the debtor-in-possession. In re United Trucking Service, Inc., 851 F.2d 159 (6th Cir. (Mich.), 1988) (quoting In re Jartran, Inc., 732 F.2d 584 (7th Cir. (Ill.), 1984), aff'd, 886 F.2d 859 (7th Cir. (Ill.) 1989)).
This Court finds that treatment of the payment transaction arose through negotiations with the Trustee. Wild Wings payment of said debt was made after J.R. & C had filed bankruptcy and for the sole purpose of preserving property of the estate. In his Memorandum, the Trustee specifically indicated that there were “negotiations” with Wild Wings’ attorney relative to the sale or other disposition of the liquor license in question. Wild Wings refers in its Response to an understanding that “if they paid Debtor’s back taxes on the liquor license, they would be granted an administrative expense for the amount of the back taxes.” This Court finds that based upon Wild Wings’ Proof of Claim, Wild Wings would not have advanced J.R. & C any additional money or property but for a promise of superpriority status. Accordingly, Wild Wings’ reimbursement for payment of J.R. & C’s delinquent sales/use taxes is entitled to administrative priority under 11 U.S.C. § 507(a)(1). In the alternative, this Court finds that Wild Wings should be reimbursed for salvaging property for the estate under principles of quasi-contract or contract implied in law.
In reaching the conclusion found herein, the Court has considered all of the evidence, exhibits and arguments of counsel, regardless of whether or not they are specifically referred to in this opinion.
Accordingly, it is
ORDERED that Wild Wings’ Request for Payment of Administrative Expense under 11 U.S.C. § 507(a)(1) in the amount of Nine Hundred Forty Six Dollars and Seventy Nine Cents ($946.79) be, and is hereby, GRANTED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491701/ | MEMORANDUM OPINION
JOHN H. SQUIRES, Bankruptcy Judge.
This matter comes before the Court on the motion of Arthur Zussman (“Zuss-man”) pursuant to Federal Rule of Civil Procedure 60(a) to correct the record, and the opposition thereto of Richard Smilgoff (“Smilgoff”) who seeks sanctions against Zussman under Federal Rule of Civil Procedure 11. For the reasons set forth herein, the Court having considered the pleadings, exhibits and affidavits, hereby denies the motion to correct the record and the request for sanctions.
I. JURISDICTION AND PROCEDURE
The Court has jurisdiction to entertain this matter pursuant to 28 U.S.C. § 1334 and General Rule 2.33(A) of the United States District Court for the Northern District of Illinois. This matter constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (O).
II. FACTS AND BACKGROUND
On January 5, 1983, Zussman filed a Chapter 13 petition and supporting schedules.1 He filed a plan on March 3, 1983 which was confirmed on June 6, 1983. Zussman ultimately received his Chapter 13 discharge. The Chapter 13 trustee’s report and account was filed and approved. The bankruptcy case was finally closed in 1990. That, however, did not end Zussman’s endeavors before this Court. The instant adversary proceeding he filed against Smil-goff in 1985 remains at bar as a result of the pending motion.
The docket in this adversary proceeding2 shows that the complaint against Smilgoff, filed on April 1, 1985, sought an accounting for partnership profits from their former law practice. Zussman’s attorney caused the Clerk of the Bankruptcy Court to issue summons, although no return of service is reflected on the docket or contained within the file. Smilgoff’s attorneys filed their appearances on his behalf on May 1, 1985. Subsequent status hearings were held on the complaint and adjourned to June 20, 1985, and August 8, 1985 when the matter was adjourned sine die according to the docket sheet. Thereafter, Judge Eisen dismissed the complaint for want of prosecution by order docketed January 29, 1986. A subsequent hearing was held on Zuss-man’s motion to vacate the dismissal for want of prosecution presented on February 20, 1986.
*407By agreed order docketed February 25, 1986, the complaint was reinstated by Judge Eisen and set for further status hearing on March 13, 1986. The docket reflects that on March 13, 1986 the status hearing was adjourned to April 29, 1986. On that date the critical order (the “April 29, 1986 Order”) was signed by Judge Ei-sen, dismissing movant’s motion for want of prosecution (emphasis added). This order was docketed on June 12, 1986. Thereafter, the adversary proceeding was closed on June 30, 1986. It laid dormant for almost four years.
On May 24, 1990, Zussman, represented by another attorney, filed a motion to correct the record and for abstention contending that the April 29, 1986 Order was apparently entered in error because the motion to vacate the order of dismissal was allowed by the agreed order docketed February 25, 1986. That motion further alleged that Smilgoff had since died, his estate was in probate in state court, Zussman had filed a proof of claim therein, and the probate court was a more appropriate forum to adjudicate Zussman’s accounting claim and thus, this record should be corrected and this Court should abstain. The Court set this motion over to June 25,1990. On that date, an order was entered continuing it for further hearing to July 16, 1990, giving Zussman leave to file supporting documents on or before July 9, 1990. No such supporting documents were ever filed and the transcript of the July 16, 1990 hearing shows that Smilgoff’s attorney appeared, but neither Zussman nor either of his attorneys appeared.
From the record then before the Court, it found that on April 29, 1986, Judge Eisen apparently dismissed this adversary proceeding for want of prosecution. Lacking any supporting evidence to afford relief under Rule 60(b), coupled with Zussman’s failure to prosecute the motion, the Court denied same. The Court noted that if Zuss-man could find ample evidence to support a Rule 60(a) motion to correct the record for clerical error, upon proof of same, and on notice, the Court could entertain any other motion that might be brought. Apparently loathe to forego such invitation, Zussman, now pro se, belatedly accepted on March 4, 1993, by filing the instant motion. Smil-goff objects and contends that the motion violates Rule 11. He seeks sanctions thereunder for an unspecified amount of attorney’s fees. No transcript of the April 29, 1986 hearing has ever been furnished to this Judge.
III. ARGUMENTS OF THE PARTIES
Zussman states that the April 29, 1986 Order, as construed by this Judge on July 16, 1990, led to the probate division of the Circuit Court of Lake County, Illinois, entering summary judgment and dismissal of Zussman’s claims made there resulting in appeals. According to Zussman, the April 29, 1986 Order erroneously dismissed the motion to vacate, not the adversary proceeding. Zussman contends the state court misinterpreted the April 29, 1986 Order, and thus provided no proper basis for striking his probate claims. Zussman concludes that the record here should be corrected to reinstate the adversary proceeding, and the order of July 16, 1990 should be vacated and modified consistent with the April 29, 1986 Order.
Zussman filed a supporting memorandum of law and statement of facts on April 13, 1993, citing various Illinois and other case law in support of his conclusion that the complaint for accounting in this dismissed adversary proceeding did not operate to adjudicate or bar his state court action. Zussman filed a twenty-nine page amended memorandum and statement of facts, plus a copy of the transcript of proceedings before this Judge on July 16, 1990, along with copies of the orders entered by Judge Eisen and the docket sheet. In addition, Zussman has furnished copies of various orders and mandates from the Appellate and Supreme Courts of the State of Illinois affirming the circuit court’s dismissal of the probate matter. From these documents and arguments (described by Smilgoff as a shambles, riddled with errors and misspellings, and generally incomprehensible), the Court can discern that Zuss-man is not only unhappy with the end *408result in the state court litigation, but contends that somehow it is all traceable to the April 29, 1986 Order.
Smilgoff notes that in June 1990, on Zussman’s last motion, the Court gave Zussman leave to file supporting documents, but that he failed to do so. On July 16, 1990, both Zussman and his attorney failed to appear, leading to denial of that motion. Smilgoff further points out Zuss-man failed to furnish any transcripts of the 1986 hearings before Judge Eisen. Moreover, on April 29, 1986, the only pending motion was Zussman’s motion to default Smilgoff. When Zussman or his first attorney failed to appear, Judge Eisen’s dismissal was for want of prosecution, and there was no clerical error. Absent the critical transcript of the April 29, 1986 hearing, Smilgoff contends that it is impossible to know what Judge Eisen stated as his holding, and thus, it is impossible to show clerical error remediable under Rule 60(a).
Furthermore, Smilgoff argues if error was made by Judge Eisen, it was a judicial error, not clerical, only remediable as a mistake under Rule 60(b)(1), and subject to its one-year statute of limitation. Because Zussman has waited almost seven years after the April 29, 1986 Order was docketed, and over three years since his last motion was denied for want of prosecution, this motion should be denied. Moreover, Zussman’s delays are unexplained and relief sought should be barred by the doctrine of laches. Smilgoff seeks sanctions arguing the motion is not well-grounded in fact, is not warranted by existing law, nor a good faith argument for extension, modification or reversal of existing law. Smil-goff contends the motion seeks to harass and needlessly increase litigation costs.
In reply, Zussman states that Smilgoff never filed an answer to the complaint. Zussman maintains that the motion is timely because it was brought within seven days of the issuance of the state court appellate mandate. He contends his state court appeals stayed matters before this Court. Additionally, Zussman states it was a clerical error for Judge Eisen to dismiss the adversary proceeding. A reasonable construction of the record is that on April 29, 1986, only the already allowed motion to vacate the prior dismissal for want of prosecution was erroneously denied. Zuss-man claims that such error can be corrected under Rule 60(a). Zussman concludes only his motion to default Smilgoff for want of a responsive pleading was dismissed, not the entire adversary proceeding.
IV. STANDARDS
A. FEDERAL RULE OF CIVIL PROCEDURE 60(a)
Federal Rule of Civil Procedure 60(a), made applicable to bankruptcy cases by Federal Rule of Bankruptcy Procedure 9024, with exceptions not relevant here, provides:
Clerical mistakes in judgments, orders or other parts of the record and errors therein arising from oversight or omission may be corrected by the court at any time of its own initiative or on the motion of any party and after such notice, if any, as the court orders. During the pendency of an appeal, such mistakes may be so corrected before the appeal is docketed in the appellate court, and thereafter while the appeal is pending may be so corrected with leave of the appellate court.
Fed.R.Civ.P. 60(a). Rule 60(a), providing for correction of clerical mistakes in a judgment at any time, applies to all clerical miscues, trivial and important alike. When a “flaw lies in the translation of the original meaning to the judgment, then Rule 60(a) allows a correction; if the judgment captures the original meaning but is infected by error, then the parties must seek another means of authority to correct the mistake.” Klingman v. Levinson, 877 F.2d 1357, 1361 (7th Cir.1989) quoting United States v. Griffin, 782 F.2d 1393, 1396 (7th Cir.1986).
Rule 60(a) deals with errors, oversights, omissions and unintended acts or failures which result in a record that does not properly reflect the intention of the *409parties or the court. Any substantive adjustment of the record must come under Rule 60(b). 9 Collier on Bankruptcy, ¶ 9024.03 at 9024-4 (15th ed. and 1993 Supp.). It is clear that errors of a serious or substantial nature are not included, and thus Rule 60(a) does not apply to action or non-action that properly reflects the then intention of the parties or the court. 3 J. Moore, Moore’s Federal Practice and Procedure, § 26.02[2] (1988 and 1993 Supp). Rule 60(a) exists not to alter a judgment, but rather to make it state accurately what the judgment is. Common examples of clerical errors include erroneous mathematical computations, such as in damage awards. In exercising the power to correct mistakes that may legitimately be said to be clerical, the court’s discretion should be exercised only on a clear showing of mistake. Id. n. 11 (collecting cases). Errors of law, not mere oversights or omissions, should be covered under Rule 60(b). Relief from a judgment is available at any time for correction of clerical errors in entry of judgment, even after affirmance of judgment by the court of appeals. Wallace v. Mulholland, 957 F.2d 333, 335 n. 2 (7th Cir.1992). In determining whether a motion for relief from final judgment is brought to correct clerical error or for some other ground, the relevant distinction is between changes that implement results intended by the court at the time the order was entered, and changes that alter the original meaning to correct legal or factual error. Wesco Products Co. v. Alloy Automotive Co., 880 F.2d 981, 984 (7th Cir.1989).
In Wesco, the mistake sought to be corrected was not a clerical error, but the judge’s order itself. The court pointed out that the dismissal for lack of prosecution (the mistake in question) reflected the bankruptcy judge’s intention at the time it was entered, and consequently, Rule 60(a) did not apply. The court conceded, however, that the dismissal may have been based upon a clerical error, but “[tjhere is not a direct connection between the clerical error and dismissal with prejudice for it was possible that Judge Eisen would have dismissed the adversary proceeding for want of prosecution even if he had been aware of his previous comment.” Id. at 984 n. 4. The Court notes that may well have been the same situation in this matter, involving a similar effective result from the same Judge Eisen.
B. THE DOCTRINE OF LACHES
The doctrine of laches arises due to a change in the conditions of the parties. Lingenfelter v. Keystone Consol. Industries, Inc., 691 F.2d 339, 340 (7th Cir.1982). If a plaintiff unjustifiably delays in pursuing a cause of action and the defendant is prejudiced by the delay, the laches doctrine bars the plaintiff from proceeding. In order for the doctrine to apply, a party must show both that there was a lack of due diligence on the part of the party against whom the doctrine is to be imposed, and that the other party was prejudiced by that delay. Herman v. Chicago, 870 F.2d 400, 401 (7th Cir.1989); Smith v. Chicago, 769 F.2d 408, 410 (7th Cir.1985). Whether to employ the doctrine rests within the sound discretion of the Court. Baker Mfg. Co. v. Whitewater Mfg. Co., 430 F.2d 1008, 1011-1015 (7th Cir.1970), cert. denied, 401 U.S. 956, 91 S.Ct. 978, 28 L.Ed.2d 240 (1971). The plaintiff bears the burden of explaining the reason for the delay in pursuing the action. Zelazny v. Lyng, 853 F.2d 540, 541 (7th Cir.1988). Moreover, if “the delay is inexcusable, then the defendant must show prejudice.” Lingenfelter, 691 F.2d at 340. The Zelazny court further explained:
[T]he plaintiff’s inexcusable delay is relevant to whether actual prejudice has been shown. “If only a short period of time has elapsed since the accrual of the claim, the magnitude of prejudice require[d] before the suit should be barred is great, whereas if the delay is lengthy, prejudice is more likely to have occurred and less proof of prejudice will be required.”
Zelazny, 853 F.2d at 543 quoting Goodman v. McDonnell Douglas Corp., 606 F.2d 800, 807 (8th Cir.1979), cert. denied, 446 U.S. 913, 100 S.Ct. 1844, 64 L.Ed.2d 267 (1980). The Court declines to apply the doctrine of laches because Smilgoff has *410failed to demonstrate any prejudice suffered by him as a result of Zussman’s delay. Moreover, Rule 60(a) does not contain a statute of limitations. Rather, it allows for errors to be corrected “at any time.” Fed.R.Civ.P. 60(a).
C. FEDERAL RULE OF BANKRUPTCY PROCEDURE 9011
Bankruptcy Rule 9011(a) provides in relevant part:
A party who is not represented by an attorney shall sign all papers.... The signature of ... a party constitutes a certificate that the ... party has read the document; that to the best of the ... party’s knowledge, information, and belief formed after reasonable inquiry it is well-grounded in fact and.is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law; and that it is not interposed for any improper purpose, such as to harass, or to cause unnecessary delay, or needless increase in the cost of litigation or administration of the case.... If a document is signed in violation of this rule, the court on motion or on its own initiative, shall impose on the person who signed it ... an appropriate sanction, which may include an order to pay to the other party or parties the amount of the reasonable expenses incurred because of the filing of the document, including a reasonable attorney’s fee.
Fed.R.Bankr.P. 9011(a).
Bankruptcy Rule 9011 and Federal Rule 11 of Civil Procedure are analogous although the former Rule, rather than the latter applies in this forum. Thus, the authorities construing Rule 11 are applicable to the case at bar. The Court has jurisdiction to impose sanctions under these rules. In re TCI, Ltd,., 769 F.2d 441, 448 (7th Cir.1985); In re Memorial Estates, Inc., 132 B.R. 19, 22 (N.D.Ill.1991). The primary purpose of both rules is to deter unnecessary filings for the benefit of the judicial system. Szabo Food Service, Inc. v. Canteen Corp., 823 F.2d 1073, 1077-1080 (7th Cir.1987), cert. denied, 485 U.S. 901, 108 S.Ct. 1101, 99 L.Ed.2d 229 (1988). While pro se litigants are frequently given latitude in the review of their filings, Rule 9011 is applicable to them. Shrock v. Altru Nurses Registry, 810 F.2d 658, 661-662 (7th Cir.1987). It is well established that “[t]he standard for imposing sanctions under Rule 11 is an objective determination of whether a sanctioned party’s conduct was reasonable under the circumstances.” Brown v. Federation of State Medical Bds., 830 F.2d 1429, 1435 (7th Cir.1987); see Dreis & Krump Mfg. Co. v. International Asso. of Machinists & Aerospace Workers, Dist. No. 8, 802 F.2d 247, 255 (7th Cir.1986).
The Seventh Circuit has interpreted Rule 11 as creating four criteria:
The Rule contains several strands. There must be “reasonable inquiry” into both fact and law; there must be good faith (that is, the paper may not be interposed “to harass”); the legal theory must be objectively “warranted by existing law or a good faith argument” for the modification of existing law; and the lawyer must believe that the complaint is “well grounded in fact.” The attorney filing the complaint or other paper must satisfy all four requirements.
Thompson v. Duke, 940 F.2d 192, 195 (7th Cir.1991) quoting Szabo, 823 F.2d at 1080.
A pleading, motion, or paper is not well-grounded in fact if it is contradicted by uncontroverted evidence that was or should have been known to the attorney or the party signing the filing. Frazier v. Cast, 771 F.2d 259, 263-265 (7th Cir.1985). A filing or pleading is well-grounded in fact if it has a reasonable basis in fact. Beverly Gravel, Inc. v. DiDomenico, 908 F.2d 223 (7th Cir.1990) (factual pleading error did not rise to level of sanctionable conduct). “A signature certifies to the court that the signer has read the document, has conducted a reasonable inquiry into the facts and the law and is satisfied that the document is well grounded in both, and is acting without any improper motive.” Business Guides, Inc. v. Chromatic Communications Enterprises, Inc., 498 U.S. *411533, 542, 111 S.Ct. 922, 928, 112 L.Ed.2d 1140 (1991).
The amount and nature of sanctions to be imposed is left to the discretion of the Court. Insurance Ben. Admrs., Inc. v. Martin, 871 F.2d 1354, 1359 (7th Cir.1989); Frantz v. United States Powerlifting Federation, 836 F.2d 1063, 1066 (7th Cir.1987); Diversified Technologies Corp. v. Jerome Technologies, Inc., 118 F.R.D. 445, 453 (N.D.Ill.1988). The severi ty of sanctions imposed should be proportionate to the violation, but should not be overly severe. Brown, 830 F.2d at 1437. The mitigation of damages principle applies. Melrose v. Shearson/American Express, Inc., 898 F.2d 1209, 1216 (7th Cir.1990).
V. DISCUSSION
The ultimate question is whether Judge Eisen on April 29, 1986, intended only to dismiss Zussman’s unfiled motion for a default against Smilgoff for failure to answer, or to dismiss the entire adversary proceeding for want of prosecution as the subsequent closure of the matter indicates. Because Zussman has failed to supply a transcript of the crucial April 29, 1986 hearing, it is impossible for this Judge to clearly understand Judge Eisen’s intention and the basis upon which he entered the April 29, 1986 Order. This Judge will not speculate or guess what Judge Eisen intended over seven years ago. It is undisputed, however, that the entry of that order on the docket on June 12, 1986 was followed by the closure of the case on June 30, 1986. It is also undisputed there has been a want of prosecution of this matter by Zussman. He waited almost four years later to have his second attorney file his first motion to correct the record in 1990. When he then failed to prosecute that motion, and it was denied on July 19, 1990, he waited almost three more years to file the instant motion. It is no excuse to argue that while his state court appeal wended its way through that system, matters were automatically stayed here in this Court, which was never apprised of the pendency of same. Zussman has offered no excuse or explanation for such failure to attend the hearing on his first motion, or supplement the record as he was given leave to do over three years ago.
Most importantly, Zussman has not furnished any evidence of what Judge Eisen intended. If what Judge Eisen really intended was the dismissal of the entire adversary proceeding, and he was mistaken in taking such action leading to the closure of same, that was a substantive mistake, not a mere clerical one, and is remediable only under Rule 60(b)(1), which could only be corrected within one year of the entry of such order on the docket, or before June 30, 1987. That time has long since run. Zussman’s arguments addressing the allegedly erroneous rulings by the state courts are remediable by appeal in the state court system, not here in the federal bankruptcy court which does not serve as a court of review. State court judgments are entitled to full faith and credit. 28 U.S.C. § 1738. Accordingly, Zussman has not met his burden of proof under Rule 60(a) and his motion is denied. This does not mean, however, that Smilgoff is entitled to sanctions pursuant to Bankruptcy Rule 9011.
Turning to the request for sanctions, ideally, Zussman should have obtained the transcript of the April 29, 1986 hearing before preparing and filing this motion. This would constitute better preparation than merely relying on his interpretation of the record. Nevertheless, not every hearing transcript must be ordered before subsequent pleadings are prepared which make some reference to the hearing. Less is required to meet the affirmative duty to investigate the facts to support pleadings under Bankruptcy Rule 9011 standards. Some pre-filing investigation was done by Zussman who reviewed pleadings and the written record on which he based his interpretation of the intent behind the April 29, 1986 Order. The resulting pleadings, while not fully comprehensive of all important events, including the critical, but unknown statements made by Judge Eisen on April 29, 1986, are not lacking any factual foundation in the record so as to be frivolous.
*412No factual showing to support the conclusions pleaded has been made under Bankruptcy Rule 9011 that the contested portions , of the pleadings were interposed to harass, cause undue delay, or merely to increase costs of litigation. On the contrary, the pleadings fairly and objectively viewed in their entirety, set forth Zuss-man’s somewhat convoluted and disjointed position. The instant motion has some reasonable basis in fact and does not wholly lack plausibility. Zussman premised his legal arguments upon existing case authority although most of same is distinguishable, inapplicable and not controlling. Hindsight should have prompted Zussman to obtain the crucial transcript before pleading in this matter. That would have been a more complete pre-filing investigation. Additionally, no amount of attorney’s fees have been specified and no supporting documents furnished.
YI. CONCLUSION
For the foregoing reasons, the Court denies Zussman’s motion to correct the record and also denies Smilgoff s request for sanctions. Each party shall bear his own fees and costs attendant hereto.
This Opinion serves as findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.
A separate order shall be entered herewith under Federal Rule of Bankruptcy Procedure 9021.
ORDER
For reasons set forth in a Memorandum Opinion dated the 5th day of August, 1993, the Court hereby denies the motion of Arthur Zussman to correct the record pursuant to Federal Rule of Civil Procedure 60(a), and denies the request of Richard Smilgoff for sanctions under Federal Rule of Civil Procedure 11.
. The case was originally assigned to the Honorable Robert Eisen, since retired. On July 11, 1985, the case was thereafter reassigned to the late Honorable Frederick Hertz, who subsequently retired, but not before he dismissed and reinstated the case. It was then reassigned to the Honorable Erwin I. Katz in 1987. Once again, the case was reassigned to the undersigned on February 2, 1988.
. The adversary proceeding was assigned to Judge Eisen. It was never reassigned but was closed in June 1986 while it was still assigned to Judge Eisen. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491702/ | *491MEMORANDUM OPINION
STEPHEN J. COVEY, Bankruptcy Judge.
This matter comes on to be heard upon the Trustee’s objection to the proof of claim filed by Debtor on behalf of the Internal Revenue Service (“IRS”) on grounds that the claim was filed too late. The Court directed the parties to file briefs in support of their positions and the matter was taken under advisement. Upon review of the authorities presented, the Court finds as follows:
1. On July 21, 1989, Debtor filed for relief under Chapter 7 of the Bankruptcy Code. Debtor listed the IRS on Schedule A of his schedules as holding a priority tax claim in an unknown amount but did not include the IRS on his matrix.
2. On August 2, 1989, the Court Clerk mailed the Order and Notice of Chapter 7 Bankruptcy Filing, Meeting of Creditors, and Fixing of Dates to all listed creditors. Because the case was originally designated a no asset case, a bar date for filing proofs of claim was not set and creditors were instructed not to file proofs of claim unless later ordered to do so by the Court. This notice was not mailed to the IRS because it did not appear on the matrix.
3. The First Meeting of Creditors was held on August 24, 1989. Debtor received a discharge on November 21, 1989.
4. Thereafter, the Trustee received a settlement on behalf of Debtor’s estate from the State of California in an eminent domain action. Because assets were now available for distribution to creditors, the Trustee filed a Notice of Asset Case on June 25, 1991, and requested that a bar date be set for filing proofs of claim.
5. On June 26, 1991, A Notice to File Claims setting a bar date for September 24, 1991, was mailed to all listed creditors. A copy of this notice was not mailed to the IRS because it did not appear on Debtor’s matrix.
6. The Trustee filed his Final Report and Proposed Distribution on April 21, 1993, and a hearing was set for June 8, 1993.
7. On June 3, 1993, Debtor filed an Amended Schedule A which listed a priority claim for the IRS in the amount of $32,-385.67. Debtor also amended his matrix to include the IRS. The IRS was notified of the bankruptcy filing at this time but has not filed a proof of claim.
8. On June 10, 1993, Debtor filed a proof of priority claim on behalf of the IRS in the amount of $32,385.67. The proof of claim reflects that Debtor has made post-petition payments to the IRS totalling $13,-196.37. This amount was not deducted for purposes of the proof of claim.
9. The Trustee filed his objection to the proof of claim on June 22,1993, on grounds that the proof of claim was filed over 21 months after the bar date and should be disallowed. The Trustee points out that unsecured creditors who timely filed proofs of claim pursuant to the established bar date have claims totaling $232,189.68. The estate has for distribution the sum of $12,-611.48.
10. If the claim filed by Debtor on behalf of the IRS is allowed, all of the funds available for distribution will be paid to the IRS instead of the unsecured creditors because its claim is entitled to priority under § 507(a)(7)(C). Additionally, under § 523(a)(1)(A) the claim of the IRS is non-dischargeable and whatever amount is not paid out of the estate will have to be paid out of Debtor’s future earnings.
CONCLUSIONS OF LAW
The issue before the Court is whether the proof of claim filed by Debtor on behalf of the IRS over 21 months after the bar date should be allowed, and, if so, to what extent. The relevant Bankruptcy Code sections and Rules applicable to this case are as follows.
Section 501(c) states as follows:
If a creditor does not timely file a proof of such creditor’s claim, the debtor or the trustee may file a proof of such claim.
Bankruptcy Rule 3002(c)(5) provides that in a chapter 7 liquidation:
*492If notice of insufficient assets to pay a dividend was given to creditors pursuant to Rule 2002(e), and subsequently the trustee notifies the court that payment of a dividend appears possible, the clerk shall notify the creditors of that fact and that they may file proofs of claim within 90 days after the mailing of the notice.
Bankruptcy Rule 3004 states as follows:
If a creditor fails to file a proof of claim ... the debtor ... may-do so in the name of the creditor, within 30 days after expiration of the time for filing claims prescribed by Rule 3002(c).1
Section 501(c) of the Bankruptcy Code allows a debtor to file a proof of claim on behalf of a creditor who fails to timely file. Section 501(c) does not specify a time limit on when a debtor may file. Bankruptcy Rule 3004 sets such a time limit by permitting a debtor to file a claim on a creditors’ behalf within 30 days after expiration of the bar date set by Rule 3002(c).
Prior to its amendment, Rule 3004 did not specify a deadline for filing a claim on a creditor’s behalf.2 Faced with this ambiguity, courts construed the rule to grant debtors a reasonable time after expiration of the bar date to file a proof of claim. See In re Gurst, 80 B.R. 27 (Bankr.E.D.Pa.1987); In re Eckols, 77 B.R. 345 (Bankr.D.N.H.1987); In re Allen, 68 B.R. 523 (Bankr.D.N.M.1986); In re D.A. Behrens Enterprises, Inc., 33 B.R. 751 (Bankr.M.D.Penn.1983).
Bankruptcy Rule 3004 as amended now establishes what is a reasonable period of time: 30 days after expiration of the bar date. Courts confronting the amended version of Rule 3004 have strictly construed the 30 day deadline. See In re Danielson, 981 F.2d 296 (7th Cir.1992); In re Davis, 936 F.2d 771 (4th Cir.1991); In re Zimmerman, 114 B.R. 439 (Bankr.W.D.Pa.1990). This is true even when the equities of the situation favor the debtor. See In re King, 90 B.R. 155 (Bankr.E.D.N.C.1988).
In this case, after the trustee notified the Court the case had become an asset case, the clerk mailed a Notice to File Claims on June 26, 1991, to all listed creditors as required by Rule 3002(c)(5). The Notice set a bar date for filing proofs of claim for September 24, 1991. Debtor had 30 days from this date or until October 24, 1991 to file a proof of claim on the IRS’s behalf.
Debtor, who had knowledge of his debt to the IRS, did not file a proof of claim on its behalf until June 10, 1993, over 21 months after the bar date. Debtor did not meet the 30 day deadline established by Bankruptcy Rule 3004 and therefore the proof of claim he filed on behalf of the IRS must be disallowed.
In addition to not complying with the requirements imposed by Bankruptcy Rule 3004, the equities in this case do not favor Debtor. He listed the IRS as a creditor on his schedules but negligently and carelessly did not list the IRS on his matrix so it would receive notice of his bankruptcy. After he knew that a dividend was to be paid to creditors, he did not amend his matrix so that the IRS would get notice of the bar date nor did he file a claim on its behalf within 30 days after the bar date. It was Debtor’s responsibility to monitor the claims docket to ascertain whether his creditors had timely filed their proofs of claim. Debtor’s lack of diligence for over 21 months cannot be excused.
A separate judgment order consistent with this Memorandum Opinion will be entered.
. Amended Mar. 30, 1987, eff. August 1, 1987.
. Prior to its amendment, Bankruptcy Rule 3004 provided as follows:
If a creditor fails to file a proof of claim on or before the first date set for the meeting of creditors called pursuant to § 341(a) of the Code, the debtor or trustee may do so in the name of the creditor. The clerk shall forthwith mail notice of the filing to the creditor, the debtor and the trustee. The creditor may thereafter file a proof of claim pursuant to Rule 3002 or Rule 3003, which proof when filed shall supersede the proof filed by the debtor or trustee. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491703/ | MEMORANDUM OF DECISION AND ORDER ON DEFENDANT’S MOTION TO DISMISS COMPLAINT
ROBERT L. KRECHEVSKY, Chief Judge.
I.
ISSUE
The question presented by the defendant’s motion to dismiss the complaint1 is whether the plaintiff-trustee’s complaint to avoid alleged preferences and alleged fraudulent transfers is time barred because it was not filed within two years of the plaintiff-trustee’s appointment. See Code § 546(a).2 The following factual background is not in dispute.
II.
BACKGROUND
On December 5, 1990 creditors filed an involuntary petition under chapter 7 of the Code against Joseph A. Sutera, the debtor. The court entered an order for relief on February 6, 1991, following which the debt- or, on the same date, converted the case to one under Chapter 11. Certain creditors moved the court on February 11, 1991, pursuant to Code § 1104,3 to order the ap*521pointment of a trustee. The court granted the motion on March 8, 1991 and directed the United States trustee to appoint a trustee.
The United States trustee, by a document entitled “Notice of Appointment of Trustee” executed on March 11, 1991, appointed Patrick W. Boatman (Boatman) as such trustee. The United States trustee simultaneously filed an “Ex Parte Application of Chapter 11 Trustee.” This application recited that the United States trustee, following the order of the court directing the appointment of a trustee, “has conferred with the parties present at the hearing regarding their proposal of a trustee” and that the United States trustee “believes that Patrick W. Boatman, Esq. is best qualified to serve as trustee in this case.” The court, on March 12, 1991, entered an order which stated, inter alia, “that pursuant to 11 U.S.C. § 1104(c), the appointment of Patrick W. Boatman, Esq. as trustee is approved.”
On June 5, 1991, on Boatman’s motion, the court, after notice and hearing, reconverted the case to one under chapter 7. Boatman, on June 6, 1991, was appointed as the chapter 7 case trustee.
Boatman filed the pending complaint on March 12, 1993 against Delmore Furnia, the defendant, to avoid and recover preferential transfers and fraudulent transfers allegedly aggregating $467,250.00. The defendant’s motion asserts that the two-year limitation period for commencing avoiding actions contained in Code § 546(a) commenced either (1) on March 11, 1991, the date the United States trustee appointed Boatman as trustee, and thus expired on March 10, 1993, or (2) on March 12, 1991, the date of the court’s order approving the appointment, and thus expired on March 11, 1993. The defendant contends that in either instance the filing of the complaint on March 12, 1993 was untimely so that a judgment for the defendant dismissing the complaint should enter.
III.
DISCUSSION
A.
What Is The Date Of Appointment Of The Trustee?
The defendant makes a “plain-meaning” argument4 asserting that the language of § 546(a) is unambiguous and plainly provides that the two-year bar date runs from “the appointment of a trustee.” See Code § 546(a), supra, note 2. Since the United States trustee “appointed” Boatman on March 11,1991, the defendant contends the limitation period should be held to have started on that date and to have expired on March 10, 1993, two days prior to the commencement of Boatman’s action. The defendant candidly acknowledges that there are no court holdings in support of this reasoning.
The operative date of a trustee’s appointment under § 1104 is the one when the court enters an order which approves the United States trustee’s appointment of a trustee. As several courts have noted, the appointment process under § 1104 is a collaborative three-step process. Step one occurs when the bankruptcy court orders the appointment of a trustee on a party’s motion and after notice and hearing; step two is the appointment by the United States Trustee, subject to the court’s approval; step three is the court’s approval of the appointment, if appropriate in light of the conditions outlined in § 1104(c). It is only upon the completion of all three steps that a trustee is authorized to perform the duties of a trustee and becomes subject to the time limitations contained in the Code. See Knopfler v. Schraiber (In re Schraiber), 141 B.R. 1008, 1013 (Bankr.N.D.Ill.1992); Hargis v. Cone (In re Glenco International Corp.), 115 B.R. 308, 311 (Bankr.W.D.Okla.1990). See also ODonnell v. The Washington Post (In re Bob Grisset *522Golf Shoppes, Inc.), 58 B.R. 996, 998 (E.D.Va.1986) (“It is the formal order of appointment bearing the signature of the Bankruptcy Judge which unambiguously evidences the commission and authority of the trustee to act. It is the date of the Bankruptcy Judge’s order which should start the running of the statute of limitations.”). Cf Albrecht v. Robison, 36 B.R. 913 (D.Utah 1983).
The defendant’s argument on how to determine the date of Boatman’s appointment is not sustainable, and March 12, 1993 is found to be the date of Boatman’s appointment, the date of the court’s order approving the appointment.5
B.
The Commencement Bate Of The Two-Year Limitation Period
The defendant’s second contention is that if the limitation period started to run on March 12, 1991, “two years after the appointment” ended on March 11, 1993. Boatman’s response is to rely on Fed. R.Bankr.P. 9006(a). Rule 9006(a) provides that “[i]n computing any period of time prescribed or allowed by these rules or by the Federal Rules of Civil Procedure made applicable by these rules, by the local rules, by order of the court, or by any applicable statute, the date of the act, event, or default from which the designated period of time begins to run shall not be included....” Boatman accordingly argues that March 13, 1991, the day after the act or event of his appointment was day one of the two-year limitations period, with the final day being March 12, 1993, when he filed his complaint. The defendant denies that Rule 9006(a) can be used in the circumstances present here.
In this instance, there is decisional authority upholding each party’s argument. The defendant cites In re Butcher, 829 F.2d 596 (6th Cir.1987), cert. denied 484 U.S. 1078, 108 S.Ct. 1058, 98 L.Ed.2d 1020 (1988) which holds that a bankruptcy trustee may not utilize Rule 9006(a) in computing the two-year limitation period of § 546(a). The Butcher court ruled that the “Bankruptcy Rules govern procedural matters after a proceeding has been timely commenced. Jurisdiction must arise from section 546(a) without reference to Bankruptcy Rule 9006(a).” 829 F.2d at 601. The court concluded “that the bankruptcy court had no jurisdiction to hear the cause of action” when the complaint was not timely filed. Id. The Butcher court relied for its analysis on its prior holding in Rust v. Quality Car Corral, Inc., 614 F.2d 1118 (6th Cir.1980). Rust decided that Fed. R.Civ.P. 6(a), the identical counterpart of Rule 9006(a), could not affect the statute of limitations applicable to the Truth-In-Lending Act, 15 U.S.C. §§ 1601 et seq. The court reasoned that Rule 6(a) could not change the premise that a complaint must be filed within the time prescribed by the statute. See also Mattson v. U.S. West Communications, Inc., 967 F.2d 259, 262 (8th Cir.1992) (follows Rust ruling in action started under Fair Debt Collection Practices Act.)
Other circuits which have dealt with this issue apply the computation-of-time rule of Rule 6(a) to federal statutes to determine timeliness of filings, concluding the rule provides to time-computation methods “certainty, and if uniformly applied, uniformity.” Frey v. Woodard, 748 F.2d 173, 175 (3rd Cir.1984). See also United Mine Workers of America, International Union v. Dole, 870 F.2d 662, 665 (D.C.Cir.1989) (rejecting Butcher and approving Frey — “we decline to follow the analysis of the Sixth Circuit ... which reasons that applications of the federal rules to statutory time periods unjustifiably enlarge jurisdiction of the federal courts.”); Maahs v. United States, 840 F.2d 863, 866 (11th Cir.1988) (Rule 6(a) applies to determining two-year time limitations for presenting notice under Federal Tort Claims Act); Hart v. United States, 817 F.2d 78, 80 (9th Cir.1987) (same); Kane v. Douglas, Elliman, Hollyday & Ives, 635 F.2d 141, 142 (2nd Cir.1980) (Rule 6(a) applies in determining whether action filed timely pursuant to Title VII of Civil Rights Act of 1969). Law*523son v. Conyers Chrysler, Plymouth and Dodge Trucks, Inc., 600 F.2d 465, 466 (5th Cir.1979) (“This court has consistently used Rule 6(a)’s method for computing federal statutory time limitations.”). See also Amdura Corporation v. Faegre v. Benson (In re Amdura Corporation), 142 B.R. 433, 435 (Bankr.D.Col.1992) (“Bankruptcy Rule 9006(a) may be used to compute the two-year statute of limitations found in 11 U.S.C. § 546(a).”); Zimmerman v. National Electrical Benefit Fund, (In re Kaelin Associates Electrical Construction, Inc.), 70 B.R. 412, 414-15 (Bankr.E.D.Pa.1987) (“[U]nless Congress has expressly stated otherwise, the computational scheme set out in Rule 6 will apply to federal limitation statutes.... [T]he methodology set forth in Bankr.Rule 9006(a) should be used to compute the meaning of the phrase of ‘two years’ set out in 11 U.S.C. § 546(a).”); Judson v. International Terminal Operating Co., (In re Oro Import Co.), 69 B.R. 6, 8 (S.D.Fla.1986) (Rule 9006(a) applies to § 546(a)).
Notwithstanding the substantial number of courts that have rejected the Butcher-Rust doctrine, the defendant asserts that the Second Circuit would either restrict its decision in Kane, supra, to actions under Title VII, or that “the logic of In re Butcher would compel the Second Circuit to revisit the opinion in Kane." Defendant’s Memorandum at 7.
I do not agree. The doctrine that the federal rules dealing with computation of time apply only to actions after a complaint is brought removes the certainty to time computation that Rules 6(a) and 9006(a) further.6 The Frey court called the argument that Rule 6(a) expanded the jurisdiction of the court “frivolous.” 748 F.2d at 175. 4A Wright & Miller, Federal Practice and Procedure: Civil 2nd, § 1163 at 468 comments: “Federal courts also have applied Rule 6 to the computation of statutory limitations periods when they believed that the statute in question did not evidence a contrary policy or if the statute was enacted after Rule 6 became effective; in the latter context, if the statute is silent it is reasonable to conclude that Congress intended the time period to be computed in accordance with the provisions of the federal rule.”
Section 546(a) contains no internal provisions on how to compute the two-year limitation period it establishes. I conclude that the Second Circuit would readily accept the proposition that Congress intended that the Federal Rules of Bankruptcy Procedure be applicable in full, and without exception, to all provisions of the Bankruptcy Code, and that Rule 9006(a) shall apply to Code § 546(a).
IV.
CONCLUSION
The defendant’s motion for a judgment dismissing the complaint is hereby denied. It is
SO ORDERED.
. Although the defendant's motion is so entitled, the motion, as his Memorandum of Law indicates, is more appropriately considered as a Fed.R.Civ.P. 12(c) Motion for Judgment on the Pleadings. See Fed.R.Bankr.P. 7012.
. § 546. Limitations on avoiding powers.
(a) An action or proceeding under section 544, 545, 547, 548, or 553 of this title may not be commenced after the earlier of—
(1) two years after the appointment of a trustee under section 702, 1104, 1163, 1302, or 1202 of this title; or
(2) the time the case is closed or dismissed.
. § 1104. Appointment of trustee or examiner.
(a) At any time after the commencement of the case but before confirmation of a plan, on request of a party in interest or the United States trustee, and after notice and a hearing, the court shall order the appointment of a trustee_
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(c) If the court orders the appointment of a trustee ..., then the United States trustee, after consultation with parties in interest shall appoint, subject to the court's approval, one disinterested person other than the United States trustee to serve as trustee_
. "The plain meaning of legislation should be conclusive, except in the ‘rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intention of its drafters.’ ” United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 242, 109 S.Ct. 1026, 1031, 103 L.Ed.2d 290 (1989) (citation omitted).
. The trustee does not argue any other date is applicable in this proceeding.
. An earlier ruling in the Second Circuit, Joint Council Dining Car Employees Local 370 v. Delaware L. & W.R. Co., 157 F.2d 417 (2nd Cir.1964), which adverts to the Butcher-Rust concept, was described as "dictum” by the Kane court which "declin[ed] to extend the dictum”. 635 F.2d at 142. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493985/ | DECISION & ORDER
JOHN C. NINFO, II, Chief Bankruptcy Judge.
BACKGROUND
On January 21, 2004, Jay Halperyn, aka Tyler Halperyn, aka Tyler Jay Halperyn (“Halperyn”), filed a petition initiating a Chapter 7 case, and Peter Scribner was appointed as Halperyn’s Chapter 7 case trustee (the “Trustee”).
On February 4, 2004, Halperyn filed the Schedules and Statements required to be *67filed by Section 521 and Rule 1007 (the “Initial Schedules” and “Initial Statement of Affairs”), which indicated that: (1) he was employed as a manager at Style de Vie, earning a monthly income of $800.00; (2) he did not own an automobile (Schedule B, Item 23); (3) he had $172,949.00 in unsecured priority tax claims; (4) he had $2,365,553.00 in unsecured nonpriority claims, which included $126,000.00 due to American Express, $269,436.00 due to General Electric Capital Corporation on a judgment, $266,741.00 due to Kenneth P. Hughes on a judgment, $1,200,000.00 due to Key Bank National Association on several judgments, and $347,668.00 due to Telmark LLP on a judgment; (5) he had no stock or interests in incorporated or unincorporated businesses (Schedule B, Item 12); (6) he had not transferred any property outside the ordinary course of business in the year immediately preceding the filing of his Chapter 7 case (Initial Statement of Affairs, Question 10a); and (7) there were no businesses in which he: (a) was an officer or director; or (b) owned 5% or more of the voting or equity securities, within the six years immediately preceding the filing of his Chapter 7 case (Initial Statement of Affairs, Question 18a).
After the Trustee conducted a March 17, 2004 Meeting of Creditors, Halperyn filed an Amended Statement of Affairs (the “Amended Statement of Affairs”), signed on May 7, 2004, which, at Question 18a, set forth six businesses he had been involved with that he indicated closed in the year 2000.1
On August 20, 2004, the Office of the United States Trustee (the “UST”) commenced an Adversary Proceeding which requested that the Court deny Halperyn’s discharge pursuant to Section 727.
The Complaint in the Adversary Proceeding set forth a detailed history of Hal-peryn’s involvement in: (1) twenty-three different investment funds, vehicles, businesses and trusts during the 1990’s, which he disclosed at the Meeting of Creditors; and (2) Style de Vie, an antiques and collectibles business in Palm Beach, Florida, allegedly owned by his sister, Cheryl Hal-peryn.
The Complaint further alleged that: (1) Halperyn had an ownership interest, legal or equitable, in the inventory at the Style de Vie store, which was originally owned by him but was allegedly transferred to his mother, Ruth Halperyn, or the Ruth Hal-peryn Family Trust in satisfaction of loans alleged to have been made by Ruth Hal-peryn to Halperyn or business entities for which Halperyn had guaranteed the loans; (2) Halperyn had failed to disclose on his Initial or Amended Statement of Affairs the transfer of a $13,000.00 Mercedes (the “Mercedes”) within the twelve months pri- or to the filing of his Chapter 7 case (Question 10a indicated that there were no transfers); (3) Halperyn had failed to disclose on his Initial Statement of Affairs all of the business entities he was involved with during the six years prior to the filing of his Chapter 7 case, as well as various aliases and social security numbers he had used; (4) in addition to various false oaths and accounts in his Initial Schedules and Initial and Amended Statement of Affairs, Halperyn had made additional false oaths during his testimony at his Meeting of Creditors; (5) Halperyn had failed to disclose his legal or equitable ownership in Style de Vie and/or of all or a portion of the inventory at the Style de Vie store; and (6) Halperyn had failed to keep and provide sufficient records in connection with the transfer of his art and antiques *68collection to Ruth Halperyn and/or the Ruth Halperyn Family Trust.
Halperyn interposed a September 20, 2004 general denial to the Complaint in the Adversary Proceeding.
After: (1) the UST conducted a 2004 Examination of Halperyn on June 6, 2005 (the “Examination”); (2) the Court conducted a number of pretrial conferences; (3) the Court denied a UST Motion for Summary Judgment; and (4) the UST made a Motion for Leave to Amend the Complaint to add a cause of action under Section 727(a)(3) to allege a failure by Halperyn to preserve sufficient books and records in connection with his alleged transfer of the Mercedes, which was granted by the Court, a trial of the Adversary Proceeding was conducted on May 17, 2006 and June 8, 2006 (the “Trial”). During the Trial, the UST requested that its Section 727(a)(4)(A) false oath causes of action be expanded to include the failure of Halper-yn to list Rayfield Investment Company (“Rayfield Investment”) as a creditor. That Motion was also granted by the Court. A further Amended Complaint was filed on July 19, 2006, pursuant to Rule 7015(b), in order to conform the alleged causes of action to the evidence presented at Trial by Rayfield.
At the Trial, the Trustee, Cheryl Hal-peryn and Herbert Eugene Rayfield (“Rayfield”) testified. Halperyn elected not to attend the Trial or to testify in connection with any of the documentary evidence produced by the UST or the testimony of the Trustee, Cheryl Halperyn or Rayfield.
DISCUSSION
I. The Trial
The Court found the following testimonial and documentary evidence produced at Trial to be critical in connection with its determination as to whether to deny Hal-peryn’s discharge under Section 727: (1) Cheryl Halperyn’s unconvincing testimony that she was the sole legal and equitable owner of Tyler Jay Art, Antiques and Collectibles, Inc. (“Tyler Art”) d/b/a Style de Vie, notwithstanding that the corporate minute book produced by Halperyn’s counsel indicated that she was the sole stockholder; (2) Cheryl Halperyn’s testimony that both before and after the filing of Halperyn’s Chapter 7 case, the operating funds of the Style de Vie store operations were run through a checking account maintained by Hyperion LLC (“Hyperion”), an undisclosed corporation owned by Halperyn and his son; (3) the corporate minute books of Tyler Art, which indicated that Halperyn was the original President of the corporation, and did not indicate that any further actions were taken by the corporation or its Board of Directors to replace Halperyn as the President; (4) Tyler Art was indebted to Rayfield Investment for approximately $300,000.00 as the result of loans made prior to and subsequent to the commencement of Halperyn’s Chapter 7 case, and with respect to at least a $125,000.00 loan made on or about October 24, 2003, prior to the filing of Halperyn’s Chapter 7 case, Halperyn signed as the Vice President of Tyler Art and as a co-debtor, so that he was personally liable, jointly and severally, on the loan, which was unpaid when Halperyn filed his petition; (5) Rayfield testified that in connection with the loans made by Ray-field Investment to Tyler Art, Halperyn on numerous occasions had represented to him, as the sole shareholder of Rayfield Investment, that Halperyn was the owner of Tyler Art; and (6) Rayfield testified that in early 2004 Halperyn advised him that he had hired Tom Davis, who owed Tyler Art a significant amount of money, to go to Rochester to pick up his Mercedes and bring it back to Palm Beach.
*69II. Section 727(a)(4)(A) Cause of Action
A. Statute and Case Law
Section 727(a)(4)(A) provides that:
(a) The court shall grant the debtor a discharge, unless—
(4) the debtor knowingly and fraudulently, in or in connection with the case—
(A) made a false oath or account[.]
11 U.S.C. § 727 (2006).
From the cases which have been decided under Section 727(a)(4)(A), including this Court’s Decisions & Orders in In re Pierri, Ch. 7 Case No. 97-20461, A.P. Case No. 97-2125 (W.D.N.Y. April 21, 1998), In re Wackerman, (Chapter 7 Case No. 99-20709, W.D.N.Y. November 27, 2000), In re Ptasinski, 290 B.R. 16 (W.D.N.Y.2003) (“Ptasinski”), In re Weeden, 306 B.R. 449 (W.D.N.Y.2004), In re Foxton, Chapter 7 Case No. 04-22377, A.P. Case No. 04-2154, 2005 WL 831811 (W.D.N.Y. April 12, 2005), In re Mondore, 326 B.R. 214 (W.D.N.Y.2005), In re Hutchinson, 328 B.R. 30 (W.D.N.Y.2005) and In re Hoyt, 337 B.R. 463 (W.D.N.Y.2006), we know that for the Court to deny a debtor’s discharge because of a false oath or account: (1) the false oath or account must have been knowingly and fraudulently made, see Farouki v. Emirates Bank Int'l, Ltd., 14 F.3d 244 (4th Cir.1994); (2) the required intent may be found by inference from all of the facts, see 6 L.King, Collier on Bankruptcy, ¶ 727.04[l][a] at 40 (15th ed. rev.2005); (3) a reckless disregard of both the serious nature of the information sought and the necessary attention to detail and accuracy in answering may rise to the level of the fraudulent intent necessary to bar a discharge, see In re Diorio, 407 F.2d 1330 (2d Cir.1969); (4) a false statement resulting from ignorance or carelessness is not one that is knowing and fraudulent, see Bank of Miami v. Espino (In re Espino), 806 F.2d 1001 (11th Cir.1986); (5) the required false oath or account must be material; and (6) the required false oath or account may be a false statement or omission in the debtor’s schedules or a false statement by the debtor at an examination at a creditors meeting, see In re Ball, 84 B.R. 410 (Bankr.D.Md.1988). Conversely, if items were omitted from the debtor’s schedules because of an honest mistake or upon the honest advice of counsel, such a false declaration may not be sufficiently knowingly and fraudulently made so as to result in a denial of discharge.
B. False Oaths or Accounts
From the evidence produced at Trial and the pleadings and proceedings in Halperyn’s bankruptcy case and in the Adversary Proceeding, the Court finds that Halperyn knowingly and fraudulently failed to schedule: (1) his interest in Hyperion; (2) that he was an officer of Tyler Art; (3) that he was jointly and severally indebted with Tyler Art to Rayfield Investment in the amount of approximately $125,000.00; (4) that he was the owner of the Mercedes, a finding that the Court makes in part based upon Rayfield’s testimony, but also because that is the only logical explanation for Halperyn’s complete failure to produce any documentary evidence to support any of his various versions of the disposition of the Mercedes; and (5) that he had at least a significant equitable ownership interest in Tyler Art.
As this Court has previously expressed in Ptasinski, although Courts are generally more concerned with the failure of the debtor to disclose an asset than with the failure to disclose a liability, this is not true in cases such as this case where the knowing failure to disclose a creditor is part of a fraudulent scheme to conceal an asset from the trustee or to prevent the *70trustee from fully investigating the existence or value of an asset. In this case, the failure to disclose the indebtedness to Rayfield Investment prevented the Trustee and other parties-in-interest, including the UST, from discovering the true relationship between Tyler Art, Hyperion, Rayfield Investment and Halperyn, as an officer, co-debtor with, and a legal and equitable owner of all or a portion of Tyler Art and/or a portion of its inventory. It is even significant that on his Schedule I, Halperyn listed himself as a manager of Style de Vie, rather than as a manager of Tyler Art doing business as Style de Vie.
As a sophisticated businessman, with B.S. and M.B.A. degrees from Syracuse University, who described himself at the Examination as an investment banker, these false oaths, except with respect to the ownership of the Mercedes, could only have been knowing and intentional and part of a fraudulent scheme by Halperyn to conceal his direct and indirect relationships with Tyler Art and Rayfield.
III. Section 727(a)(3) Cause of Action
Section 727(a)(3) provides that the Court shall grant the debtor a discharge unless the debtor has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the debtor’s financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all of the circumstances of the case. In this case, if Halperyn, a sophisticated businessman, did in fact dispose of the Mercedes in connection with an investment or as a way to raise money for living expenses, the two disposition stories testified to by Halperyn, it is inconceivable to this Court that he would not have created and kept or have been able to obtain any documentation to support the disposition of the Mercedes. His failure to have kept or produced any such documentation is a failure that warrants the denial of his discharge under Section 727(a)(3).
IV. Miscellaneous
From the evidence produced at Trial and the pleadings and proceedings in Hal-peryn’s Chapter 7 case and in the Adversary Proceeding, it is clear that he is not the honest but unfortunate debtor that the Bankruptcy Code and the Bankruptcy System have determined is entitled to a fresh start and a discharge of his debts. In fact, Halperyn is clearly a debtor who has played fast and loose with his assets and the reality of his financial affairs, especially with respect to Tyler Art.
CONCLUSION
It has been proven by a preponderance of the evidence that Halperyn has made one or more material false oaths or accounts in completing the Initial Schedules and the Initial and Amended Statement of Affairs and in testifying at the Meeting of Creditors and the Examination. These false oaths or accounts could only have been made by this debtor with fraudulent intent. Furthermore, there is no credible evidence that the false oaths or accounts were made by mistake, carelessness or inadvertence, or upon the honest advice of counsel. In addition, Halperyn has either made a false oath with respect to the ownership and disposition of the Mercedes, or he has failed to keep sufficient records of the disposition of the Mercedes so that the Trustee could determine that it was not an asset of the estate. For these reasons, the discharge of Halperyn is hereby denied pursuant to Section 727(a)(3) and Section 727(a)(4)(A).
IT IS SO ORDERED.
. Halperyn had disclosed this information at the Meeting of Creditors. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491704/ | ORDER
KAREN KENNEDY BROWN, Bankruptcy Judge.
Before the Court is the Debtor’s Motion for Summary Judgment on the Debtor’s Objection to the Claim of the Internal Revenue Service and the Motion for Summary Judgment and Response to Debtor’s Motion for Summary Judgment on the Debt- or’s Objection to the Claim of the Internal Revenue Service filed by the Internal Revenue Service. This Court has jurisdiction of this proceeding pursuant to 28 U.S.C. §§ 1334 and 157(b)(2)(B). The issue to be decided is whether the IRS is entitled to claim penalties and interest on its claim which accrued during the prior bankruptcies of debtor which were dismissed without debtor receiving a discharge. Based on the Court’s analysis of the undisputed facts and the law the Court determines that summary judgment in favor of the IRS is appropriate.
1. On May 13, 1980, debtor filed his first chapter 13 bankruptcy. The IRS filed a claim in that bankruptcy in the amount of $198,713.59. Debtor’s plan was confirmed on August 7, 1980. Debtor was unable to complete his plan payments and his case was dismissed on July 26, 1983.
2. On April 15, 1986, debtor filed his second bankruptcy under chapter 13 and the IRS filed a proof of claim in an amount which is unknown at this time. Debtor made some payments under the plan but the case was dismissed on July 26, 1990.
3. On May 6, 1992, debtor filed the instant chapter 13 and the IRS filed its proof of claim for $351,924.10. The IRS filed an amended proof of claim on December 23, 1992, in the amount of $479,810.52.
4. The IRS is an undersecured creditor.
5. Debtor claims that the IRS seeks to include in its claim post-petition interest and penalties on prepetition claims.
6. The IRS contends that its claim includes interest and penalties on its claim through the first and second bankruptcies but that accrual stopped as of the date of this bankruptcy. The IRS contends that since debtor did not receive a discharge from his dismissed first and second bankruptcies, that penalties and interest continued to accrue throughout those proceedings as if no bankruptcy had been filed.
7. The Court finds that penalties and interest continue to accrue through a chapter 13 where the case is dismissed prior to debtor receiving a discharge. Bruning v. U.S., 376 U.S. 358, 84 S.Ct. 906, 11 L.Ed.2d 772 (1964); In re Whitmore, 154 B.R. 314 (Bankr.D.Nev.1993); In re Mitchell, 93 B.R. 615 (Bankr.W.D.Tenn.1988).
8. Based on the foregoing, the IRS may include in its claim penalties and interest accrued throughout debtor’s prior bankruptcies up to the date of the filing of the instant bankruptcy case. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491705/ | ORDER DENYING MOTION TO AMEND
MARY D. SCOTT, Bankruptcy Judge.
Before the Court is the Motion to File Amended Pleadings filed by the debtor on April 22, 1993. The debtor seeks to amend his counterclaim to add or expand causes of action sounding in tort. The basis of the motion to amend is that the causes of action are personal to the debtor and do not belong to the trustee such that the debtor should be permitted to pursue the causes of action. Among other arguments, the counterclaim defendants and the trustee assert that the causes of action are property of the estate and belong solely to the trustee. Accordingly, they argue, the debt- or has no standing to assert the claims.
The debtor’s tort claims relate to contracts described as “personal service contracts.” The debtor asserts that since such contracts or causes related to such con*658tracts may not be assigned under Arkansas law, the causes of action do not become property of the estate. The plain language of the statute and the case law are to the contrary. Section 541 of the Bankruptcy Code defines property of the estate:
(a) The commencement of a cause under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held:
(1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case.
He j¡c * jjc $ *
(c)(1) Except as provided in paragraph (2) of this subsection, an interest of the debtor in property becomes property of the estate under subsection (a)(1), (a)(2), or (a)(5) of this section notwithstanding ... applicable nonbankruptcy law— (A) that restricts or conditions transfer of such interest by the debtor. * * *
11 U.S.C. § 541(a)(1), (c)(1)(A) (emphasis added). Thus, under the plain language of the statute, the tort claims became property of the estate upon the filing of the voluntary petition in bankruptcy, including claims the debtor could not assign under state law.1 See Cottrell v. Schilling (In re Cottrell), 876 F.2d 540 (6th Cir.1989);2 Sierra Switchboard Co. v. Westinghouse Electric Corporation, 789 F.2d 705 (9th Cir.1986); Tignor v. Parkinson, 729 F.2d 977 (4th Cir.1984). In light of the express language of the statute, the debtor’s argument is virtually frivolous.
ORDERED that the Motion to File Amended Pleading, filed on April 22, 1993, is DENIED.
IT IS SO ORDERED.
. The fact that a trustee may not be able to assume such a contract under section 365, were it still in existence, is irrelevant.
. The case relied upon by debtor, Baker v. Auger, 709 F.2d 1063 (6th Cir.1983), has no application to this case since it was decided under a Bankruptcy Act section which excluded such causes from the estate. See Cottrell, 876 F.2d at 542. The instant case is one under the Bankruptcy Code. To the extent Baker holds that such property is not property of the estate, the decision was overruled by Cottrell and the Bankruptcy Code. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491706/ | ORDER DENYING DEBTOR’S MOTION TO DISMISS COUNTERCLAIM
MARY D. SCOTT, Bankruptcy Judge.
This adversary proceeding should not be an overly complicated case. Through the procedural errors, bad faith maneuvering, and continual reversal of positions and statements of debtor’s counsel, however, it has become a morass.
The adversary proceeding was initiated by the Complaint, filed on March 11, 1992, to which an Answer and Counterclaim was filed on May 8, 1992. Inasmuch as the counterclaim made no legal sense, debtor, pursuant to Rule 12, Federal Rules of Civil Procedure, moved to amend the counterclaim. When the reply to the counterclaim was filed on June 12, 1992, the entire adversary proceeding was at-issue and all counsel and parties were obligated to conduct the litigation in a manner consistent with the Federal Rules of Civil Procedure as well as the considerations embodied in the rules of professional responsibility.
Counterclaimant seeks dismissal pursuant to Rule 41(a), Federal Rules of Civil Procedure. The Court finds that to dismiss the adversary proceeding without prejudice at this juncture of the case would be prejudicial to the counterclaim defendants and would constitute an abuse of process such that the motion must be denied. See Hartford Accident & Indemnity Company v. Costa Lines Cargo Services, Inc., 903 F.2d 352, 360 (5th Cir.1990). The matter will proceed to trial, as previously Ordered, on August 13, 1993.1 The history of this case more than demonstrates the grounds for denial of the motion.
The major difficulty with this case is the manner in which it has been litigated. First, the counterclaim should never have been filed by the Chapter 7 debtor, individually, without first making demand on the trustee and/or seeking permission to proceed ex rel the trustee. The debtor’s counterclaim pleads that at least “some” of the causes belong to the estate. Experienced bankruptcy counsel was well aware that the debtor had no standing to file the action.
Due to this improper filing, the trustee was forced to file a motion to intervene, which was granted.2 Before the trustee submitted a pleading in the adversary case, the case was converted from a case under Chapter 7 to a case under Chapter 11, on May 13, 1993. Soon after the conversion, the Court expressly advised the parties that the conversion did not affect litigation of the adversary proceeding:
The fact that this ease has been converted to a case under Chapter 11 is of no import. The debtor does not exist as two separate entities for purposes of this adversary proceeding. Once the case was converted to a case under Chapter 11, *660the debtor-in-possession took the place of the debtor as defendant and counter-claimant.
Order (June 3, 1993). The transfer in interest of the causes of action served to grant to the debtor what he did not have in the first instance: standing as a real party in interest to litigate the counterclaim.
The debtor appears to believe that the fact that the case was converted halts litigation or trial of the counterclaim until the debtor-in-possession takes some affirmative action, apparently by intervention or other action to “assert” the causes. See Application to Employ Attorneys as Special Counsel 119 (May 18, 1993).3 Debtor is mistaken. The litigation continues.
Under the Federal Rules of Civil Procedure, if an interest is transferred during the pendency of a lawsuit, any party may file a motion to substitute parties. Fed. R.Civ.Proc. 25(c). Thus, plaintiffs or debt- or could have moved to have the “debtor-in-possession” substituted as the party coun-terclaimant. Failure to do so, however, does not halt the litigation. Further, failure to substitute parties does not make the outcome less binding upon the entity which holds the transferred interest, the debtor-in-possession. Particularly where, as here, the same individual and counsel have in fact been prosecuting the action.
While it is true that under the Bankruptcy Code, an “estate” is created by the filing of the petition, 11 U.S.C. § 541, creating legal, factual and procedural distinctions, this case has in fact been prosecuted, correctly or incorrectly, by one individual and by his counsel, appointed and unappointed. In light of these circumstances, it would be a gross waste of the judicial resources of this Court, of the state court, and of all parties, to permit debtor’s tardy and contradictory actions and statements to halt this litigation.
Debtor cannot now argue need for additional counsel. He has been repeatedly advised to associate co-counsel and there are sufficient people in the Crockett & Brown firm who are presumed to be hired under Rule 2014(b). The application for payment of fees indicates that there are at least four attorneys in that firm who have worked on this case. Further, the testimony on July 28, 1993, indicates that Harvey Bell is not contemplated to be counsel for the purpose of trying the case in bankruptcy court, but only trying a case in circuit or district court if it goes to jury trial. This was demonstrated by Bell’s testimony:
Q Now, Mr. Bell, do you intend to participate in the trial in this court on August the 13th if your application is approved?
A At this juncture, no. My engagement is solely for Circuit Court or U.S. District Court on jury trial tort issues.
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Bell testimony at 44-45. On cross-examination, by Robert J. Brown of Crockett & Brown, P.A., Bell’s testimony was the same: his scope of employment was solely to pursue the Circuit Court litigation matters. Debtor’s bankruptcy counsel corroborated this testimony:
Q Mr. Crockett, you heard Mr. Bell say that he did not intend to participate in the August 13 hearing?
A I heard him say that, yes, sir.
Q And is that your plan, too?
A I do not plan to ask him to assist in that trial.
Crockett testimony at 54.
Finally, the Court has continually advised all parties that this long pending adversary proceeding is going to trial on all claims.4 For example, at the pretrial conference held on April 6, 1993, the Court concluded the conference with the follow*661ing statement on the record, in the presence of all counsel:
“I’m going forward with the AP. The Court will enter a Pretrial Order. There will be no continuances granted.” ... “You can get whatever else done you want to do; get it done. We will be going forward.”
On April 7, 1993, the Court issued a Pretrial Order which stated in part:
Extensive discovery has been conducted and this case is ready to be placed in a trial posture. In light of the history of this case, the Court deems it appropriate that a pretrial order be issued and strictly enforced. The parties shall comply with directives set forth below and are advised that no extensions of the deadlines in this Order will be granted absent extreme exigent circumstances. The burden is upon counsel and the individual parties to strictly comply with the directives set forth below and to be prepared for trial. The parties are further advised that health concerns of the attorneys will not constitute exigent circumstances. Both parties are represented by firms employing sufficient personnel to ensure compliance with the directives of this Order and attendance at the duly scheduled trial. Accordingly, counsel for each party shall ensure that some other attorney is sufficiently knowledgeable of the pleadings and facts of the case and is sufficiently prepared to go forward with the prosecution and defense of their respective cases in the event of illness of lead counsel.
(Emphasis added.) On May 13, 1993, the Court issued an Order filed in the main bankruptcy case file which converted the case to a case under Chapter 11. That Order provided in part:
Inasmuch as the debtor asserts that its plan will be funded in part by proceeds derived from successful litigation of the issues pending in the adversary proceeding ... it is imperative that the adversary proceeding litigation proceed in an expeditious manner, despite additional duties and work to be performed by the debtor and his attorneys in the context of the Chapter 11 proceeding. Accordingly, all parties must strictly adhere to the deadlines and duties imposed by the Court’s Pretrial Order issued in the Hays v. Cummins file on April 7, 1993.
On'June 3, 1993, the Court issued an Order in the adversary proceeding which concluded as follows:
The parties are once again advised that they must strictly adhere to the Court’s Pretrial Order of April 7, 1993.
Finally, on July 28, 1993, the Court once again advised the parties that:
The counterclaim that is lodged in the adversary proceeding that is set to go to trial on August 13th is still pending. It has not come off. I have entered an order asking the parties to show cause because the debtor does not appear to be pursuing it, at least by the pretrial findings, but I in no way have ruled with regard to that counterclaim, and at this point in time that is still for trial on August 13th. I realize that Mr. Crockett said he didn’t think it would be tried but I would seriously, seriously advise the parties not to rely on that, and at this point instead you should be thinking it is going to go to trial because it is on the docket and it has not been dismissed.
At no time did the Court indicate that only the complaint was set for trial. Indeed, as quoted above, the Order of June 3, 1993, again put the parties on notice that all claims would be tried: “Once the case was converted to a case under Chapter 11, the debtor-in-possession took the place of the debtor as defendant and counterclaim-ant.” Order (June 3, 1993) (emphasis added).
Counsel appears to believe that all debtor must do to avoid trial is to fail to litigate the counterclaim filed by debtor. Indeed, at the hearing on July 28, 1993, counsel flatly stated that Mr. Bell would not be assisting at trial before this Court; he had not been sought to be hired for purposes of appearing in Bankruptcy Court, but only for state court. It appears that they believe debtor elected to go forward only in state court, where they will have Mr. Bell *662prosecute the claims,5 and that merely by obstreperous conduct in this Court, they may avoid the litigation Cummins filed here. Such tactics will not work. The debtor cannot, by asserting it has failed to substitute “debtor” for “debtor-in-possession” as the counterclaimant in this adversary proceeding, avoid the litigation. Under the Federal Rules of Civil Procedure, a transfer of interest, such occurred here from the Chapter 7 estate to the Chapter 11 estate, is mechanical and facile. See generally Fed.R.Civ.Proc. 25(a). Further, the matter may proceed to trial, and will be binding upon the transferee entity, despite the failure to seek to add the two words “in possession” to the caption of the pleadings. See id.
ORDERED that the Motion to Dismiss Counterclaim Without Prejudice, filed on July 29, 1993, is DENIED.
IT IS SO ORDERED.
. In light of the tortured history of this case, the assertion by counterclaim defendants that the matter should be dismissed with prejudice appears to have some merit. However, the Court deems that the better course is for all of the claims to be tried, as scheduled, on August 13, 1993.
. A motion under Rule 17(a), Federal Rules of Civil Procedure might have been more tidy.
. If this were true, the debtor’s inaction with respect to the assertedly valuable causes of action, which are property of estate and are expected to fund the plan, could be grounds for appointment of a trustee.
. The fact that Crockett has worked so hard to avoid this trial causes the Court to wonder who he represents. Clearly, he is not endeavoring on behalf of the estate who holds the claims. This is a matter to be considered at the hearing on the fee application.
. By separate Order, the Court has denied the application to hire Mr. Bell. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491707/ | MEMORANDUM
TIMOTHY J. MAHONEY, Chief Judge.
Final hearing on motion for relief by creditor College Associates, Inc., Filing No. 5, was held on October 5, 1989. Dean Jungers of Bellevue, Nebraska, appeared on behalf of the creditor. Thomas Whit-more and Tom Hemphill of Harris, Feld-man Law Offices, Omaha, Nebraska, appeared on behalf of the debtor.
The debtor owns a Bellevue, Nebraska, apartment complex, purchased from the moving creditor in early 1987. The moving creditor financed the purchaser by taking back a purchase money deed of trust and assignment of rents. The creditor characterizes the financing arrangement as a “wrap-around” mortgage, by which this Court understands that the seller had an outstanding financial obligation to a lender, American Charter Federal Savings and Loan. When the seller conveyed title to this debtor, the American Charter obligation was not paid off, but the new debt running from the purchaser to the seller reflected the seller’s obligation to American Charter and the balance owing to the seller was at least the amount of the American Charter mortgage.
As a result of this financing arrangement, if the debtor fails to make the required monthly payments to this creditor, this creditor may have difficulty in making the “pass through” payments to American Charter on the underlying obligation. As might be suspected, that is exactly the situation in this case. The debtor failed to make the monthly debt payments for several months in the spring and summer of 1989. The moving creditor exercised its rights under the assignment of rents and directed that rents be paid directly to it. The moving creditor also proceeded to enforce its rights under the deed of trust power of sale. The property was listed for sale with appropriate notices given and on the Friday preceding the Monday sale date, this debtor filed this Chapter 11 bankruptcy proceeding. The petition was filed on August 18, 1989. This creditor filed its *667motion for relief on August 30, 1989, alleging that the debtor had no equity in the property and that relief should be granted for cause pursuant to Section 362(d)(1).
At the trial, the creditor presented the testimony of a licensed appraiser who also happens to be the chief appraiser for Sarpy County, Nebraska, the political subdivision in which the City of Bellevue and this apartment complex are located. He testified that the property is listed at an assessed value for 1989 in the amount of $1,025,376.00. Under Nebraska state law, the assessed value is the equivalent of market value. The property was valued for assessment and tax purposes in the year 1988 at $1,330,848.00. The assessed value was reduced as a result of a request by the debtor and evidence presented by the debt- or concerning the actual income and expense incurred by the debtor.
The appraiser testified that the value of apartment complexes such as this should be determined by capitalizing the income stream because there are no sales of comparable properties in the area. Based on the information the debtor provided to the county, the value was placed at $1,025,-376.00 assuming a 25 percent vacancy rate and significantly different expenses that were used in the calculation for 1988.
The appraiser explained the appraisal process and the calculations involved and admitted that the property would be worth more if the vacancy rate were lower than 25 percent or the gross rentals were higher than the figures in the calculations which resulted in the tax value. The appraiser also testified that the debtor as recently as early 1989 requested a further reduction in value for tax purposes. Evidence was presented to the county by the debtor concerning the cash flow and expenses but the request by the debtor for lowering the assessed value was denied.
The creditor also presented testimony from an individual who was one of the principals of the creditor during the time the property was owned by the creditor. That principal, Mr. Church, is a licensed real estate broker and has been involved in several developments such as the one in question. He reviewed the income projections submitted by the debtor and reviewed the actual results of operations submitted by the debtor. He gave an opinion that the debtor could not realistically reach the income projections because they assumed a 6 percent vacancy rate versus the actual present 15 percent rate. In addition, they assumed more revenue had been received in September and October than was possible to be received based upon the actual rent roll. Further, the projections did not acknowledge over $11,000.00 of uncollectible accounts and bad checks as of the trial date. He, therefore, determined an effective projected income on an annual basis of $286,422.00.
On cross examination, he was asked to make a valuation calculation using the formula his appraiser had used. That formula would result in a valuation of $1,374,-825.00. To reach such effective projected income and, therefore, to reach such valuation, the debtor would be required to immediately spend between $25,000.00 and $35,-000.00 to upgrade various apartments which were not in rentable condition.
For its opinion of value, the debtor presented an appraisal that was prepared in conjunction with the purchase in late 1986. That appraisal established the market value of the property at $1,550,000.00. In support of that appraisal, the debtor presented testimony from a real estate broker/apartment management company representative. Although he would not testify that the value of the property at this point in time was $1,550,000.00, he supported the value in general statements. However, he gave no basis for such valuation except that he believed he could make the projections presented by the debtor work.
This Court gives that testimony very little weight. The witness is basically interested in obtaining a management contract from the debtor. He acknowledged that interest under oath and the Court, although believing that the testimony is provided in good faith, also believes it is based upon a hope and not any realistic *668evaluation of the current prospects for the apartment complex.
As was mentioned above, the debtor submitted projections of income and expenses for the next year. The projections are totally unrealistic based upon past history and the current situation of the debtor. There is no money for repairs. Two months have passed during which the debt- or has not met the projections of income. The debtor has a program of renting to students for a special price. However, many of those students, although participating in the program, have not actually paid either the required deposit or the monthly rent. This has resulted in somewhere between $7,000.00 and $11,000.00 in non-revenue producing apartments which are being used and are unavailable to potential paying tenants.
The debtor argues that it should be permitted to use the rent monies collected prepetition by the creditor pursuant to the assignment of rents. Those monies amount to approximately $30,000.00 and if spent on improvements immediately, would put the apartment complex in a position to move forward with the rental program which would enable it to meet its projections. However, the debtor has no right to use the $30,000.00 without somehow protecting the interest of the creditor.
The deed of trust executed by this debtor on the date of purchase included the grant of a lien to the creditor on all aspects of the real property, including the rents. In addition to the deed of trust, the debtor executed a separate document entitled “Assignment of Rents.” By such document, which was duly recorded along with the deed of trust, the debtor granted the creditor a lien upon the rents in addition to the “lien” which was included in the deed of trust. The lien was effective from the date of execution of the assignment but, by its terms, could not be enforced unless there was a default under the terms of the note and deed of trust. A default occurred in the summer of 1989 and the creditor took the required steps to enforce the lien which it had been granted in the assignment.
The bankruptcy petition did not cut off the lien of the creditor in the rents which had been assigned. Although rents received post petition would normally be considered “after-acquired property,” Section 552(b) of the Bankruptcy Code provides that a security interest which extends to rents continues to do so even after the bankruptcy petition is filed. In this case, the creditor did everything required by its contractual assignment to enforce its right to monthly accruing rents. Those actions were taken prior to the bankruptcy petition being filed and, therefore, the lien on the rents which was acquired upon the execution of the deed of trust and assignment was enforceable prior to the date of the petition and such enforceability continues pursuant to Section 552(b) after the bankruptcy petition is filed.
Since the creditor has a specific and enforceable right to the rents post petition, those rents are defined by the Bankruptcy Code as “cash collateral” under Section 363(a). The debtor may not use such cash collateral without permission of the Court or permission of the creditor that has an interest in the collateral. Section 363(c)(2). Prior to such use, the debtor must provide adequate protection of such interest pursuant to Section 363(e).
If there was a significant equity cushion in the real property which would be available to the creditor for protection of its interest both in the real property itself and in the rents, the Court might be inclined to permit the debtor to use the rents to improve the property which presumably would be in the best interest of all the parties and be consistent with an adequate protection requirement for the creditor. However, this Court is not convinced that there is an equity cushion of any sort. The evidence of the value of the property presented by the debtor is unconvincing. An appraisal which is now three years old and which apparently was prepared under different market conditions in the Bellevue area than exist at this time is not convincing evidence of current value. The debtor was unable to present accurate current rental or expense figures for the month of *669September, 1989. The debtor’s projections for September, 1989, through August, 1990, were inaccurate on their face, because they included rentals of apartments that were not rentable, either because of condition or because they are used in the administration of the project. The projections do not include any cure of the underlying American Charter mortgage default, nor do they indicate an operating surplus at the end of the year which would come even close to servicing the principal obligation, assuming interest was kept current.
This Court concludes from the evidence that the value of the property is $1,025,-000.00. In addition, there is approximately $30,000.00 in rental receipts being held by the creditor. However, the unpaid obligation secured by the deed of trust is $1,159,618.32 as of September 20 with interest accruing, if it is allowable under the Bankruptcy Code, at the rate of $309.00 per day. The debtor has no equity in the property. The debtor has not provided any offer of adequate protection which would provide assurance to the creditor that the gross rents could be used for the operation of the business and still leave funds available to service the obligation secured by the deed of trust. Even if the $30,000.00 of rents being held by the creditor was applied to improvements on the apartment complex, the debtor’s projections could not be met because such improvements cannot be made immediately and the non-rentable apartments cannot be rented immediately. In addition, the debtor presented no evidence of the collectibility of the approximately $11,000.00 of back rent owed by current tenants.
The Court concludes that the creditor has presented sufficient evidence of cause for relief from the automatic stay pursuant to Section 362(d)(1). Relief is granted.
Separate journal entry shall be filed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491708/ | MEMORANDUM OF DECISION
ALFRED C. HAGAN, Chief Judge.
This adversary proceeding was initiated by the debtor, Gary Thomas Livengood against the defendant, State of Idaho, Department of Health and Welfare, in order to determine the status of a claim by the State of Idaho, Department of Health and Welfare against the debtor in his chapter 13 case pending in this Court.
The parties have agreed the only remaining issue is whether the claim of the State of Idaho in the amount of $2,790.40 is a claim for maintenance or support under the provisions of 11 U.S.C. § 523(a)(5). If the claim is for maintenance or support under that section, then the claim is a nondis-chargeable claim in the debtor’s chapter 13 case under the provisions of 11 U.S.C. § 1328(a).
The State’s claim is based on “pre-birthing” or “maternity care” expenses. The expenses were paid by the State on behalf of the debtor’s ex-spouse prior to the birth of the child. The State paid the expenses under the provisions of Idaho Code § 7-1121 which states in pertinent part:
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The order of filiation may direct the father to pay or reimburse amounts paid for the support of the child prior to the date of the order of filiation and may also direct him to pay or reimburse amounts paid for: (1) the funeral expenses if the child has died; (2) the necessary expenses incurred by or for the mother in connection with her confinement and recovery; and (3) such expenses in connection with the pregnancy of the mother as the court may deem proper.
The pre-birthing or maternity care costs would be included within either (1) or (3) of the foregoing statutory provisions.
11 U.S.C. § 523(a)(5) excepts from discharge any liability for “alimony to, maintenance for, or support of” the debtor, spouse, or child. The State paid the expenses incurred for the benefit of the wife and child. It would only be the exclusion contained in section 523(a)(5) which would relieve the debtor from liability for a non-dischargeable claim. That exclusion exempts from the support and maintenance exception to discharge a debt if “(A) such debt is assigned to another entity, voluntarily, by operation of law, or otherwise (other than debt assigned pursuant to section 402(a)(26) of the Social Security Act [42 U.S.C. § 602(a)(26) ], or any such debt that has been assigned to the federal government or to a state or any political subdivision of such State)”.
Regardless of whether the debt is paid by the State in the first instance or is an assigned claim, in either instance, the claim of the State would fall within the exclusion of dischargeability afforded by 11 U.S.C. § 523(a)(5). The fact the claim exists in behalf of a third party, other than the spouse or the child, does not preclude the nondischargeable character of the claim. See Epstein, Nickles & White, Bankruptcy, Vol. II, section 7-29, at p. 376.
Accordingly, the relief prayed for in the plaintiff’s complaint will be denied. Counsel for the State of Idaho, Department of Health and Welfare may prepare an appropriate form of judgment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491709/ | ORDER ON OBJECTION TO CLAIM # 22
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 liquidation case and the matter under consideration is an Objection to Claim # 22 filed by Samuel I. Weis-berg and Janet R. Weisberg (Debtors) on behalf of the United States Internal Revenue Service (Government). The Trustee’s Objection is based upon the timeliness of the proof of claim. The facts relevant to resolution of this controversy are as follows:
The Debtors filed their Petition for Relief under Chapter 7 of the Bankruptcy Code on May 21, 1991. Although the case was initially noticed as a no-asset case pursuant to F.R.B.P. 2002(a), on August 27, 1991, upon discovery of assets, the Clerk of the Court notified creditors that they may file claims and that the bar date to file claims was November 20, 1992. The claim under consideration is in the amount of *697$7,162.64 and was filed by the Debtors on behalf of the Government on December 28, 1992, or 13 months after the bar date. Based on the foregoing, the Trustee contends that the claim was filed after the bar date and thus was untimely and while it may be allowed, no distribution may be paid on the claim until all timely filed and allowed claims have been paid in full with interest pursuant to § 726(a)(2)(C).
In opposition, the Debtors first contend that they mailed the proof of claim on behalf of the Government to the clerk’s office, in Tampa, on September 21, 1991, or prior to the expiration of the bar date, but the proof of claim was lost by the Clerk’s office, and fpr this reason it was not entered on the claim register until December 20, 1992. Based upon this, the Debtors contend that the failure to timely file the claim was a result of excusable neglect and therefore, the proof of claim should be allowed as timely filed. Second, the Debtors contend in the alternative, that this Court should treat the untimely proof of claim as an amendment or supplement to the proof of claim which was supposedly lost by the clerk’s office, therefore, the claim under consideration relates back and should be considered to be timely.
Upon review of the record, this Court is satisfied that none of the contentions advanced by the Debtor have merit for the following reasons: First, this record is devoid of any evidence which would support the proposition that the Debtor did in fact mail the proof of claim to the Clerk prior to the bar date. Second, the Debtor presented nothing to establish excusable neglect, and any reliance by the Debtor on the extremely broad interpretation of that term by the Supreme Court in In re Pioneer Investments Servs. Co. v. New Brunswick Assocs. Ltd. Partnership, — U.S. -, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993), is totally misplaced. The neglect found to be excusable in Pioneer Investments was the neglect of the attorney for the creditor and not the neglect of the Clerk’s office which is contended to have occurred in the present instance.
This leaves for consideration the ultimate question whether or not this claim can be allowed as due and then, if so, whether or not the claim would retain priority status ordinarily accorded to tax claims of the Government pursuant to § 507(a)(7) of the Bankruptcy Code. The claim in dispute in this Chapter 7 case is governed by § 726 which provides in pertinent part as follows;
§ 726. Distribution of property of the estate
(a) Except as provided in section 510 of this title, property of the estate shall be distributed—
(1) first, in payment of claims of the kind specified in, and in the order specified in, section 507 of this title;
(2) second, in payment of any allowed unsecured claim, other than a claim of a kind specified in paragraph (1), (3), or (4) of this subsection proof of which is—
(A) timely filed under section 501(a) of this title;
(B) timely filed under section 501(b) or 501(c) of this title; or
(C) tardily filed under section 501(a) of this title, if—
(i) the creditor that holds such claim did not have notice or actual knowledge of the case in time for timely filing of a proof of such claim under section 501(a) of this title: and
(ii) proof of such claim is filed in time to permit payments of such claim;
Even a cursory reading of § 726 leaves no doubt that untimely claims can only be paid which are filed pursuant to § 501(a) of the Bankruptcy Code which provides that a creditor or an individual claimant may file a proof of claim. The claim under consideration is filed under § 501(b) which permits a Debtor or a Trustee to file a proof of claim on behalf of a non-filing creditor. From all this it follows that the claim under consideration is not entitled to any distribution except pursuant to § 726(a)(2)(B), that is, only after all timely filed, allowed, unsecured claims are paid in full with interest.
Accordingly, it is
*698ORDERED, ADJUDGED AND DECREED that the Objection to claim No. 22 filed by the Trustee is sustained to the limited extent that while the claim is allowed, it shall not receive any distribution except in accordance with § 726(a)(2)(B).
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491710/ | ORDER ON MOTIONS FOR REHEARING
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a confirmed Chapter 11 case and the matters under consideration are two Motions. One is the Debtors’ Motion for Rehearing to Reconsider, Alter, Amend or Clarify Order on Motion to Vacate Order Granting Debtors’ Motion to Modify Confirmed Plan. The other is the Motion of Waterford South, Inc., to Amend Order on Motion to Vacate Order Granting Debtors’ Motion to Modify Confirmed Plan. A procedural background which is relevant to both motions is important and is as follows:
*711On December 6, 1990, the Debtors filed their Plan of Reorganization. The Original Plan of Reorganization filed on December 6, 1990, did not specify the method to execute the Plan except stated that the Debtors will fund their Chapter 11 Plan from the continued operation of their business. On March 19, 1991, the Debtors filed their first Amendment to the Plan of Reorganization which merely dealt with the treatment of a claim of First National Bank of Venice (Bank), an entity which held the first mortgage on the Mitchell Tract B property involved in this controversy. The Plan was further amended on July 18, 1991. This Amendment dealt with the interest of Shipps and Marquette, a judgment creditor of the Debtors. None of the Plans filed by the Debtors expressly provided for the sale of the Mitchell Tract B property to any specific person.
On August 30, 1991, this Court entered an Order and confirmed the Plan of Reorganization as amended. The Order of Confirmation, while reciting the findings which are required for confirmation, is silent concerning the sale of the Mitchell Tract B property, albeit the Order recited in Sub-clause (b) on page 3 that at the time of the closing of the sale of Mitchell Tract B, but no later than December 31, 1991, the Debtors shall pay the net proceeds from closing after payment of closing costs and other items to Marquette and Shipps.
On March 19, 1991, or before the Plan as amended was confirmed, the Debtors filed a Motion and sought authority to sell the Mitchell Tract B to Waterford South, Inc. (Waterford South). On March 9, 1991, which was prior to the entry of the Order of Confirmation, this Court entered an Order which approved the Debtors’ Motion to sell the Mitchell Tract B free and clear of liens. The Order was accompanied by Exhibit A which appears to be a copy of a sales contract of the Mitchell Tract B. There is nothing in the Order which granted the Motion to sell Mitchell Tract B which provided and fixed any date on or before which the sale should be closed.
On April 15, 1991, Gayle Marquette and C. Shipps filed an Objection to the proposed sale which was later withdrawn. On May 17, 1991, the First National Bank of Venice (Bank) filed a Motion for Rehearing directed to the Order approving the sale of Mitchell Tract B. On August 29, 1991, the day before the entry of the Order of Confirmation, this Court granted the Bank’s Motion for Rehearing and vacated the initial order approving the sale. On the same date, this Court entered an Order approving the sale of Mitchell Tract B free and clear of liens. The Order is again silent as to any closing date. It was not until July 13, 1992, that the Debtor filed a Motion entitled Motion to Modify Confirmed Plan. The Motion merely recited that the linchpin of the Debtors’ confirmed Plan was the sale of Mitchell Tract B and alleged that at the confirmation hearing the parties agreed that the sale would close no later than December 81, 1991.
There is no documentation in this record which substantiates the proposition that there was a binding contract by Waterford South to close on or before the date indicated. The Motion to Modify Confirmed Plan merely sought to substitute Wen Y. Chung as a purchaser of the Mitchell Tract B for the original intended purchaser, Waterford South. None of the essential terms of the Plan sought modification by the Motion. On August 11, 1992, this Court entered an Order and approved the sale of Mitchell Tract B free and clear of liens to Wen Y. Chung. On September 16, 1992, this court entered an Order granting the Debtors’ Motion to Modify Confirmed Plan. On October 7, 1992, the Debtor filed an action for Motion for Entry of a Final Decree, Final Report and Accounting. On January 13, 1993, Waterford filed a Motion to Vacate the Order which granted the Debtors’ Motion to Modify Confirmed Plan. On January 14th the Debtor filed a Response.
On July 8, 1993, this Court entered an Order granting the Motion to Vacate Order Granting Debtors’ Motion to Modify Confirmed Plan and vacated the Order. On July 19, 1993, both of the Motions under consideration were filed. This is the procedural background of the two Motions under consideration.
*712First, concerning the Motion of Waterford South, this Court is satisfied that the Motion is well taken and should be granted. In the July 8, 1993, Order, this Court stated that it is undisputed that “the sale [of the Mitchell Tract property to Waterford] was to close on or before December 31, 1991.... The contract for the sale of the Mitchell Tract B property to Waterford never closed by the December 31, 1991, deadline.” Upon reconsideration, this Court is satisfied that the statement in the July 8, 1993, Order was incorrect because there is nothing in this record which would justify the finding that either the Plan or the Order Confirming the Plan provided for a firm binding closing date for the sale of Mitchell Tract B to Waterford. Accordingly, it is appropriate to amend the July 8, 1993, Order and delete any reference to the closing date.
This leaves for consideration the Motion filed by the Debtor. The Debtors, in their Motion seek an Order to Alter, Amend or Clarify a previous Order by this Court which vacated the Order which originally granted the Debtors’ Motion to Modify a Confirmed Plan of Reorganization. Particularly, it is the Debtors’ contention that pursuant to § 1127(a) they are entitled to modify the confirmed plan because, it is without dispute that the Plan has not been substantially consummated.
Even a cursory analysis of this contention fails to support this proposition. This is because even if the Motion granted may have been couched in the language of modifying a confirmed plan, the so-called modification did nothing more than substitute one buyer, Wen Y. Chung, for another buyer, Waterford. None of the terms of the confirmed plan have been changed. On the contrary, the most important provision of the Plan, i.e., the treatment of the Bank and Shipps and Marquette claims remained unchanged, and neither the Plan nor the Order Confirming the Plan determined who, if anyone, will buy the Mitchell Tract B property.
The foregoing leaves no doubt that the Order of July 8, 1993, which vacated the Order Granting Motion to Modify the Confirmed Plan was correct and should be reaffirmed.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Debtors’ Motion for Rehearing to Reconsider, Alter, Amend or Clarify Order on Motion to Vacate Order Granting Debtors’ Motion to Modify Confirmed Plan be, and the same is hereby, denied and the Order entered on July 8, 1993, be, and the same is hereby, reaffirmed.
ORDERED, ADJUDGED AND DECREED that Motion to Vacate Order Granting Motion to Modify Confirmed Plan filed by Waterford South, Inc. be, and is hereby, granted and the Order Granting Motion to Modify Confirmed Plan is vacated.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491711/ | OPINION AND ORDER DISCHARGING DEBT AND DISMISSING COMPLAINT
WALTER J. KRASNIEWSKI, Bankruptcy Judge.
This matter is before the Court on ITT Financial Services’ (ITT) complaint to except the debt of Eugene Schoenlein (the “Debtor”) from discharge under 11 U.S.C. § 523(a)(2). Upon consideration of the evidence adduced at trial and the oral arguments of the parties, the Court finds that ITT’s complaint to except its loan to Debtor from discharge under 11 U.S.C. § 523(a)(2) is not well taken and should be dismissed.
FACTS
The Debtor filed a voluntary petition under Chapter 7 of title 11 on April 22, 1991. Thereafter, on September 10, 1991, ITT filed the instant action seeking to have this Court declare a debt from Debtor to ITT of $6,364.95 nondischargeable under 11 U.S.C. § 523.
The debt owed to ITT arises from a promissory note and security agreement dated February 14,1991 (the “Agreement”) which purports to grant ITT a security interest in items including a television, a VCR, rifles, a stereo, “kids bikes” and a riding mower. See Joint Exhibit 1, Disclosure Statement, Note and Security Agreement, Section c. The Agreement also granted ITT a security interest in certain “Mechanics Tools” and “Misc. Tools, Air Comp.”. See Joint Exhibit 1. These two items were valued at $4,000 and $20,000, respectively, in the Agreement. See Joint Exhibit 1. The Agreement represented a refinancing of previous notes between Debtor and ITT which listed substantially the same items as collateral. See Defendant’s Exhibits A-D.
*826The Debtor testified that ITT had contacted him a number of times to offer him loans. According to the Debtor, he would suggest items which could be used as collateral for a loan and ITT would provide him with the values for these items and type the necessary loan documents. Debt- or would then sign the loan documents and obtain the loan.
The Debtor testified that he never owned tools valued at more than $400-$500 for use in his home workshop. The Debtor stated that his failure to notice errors in the values for the items listed as “Mechanics Tools” of $4,000 and “Misc. Tools, Air Comp.” of $20,000 on the Agreement was an oversight, despite the fact that this error existed on previous security agreements between the Debtor and ITT.
The Debtor also testified that he may have expended up to $15,000 for tools used at work (“Work Tools”) in the past 16 years and that these tools are presently worth between $10,000 and $15,000. However, Debtor testified that the Work Tools never served as collateral for the loans which he obtained from ITT. This testimony was not rebutted by ITT.
The Debtor’s wife testified that though she handled the family’s finances, she did not question the values listed for “Mechanics Tools” and “Mise. Tools, Air Comp.” on the Agreement.
Donald Meadows (“Meadows”), ITT’s bankruptcy representative, testified that he was present at Debtor’s § 341 meeting and discussed the items listed on the Agreement with the Debtor. Meadows had not met the Debtor prior to the § 341 meeting. Meadows stated at trial that a post-petition review of the Agreement led him to the conclusion that ITT was “oversecured” and would have had no concern for the adequacy of its collateral at the time that ITT made the loan.
David Grunden, formerly employed by ITT as an assistant manager, testified that he visited Debtor’s home in the Fall of 1991 and again in the Spring of 1992 to inventory the collateral listed on the Agreement. Grunden testified that he observed items including the television, VCR, two guns, and tools which the Debtor had allegedly valued at approximately $400-$500.
Exception of Debt From Discharge Under 11 U.S.C. § 523(a)(2)(A)
Although ITT’s complaint alleged causes of action under both 11 U.S.C. § 523(a)(2)(A) and (a)(2)(B), ITT did not argue its cause of action under 11 U.S.C. § 523(a)(2)(B) at trial or provide this Court with any evidence regarding this cause of action. Therefore, this Court will only consider ITT’s allegations of a materially false representation under 11 U.S.C. § 523(a)(2)(A).
Section 523(a)(2)(A) provides 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) ... a false representation ... other than a statement respecting the debtor’s ... financial condition
The Sixth Circuit has interpreted this provision of the Bankruptcy Code as requiring the creditor to prove:
that 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. The creditor must also prove the Debt- or’s intent to deceive. Moreover, the creditor must prove that it reasonably relied on the false representation and that its reliance was the proximate cause of the loss.
Coman v. Phillips (In re Phillips), 804 F.2d 930, 932 (6th Cir.1986) (citations omitted).
ITT must prove its claim under 11 U.S.C. § 523(a)(2)(A) by the preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).
Misstatements in collateral values totaling $24,000 appear to be material in a decision to extend credit of over $6,000.
*827Additionally, these misstatements seem to have been a result of grossly reckless behavior on the part of the Debtor. Though the Debtor testified that the values for items of collateral were provided by ITT, the Debtor displayed gross recklessness in reviewing and signing the Agreement which included a value of $4,000 for “Mechanics Tools” and a value of $20,000 for “Misc. Tools, Air Comp.” which the Debtor acknowledges he never owned. This degree of gross recklessness by a debtor allows a court to infer that the debtor had the requisite intent to deceive. Coman, 804 F.2d at 933.
However, ITT has provided no evidence that it reasonably relied on the purported values of collateral listed on the Agreement. In deciding an action for non-dischargeability of a debt, a court “ ‘should not base its decision regarding discharge on whether it would have extended the loan’ ”. Bank One, Lexington v. Woolum (In re Woolum), 979 F.2d 71, 76 (6th Cir.1992) (quoting Knoxville Teachers Credit Union v. Parkey, 790 F.2d 490, 492 (6th Cir.1986) (citation omitted)). However, a bankruptcy court will not deny a discharge where the “[pjlaintiff presents] no evidence regarding the loan procedure followed in extending funds to [d]ebtors” or other evidence indicating reasonable reliance. ITT Financial Services v. Enis (In re Enis), 149 B.R. 471, 474 (Bankr.N.D.Ohio 1992). ITT failed to produce any evidence of reasonable reliance. Indeed, the only testimony offered by ITT at trial was that of ITT employees who did not participate in the loan process. The testimony which was provided at trial did not describe, in even a cursory manner, the process used by ITT in deciding whether to approve a loan. Here, as in Manufacturer’s Hanover Trust Co. v. Ward (In re Ward), ITT did not provide evidence that it conducted “even the most superficial credit investigation”. Manufacturer’s Hanover Trust Co. v. Ward (In re Ward), 857 F.2d 1082, 1083 (6th Cir.1988). Moreover, this Court agrees with the court in Manufacturer’s Hanover Trust Co. that “ ‘[fjrom the perspective of the bankruptcy proceeding, it is inequitable to reward a possibly imprudent creditor who failed to detect the debtor’s misrepresentation by excepting her debt from discharge, while the debtor’s other more prudent creditors have their claims evaluated collectively’ ”. Manufacturer’s Hanover Trust Co., 857 F.2d at 1084 (quoting Zeigler, The Fraud Exception to Discharge in Bankruptcy: A Reappraisal, 38 Stan.L.Rev. 891, 907-09 (Feb.1986)).
Additional Arguments Raised By Plaintiff at Trial
ITT attempted to assert an alleged security interest in Debtors’ Work Tools at trial though this alleged security interest was not asserted in ITT’s complaint or its pretrial brief. This argument is meritless. The mere fact that the Debtor admitted possessing work tools of substantial value and the fact that the Agreement listed security of “Mechanics Tools” and “Mise. Tools, Air Comp.” do not support a conclusion that the Debtor granted ITT a security interest in his Work Tools.
ITT further argued at trial that Debtor had failed to disclose a purported secured debt to Snap-On Tools on his bankruptcy schedules. However, a bare admission by the Debtor that he did not list a secured debt to Snap-On Tools in his bankruptcy schedules will not justify this Court in excepting this debt to ITT from discharge.
Return of Plaintiffs Collateral
This Court has previously noted that the Agreement lists a number of items as collateral for the debt from Debtor to ITT. This collateral includes a television, VCR, rifles, a stereo, “kids bikes”, a riding mower and the Debtor’s tools used in his home workshop. The Debtor has acknowledged that this property represents collateral for the debt to ITT and has agreed to turn this property over to ITT. However, this Court finds it important to note that the Agreement disclaims any non-purchase money security interest in “one television” where a borrower has obtained a personal loan. See Joint Exhibit 1, Disclosure Statement, Note and Security Agreement, Sec*828tion c., Exclusions. Thus, ITT cannot claim an interest in Debtor’s television. Additionally, the Debtor testified that the riding mower listed as collateral for this loan had “blown up” and was no longer in his possession. However, ITT is entitled to the return of collateral including the VCR, rifles, stereo, “kids bikes” and the Debtor’s tools used in his home workshop.
Attorney Fees
This Court finds that Debtor should not be awarded attorney fees under 11 U.S.C. § 523(d) because ITT’s claim was substantially justified. One bankruptcy court which has surveyed the case law under 11 U.S.C. § 523(d) has noted that a creditor’s claim may not be held to be substantially justified where the creditor has failed to establish any of the necessary elements of its claim. Norwest Financial Ohio, Inc. v. West (In re West), 108 B.R. 157, 164 (Bankr.S.D.Ohio 1989) (citations omitted). However, this case is more closely analogous to the facts in Norwest Financial Ohio, Inc., where the court held that:
[although the creditors did not prevail on the merits of their claims, it appears to the [cjourt that the creditors had a sound basis for bringing these suits, acted in good faith, and were not guilty of abusive practices in obtaining a false statement.
Norwest Financial Ohio, Inc., 108 B.R. at 164 (citing 3 Collier on Bankruptcy, Para. 523.12, 523-74 (15th ed. 1989)). Despite the fact that ITT did not prove reasonable reliance on the value of Debtor’s collateral listed in the Agreement, ITT did prove that there were material misstatements in the value of the collateral which the Debtor reviewed and signed with gross recklessness. Thus, an award of attorney fees to Debtor is not appropriate.
CONCLUSION
Therefore, this Court finds that ITT did not reasonably rely on the alleged misstatements by the Debtor. Thus, the Debtor will not be denied a discharge because of the alleged misstatements. However, the Debtor should surrender the collateral listed in the Agreement to ITT.
In light of the foregoing, it is
ORDERED that the debt due plaintiff ITT Financial Services from Debtor Eugene Schoenlein be, and hereby is, discharged. It is further
ORDERED that plaintiff’s complaint to determine dischargeability of debt be, and hereby is, dismissed. It is further
ORDERED that Eugene Schoenlein shall surrender to ITT items including the VCR, rifles, stereo, “kids bikes” and the tools used by the Debtor in his home workshop. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491712/ | ORDER
JAMES G. MIXON, Chief Judge.
On September 8, 1992, Steve and Debra Henson (debtors) filed a voluntary petition for relief under the provisions of Chapter 13 of the United States Bankruptcy Code. The debtors’ proposed plan and schedules listed Fleet Mortgage Corporation (Fleet Mortgage) as a creditor holding a claim of $60,000.00 secured by a first deed of trust lien on the debtors’ personal residence. The plan proposes that the debtors retain the residence and pay Fleet Mortgage the regular monthly note payment of $566.00, plus an additional payment of $150.00 on a $9,000.00 arrearage. On October 15, 1992, Fleet Mortgage filed an objection to confirmation of the plan. After a hearing on December 17, 1992, the matter was taken under advisement.
The proceeding before the Court is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(L) (1988). The Court has jurisdiction to enter a final judgment in the case.
On September 29, 1989, the debtor executed and delivered a promissory note to First Western Loan Company (First Western) in the principal sum of $59,650.00, plus interest at the rate of 9V2% per annum. On the same date, the debtors also executed a deed of trust in which they conveyed to John T. Hampton, trustee for the use and benefit of First Western, title to their personal residence to secure repayment of the indebtedness evidenced by the promissory note referred to above. The deed of trust was properly recorded with the Circuit Clerk of Sebastian County, Greenwood District, on September 29, 1989. On this same date, First Western assigned its interest in the note and deed of trust to Fleet Mortgage.
The debtors’ residence is located in Sebastian County, Arkansas, which has two districts: the Fort Smith District and the Greenwood District. See Ark. Const, art 13, § 5; Ark.Code Ann. § 14-14-201 (Mi-chie 1987). The debtors’ residence is located within the Greenwood District of Sebastian County.
When the debtors’ note payments became delinquent, Fleet Mortgage initiated a nonjudicial foreclosure proceeding pursuant to the Arkansas Statutory Foreclosure Act (Ark.Code Ann. §§ 18-50-101 to -116 (Miehie Supp.1991)). On April 13, 1992, a trustee’s notice of default and intention to sell was filed with the Circuit Clerk of Sebastian County, Greenwood District. The notice of default provided that the property would be sold at the main door of the Sebastian County Courthouse but failed to specify whether the sale would take place at the courthouse located in the Fort Smith District or the Greenwood District.
On June 23, 1992, the property was sold to Fleet Mortgage at a sale conducted at the Sebastian County Courthouse, Greenwood District. On the same date, Fleet Mortgage filed an affidavit of mailing and publication, an affidavit of sale, and a *869trustee’s deed, each with the Circuit Clerk of Sebastian County, Greenwood District. The debtors’ bankruptcy petition was filed September 8, 1992.
Fleet Mortgage argues that it holds title to the debtors’ residence pursuant to the sale that satisfied the promissory note executed by the debtors and, therefore, it is not a creditor and should not be included in the plan. The debtors argue that their residence is property of the estate because the statutory foreclosure sale is invalid due to irregularities in the sale.1
DISCUSSION
11 U.S.C. § 541(a)(1) defines property of the estate as “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1) (1988). The proposed plan asserts that the debtors’ interest in their residence constitutes the fee simple title subject to a consensual lien in favor of Fleet Mortgage. Fleet Mortgage correctly argues that the debtors currently do not possess such an interest in this property. Ark. Code Ann. § 18-50-lll(b) provides, in part, as follows: “The trustee’s ... deed shall convey to the purchaser all right, title, and interest in the trust property the ... grant- or had, ... at the time of the execution of the ... deed of trust.” Ark.Code Ann. § 18-50-lll(b) (Michie Supp.1991). Fleet Mortgage obtained all right, title, and interest in the property when the trustee’s deed was recorded on June 23, 1992, which occurred before the bankruptcy petition was filed. Under state law, a statutory foreclosure is subject to a judicial review. See Ark.Code Ann. § 18-50-116(d) (Michie Supp.1991). Irregularities in a foreclosure proceeding under Ark.Code Ann. §§ 18-50-101 to -116 (Michie Supp.1991), may be grounds to set the sale aside. See Union Nat’l Bank v. Nichols, 305 Ark. 274, 807 S.W.2d 36 (1991); Edward H. Schieffler, Note, Nonjudicial Foreclosure in Arkansas with the Statutory Foreclosure Act of 1987, 41 Ark.L.Rev. 373 (1988). The debtors have not sought such a determination in an appropriate proceeding.
Therefore, Fleet Mortgage’s objection to confirmation is sustained. The debtors shall have twenty days to file a modified plan or the case will be dismissed.
IT IS SO ORDERED.
. The debtors also made allegations of other sale irregularities. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491713/ | OPINION
JONES, Bankruptcy Judge:
SUMMARY
A land developer received a conditional use permit from a municipality to build an office complex in a mostly industrial area, and built an office shell with underground parking — one parking space for every 275 square feet of floor space. Several years later (the property having remained vacant in the interim) the developer began negotiations with the county to lease the office shell for courtroom uses. Before the bargain was consummated, the City passed an “urgency” ordinance requiring one parking space for every 150 feet of floor space for court-related uses. The bargain between the developer and the county fell through, the developer filed for bankruptcy, bringing an adversary suit against the city on constitutional and tort grounds. The bankruptcy court entered summary judgment *889for the municipality, and the developer appeals.
BACKGROUND
Jerry Conrow is a partner in the California Limited Partnership of The Park Beyond The Park (“PBP”). Together, Con-row and PBP constitute the Appellants (“Appellants”) in this case. In October of 1985 Appellants applied for and received a conditional use permit from the City of Torrance (“Torrance”) to use the property for “hi-tech offices and high end industrial/commercial space.” The conditional use permit was necessary because the property was located in an M-2 zone which otherwise does not allow for such uses. In accordance with Torrance Municipal Code, the parking requirements for the building were calculated at 60% office use (one space for every 300 square feet) and 40% industrial use (one space for every 400 square feet). Torrance, Cal., Mun.Code §§ 93.2.6 and 93.2.18 (1993). Appellants constructed an exterior shell but never completed the interior space. They provided 414 parking spaces, one space for every 275 square feet.
In 1989 Appellants apparently began negotiations to lease space in the property, still only a shell, to Los Angeles County (“the County”) for courtroom use. In October of 1989, before any lease with the County was consummated, the Torrance City Council (“City Council”) passed Ordinance 3287 (“the Ordinance” or “3287”) which established a conditional use permit procedure for court-related uses and set the parking requirements for such uses at one space for each 150 square feet.
Ordinance 3287 was both considered and enacted by the City Council on October 17, 1989 on an “urgency” basis stating: “there exists an immediate threat to public peace, health, safety and general welfare; [and] that the City Council hereby declares this Ordinance to be an urgency measure for the immediate preservation of the public peace, health, safety, and general welfare.” Urgency Ordinance No. 3287 § 1 (Oct. 31, 1989) (partially codified in Torrance, Cal., Mun.Code § 95.3.44 (1993)). Appellants were in attendance and spoke at the October 17 meeting.
In April 1990 PBP applied for a second conditional use permit to allow for court-related use, which application was denied by the City Council based on the conclusion that PBP had not provided for adequate parking.2
Appellants’ potential lease with the County was never consummated. PBP filed for bankruptcy protection on January 8, 1991, and thereafter filed an adversary complaint. Torrance moved for summary judgment, which motion was granted by the bankruptcy court.3 Appellants appeal. We affirm.
STANDARD OF REVIEW
We review de novo the bankruptcy court’s entry of summary judgment. E.g., In re Marvin Properties, Inc., 854 F.2d 1183, 1185 (9th Cir.1988).
DISCUSSION
Three legal theories can be distilled from the pleadings: (1) inverse condemnation (5th Amendment taking), (2) interference with advantageous business relationship and prospective economic advantage (tort), and (3) due process violations (14th Amendment).4 Each theory is presented separately, although some of the sub-arguments may overlap.
INVERSE CONDEMNATION
Appellants argue that they had a vested interest in the status quo at the time Ordinance 3287 was enacted, and that the en*890actment amounted to a taking of their vested property rights.
The facts are not in dispute. Appellants had neither signed a lease with the County regarding courtroom use nor begun construction. Courtroom uses had never been addressed in the Torrance Municipal Code before Ordinance 3287. Appellants’ conditional use permit makes no mention of courtroom uses, but states that the property will be used for “hi-tech offices and high end industrial/commercial space.” Both parties interpret the silence in their favor, Appellants saying that “office space” included courtroom use, and Torrance saying that it did not. See Torrance, Cal., Mun. Code § 93.2.6 (1993) (defines business and office use).
1. Vested Rights
The term “office space,” if it ever included courtroom use within its purview, ceased to include it after October 17, 1989 when Ordinance 3287 was passed. Had Appellants used their property for courtroom use before that date they might arguably have gained some right or interest in continuing such use. But they had not.
The only other way to obtain vested rights in the status quo is (1) by getting a specific promise from the city; and (2) by reasonable reliance thereon. See Avco Community Developers, Inc. v. South Coast Regional Comm’n, 17 Cal.3d 785, 132 Cal.Rptr. 386, 553 P.2d 546 (1976), cert. denied, 429 U.S. 1083, 97 S.Ct. 1089, 51 L.Ed.2d 529 (1977); Blue Chip Properties v. Permanent Rent Control Board, 170 Cal.App.3d 648, 659, 216 Cal.Rptr. 492, 497-98 (1985). In the instant case there was neither a specific promise nor any form of reliance.
The Avco and Blue Chip approach is more or less codified in the California Government Code. Cal.Gov.Code § 65864, et seq. (1992). These provisions establish a statutory procedure specifically authorizing local governments to freeze land use regulations on the development of a particular piece of property. Landowners can thus avoid the later imposition of new rules and regulations that conflict with land use terms contained in the development agreement. Id. § 65866. Appellants never submitted a § 65866 application, and therefore never established vested rights.
2. Taking
Even if Appellants had acquired vested rights, Torrance argues that Ordinance 3287 had no effect on those rights. Under their conditional use permit, Appellants were still capable of using their property for any “hi-tech offices and high end industrial/commercial space,” including courtroom space, after 3287’s enactment. Any court-related use simply required Appellants to add more parking area or to lease space from neighboring property owners.
Furthermore, “land-use regulation does not effect a taking if it ‘substantially advance^] legitimate state interests’ and does not ‘den[y] an owner economically viable use of his land_’ ” Nollan v. California Coastal Comm’n, 483 U.S. 825, 834, 107 S.Ct. 3141, 3147, 97 L.Ed.2d 677 (1987); see also Harris v. County of Riverside, 904 F.2d 497, 502 (9th Cir.1990) (rezoning arguably made land unsuitable for any use). Appellants make no claim that 3287 deprived them of all economically viable use of their land, as required by Nollan. Id.
The City Council said that it enacted 3287 to protect against “adverse impacts on traffic, on-street parking, residential neighborhoods, parking facilities for adjacent commercial or business properties_” Urgency Ordinance No. 3287, 115. On its face, 3287 substantially advances legitimate state interests, and Appellants have made no relevant argument to the contrary. See note 5 and accompanying discussion, infra. Consequently, there has been no Fifth Amendment taking.
TORT CLAIM
Appellants argue that Torrance is liable in tort for interference with the Appellants’ prospective economic advantage. *891Torrance responds that it is protected from tort liability through legislative immunity.5
Legislative Immunity
The bankruptcy court held that California Government Code § 818.2 immunizes Torrance from damage claims for economic injuries. Findings of Fact and Conclusions of Law (filed December 19, 1991) (Conclusion of Law No. 5). Under § 818.2, legislative entities cannot “be sued in tort for injury caused by adoption of or failure to adopt an enactment, or by failure or refusal to issue or deny a permit, license or similar authorization.” Land Waste Management v. Contra Costa County Bd. of Supervisors, 222 Cal.App.3d 950, 963, 271 Cal.Rptr. 909, 917 (1990); see also Nunn v. State, 35 Cal.3d 616, 621-22, 677 P.2d 846, 200 Cal.Rptr. 440, 677 P.2d 846 (1984). Consequently, under § 818.2, Torrance has legislative immunity, and the granting of summary judgment on the tort issue should be affirmed.
PROCEDURAL DUE PROCESS
Appellants argue that Torrance violated its own charter in enacting Ordinance 3287 on an “urgency” basis because there was no emergency. Appellants also argue that the enactment of Ordinance 3287 was a quasi-judicial act (not a legislative act) requiring notice and hearing.
1. Urgency
The charter for the City of Torrance provides for (1) a regular enactment procedure taking about 44 days, and (2) an abbreviated “urgency” procedure which can be enacted without a waiting period. Both procedures are found in the Torrance City Charter, §§ 724 & 726 (1993).
Section 726 provides in relevant part:
An ordinance for the immediate preservation of the public peace, health or safety which contains a declaration of the facts constituting its urgency and is passed as aforesaid, may be introduced and passed at one and the same meeting and the requirement that no less than five (5) days shall intervene between the introduction and final passage shall not apply to such an ordinance.
Ordinance 3287 describes the urgency involved as follows:
It is probable that privately-owned property will be used for court purposes in the City of Torrance in the near future. Such property will, in all probability, not have adequate parking for such court uses, and that will result in adverse impacts on traffic, on-street parking, residential neighborhoods, parking facilities for adjacent commercial or business properties, and will result in inconvenience and aggravation to those persons attempting to use the court facilities.
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That by reason of the findings set forth above, there exists an immediate threat to the public peace, health, safety, and general welfare; that the City Council hereby declares this ordinance to be an urgency measure for the immediate preservation of the public peace, health, safety, and general welfare.
Urgency Ordinance No. 3287, 115, § 1 (emphasis added).
On its face, 3287 includes “a declaration of the facts constituting its urgency.” The bankruptcy court found that 3287 complied with Charter § 726’s urgency provisions. Conclusion of Law No. 16. Appellants’ contrary position is unsupported.
Appellants argue that there was no emergency. Whether a legitimate emergency actually exists is normally left to legislative discretion, and a declaration of emergency is prima facie evidence of emergency. Crown Motors v. City of Redding, 232 Cal.App.3d 173, 179-80, 283 Cal.Rptr. 356, 359-60 (1991). The only real constitutional threshold the courts have for *892evaluating such discretion is the rational basis test: there must be a rational relationship between the legislative act and its stated purpose. The bankruptcy court concluded that such a rational relationship existed with respect to Ordinance 3287. Conclusion of Law No. 21.
Ordinance 3287 requires a greater number of parking spaces for automobile-intensive courtroom uses in order to prevent traffic problems. First, the concern for traffic problems is a legitimate one within Torrance’s realm of authority as a city.6 Second, there is obviously a rational relationship between parking, traffic, and public safety and welfare.
The concerns of the City Council being immediate, and the requirements of Charter § 726 being met, Ordinance 3287 does not violate due process based on its “urgency” procedure.
2. Legislative vs. Judicial Acts
In San Diego Bldg. Contractors Ass’n v. City Council, 13 Cal.3d 205, 118 Cal.Rptr. 146, 529 P.2d 570 (1974), appeal dismissed, 427 U.S. 901, 96 S.Ct. 3184, 49 L.Ed.2d 1195 (1976), the California Supreme Court held that procedural due process requirements of notice and hearing apply to judicial and quasi-judicial proceedings, but not to legislative acts. Id., 13 Cal.3d at 211, 118 Cal.Rptr. at 149, 529 P.2d at 573. Building Contractors held that the difference between legislative and judicial acts was that the former applied generally while the latter applied only to “a few people.” Id. (citing Bi-Metallic Inv. Co. v. State Board of Equalization, 239 U.S. 441, 36 S.Ct. 141, 60 L.Ed. 372 (1915)); see also Sierra Lake Reserve v. City of Rocklin, 938 F.2d 951, 957 (9th Cir.1991), vacated on other grounds, — U.S. -, 113 S.Ct. 31, 121 L.Ed.2d 4 (1992) (citing Yee v. City of Escondido, — U.S. -, 112 S.Ct. 1522, 118 L.Ed.2d 153 (1992) (due process is satisfied when legislative acts are performed in the normal manner prescribed by law).
The bankruptcy court held as a matter of law that Ordinance 3287 was legislative in nature, and as a matter of fact that 3287 applied to all private property owners in the City of Torrance. Conclusions of Fact No. 22, Conclusions of Law Nos. 4,15,18 & 23) (citing California Government Code §§ 810.6 and 811.2).
Appellants admit at page 7 of their Opening Brief that “the ordinance, by its breadth and by its terms, made virtually every law office in the City of Torrance a nonconforming use.” See Appellants’ Opening Brief at 7, 9; see also Transcript re: Motion for Summary Judgment at 4 (Los Angeles, Cal., Oct. 8, 1991). Despite their protestations that 3287 constituted “spot zoning” or “down zoning,” Appellants’ admission as to the general applicability of 3287 is the same as an admission as to its general legislative nature.7
But even without Appellants’ admission, 3287 is generally applicable on its face, and Appellants have cited no relevant authority to the contrary. Therefore, their only argument can be that 3287 has been unfairly applied.
3. Fair Application
Appellants allege that they alone have been injured by 3287 because it has never been applied to anyone else. But in the same breath Appellants admit that they do not have enough information to make *893the allegation, as indicated in the following discussion:
KNICKERBOCKER: The city has, to our knowledge, never applied this ordinance to anyone other than Conrow — or Park Beyond the Park.
THE COURT: Okay. How many other — on how many other occasions should it have applied it and failed to?
$ * * * * *
KNICKERBOCKER: [W]e just don’t have that kind of information to say that they have applied it to anybody else.
Transcript re: Motion for Summary Judgment at 18.
Appellants are not arguing that they have had inadequate time or cooperation with respect to discovery. Without citing any authority, Appellants argue that Torrance has the positive burden to produce evidence showing that it has fairly applied 3287. Appellants ignore the contrary authority from Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986): where the non-moving party will bear the burden of proof at trial on a dispositive issue, as with the issue of unfair application, a summary judgment motion may properly be made solely on the pleadings — even without affidavits. In response, the non-moving party must go beyond the pleadings and by affidavits, etc., designate specific facts showing that there is a genuine issue for trial. Celotex, 4777 U.S. at 324-325, 106 S.Ct. at 2553-54; see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986) (opponent must show more than mere metaphysical doubt as to material facts).
Accordingly, Appellants have the burden to show unfair application, which they have failed to do. Therefore, there has been no showing of due process violation, and summary judgment is proper.
CONCLUSION
Torrance has shown absence of material issues of fact and entitlement to judgment as a matter of law. Accordingly, we affirm.
. PBP no longer owns the property, and the denial of this second application is not part of the appeal.
. The bankruptcy court denied Appellants’ cross-motion for partial summary judgment.
.Appellants also allege violation of civil rights under 42 U.S.C. § 1983. To show such a violation, Appellants must show violation of procedural or substantive due process, which they have failed to do. Appellants have also failed to support their allegation that Torrance acted arbitrarily and capriciously.
. Even absent legislative immunity, Torrance argues that Appellants have failed to show one of the elements of a tort, i.e., proximate cause. Torrance argues that it could not be the proximate cause of any of the Appellants’ alleged damages for at least three reasons. However, these contentions are either partially or wholly dependent on questions of fact which are not appropriately disposed of on motion for summary judgment.
. Even aesthetics are within a municipality’s legitimate realm of authority in protecting health, safety and welfare. Crown Motors, 232 Cal.App.3d at 177-78, 283 Cal.Rptr. at 359 ("public health” encompassed "the wholesome condition of the community at large”). A fortiori, automobile traffic has a legitimate connection with public health and safety.
. Appellants also argue that the emergency procedure precluded the Torrance Municipal Code requirement that there be a zoning and planning study pursuant to §§ 96.1.3, 96.1.4 and 96.1.5. However, as pointed out by Torrance, 3287 was neither a change in zoning nor an emergency moratorium pursuant to California Government Code § 65858, but rather an outline of the procedure by which conditional use permits could be obtained for court-related uses. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491714/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court on Plaintiff’s Motion for Partial Summary Judgment and Defendant’s Motion for Summary Judgment. Both parties had the opportunity to conduct discovery and have submitted briefs arguing their position on the instant issue. The Court has reviewed the entire record in this case. Based upon that review, and for the following reasons, this Court finds that the debt owed by the Defendant is Nondischargeable.
*90
FACTS
On March 2, 1990, Yolanda Kossel (hereafter “Kossel”) recovered a Judgment in the Shelby County Common Pleas Court against the Debtors, the Lewises, for money owed by the Lewises to Kossel. The amount of the Judgment was Thirteen Thousand Nine Hundred Eighty-one and 12/100 Dollars ($13,981.12) and costs of the action. The Debtors in this case received notice of the Judgment by certified mail as evidenced by Exhibit “B” and made a number of payments on that Judgment. Kossel filed with the Clerk of the Common Pleas Court of Allen County, Ohio, a Certificate of Judgment issued by the Clerk of the Common Pleas Court of Shelby County, Ohio, around August 17, 1990.
At the time of filing the Certificate of Judgment, the Lewises were the owners of a piece of real estate located at 4024 Ode-ma Drive, Lima, Allen County, Ohio (hereafter “Property”). On or around May 13, 1991, the Debtors sold the Property to Da-tha Hile (hereafter “Hile”) to which the Certificate of Judgment had attached as a valid and subsisting lien. At the closing of the sale transaction, the Debtors executed an affidavit. This affidavit was sworn to and signed by the Lewises. The affidavit stated that they had no knowledge of any encumbrances on the title to the land other than those encumbrances set forth in the title provided to Hile. The existence of a Judgment against the Lewises was not set forth on the affidavit or the title insurance policy. As such, Hile had no knowledge of the existence of the Certificate of Judgment.
Around February 19, 1992, Kossel filed a second suit in the Allen County Common Pleas Court to collect the judgment and foreclose on the Property. Several payments had been made by the Debtors on their debt owed to Kossel according to the first suit but not enough to satisfy the Judgment. The fact that the Debtors had made some payments> on the judgment indicates that they were aware of the Judgment against them. On June 11, 1992, Kossel was granted Summary Judgment against Hile as the current owner of the Property. On September 11, 1992, Kossel was granted a Judgment Entry permitting her to proceed with foreclosure of the Certificate of Judgment against the Property. Around September 21, 1992, Kossel was granted an Order of Sale against the Property. Then, under the immediate threat of foreclosure of the Property, the Plaintiff had to satisfy the Judgment against the Lewises by paying to Kossel Twelve Thousand Five Hundred and 00/100 Dollars ($12,500.00) and court costs. The Plaintiff seeks to recover the Judgment owed by the Lewises to Kossel which Hile was forced to pay due to the threat of immediate foreclosure.
After Kossel had filed the second suit, the Lewises filed a Petition for Relief under Chapter 7 of the United States Bankruptcy Code on June 26, 1992. The First Meeting of the Creditors was held on August -24, 1992. The Plaintiff in this case timely filed a Complaint to Determine Dis-chargeability of Defendant’s Debt to Hile pursuant to 11 U.S.C. § 523(a)(2)(A). The Lewises filed their Answer on or around October 22, 1992. During discovery, a number of Affidavits were taken. On March 23, 1993, the Plaintiff filed a Motion for Partial Summary Judgment. The Defendant then filed a Response to the Plaintiff’s Motion for Partial Summary Judgment and filed its own Motion for Summary Judgment. The Plaintiffs filed a Reply Memorandum.
LAW
The relevant section of 11 U.S.C. Section 523 reads as follows:
Section 523. Exceptions to Discharge.
(a) A discharge under section 727, 1141, 1228(a), 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 reflecting the debtor’s or an insider’s financial condition;
*91
DISCUSSION
The Plaintiff seeks a determination that Defendants’ indebtedness of Twelve Thousand Five Hundred and 00/100 Dollars ($12,500.00) is nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A). The determination of dischargeability of a particular debt is a core proceeding under 28 U.S.C. § 157(b)(2)(I).
The standard of proof in determining dischargeability of debts obtained by false pretenses or a false representation under 11 U.S.C. § 523(a) is preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991); Cardenas v. Stowell, 113 B.R. 322 (Bkrtcy.W.D.Tex.1990). The following elements are required in order for the plaintiff to make a case for dischargeability under 11 U.S.C. § 523(a)(2)(A): (1) the debt- or made representations; (2) that at the time they knew the representations were false; (3) that they made them with the intention and purpose of deceiving the creditor; (4) that the creditor relied on such representations; (5) that the creditor sustained the alleged loss and damage as the proximate result of the representations having been made. See, In re McDowell, 145 B.R. 977 (Bkrtcy.W.D.Mo.1992); In re Satterfield, 25 B.R. 554 (Bkrtcy.N.D.Ohio 1982); and In re Tipple, 80 B.R. 93 (Bkrtcy.N.D.Ohio 1987).
According to Federal Rule of Civil Procedure 56, Summary Judgment can only be properly granted when the Movant can show that there is no genuine issue of material fact and that the Movant is entitled to Judgment as a matter of law. Yet, the Movant must be able to prove all the elements of the cause of action in order to succeed in his ease. Id. at 95. Furthermore, a Motion for Summary Judgment must be construed in a light most favorable to the opposing party. In re Chech, 96 B.R. 781, 783 (Bkrtcy.N.D.Ohio 1988).
Prior to making a decision on the Motion for Partial Summary Judgment, the Court must first decide if the Plaintiff has met its burden of proof in determining this debt to be nondischargeable. The Plaintiff in this case has alleged that the Defendants made a fraudulent representation in the Affidavit signed as part of the closing of the sale of the Property. This Affidavit, provided to the Court as “Exhibit B”, indicates that there were to be no encumbrances or liens on the title to the Property at the time Hile bought the real estate. The Affidavit also fails to divulge to Hile the fact that there existed a Judgment against the Lewises and that a Certificate of Judgment had been filed by Kossel against the Lewises. In this case, the Court, as well as Counsel for the Plaintiff, have relied extensively on the existence of this Affidavit as evidence of a fraudulent representation by the Lew-ises.
The first element of a successful claim under 11 U.S.C. § 523(a)(2)(A) to be considered is representation. The evidence provided unequivocally shows that the Lewises made a false representation to Hile in a sworn and signed Affidavit dated May 10, 1991. The particular Affidavit under consideration stated that the Defendant’s title to the Property had no encumbrances or liens on the title in an attempt to persuade the Plaintiff to purchase the Property. At the time of signing the affidavit, the Lewises had knowledge of the Judgment filed against them by Kossel as evidenced by the certified copy of the Return of. Service dated January 27, 1990. The fact that the Defendants made a number of payments to Kossel on the Judgment after it was rendered only strengthens the fact that the Lewises knew of their indebtedness to Kossel. Although the Defendants were fully aware of the Judgment against them, they failed to indicate in the Affidavit that such a Judgment against them existed. Thus, the Defendant’s false representation is established.
While the Defendants attempt to use ignorance as a defense to their failure to be aware of the difference between a Judgment and a Certificate of Judgment, such an argument is not valid. If they did not understand the significance of a Judgment against them and what might happen if they failed to make full payments on the Judgment, the Defendants should have *92asked their attorney to explain it to them. Ignorance cannot be used as an excuse. In addition, the Lewises claim that they had no knowledge of the Certificate of Judgment and did not know that a Certificate of Judgment constituted a lien on the real estate that they sold to Hile. According to Ohio Revised Code Section 2329.02, “any judgment or decree rendered by any court of general jurisdiction, including district courts of the United States, 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 court of common pleas of such county a certificate of such judgment ...” The Certificate of Judgment against the Defendants was filed for public record in the Allen County Courthouse in the office of the Clerk of Courts. Such records were available for viewing by any member of the public, including the two parties in this case. The Defendants claim that because they were not served with any notice of the Certificate of Judgment being filed they should not be held liable for having no knowledge of the Certificate of Judgment. Such a defense is not valid. There is no requirement by law that notice of the Certificate of Judgment be served upon the parties involved. The Lewises as well as Hile could have checked the public records as both sides had equal access to such files. The fact of the matter is that the Defendants knew that there was a Judgment against them, but they chose not to disclose any information regarding the Judgment either in the Affidavit or in the course of the sale of the Property.
The Defendant’s intent to deceive. the Plaintiff can be inferred from the totality of the circumstances. In re McDowell, 145 B.R. at 980. The certified copy of the Return of Service proves that the Defendants knew about the Judgment against them. The fact that several payments were made on the Judgment to Kossel only strengthen the fact that the Lewises knew about the Judgment against them. Even if the false representation was made in reckless disregard of the truth, .the fact of the matter is that the Lewises failed to admit to Hile through the course of the sale of the Property that Kossel had a Judgment against them. The Affidavit is clear proof of the false representation made to Hile as it stated that there were no encumbrances on the title to the particular piece of property in question. The Defendants swore to and signed the Affidavit in their successful attempt to convince the Plaintiff to purchase the Property. In and of itself, the Affidavit is clear proof of an intent to deceive the Plaintiff as to the state of title to the land. From the false representation of the Defendants, Hile inferred that the property she was being sold was free of any lien whatsoever. However, the fact of the matter is that the Lewises failed to admit in the Affidavit the existence of a Judgment against them.
It has been determined that Hile relied on the Affidavit made in the course of the closing of the sale of the Property involved. Hile relied on the contents of the Affidavit when deciding to purchase the Property, assuming in accordance with statements signed and sworn to by the Lewises that there were no encumbrances or liens on the title to the Property. By examining the evidence, it has been determined that the Plaintiff’s loss sustained was a proximate result of the representations made by the Lewises. As a result of the Lewises filing bankruptcy, the Order of Sale of the Property and the Certificate of Judgment, the Plaintiff has had to pay Kossel Twelve Thousand Five Hundred and 00/100 Dollars ($12,500.00) to satisfy Kossel’s Judgment against the Lewises and prevent foreclosure of the Property. Hile has been damaged by being forced to pay this amount owed by the Defendants to Kossel as a result of Hile’s reliance on a representation made by the Lewises in the Affidavit. As such, the loss incurred by Hile was a proximate result of the representations made in the Affidavit. Thereby, it has been established that the five (5) necessary elements to prove a debt nondischargeable have been established in this case.
The other issue brought up in this case is the Defendant’s false representation in the Affidavit that no assessable public improvements would be made to the Property *93after the Lewises had received a notice by certified mail from the Allen Water District. This notice revealed that water lines would be installed in the area and that the Property would be assessed for a certain portion of the improvements. That particular issue is a separate issue and not under consideration at this particular moment.
The focus of the Plaintiffs Motion for Partial Summary Judgment currently is the Lewises’ false representation regarding encumbrances on the land. In deciding the partial Summary Judgment issue, it must be decided if there are any genuine issues of material fact. Rule 56 of the Federal Rules of Civil Procedure sets forth that it is the burden of the Movant to establish that no genuine issue of material fact exists. In this particular case, Hile has met its burden of proof. It has been clearly demonstrated that the Defendants made a false representation to the Plaintiff on the Affidavit when they indicated there were no encumbrances on the title to the Property; that the Defendants intended to deceive the Plaintiff; that the Plaintiff relied on Defendants’ representations in purchasing the Property; and that the Plaintiff’s loss was a proximate result of the misrepresentations made by the Defendants. The fact of the matter is that the Lewises knew of the existence of the Judgment against them by Kossel. The Defendants cannot claim ignorance as a defense as there is no requirement that they be given notice of the filing of a Certificate of Judgment against them. It has been established that the Lewises had knowledge of the Judgment against them but chose not to admit its existence in the Affidavit. A Judgment becomes a lien from the very moment that the Certificate of Judgment is delivered and filed with the clerk of court. All of the five (5) required elements under 11 U.S.C. § 523(a)(2)(A) have been met, and there are no genuine issues as to any material facts. As such, Hile is entitled to judgment as a matter of law.
In reaching the conclusion found herein, the Court has considered all of the evidence, exhibits and arguments of counsel, regardless of whether or not they are specifically related to in this opinion.
Accordingly, it is
ORDERED that the Defendant’s debt to Plaintiff in the amount of Twelve Thousand Five Hundred and 00/100 ($12,500.00) be, and is hereby NONDISCHARGEABLE.
It is further ORDERED that Defendant’s Motion for Summary Judgment be, and is hereby DENIED.
It is further ORDERED that a Pre-trial be, and is hereby set for Monday, August 23, 1993, at 10:00 A.M. to allow the Court to consider the other claim for relief set forth by the Plaintiff. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491720/ | MEMORANDUM OF DECISION
JAMES A. GOODMAN, Chief Judge.
Danny Dumond (the “Debtor”) is a Chapter 11 Debtor who owns and operates a business in Scarborough, Maine known as the Goldstein Steel Company. In 1987, the Debtor became involved in litigation with the Hibiscus Corporation (“Hibiscus”), a corporation sharing a common boundary with the Debtor’s business. On June 10, 1992, Hibiscus obtained a judgment against the Debtor for trespass in the amount of $18,198.51 in Maine Superior Court. The Superior Court subsequently issued a writ of execution for the amount of the judgment in favor of Hibiscus. The Debtor did not satisfy the judgment but, in September of 1992, entered into a voluntary order of payment (the “Order of Payment”) with Hibiscus, which was approved by the Cumberland County District Court.
The Order of Payment contained the following relevant terms:
Upon Agreement of the Parties, it is hereby ORDERED that Defendant, Danny Dumond, pay the judgment of the above Plaintiffs as follows:
3. Danny Dumond further agrees to pay off the amended judgment of the Plaintiffs dated July 10, 1992 in full, including pre- and post-judgment interest, and reasonable counsel fees, by October 20, 1992;
*3105. If the Amended Judgment is not paid in full by October 20, 1992, the Parties agree and the Court hereby orders the sale pursuant to 14 M.R.S.A. § 3131(2) of certain of Mr. Dumond’s properties described. below without the need of any further court hearings. This order shall be treated as a sale order issued October 21, 1992.
6. (b) The Parties understand and agree that the above described parcels of land are not subject to any of the statutory exemptions available to Mr. Dumond under 14 M.R.S.A. § 4421-4426;
(c) Pursuant to 14 M.R.S.A. § 3131(3), Plaintiffs will give notice of the sale to any person who has a security interest, mortgage lien, encumbrance, or other interest in the property when the interest is recorded, possessory or of which the judgment creditor has actual knowledge, as well as to the judgment debtor. Notice shall be provided in accordance with 11 M.R.S.A. § 9-504(3);
The Debtor was unable to comply with the October 20 deadline for payment and, as a result, filed a petition for relief under Chapter 11 of Title 11 of the United States Bankruptcy Code. Hibiscus filed a proof of claim, listing its secured claim in the amount of $13,997.76 plus accruing interest and attorney’s fees. However, the parties have stipulated that the amount due as of the date of filing the petition was $9,039.08, and it is undisputed that Hibiscus’ claim is oversecured. The Debtor has objected to Hibiscus’ claim only insofar as it includes interest above the federal judgment rate and attorney’s fees, which both raise issues under 11 U.S.C. § 506(b).
Before addressing the issues raised by the Debtor’s objection, however, it is necessary to note that Hibiscus’ claim in the bankruptcy estate arose not from the judgment, but rather from a consensual order of payment which was approved by the district court. Given the comprehensive nature of the agreement, it is clear that once the parties entered into the Order of Payment, that instrument supplanted the terms of the judgment and writ of execution, thereby providing Hibiscus with an independent basis to claim against the Debtor. To illustrate, if subsequent to the approval of the Order of Payment, Hibiscus had attempted to collect its judgment in state court, Hibiscus would have obviously proceeded on the Order of Payment. This is consistent with the underlying principles of the doctrine of merger as stated by the Bankruptcy Court for the Southern District of Ohio:
The doctrine of merger is one aspect of the larger principle of res judicata. 46 Am.Jur.2d Judgments § 383 (1969). The general rule of merger is that when a valid and final personal judgment is rendered in favor of the plaintiff, the plaintiff cannot maintain a subsequent action on any part of the original claim. Restatement, Second, Judgments § 18 (1980). The original claim merges into the final judgment. The effect of the merger is that the old debt ceases to exist and the new judgment debt takes its place. The judgment becomes “the evidence of the debt, or the sole test of the rights of the parties_” 46 Am. Jur.2d Judgments § 390 (1969) (footnotes omitted).
Matter of Schwartz, 77 B.R. 177 (Bankr.S.D.Ohio 1987), aff'd, 87 B.R. 41 (S.D.Ohio 1988), quoting, In re Schlecht, 36 B.R. 236 (Bankr.D.Alaska 1983).
Hence, although the debt in the present case originally arose from a judgment, Hibiscus’ claim in the Debtor’s bankruptcy estate arises from the consensual Order of Payment. The issues in this case, therefore, must be analyzed in view of the fact that interest and attorney’s fees were provided for under an agreement.
Attorney’s Fees
The first issue to be resolved is whether Hibiscus is entitled to attorney’s fees as provided under the agreement, pursuant to 11 U.S.C. § 506(b). Initially, it must be noted that although the voluntary Order of Payment granted Hibiscus attorney’s fees, it did not expressly state a relevant time period. However, Hibiscus has asserted that the language of the Or*311der of Payment granted it attorney’s fees both before and after the entry of the Order of Payment, and the Debtor has not disputed that assertion. As Hibiscus' interpretation is reasonable under the circumstances, the Court hereby makes a finding of fact that the granting of attorney’s fees in the agreement included fees incurred for collection after the entry of the Order of Payment.
Section 506(b) expressly allows attorney’s fees to oversecured claimants where the fees were provided for in the agreement under which the claim arose. Accordingly, courts have consistently allowed ov-ersecured claimants attorney’s fees provided for under security agreements. See, e.g. In re Campbell, 138 B.R. 184 (Bankr.S.D.Ohio 1991); In re Nordmann, 56 B.R. 634 (Bankr.D.S.C.1986); In re Rutherford, 28 B.R. 899 (Bankr.N.D.Ill.1983). There is no basis to distinguish the present case, since the agreement here is no less binding under state law than an ordinary contract. Accordingly, Hibiscus is entitled to reasonable attorney’s fees for the cost of collection of this debt.
Rate of Interest
The second issue to be considered is which rate of interest applies to an overse-cured claim in a Chapter 11 estate. The Debtor contends the federal judgment rate is the most appropriate, while Hibiscus argues that it is entitled to the state judgment rate. As § 506(b) does not specify a rate of interest, it is appropriate to look to pre-Code practice for the applicable rate. See, generally, U.S. v. Ron Pair Enterprises, Inc., 489 U.S. 235, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989) (stating that the Court is reluctant to alter pre-Code practice). Under pre-Code practice, “[t]he majority of courts utilized the contract rate of interest when allowing an oversecured creditor to collect post-petition interest pursuant to § 506(b).” In re Laymon, 958 F.2d 72, 75 (5th Cir.1992), quoting, 3 COLLIER ON BANKRUPTCY ¶ 506.05, at 506-46. Applying the rate provided for in an agreement is also consistent with the principle announced in Butner v. United States, 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979), that “[cjongress has generally left the determination of property rights in the assets of a bankrupt’s estate to state law. Property interests are created and defined by state law.” Id. at 54-55, 99 S.Ct. at 917-18. Furthermore, this issue has been addressed by courts in the context of contract claims. This Court is persuaded by those cases in which the interest rate provided for in an agreement is applied in bankruptcy. See, e.g. In re Laymon, 958 F.2d 72 (5th Cir.1992); In re Courtland Estates Corp., 144 B.R. 5 (Bankr.D.Mass.1992); Matter of Gladdin, 107 B.R. 803 (Bankr.D.Ga.1989).
For the foregoing reasons, this Court finds that the interest rate provided under the Order of Payment is applicable here. Again, Hibiscus has asserted, and the Debtor has not disputed, that the agreement provided for interest at the state judgment rate pursuant to 14 M.R.S.A. § 1602-A. Bearing in mind that interest was granted on a judgment debt under the agreement, the Court finds that the interest rate established by the Order of Payment is the state judgment rate of 15%.
Some courts have taken a flexible approach recognizing that there may be situations in which “the higher rate would produce an inequitable or unconscionable result, so as to require disallowance thereof.” Laymon, supra, at 75, quoting, In re Sheppley & Co., 62 B.R. 271, 277 (Bankr.N.D.Iowa 1986). However, in the present Chapter 11 case, the Debtor is solvent, all creditors are to be paid in full under the plan, and the unsecured creditors have already been paid under the confirmed plan. Consequently, there is no equitable reason that militates against allowing interest at the rate provided for under the parties’ agreement.
Accordingly, the Debtor’s objection to claim is overruled; Hibiscus shall be allowed its attorney’s fees, and its claim shall include interest at the state judgment rate.
The foregoing constitutes findings of fact and conclusions of law pursuant to F.R.Bky.P. 7052.
An appropriate order shall enter.
*312
ORDER
In accordance with a Memorandum of Decision of even date herewith, it is hereby
ORDERED that the Debtor’s objection to the claim of the Hibiscus Corporation (“Hibiscus”) is overruled; and it is further
ORDERED that, within 10 business days from the entry of this Order, the parties shall file a written stipulation as to the amount of interest and reasonable attorney’s fees to be included in Hibiscus’ claim; and it is further
ORDERED that, upon the parties’ failure to stipulate, Hibiscus shall be responsible for scheduling an evidentiary hearing on the matter. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491721/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court upon Hearing on Application of Mark Schlachet, Attorney for Debtor, for Allowance of Fees/Expenses. A Hearing was convened and only the Trustee, John Hunter, Sr., (hereafter “Trustee”) appeared. The parties were afforded the opportunity to present evidence and arguments they wished the Court to consider in reaching its decision. The Court has reviewed the entire record in this case. Based upon that review, and for the following reasons, this Court finds that Mark Schlachet’s Application for Allowance of Fees/Expenses in the total amount of Five Thousand Five Hundred Seventy Six and 34/100 Dollars ($5,776.34) should be Allowed; that fees totalling Four Thousand Six Hundred Eighty Three and 50/100 Dollars ($4,683.50) and expenses totalling Four Hundred Sixty Six and 34/100 Dollars ($466.34) should be paid by RTC pursuant to this Court’s Order of August 28, 1989; and that fees totalling Four Hundred Twenty Six and 50/100 Dollars ($426.50) are deemed an administrative priority to be paid by the Trustee.
FACTS
Debtor filed a Voluntary Petition under Chapter 11 which was converted to a case under Chapter 7 on December 1, 1989. Mark Schlachet was hired as counsel for Debtor pursuant to the payment of a retainer totalling Fourteen Thousand and 00/100 Dollars ($14,000.00). After conversion, Mr. Schlachet filed a Motion for Determination of Priority Administrative Expense Priority, attendant Affidavit and Time Sheets. The Motion seeks an award of Five Thousand One Hundred Ten and 00/100 Dollars ($5,110.00) in fees and Four Hundred Sixty Six and 34/100 Dollars ($466.34) in expenses. Four Thousand Six Hundred Thirty Seven and 50/100 Dollars ($4,637.50) of Mr. Schlachet’s request for fees is attributed to legal work completed during the pendency of the Chapter 11 proceedings. Four Hundred Seventy Two and 50/100 Dollars ($472.50) of the professional fee request is attributable to work completed during the pendency of the Chapter 7 proceeding. Neither the Trustee’s nor RTC’s Response raise an objection to the determination of said fees as an administrative priority expense under 11 U.S.C. §§ 503 and 507.
First Federal Savings dba Resolution Trust Corporation (hereafter “RTC”) is a Creditor, who along with Huron Marine Supply, Debtor, and the U.S. Trustee, filed a Joint Motion seeking an Order granting RTC administrative expenses superiority over other administrative expenses pursuant to Section 364(c)(1) of the Bankruptcy Code. On August 28, 1989, this Court issued an Order granting RTC the first and best lien against all property of the estate; and granting RTC priority administrative status as to its claims arising from advances under the Revolving Credit Agreement, subject only to court costs, professional fees and the fees of the United States Trustee, under 28 U.S.C. § 1930. RTC and the Trustee filed an Application to Compromise which was approved by this Court on March 11, 1993. Prior to Trial, Counsel for RTC filed a Response to Notice Regarding Application for Allowance of Compensation and Expenses by Attorney for Debtor-In-Possession. In response, the Trustee filed a Comment In Response to Resolution Trust Corp.
*454
LAW
The relevant portions of the Bankruptcy Code are as follows:
11 U.S.C. § 364. Obtaining credit.
(c) If the trustee is unable to obtain unsecured credit allowable under section 503(b)(1) of this title as an administrative expenses, the court, after notice and a hearing, may authorize the obtaining of credit or the incurring debt—
(1) with priority over any or all administrative expenses of the kind specified in section 503(b) or 507(b) of this title;
11 U.S.C. § 503. Allowance of administrative expenses.
(a) An entity may file a request for payment of an administrative expense.
(b) After notice and a hearing, there shall be allowed administrative expenses, other than claims allowed under section 502(f) of this title, including—
(4) reasonable compensation for professional services rendered by an attorney or an accountant of an entity whose expense is allowable under paragraph (3) of this subsection, based on the time, the nature, the extent, and the value of such services, and the costs of comparable services other than in a case under this title, and reimbursement for actual, necessary expenses incurred by such attorney or accountant.
11 U.S.C. § 507. Priorities
(a) the following expenses and claims have priority in the following order:
(1) First, administrative expenses allowed under section 503(b) of this title, and any fees and charges assessed against the estate under chapter 123 of title 28 [28 USC §§ 1911 et seq.].
DISCUSSION
Neither the Trustee nor RTC have raised any issues regarding the reasonableness of Attorney Schlachet’s fees or expenses; or the classification of said fees and expenses as a priority administrative expense. Therefore the sole issue before this Court is the source of payment for Mr. Schla-chet’s fees and expenses. Since the issue to be resolved in the instant case involves the administration of Debtor’s estate, it is a core proceeding under 28 U.S.C. § 157(b)(2)(A).
RTC argues that under the Compromise, the Trustee is the only professional authorized to retain reasonable costs and expenses incurred during the administration of the Chapter 7 proceeding from the Fifty Five Thousand and 00/100 Dollars retained. Since most of the expenses were incurred during the pendency of the Chapter 11 case, none of the professional fees requested by Mr. Schlachet should be paid from funds to which RTC is entitled. In response, the Trustee argues that RTC is responsible for payment of professional fees, court costs and fees of the United States Trustee, all pursuant to the Order filed on August 28,1992. According to the Trustee, the money which he has retained is for the sole benefit of the unsecured creditors.
This Court agrees that under the Compromise, which is an agreement between the Trustee and Counsel for RTC, there is no provision which can be interpreted as a basis for compensation to Mr. Schlachet. Under the terms of the Compromise, the Trustee shall retain Fifty-Five Thousand Dollars ($55,000.00) to be distributed according to the priorities established under the Bankruptcy Code. In addition, the Trustee shall retain a commission as computed under 11 U.S.C. Section 326 of the Bankruptcy Code, and any expenses incidental thereto, subject to the approval of the Bankruptcy Court. The Compromise also provides that the Trustee shall retain the reasonable costs and expenses of administration incurred by the Trustee during the administration of the Chapter 7 proceeding, including but not limited to attorney fees, expenses and costs, subject to the approval of the Bankruptcy Court. Any balance of the funds on hand shall be paid over to RTC in recognition and extinguishment of its lien and claims against Debtor. RTC has reserved the right to review, discuss or object to all applications for approval of commissions under 11 U.S.C. § 326, expenses incidental thereto, and expenses *455and costs of administration incurred by the Trustee.
The plain language of the Compromise specifically entitles the Trustee to retain his reasonable expenses; his expenses incurred while acting as attorney for the Trustee; and his costs incurred while administering the estate, all subject to Court approval. RTC reserves the right to review and discuss with the Trustee all applications for commissions and expenses incidental thereto; Trustee’s costs and expenses; or file appropriate objections. The Compromise does not appear to include terms for compensation for any other professional service. However, Mr. Schlachet did perform 3.15 hours of professional services after the conversion of this case to a Chapter 7 proceeding. Since neither the Trustee nor Counsel for RTC have objected to the reasonableness of Mr. Schlachet’s hourly rate; the hours of professional services performed; or the classification of the fee as an administrative priority expense, this Court finds that Mr. Schlachet is entitled to compensation for professional services rendered during the Chapter 7 case in the amount of Four Hundred Seventy Two and 50/100 Dollars ($472.50). This award is an administrative priority expense which should be paid from the Fifty Five Thousand and 00/100 Dollars ($55,000.00) retained by the Trustee.
During the pendency of the Chapter 11 case, Mark Schlachet and Counsel for RTC entered into an agreement which was journalized on August 28, 1989. Paragraph (h) of the Order reads as follows:
“First Federal is granted a priority administrative status as to the claims of First Federal arising from advances under the Revolving Credit Agreement and incurred in this proceeding, which sum shall not exceed $75.000 (sic), subject only to Court costs, professional fees and the fees of the United States Trustee, under 28 U.S.C. § 1930.”
The Order is ambiguous with respect to what professional fees shall be paid by First Federal (RTC). However, this Court is convinced by Mr. Schlachet’s participation in the Joint Motion; and the plain language of the agreement, that the parties intended for Mr. Schlachet to receive the balance (total fees minus the retainer) of any professional fees incurred in the Chapter 11 proceeding from First Federal’s claim. Under the terms of the Order dated August 28, 1989, Mr. Schlachet’s administrative priority claim of Four Thousand Six Hundred Thirty Seven and 50/100 Dollars ($4,637.50) in fees and Four Hundred Sixty Six and 34/100 Dollars ($466.34) in expenses, should be paid out of First Federal’s claim.
In reaching the conclusion found herein, the Court has considered all of the evidence, exhibits and arguments of counsel, regardless of whether or not they are specifically referred to in this Opinion.
Accordingly, it is
ORDERED that the Application of Mark Schlachet for Allowance of Fees/Expenses be, and is hereby, APPROVED; that Four Thousand Six Hundred Thirty Seven and 50/100 Dollars ($4,637.50) in professional fees and Four Hundred Sixty Six and 34/100 Dollars ($466.34) in expenses shall be paid to Mark Schlachet by First Federal aka RTC; that Four Hundred Seventy Two and 50/100 Dollars ($472.50) shall be paid by the Trustee to Mark Schlachet for professional services rendered in the Chapter 7 case; and that the allowed fees and expenses are allowable administrative priority claims under 11 U.S.C. §§ 503 and 507.
NUNC PRO TUNC MEMORANDUM OPINION AND ORDER
This cause comes before the Court sua sponte for the purpose of correcting the amount of allowable attorney fees in paragraph one (1) of the Memorandum Opinion and Order issued on August 12, 1993.
For good cause shown, it is
ORDERED that the first paragraph of this Court’s Memorandum Opinion and Order of August 12, 1993 be, and is hereby, modified as if fully rewritten, in the following manner: Mark Schlachet’s Application for Allowance of Fees/Expenses in the total amount of Five Thousand Five Hundred *456Seventy-six and 34/100 Dollars ($5,576.34) should be allowed; that fees totaling Four Thousand Six Hundred Thirty-seven and 50/100 ($4,637.50) and expenses totaling Four Hundred Sixty-six and 34/100 Dollars ($466.34) should be paid by RTC pursuant to this Court’s Order of August 28, 1989; and that fees totaling Four Hundred Seventy-two and 50/100 Dollars ($472.50) are deemed an administrative priority to be paid by the Trustee. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491722/ | MEMORANDUM OF DECISION
ALFRED C. HAGAN, Chief Judge.
The Idaho State Bar (“ISB”) has moved for a declaratory judgment to the effect the section 362 automatic stay does not prevent the ISB from requiring payment of $10,256.17 from the debtor before the debt- or’s application for reinstatement as an attorney will be considered. For the reasons stated in this memorandum, it is concluded the ISB cannot require payment of the *494$10,256.17 as a condition to the reinstatement proceeding. Such a requirement violates both the antidiscrimination provisions of 11 U.S.C. § 525 and the automatic stay of 11 U.S.C. § 362.
For the purpose of better understanding the issues raised by the motion the following factual history concerning this controversy is noted.
The debtor previously filed a chapter 13 petition in this Court on November 13, 1989. That ease was converted to a chapter 11 case on February 20, 1990, and then converted to a chapter 7 case on January 7, 1991. The debtor obtained a discharge under chapter 7 on January 28, 1992. The present chapter 13 petition was filed on March 19, 1993.
The debtor was a licensed attorney suspended from the practice of law by order of the Idaho Supreme Court on July 27, 1990. That order provided certain requirements were to be met by the debtor before he would be eligible for reinstatement, including payment of the costs and expenses of the disciplinary proceeding.
The time requirements for application for reinstatement as contained in the order have now apparently been met. The debt- or opposes the validity of the eligibility requirement of payment of the costs and expenses because of the fact he is now a debtor under chapter 13 of Title 11 of the United States Code. The debtor is claiming the costs and expenses constitute a general unsecured claim for which the ISB can file a claim in this case, and that the payment conditions violate 11 U.S.C. § 362 and 11 U.S.C. § 525.
The crux of the issue is whether the ISB is prohibited by 11 U.S.C. § 362 or 11 U.S.C. § 525 from requiring payment before considering the reinstatement and whether the ISB can delay consideration of the debtor’s application for reinstatement if the costs and expenses are not paid.
While the prior chapter 7 case was being administered, the debtor had applied to the ISB for reinstatement. The ISB would not consider the application until - the costs were paid. The debtor then petitioned this Court for a ruling that the ISB and the Bar Counsel, Michael J. Oths, had violated the section 362 automatic stay by demanding payment of the costs and expenses as a condition to the reinstatement. Judge Pap-pas held the stay had not been violated. In re Williams, 158 B.R. 488 (Bankr.D.Idaho, Memorandum of Decision (Re: Idaho State Bar), Pappas, J., 1993).
Judge Pappas concluded the ISB was not violating the section 362 stay by requiring the debtor to pay the costs and expenses since the costs and expenses were nondis-chargeable debts under the provisions of section 523(a)(7), and the exception afforded by section 362(b)(4)1 to section 362(a)(1)2 was applicable. The issues in this motion present a somewhat modified version of the same question in the chapter 13 context.
Williams’ contentions and arguments can be synopsized into three categories:
*4951. The stay is in effect under the provisions of section 362(a)(1) as the “continuation ... of a[n] ... administrative ... proceeding against the debtor that was or could have been commenced before the commencement of the case”;
2. The stay is in effect under the provisions of section 362(a)(3) as an “act to obtain possession of property of the estate or of property from the estate”; and
3. The proscription of 11 U.S.C. § 5253 is applicable.
The decision of Judge Pappas in the debt- or’s previous chapter 7 ease disposed of the first contention.4 The decision held the stay was not in effect under section 362(a)(1) since section 362(b)(4) allows “continuation of an action or proceeding by a governmental unit to enforce such governmental unit's police or regulatory power." See Williams, supra, at 491.
The ISB contends sections 362(b)(4) and (5) remove the reinstatement proceedings, and the collection of the costs and expenses, from the protection of the section 362 automatic stay. Without further discussing these contentions, Judge Pappas’ decision held, in the chapter 7 context, the action of the ISB was not violative of the section 362(a)(1) stay provision. The same would be true in a chapter 13 case.
The nature of this case, however, as a chapter 13 case also interjects other issues not present in the chapter 7 case. Those issues are, primarily, (1) the fact the ISB claim is a dischargeable debt under chapter 13, and (2) the fact the debt would be paid from property of the estate in the chapter 13 process, thus involving the provisions of sections 362(a)(3) and (b)(5).
Section 525 prohibits a governmental unit from refusing to renew the license of a person in bankruptcy solely because the person has not paid a dis-chargeable prepetition debt. 11 U.S.C. § 525(a). The ISB contends it is entitled to refuse to grant the debtor a hearing on renewal of his suspended license to practice law for the sole reason that the costs and expenses of the disciplinary hearing remain unpaid. The ISB is a governmental unit. Williams, supra, at 490-91. The assessment of costs and expenses is a debt. Williams, supra, at 490 (holding that the costs and expenses were a “claim” potentially subject to discharge); 11 U.S.C. § 101(12) (“debt” is a “liability on a claim”). See also Lugo v. Paulsen, 886 F.2d 602 (3d Cir.1989) (surcharge of $3,000 levied prepetition against driver convicted of drunk driving, and which was enforceable by suspension of driving privileges, was a debt for the purpose of section 525). What the ISB wishes to deny the debtor is a renewal of a license, i.e., the debtor’s license to practice law in this state.
The final requirement to trigger the antidiscrimination provisions of section 525 is that the debt involved be dischargeable. The discharge provisions of 11 U.S.C. § 524(a)(1)5 apply to the ISB claim in a chapter 13 case. This is in contrast to a chapter 7 case, where a statutory exception to discharge of the ISB claim exists by way of 11 U.S.C. § 523(a)(7).6 The ISB claim is *496therefore dischargeable, although it has not yet been discharged. Thus, because of the broad dischargeability provisions afforded a chapter 13 debtor, the antidiscrim-ination provisions of 11 U.S.C. § 525 are applicable.
It would further appear the section 362 automatic stay is in effect under the provisions of section 362(a)(3) and (b)(5). Even if section 525 did not prohibit the ISB from conditioning the hearing on payment of the costs and expenses, the ISB would need relief from the stay to condition reinstatement upon such payment. As Judge Pappas has already held, governmental actions that would otherwise be barred under section 362(a)(1) are exempt from the automatic stay under the police or regulatory powers exemption of section 362(b)(4). See discussion supra. However, by its express terms the section 362(b)(4) exemption applies only to those actions falling within subsection (a)(1); it has no relevance to subsection (a)(3). Moreover, while subsection (b)(5) provides an exemption to the automatic stay for enforcement of a judgment obtained to enforce a governmental unit’s police or regulatory power, it expressly excludes monetary judgments.7 “[T]he effect of that section is to prevent a governmental unit from enforcing a money judgment, even if that judgment is obtained in the exercise of the unit’s police or regulatory power.” Wade, supra, 115 B.R. at 229. The ISB’s refusal to permit the hearing to go forward is both an “act to obtain possession of property of the estate” in violation of subsection (a)(3) (the property here being future income), and an attempt to enforce a money judgment in violation of subsection (b)(5). In Wade, supra, the Bankruptcy Appellate Panel proscribed any attempt by the Arizona State Bar to exact any funds from the debtor in disciplinary proceedings even though the funds were due as a result of the exercise of the Bar’s authority as a governmental unit.8
The time issue involved in this controversy is deserving of comment. The ISB is justified in bringing this motion for a declaratory ruling before making a decision to deny the debtor a hearing unless the costs and expenses were paid. Thus, this decision will not be interpreted as concluding the ISB has violated the section 362 automatic stay or the provisions of section 525 by not affording the debtor an unconditional hearing. It is noted the debtor’s chapter 13 plan has not yet been confirmed. Given this fact, and the circumstances in this case, particularly the record of multiple bankruptcy filings by the debtor, the ISB should not be required to afford the debtor an unconditional hearing unless the debtor obtains confirmation of a chapter 13 plan. Accordingly, under the authority of 11 U.S.C. § 105, the ISB will be relieved from affording the debtor an unconditional hearing until either the debtor achieves confirmation of a chapter 13 plan, or this Court otherwise directs.
CONCLUSION
It is thus concluded both the antidiscrimi-nation provisions of 11 U.S.C. § 525 and the automatic stay provisions of 11 U.S.C. § 362 preclude the ISB from withholding consideration of the debtor’s reinstatement application conditioned upon payment of the ISB’s costs and expenses of the disci*497plinary proceeding. In this particular case, this conclusion and order will be deemed applicable only if the debtor obtains confirmation of a chapter 13 plan.
A separate order will be entered.
. 11 U.S.C. § 362(b)(4) provides:
(b) The filing of a petition under section 301, 302, or 303 of this title, or of an application under section 5(a)(3) of the Securities Investor Protection Act of 1970 (15 U.S.C. 78eee(a)(3)), does not operate as a stay—
******
(4) under subsection (a)(1) of this section, of the commencement or continuation of an action or proceeding by a governmental unit to enforce such governmental unit's police or regulatory power; ....
11 U.S.C. § 362(b)(4).
. 11 U.S.C. § 362(a)(1) provides:
(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title, or an application filed under section 5(a)(3) of the Securities Investor Protection Act of 1970 (15 U.S.C. 78eee(a)(3)), operates as a stay, applicable to all entities, of—
(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title; ....
11 U.S.C. § 362(a)(1).
. 11 U.S.C. § 525 provides in its relevant part:
(a) [A] governmental unit may not deny, revoke, suspend, or refuse to renew a license ... to ... a person that is or has been a debtor under this title ... solely because such bankrupt or debtor ... has not paid a debt that is dischargeable in the case under this title....
11 U.S.C. § 525(a).
. Following Wade v. State Bar of Arizona, (In re Wade), 115 B.R. 222 (9th Cir.B.A.P.1990), aff’d, 948 F.2d 1122 (9th Cir.1991).
. 11 U.S.C. § 524(a)(1) provides:
(a) A discharge in a case under this title—
(1) voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability of the debtor with respect to any debt discharged under section 727, 944, 1141, 1228, or 1328 of this title, whether or not discharge of such debt is waived; ....
11 U.S.C. § 524(a)(1).
.11 U.S.C. § 523(a)(7) provides in its relevant part:
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does *496not discharge an individual debtor from any debt—
******
(7) to the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss.....
11 U.S.C. § 523(a)(7). This section omits a discharge under section 1328(a), to which a debtor would be entitled on successful completion of a chapter 13 plan.
. In its relevant part, subsection (b)(5) exempts from the automatic stay "the enforcement of a judgment, other than a money judgment, obtained in an action or proceeding by a governmental unit to enforce such governmental unit’s police or regulatory power.” 11 U.S.C. § 362(b)(5).
. The opinion states:
"[S]hould the Bar attempt to enforce any money judgment it obtains for restitution or otherwise, such efforts would not be excepted from the stay.”
115 B.R. at 231. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491723/ | SUMMARY ORDER
JIM D. PAPPAS, Chief Judge.
Trustee’s Objection to Claim of Bailey Oil Co., Inc. (Bailey Oil) and Bailey Oil’s Motion to Allow Late Filed Claim are before the Court on an uncontroverted set of facts. The issue presented is a question of law which will be addressed herein.
Idaho Norland Corporation filed for Chapter 7 relief on August 21, 1991. On August 23 the Clerk’s Office sent a Notice of the Commencement of the Case and Meeting of Creditors to the creditors listed on the mailing matrix, which included Bailey Oil. Contained in the Notice was the January 5, 1992 “Deadline to File a Proof of Claim.” Bailey Oil contacted counsel for representation but as a result of counsel’s “inadvertence and/or neglect” the proof of claim for Bailey Oil was not filed until January 13, 1992, which is admittedly untimely. Bailey Oil filed a Motion to Allow Late Filed Claim based in part on the Supreme Court case of Pioneer Investment Services Co. v. Brunswick Associates Limited, — U.S. —, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993), which it argues is applicable to claims not timely filed in a Chapter 7 because of “excusable neglect.”
“Rule 9006 confers discretion upon the bankruptcy court to permit acts to be performed after the expiration of [a] time limit if the offending party’s motion demonstrates the lateness was the result of ‘excusable neglect.’ ” In re Hill, 811 F.2d 484, 486 (9th Cir.1987). The Supreme Court in Pioneer Investment held that the “ ‘excusable neglect” standard of Rule 9006(b)(1) governs late filings of proofs of claim in Chapter 11 cases. However, the problem with applying the “excusable neglect” standard to Chapter 7 cases is twofold.
To begin with, the Supreme Court in dicta in Pioneer Investment explains that the “excusable neglect” standard should not apply in Chapter 7 cases. Pioneer Investment, — U.S. at —, 113 S.Ct. at 1495. Second, the Supreme Court’s reasoning is based upon a reading of the Bankruptcy Rules themselves. Rule 9006(b)(3) forecloses the application of the “excusable neglect” standard under certain bankruptcy rules. Included in the rules listed in Rule 9006(b)(3) is Rule 3002(c) which governs the time for filing a proof of claim in a *498Chapter 7 liquidation case. As such, “[t]he court may enlarge the time for taking action under Rule[ ] ... 3002(c), ... only to the extent and under the conditions stated in [that] rule[ ].” F.R.B.P. 9006(b)(3). “Rule 9006(b) plainly allows an extension of the 90-day time limit established by Rule 3002(c) only under the conditions permitted by Rule 3002(c). Rule 3002(c) identifies six circumstances where a late filing is allowed and excusable neglect is not among them. Thus, the 90-day deadline for filing claims under Rule 3002(c) cannot be extended for excusable neglect.” In re Coastal Alaska Lines, Inc., 920 F.2d 1428, 1432 (9th Cir.1990). The Supreme Court’s decision in Pioneer Investment does not compel a different result. Cf. In re Gordon, 988 F.2d 1000 (9th Cir.1993) (Court held that the Supreme Court’s decision in Pioneer Investment did not compel that excusable neglect may enlarge the time for taking action under Rule 4007(c) which, like Rule 3002(c), is a rule enumerated in 9006(b)(3)).
Accordingly, IT IS HEREBY ORDERED that Bailey Oil’s Motion to Allow Late Filed Claim is DENIED; the Trustee’s Objection to Claim of Bailey Oil is SUSTAINED; the claim is disallowed as a timely filed claim, but is allowed as a tardily filed claim pursuant to 11 U.S.C. § 726(a)(3). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491724/ | ORDER CONDITIONALLY GRANTING MOTION TO SUBSTANTIVELY CONSOLIDATE
A. JAY CRISTOL, Bankruptcy Judge.
THIS CAUSE was heard June 14, 1993 upon the “Joint Motion For Order Pursuant to Federal Rule of Bankruptcy Procedure 1015 And 11 U.S.C. § 105 Granting Substantive Consolidation of All The Debtors’ Estates” filed by Bank of America, N.T. & S.A. and the Federal Deposit Insurance Corporation, as Receiver for First American Bank and Trust.1 At the outset, the Court notes that although the Movants *524seek to substantively consolidate all of the Debtors’ estates for traditional reasons, such as reducing administrative expenses, their primary purpose is to effect a reduction of the amount of Chase Manhattan Bank, N.A.’s (“Chase”) unsecured claim. The Law will permit the consolidation to save administrative expenses but will not reduce the claims.
FACTS
On June 4, 1992, the United States District Court for the Southern District of New York entered an order granting summary judgment in favor of Chase and against many of the Debtors with respect to certain promissory notes and guaranties that were given to Chase from these Debtors. A judgment based upon that order was entered July 21, 1992. Based upon this judgment, Chase filed proofs of claim against the estates of a majority of the Debtors.
On June 19, 1992, the first group of Cenvill Development Corporation’s (“CDC”) subsidiaries and partnerships (collectively, the “F.W.D.C. Debtors”)2 filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. Thereafter, on August 10, 1992, another group of CDC’s subsidiaries and partnerships (collectively, the “Chase Debtors”)3 filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. Finally, on August 12, 1992, CDC itself and other of its subsidiaries (collectively, the “Cenvill Debtors”)4 filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. When discussed in the aggregate, the F.W.D.C. Debtors, the Chase Debtors, and the Cen-vill Debtors are collectively referred to herein as the “Debtors”.
On September 8, 1992 and September 9, 1992, this Court granted Chase relief from the automatic stay in order to continue with a foreclosure action pending against Cenvill Properties, Inc., Wynmoor Investments, Inc., Boca — Hamptons Investments, Inc. and the Chase Debtors in the Circuit Court in and for Palm Beach County, Florida. On August 5, 1992, the Florida state court entered a Final Judgment of Foreclosure.
On February 5, 1993, this Court entered an order substantively consolidating the estates of the F.W.D.C. Debtors and the Cen-vill Debtors (collectively, the “Previously Consolidated Debtors”). As a result of this Court’s entry of this order, Chase’s claims against the F.W.D.C. Debtors and the Cen-vill Debtors were merged into one claim against the estate of the Previously Consolidated Debtors. However, since the Chase Debtors were specifically not included within that order, Chase continues to have individual claims against the estates of each of the Chase Debtors.
On September 14, 1993, the foreclosure sale was held. Pursuant thereto, Chase received title to the Chase Debtors’ collateral, worth approximately $45 million, that secured their indebtedness of approximately $63 million. Currently, the Chase Debtors’ estates contain virtually no assets and the Previously Consolidated Debtors’ estate contains assets worth approximately $4 million.
LEGAL ANALYSIS
The Eleventh Circuit Court of Appeals recently set forth the following standard for determining whether substantive consolidation is warranted:
The purpose of substantive consolidation is to insure the equitable treatment of all creditors. * * * * * * * * * It *525is agreed that the basic criterion by which to evaluate a proposed substantive consolidation is whether the economic prejudice of continued debtor separateness outweighs the economic prejudice of consolidation. In other words, a court must conduct a searching inquiry to insure that consolidation yields benefits offsetting the harm it inflicts on objecting parties.
The D.C. Circuit has elaborated a standard, which we adopt today, by which to determine whether to grant a motion for substantive consolidation. Under this standard, the proponent of substantive consolidation must show that (1) there is substantial identity between the entities to be consolidated; and (2) consolidation is necessary to avoid some harm or to realize some benefit. When this showing is made, a presumption arises that creditors have not relied solely on the credit of one of the entities involved. Once the proponent has made this prima facie case for consolidation, the burden shifts to an objecting creditor to show that (1) it has relied on the separate credit of one of the entities to be consolidated; and (2) it will be prejudiced by substantive consolidation. Finally, if an objecting creditor has made this showing, the court may order consolidation only if it determines that the demonstrated benefits of consolidation heavily outweigh the harm.
Eastgroup Properties v. Southern Motel Assoc., Ltd., 935 F.2d 245, 248-49 (11th Cir.1991) (internal quotation marks and citations omitted).
The Movants argue, in sum, that the Chase Debtors should be substantively consolidated with the Previously Consolidated Debtors since:
1) there is a substantial identity between the entities to be consolidated;
2) such consolidation would prevent Chase from asserting an “inequitably” large claim against the Previously Consolidated Debtors.5
3) administrative costs would be reduced by requiring only one disclosure statement and plan as opposed to six (Previously Consolidated Debtors + 5 separate Chase Debtors);
4) there are significant intercompany obligations and the financial records are so poor and complex that it would be unreasonably expensive to determine who owes what to whom; and
5) Chase relied on the Debtors as an entity and not on the Chase Debtors individually.
Chase argues, in sum, that the Chase Debtors should not be substantively consolidated with the Previously Consolidated Debtors since:
1) if granted unconditionally, such consolidation would “inequitably” reduce Chase’s claim against the Previously Consolidated Debtors.6
2) harm, in the form of additional administrative expenses, would be realized by having to reformulate the Previously Consolidated Debtors’ previously approved disclosure statement and plan;
3) no benefit would be realized since the Chase Debtors have no assets;
4) the entanglement of the intercompany obligations is irrelevant as to whether the Chase Debtors should be substantively consolidated with the Previously Consolidated Debtors since — a) the Chase Debtors listed all of their intercompany obligations on their schedules as unliqui-dated, b) none of the Previously Consolidated Debtors have filed timely proofs of claim with regard to these intercompany obligations in any of the Chase Debtors’ cases and c) therefore, none of the Previously Consolidated Debtors have inter-company claims against any of the Chase Debtors (See 11 U.S.C. § 1111(a) & Fed. R.Bankr.P. 3003(c)(2)); and
5) Chase relied on the Chase Debtors individually and not on the Debtors as an entity.
In order to make out a prima facie case for substantive consolidation, “the proponent of substantive consolidation must *526show that (1) there is substantial identity between the entities to be consolidated; and (2) consolidation is necessary to avoid some harm or to realize some benefit.” Id. Chase does not dispute the Movants’ argument that there is a “substantial identity” between the Previously Consolidated Debtors and the Chase Debtors. Chase does, however, dispute the Movants’ argument that such “consolidation is necessary to avoid some harm or to realize some benefit.”
As mentioned at the outset of this opinion, the Movants’ primary purpose, and alleged benefit of substantive consolidation, is to reduce the amount of Chase’s “inequitably” large claim against the Previously Consolidated Debtors. Such claim reduction would not be caused in the typical fashion, that is, as a result of varying debt to asset ratios among the entities to be consolidated. Rather, it is founded upon a legal argument (analyzed below) as to the amount of Chase’s claim against the Debtors as they now exist (individually) as opposed to if all of the Debtors were substantively consolidated. Chase argues that if all of the Debtors were unconditionally7 consolidated that instead of having one claim against the Chase Debtors for approximately $48 million ($63 million original indebtedness less $45 million collateral realized) and another claim against the Previously Consolidated Debtors for approximately $63 million, its claims would be merged into one claim against all of the Debtors for $18 million. Chase argues that such merger would inequitably require it to reduce its single claim against the newly consolidated debtor to reflect its receipt of the collateral from the newly consolidated debtor.8 The Movants argue that Chase’s claim against the Previously Consolidated Debtors is not $63 million but $18 million.
The Movants have presented a pri-ma facie case under the Eastgroup standard. The savings in administrative costs by having one disclosure statement and plan instead of six9 is of sufficient benefit to all of the Debtors’ creditors. However, the Court will condition10 the substantive consolidation to preserve the amount (determined below) of Chase’s claim against the Previously Consolidated Debtors. Otherwise, Chase would be prejudiced by substantive consolidation.
The primary issue raised by the instant motion to consolidate concerns the amount of Chase’s claim against the Previously Consolidated Debtors. Chase argues that, as a matter of law, it does not have to reduce its claim against the Previously Consolidated Debtors, as guarantors on certain loans to the Chase Debtors, to reflect its receipt of the Chase Debtors’ collateral securing the Chase loans. The Mov-ants argue that to not require Chase to reduce its claim against the Previously Consolidated Debtors to reflect its receipt of the Chase Debtors’ collateral is incorrect as a matter of law and equity. Thus, the issue presented is whether a claim against a debtor-guarantor (the Previously Consolidated Debtors) must be reduced to reflect a creditor’s receipt of a third party’s (the Chase Debtors) collateral securing the third party’s indebtedness guaranteed by the debtor.
*527Chase relies on a long line of cases decided under the Bankruptcy Act of 1898 (the “Act”), particularly Ivanhoe Bldg. & Loan Ass’n v. Orr, 295 U.S. 243, 245, 55 S.Ct. 685, 686, 79 L.Ed. 1419 (1935), in support of its legal proposition that a claim against a debtor-guarantor (the Previously Consolidated Debtors) need not be reduced to reflect a creditor’s receipt of a third party’s (the Chase Debtors) collateral securing the third party’s indebtedness guaranteed by the debtor.11 See also Reconstruction Fin. Corp. v. Denver & Rio Grande W. R.R. Co., 328 U.S. 495, 529, 66 S.Ct. 1282, 1300, 90 L.Ed. 1400 (1946) (“The rule is settled in bankruptcy proceedings that a creditor secured by the property of others need not deduct the value of that collateral or its proceeds in proving his debt. Ivanhoe Bldg. & L. Asso. v. Orr ... ”). In Ivanhoe the Supreme Court stated that its
[djeeision must be governed by the relevant provisions of the Bankruptcy Act. The definition found in § 1(23) is:
“ ‘Secured creditor’ shall include a creditor who has security for his debt upon the property of the bankrupt of a nature to be assignable under this Act, or who owns such a debt for which some indor-ser, surety, or other persons secondarily liable for the bankrupt has such security upon the bankrupt’s assets.”
Section 57(e) directs that
“Claims of secured creditors ... shall be allowed for such sums only as to the courts seem to be owing over and above their securities ...”
Unless the petitioner was a secured creditor as defined by § 1(23) it was not bound to have its security or the avails thereof valued and to prove only for the difference between that value and the face amount of the debt. Petitioner does not come within the definition, for at the date of bankruptcy it held no security against the bankrupt company’s property, nor security given by any other person who in turn was secured by the bankrupt’s assets. Sections 1(23) and 57(e) do not, therefore, forbid the proof of a claim for the principal of the bond with interest, though the petitioner may not collect and retain dividends which with the sum realized from the foreclosure will more than make up that amount.
Ivanhoe, 295 U.S. at 245-46, 55 S.Ct. at 686-87 (ellipses supplied & footnotes omitted).
The Movants argue that this line of case law is no longer applicable or controlling since:
1) it was decided under the Act based upon the Act’s narrow definition of “secured creditor”, a term which is not defined in the Bankruptcy Code;
2) the Bankruptcy Code focuses on secured “claims” as opposed to the Act’s focus on secured “creditors”; and
3) the sections of the Act upon which this case law relied has been displaced by § 506(a)12 of the Bankruptcy Code which requires that a claim against a debtor-guarantor (the Previously Consolidated Debtors) be reduced to reflect a creditor’s receipt of a third party’s (the Chase Debtors) collateral securing the third party’s indebtedness guaranteed by the debtor.
The Court is not persuaded by the Mov-ants’ arguments and agrees with Chase *528that this line of case law is still applicable and controlling despite its basis in the Act since:
1) the comparable portions of the Act (discussed in Ivanhoe) and Bankruptcy Code (11 U.S.C. § 506(a)) have the same effect; and
2) the Movants, unlike Chase, have not cited any case law supporting their position.
Thus, had the Court not, herein, substantively consolidated the Previously Consolidated Debtors with the Chase Debtors, Chase would have been allowed to prove a claim for the full amount of the indebtedness against the Previously Consolidated Debtors, as guarantors, without deducting the value of the Chase Debtors’ collateral securing such indebtedness to reflect its receipt thereof. As stated earlier, the Court granted the Movants’ motion to substantively consolidate subject to the condition that the amount of Chase’s claim against the newly consolidated debtors shall be preserved and otherwise remain unaffected. Therefore, Chase shall be allowed to prove the full amount of its indebtedness, without reduction of its claim to reflect its receipt of the Chase Debtors’ collateral securing such indebtedness, against the newly consolidated debtors.
Finally, it must be emphasized that although the Court is herein allowing a creditor to prove the total amount of an indebtedness against a guarantor-debtor without deducting the amount of collateral received from a third party, that such creditor may not collect more than the total amount of the indebtedness. Thus, if a creditor received collateral of a third party worth $8 million securing the third party’s indebtedness of $10 million and the guarantor of this $10 million indebtedness were in bankruptcy, such creditor would be allowed to prove a claim of $10 million but would not be allowed to realize more than $2 million. In the instant case, such potential for collecting more than the total amount of the indebtedness is not a problem since the estate of the newly consolidated debtors contains assets worth approximately $4 million and Chase’s deficiency claim is approximately $18 million. Accordingly, it is
ORDERED that
1) the “Joint Motion For Order Pursuant to Federal Rule of Bankruptcy Procedure 1015 And 11 U.S.C. § 105 Granting Substantive Consolidation of All The Debtors’ Estates” filed by Bank of America, N.T. & S.A. and the Federal Deposit Insurance Corporation, as Receiver for First American Bank and Trust is granted and all of the Debtors shall be substantively consolidated; the “Chase Debtors”, which consist of South Trail Plaza Associates, Eau Gallie Boulevard Associates, East Bay Properties, Flamingo West Properties, Inc. and Royal Palm Homes, Inc. shall be substantively consolidated with the “Previously Consolidated Debtors”.
2) Chase Manhattan Bank, N.A. need not deduct the value of the Chase Debtors’ collateral foreclosed upon by Chase on September 14, 1993 from the amount of the claims which it may prove against the newly consolidated debtors, for purposes of computing the total Chase claims. Chase must give credit against payment for any payments received to the extent that Chase shall not collect more than the total amount due.
DONE AND ORDERED.
. By letter agreement dated July 17, 1992 entered into between the Debtors and Chase Manhattan Bank, N.A., the Debtors agreed not to seek substantive consolidation of the estates of the "Chase Debtors” (defined below) with any of the other Debtor entities. Thus, the Debtors were unable to make the instant motion. The Debtors do, however, support it.
. The F.W.D.C.' Debtors consist of F.W.D.C., Inc., Cenvill Properties, Inc., F.W. Holding, Winky Real Estate, Inc., Preston, Inc., Wynville Realty, Inc., Centers in the Parc, Inc., CVW Limited Partnership, Inc. and Wynmoor Limited Partnership.
. The Chase Debtors consist of South Trail Plaza Associates, Eau Gallie Boulevard Associates, East Bay Properties, Flamingo West Properties, Inc. and Royal Palm Homes, Inc.
.The Cenvill Debtors consist of CDC, Boca Cen-Prop, Inc., Boca Hamptons Investment, Inc., Wynmoor Investment, Inc., First American Equity Polo Corporation, First American Equity Corporation, Seagrass Properties, Inc., Cenvill Contractors, Cenvill Illinois Corporation and Carillon Cablevision, Inc.
. This argument is explained below.
. See f.n. # 5.
. The Court has authority to conditionally grant a motion for substantive consolidation where equity so dictates as indicated by Eastgroup in the first quoted paragraph of this order and as stated in In re Parkway Calabasas, 89 B.R. 832, 837 (Bankr.C.D.Cal.1988) aff'd 949 F.2d 1058 (9th Cir.1991) and In re Giller, 962 F.2d 796, 799 (8th Cir.1992).
. This last argument, of course, assumes that Chase’s legal argument with regard to the amount of its claim against the Previously Consolidated Debtors is correct.
. An idea which was not suggested is the substantive consolidation of the 5 Chase Debtors, which would require only 2 disclosure statements and plans. With regard to these administrative costs, the difference in the benefit of consolidating all of the Debtors versus the 5 Chase Debtors would not be as significant. This is because the Court previously approved the Previously Consolidated Debtors' disclosure statement and plan, both of which will have to be reworked if all of the Debtors are consolidated.
. See f.n. # 7.
. Chase cites In re Coastland Chrysler Plymouth, Inc., 76 B.R. 212 (Bankr.S.D.Fla.1987) (Britton, J.), as support for the continued validity of its proposition under the Bankruptcy Code. This case, however, is not on point. In Croteau, a bank filed a claim against a debtor to which the trustee objected. The trustee argued that 11 U.S.C. § 509(c) required the bank to reduce its claim to reflect its receipt of a partial reimbursement from its insurer. The Croteau court refused to interpret § 509(c) this way and allowed the full amount of the banks claim. The Croteau court did not directly address the broad issue before this Court since its focus was the interpretation of § 509(c). Moreover, no case has cited Croteau for Chase’s proposition.
. Section 506(a) of the Bankruptcy Code provides:
An allowed claim of a creditor secured by a lien on property in which the estate has an interest ... is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property ... and is an unsecured claim to the extent that the value of such creditor’s interest ... is less than the amount of such allowed claim. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491725/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This ease comes before the Court on a Motion by the Trustee to Impose Sanctions on Debtors’ Attorney, James Hitchcock, for Failure to Comply with Rules Providing for Discovery. The Court has reviewed the *685entire record of this matter. Based upon that review, and for the following reasons, Trustee’s Motion is Denied.
FACTS
Diane W. French, Attorney for Trustee, Bruce C. French (hereafter “Trustee”), filed a Motion For Sanctions against Attorney James Hitchcock (hereafter “Debtors’ Counsel”), for failure to cooperate in discovery. The facts of the case are as follows: On July 27, 1992, the Debtors filed their Petition for Bankruptcy. Prior to filing their petition, on April 28, 1992, Debtors sold two (2) parcels of real property (listed as Plaintiff’s exhibits 2 and 3). The sale of the real estate was not listed in the bankruptcy petition, therefore the Trustee filed a Motion for Examination of the Debtors pursuant to Rule 2004 of the Federal Rules of Bankruptcy Procedure. During the examination, the Debtors indicated that the sold properties were partly secured, and that the proceeds of the sale were used to pay unsecured creditors (e.g. doctors). This fact was also not listed in the bankruptcy petitions. In light of these nondis-closures, the Trustee requested copies of all checks and payments made by the Debtors within one (1) year of the bankruptcy petition. Debtors’ Counsel assured Trustee that the information would be forwarded and that an amendment to the petition would be filed to reflect the accurate state of the case. Trustee claims that Debtors’ Counsel has been contacted on four (4) separate occasions (twice by phone and twice by letter), regarding the checks and payments, and regarding the amended petition. As of the date that the instant Motion was filed, Debtors’ Counsel has failed to provide the requested materials.
The attorney for the Trustee, in her Motion to Sanction, claims that she has incurred expenses in the amount of Seven Hundred Fifty-five Dollars ($755.00) as a direct result of the conduct of Debtors’ Counsel; composed of Fifty-five Dollars for a Court reporter to depose Debtors at the 2004 examination, and Seven Hundred Dollars incurred for Counsel’s time, at a rate of One Hundred Dollars ($100.00) per hour. The issue before the Court therefore, is whether the facts of this case warrant the imposition of sanctions upon Debtors’ Counsel for failure to cooperate with the Trustee in discovery.
DISCUSSION
Rule 7037 of the Federal Rules of Bankruptcy Procedure states that Rule 37 of the Federal Rules Of Civil Procedure governs the imposition of sanctions upon parties who fail to cooperate during discovery. In cases where one party fails to cooperate with the discovery efforts of opposing counsel, counsel seeking discovery must make application upon the appropriate Court to order the noncomplying party to cooperate. Fed.R.Civ.P. 37(a)(1). Failure of the party to comply with the Court Order may result in sanctions against the non-compliant party. Id. at (b)(2). Rule 37, subsection (a) states: “sanctions may be imposed upon a party who has failed to obey an order by the court compelling discovery.” (emphasis added).
The express language of Rule 37 indicates that sanctions for failure to cooperate in discovery, is available after the party in question has failed to comply with an “Order” by the Court compelling such discovery. The Trustee in the present case, is seeking to recover expenses incurred as a direct result of the failure of Debtors’ Counsel to cooperate in discovery efforts. The Trustee did not however, obtain an “Order” by this Court compelling Debtors’ Counsel to comply. The threshold question therefore, becomes whether sanctions can be imposed upon a party for failure to cooperate in discovery, absent an Order by the Court compelling such cooperation. If the Court determines that sanctions can be imposed, then a determination of what sanctions are allowable under the circumstances of the case is required.
In an unpublished decision, the Ohio Sixth District Court of Appeals held that, absent a ruling by the Ohio Supreme Court on the issue of discovery sanctions, “the flavor of recent rulings indicate that the presence of a Court Order and consequent violation thereof, are ‘important factors’ in *686imposing discovery sanctions.” (emphasis added). Polen v. Young, 1985 WL 7888, *4 (Ohio App.). Although it may be of important consideration for the moving party to obtain an Order compelling discovery, the lack thereof does not bar the imposition of sanctions. Midwest Sportservice, Inc. v. Andreoli, (1981), 3 Ohio App.3d 242, 444 N.E.2d 1050. In addition, the Court in Jackson, stated that the rationale for allowing sanctions without a prior Court Order is that an injured party may be unaware that key discovery has been withheld, and therefore, might not seek an Order to compel discovery. Jackson v. Nissan Motor Corp., 888 F.2d 1391, 1394 (6th Cir.1989). This Court is of the opinion that the lack of a Court Order compelling discovery should not, in and of itself, bar recovery of a moving party. Rather, the Court must look to the individual circumstances of the case to determine whether sanctions are warranted.
The attorney for the Trustee, in her Motion to Sanction, stated that at the conclusion of the 2004 examination of Debtors in January, 1993, she requested documents relating to the sale of certain real property belonging to the Debtors, and payments to non-secured creditors allegedly made by the Debtors prior to filing their petition, but which were not disclosed in the petition. Such documents are relevant and necessary in order for the Trustee to effectively represent the estate. Debtor’s Counsel agreed to forward the requested materials, and in addition to file an amendment to the Debtor’s petition which would include the nondisclosures. Debtors’ Counsel has failed to provide the requested materials. Section EC 7-38 of the Code of Professional Responsibility states that: “... A lawyer should be punctual in fulfilling all professional commitments.” (emphasis added). In the present case, the Trustee has contacted Debtors’ Counsel on four (4) occasions regarding copies of the “checks and payments”, and regarding the amended petition. As of the date of Trustee’s Motion to Sanction, (June 8, 1993), approximately six (6) months after the 2004 examination, Trustee had not received the requested materials.
Debtors’ Counsel indicated in his Motion to Oppose Sanctions, that the Debtors in the present case were extremely difficult to deal with, and that despite several attempts to obtain the requested information regarding the checks and payments, he was unable to secure the requested information. It is the Opinion of this Court that an attorney acting on behalf of a client can only comply with the requests of a third-party to the extent that the client enables the attorney to do so. More often than not, the requests of a third-party require additional information that must be furnished by the client, and requires the cooperation of the client.
In the present case the documents requested by the Trustee were copies of can-celled checks indicating alleged payments to nonsecured creditors prior to the filing of the Debtors’ bankruptcy petition. These documents are among the personal property of the Debtors. The most expeditious manner by which Debtors’ Counsel could obtain these documents, would be by requesting them directly from the Debtors. There is nothing in the record to indicate that Debtors’ Counsel did not, in good faith, request the information from his clients. Rather, the Debtors failed to provide the documents to their Counsel, therefore, he was unable to provide the documents to the Trustee. Subsequent to this matter, Debtors’ Counsel has been replaced as Counsel for the Debtors, which leads the Court to believe that problems of some nature and magnitude existed between Debtors and Counsel. With Regard to the amended petition, Debtors’ Counsel stated in his Motion that the amended petition was filed with the Court. The delay in filing resulted because the amendment had to be filed twice. The first amendment only listed one (1) parcel of real estate sold by the Debtors, the second amendment listed both parcels. The facts of this case indicate that the failure of the Debtors to provide their counsel with the necessary documents, prevented him from being able to forward those documents to the Trustee. It would therefore be unjust to punish and *687hold Debtors’ Counsel liable for the Debtors’ lack of cooperation.
On the other hand, in cases where a third-party has incurred additional expenses due to the failure of another party to cooperate in properly allowing discovery, it would be equally unjust to prevent the third-party from recovering those additional expenses. In this case, the Trustee has spent an additional Seven Hundred and Fifty-five Dollars ($755.00), on this matter, and has still not received the requested documents. The Court has determined that it is the failure of the Debtors to cooperate with discovery that has caused the present action. Payment of expenses incurred by the attorney for the Trustee’s should be subtracted from the Debtors’ estate. However, the Debtors in this case have no assets, which leave the Trustee’s attorney without recovery. While the Court is sympathetic to the situation with which the attorney for the Trustee has been placed, this is one of the harsh realities of bankruptcy proceedings. The Trustee may hereafter, file a Motion to Compel Discovery with regard to the aforementioned documents. If the Motion is granted, a subsequent failure of the Debtors or their present counsel to comply with the Court Order may be cause for denial of Debtors’ discharge pursuant to Rule 37(b)(2).
Accordingly, it is
ORDERED that Trustee’s Motion to Sanction Debtors’ Counsel be DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491726/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court upon the Motion and Memorandum of Marguerite F. Hall; Notice of Supplement; and Trustee’s Memorandum In Response To Request Of Marguerite F. Hall to Have A Tardily Filed Claim Treated as Timely Filed. The Court has reviewed the written arguments of Counsel and the Trustee, supporting affidavits, and exhibits, as well as the entire record in the case. Based upon that review, and for the following reasons, Marguerite F. Hall’s Motion for an Order authorizing payment of her claim on behalf of the Estate of Austin G. Hall as an allowed unsecured claim as if timely filed should be Denied; and her Proof of Claim deemed an allowed unsecured claim subject to distribution under 11 U.S.C. § 726(a)(3).
FACTS
On September 19, 1979, Austin G. Hall (hereafter “Mr. Hall”) sold to The Newell B. Newton Company (hereafter “the Company”) Three Thousand Seven Hundred Sixty (3,760) shares of its outstanding common stock for One Hundred Forty Thousand and 00/100 Dollars ($140,000.00). The Company agreed to pay for the stock by tendering Twenty Six Thousand and 00/100 Dollars ($26,000.00) at closing; and execut*692ing a promissory note for the remainder. In 1979, Debtor and the Company merged. At the time of merger, there was an outstanding balance due Mr. Hall on the promissory note.
An involuntary Chapter 7 was filed against Debtor on March 7, 1983. Mr. Hall was listed on the attendant Schedule A-3, Creditors Having Unsecured Claims Without Priority. The First Meeting of Creditors pursuant to Bankruptcy Rule 341 was convened on October 5, 1983. Subsequently, Mr. Hall died and Marguerite F. Hall (hereafter “Mrs. Hall”) became the Executrix of his estate. On July 23, 1992, notice was mailed to Mr. Hall at 5535 Olde Post Road, Sylvania, Ohio advising him that Proofs of Claim were due by October 23, 1992. The notice was not returned as undeliverable. On December 7, 1992, Mrs. Hall, in her representative capacity, filed a Proof of Claim for Seventy Six Thousand Seven Hundred Forty Four and 35/100 Dollars ($76,774.35). Thereafter, she filed a Motion seeking authorization of payment pursuant to the Proof of Claim as an allowed unsecured claim which was timely filed. This Motion' was supplemented with a Memorandum and Notice of Supplement. The Trustee’s Memorandum in Response seeks denial of Mrs. Hall’s Motion.
LAW
A. 11 U.S.C. § 502 reads as follows:
(a) A claim or interest, proof of which is filed under section 501 of this title, is deemed allowed, unless a party in interest, including a creditor of a general partner in a partnership that is a debtor in a case under chapter 7 of this title, objects.
B. 11 U.S.C. § 726 reads as follows:
(a) Except as provided in section 510 of this title, property of the estate shall be distributed—
(1) first, in payment of claims of the kind specified in, and in the order specified in, section 507 of this title;
(2) second, in payment of any allowed unsecured claim, other than a claim of the kind specified in paragraph (1), (3), or (4) of this subsection, proof of which is—
(C) tardily filed under section 501(a) of this title, if
(i) the creditor that holds such claim did not have notice or actual knowledge of the ease in time for timely filing of a proof of such claim under section 501(a) of this title; and
(ii) proof of such claim is filed in time to permit payment of such claim.
(3)third, in payment of any allowed unsecured claim proof of which is tardily filed under section 501(a) of this title other than a claim of the kind specified in paragraph (2)(C) of this subsection;
C. Bankruptcy Rules 9006(b)(3) reads as follows:
(3) ENLARGEMENT LIMITED. The court may enlarge the time for taking action under Rules 1106(b)(2), 1017(e), 3002(c), ..., only to the extent and under the conditions stated in those ruled.
D. Bankruptcy Rules 3002(a) and (c) read as follows:
(a) Necessity for Filing. An unsecured creditor or an equity security holder must file a proof of claim or interest in accordance with this rule for the claim or interest to be allowed, except as provided in Rules 1019(3), 3003, 3004 and 3005.
(c) Time for Filing. In a chapter 7 liquidation, chapter 12 family farmer’s debt adjustment, or chapter 13 individual’s debt adjustment case, a proof of claim shall be filed within 90 days after the first date set for the meeting of creditors called pursuant to § 341(a) of the Code, except as follows:
(5) If notice of insufficient assets to pay a dividend was given to creditors pursuant to Rule 2002(e), and subsequently the trustee notifies the court that payment of a dividend appears possible, the clerk shall notify the creditors of that fact and that they may file'proofs of claim within 90 days after the mailing of notice.
*693
DISCUSSION
The allowance or disallowance of claims is deemed a core proceeding under 28 U.S.C. § 157(b)(2)(B). The case at bar is a core proceeding.
Mrs. Hall argues in her Motion and supporting Memorandum that her tardily filed claim should be deemed timely filed under 11 U.S.C. § 502; and that her claim should share in the distribution of property from the estate in accordance with 11 U.S.C. § 726(a)(2)(C). Her contention is based upon four (4) tenets. First, the Trustee failed to file an objection to the Proof of Claim and consequently the claim is deemed allowed. Second, the requisite Notice to File Claims was not served upon Mrs. Hall or her attorney. Third, the Trustee failed to file his Brief in accordance with the schedule established by the Court. Fourth, the failure to act results from excusable neglect and therefore under Bankruptcy Rule 9006(b) this Court should enlarge the time within which Mrs. Hall may file her claim.
The Trustee has no dispute with the facts espoused by Mrs. Hall or her argument that the Proof of Claim should be allowed. The Trustee argues that Mrs. Hall’s theories regarding notice; and excusable neglect are specious. Moreover, the Trustee suggests that Mrs. Hall’s claim should be allowed and paid pursuant to 11 U.S.C. § 726(a)(3). This Court concurs with the Trustee’s analysis.
Absent objections, claims for which proof is filed under 11 U.S.C. § 501, are deemed allowed under 11 U.S.C. § 502(a). There have been no objections filed regarding Mrs. Hall’s claim and therefore it is deemed allowed. The issue which remains concerns the treatment of Mrs. Hall’s allowed, but untimely filed claim. Under Rule 3002(c), a Proof of Claim in a Chapter 7 case shall be filed within 90 days after the first date set for the Meeting of Creditors unless there exists no assets for dissemination. Upon notification to the clerk that assets exist, the clerk distributes a notice to file claims. Allowed claims, whether timely or tardy, are distributed in accordance with the priority established in 11 U.S.C. § 726.
In this case, dividends became available for distribution upon settlement of the adversary case. Pursuant to Bankruptcy Rule 3002(c)(5), the Trustee notified the Court of the availability of assets and the clerk notified the creditors of their opportunity to file Proofs of Claim within ninety (90) days. The requisite notice in this case was issued on July 22, 1992, to Mr. Hall at his address of record. Mrs. Hall filed the Proof of Claim on December 7, 1992. The untimely filed Proof of Claim in a Chapter 7 case cannot be deemed timely filed unless it falls into one of the exceptions under Bankruptcy Rule 3002(c). None of the conditions of Rule 3002(c) are applicable to this case and therefore Mrs. Hall’s untimely filed yet allowed claim cannot be deemed timely filed. However, tardily filed yet allowed claims can share in the distribution of property of the estate under 11 U.S.C. § 726(a)(2)(C) or (3).
[3] Under Section 726(a)(2)(C), tardily filed claims are subject to distribution if (1) the creditor did not have notice or actual knowledge of the case in time to timely file a proof of claim under Section 501; and (2) the proof of claim is filed in time to permit payment of the claim. Unsecured tardily filed claims which do not qualify for distribution under Section 726(a)(2)(C) will be subject to distribution under Section 726(a)(3). In the instant case, Mrs. Hall fails to prove the coexistence of both elements in Section 726(a)(2)(C). Although the proof of claim was filed in time to permit payment of the claim, Mrs. Hall fails to convince this Court that she did not receive notice or have actual knowledge of the case in time to file a proof of claim. In support of its finding, this Court notes that notice was mailed to Mr. Hall’s address of record but not returned. Mrs. Hall retained the same attorney throughout the more than six (6) years that litigation was pending in the adversary case. In fact, Counsel’s Application for Compensation refers to a conference which was held on March 4, 1992 for purposes of valuing the claim. This conference occurred approxi*694mately seven (7) months prior to the deadline for filing claims. Although neither Mrs. Hall nor her attorney filed a request with this Court directing all notices to them, they both had notice or actual knowledge of the case in time to file the Proof of Claim by the due date. Under these circumstances, Mrs. Hall is precluded from sharing in the distribution under 11 U.S.C. § 726(a)(2)(C). Mrs. Hall’s claim may share in the distribution of assets under 11 U.S.C. § 726(a)(3) for the reason that her claim is unsecured; tardily filed under section 501(a); and specifically excluded under 11 U.S.C. § 726(a)(2)(C).
Mrs. Hall’s second, third, and fourth arguments are without merit. Mrs. Hall’s attorney received notice of all pending matters in the adversarial proceeding for the reason that he was the attorney of record. As previously mentioned, the record is devoid of any filed request that notices required for mailing under rule be directed to either Mrs. Hall, as representative of the estate, or her counsel as authorized agent. See Bankruptcy Rule 2002(g). Moreover, by her own admission, the Notice to File Claims was never returned to the clerk.
The Court established a briefing schedule which was suspended during the assessment of a pending priority tax claim. Upon resolution of this issue, the Court reinstated the briefing schedule, allowing the Trustee to file his brief by May 14, 1993. The Trustee filed his Memorandum in Response on May 12, 1993. Since Trustee’s Response was timely filed, the third branch of Mrs. Hall’s argument is unfounded.
Mrs. Hall’s reliance upon the ease law in Pioneer Investment Services Co. v. Brunswick Associates Limited Partnership, — U.S. -, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993), is equally misplaced. The Supreme Court in Pioneer analyzed the applicability of Rule 9006(b) in Chapter 11 cases and found that the inadvertent failure by an attorney to file a Proof of Claim within the deadline set by the Court can constitute excusable neglect within the meaning of Bankruptcy Rule 9006(b). Rule 9006(b)(3) specifically excludes the enlargement of time in Chapter 7 cases, which are subject to conditions under Bankruptcy Rule 3002(c). The case at bar is a Chapter 7 proceeding and therefore subject to standards under Rule 3002(c) and not Rule 9006(b). Clearly, those principles established in Pioneer have no relevance to the case at bar.
In reaching the conclusion found herein, the Court has considered all of the evidence, exhibits and arguments of counsel and Trustee, regardless of whether or not they are specifically referred to in this opinion.
Accordingly, it is
ORDERED that Mrs. Hall’s Motion for an Order authorizing payment of her claim on behalf of the Estate of Austin G. Hall as an allowed unsecured claim as if timely filed, be and is hereby, DENIED.
It is FURTHER ORDERED that Mrs. Hall’s Proof of Claim be, and is hereby, deemed an allowed unsecured claim, subject to distribution under 11 U.S.C. § 726(a)(3). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491727/ | DECISION and ORDER ON MOTIONS FOR SUMMARY JUDGMENT
BURTON PERLMAN, Chief Judge.
This adversary proceeding grows out of a sealed bid sale of assets of defendant C. Schmidt Company (“Schmidt”), debtor in a related Chapter 11 case. Plaintiff was the successful bidder at the sale and now asserts that it did not receive all of the assets to which it was entitled, particularly due to the conduct of defendant INB National Bank (“INB”). Now before us is motion for summary judgment by INB.
While the adversary proceeding is non-core, this court has authority to enter this order on the motion for summary judgment. In re One-Eighty Investments, Ltd., 72 B.R. 35, 37 (N.D.Ill.1987).
Background facts which are not disputed are that C. Schmidt Co., debtor in the related bankruptcy case, filed a voluntary Chapter 11 case on February 6, 1990. In very short order it was concluded that the business would not continue, but that the assets would be sold. On March 13, 1990, an order was issued authorizing debtor to employ Equity Partners, Inc. (“EPI”) for the purpose of conducting a sale. EPI put out a bid package dividing the assets into six parcels, of which the following three are here relevant: Parcel C, machinery and equipment only; Parcel D, inventory — includes raw, work in process (WIP) and finished goods; and Parcel E, designs, patents, trademarks, licenses, and names. The bid package stated that inspection *718dates were April 5, 1990, April 6, 1990, April 10, 1990, and April 11, 1990.
On March 13, 1990, an order was entered authorizing employment of EPI for the purpose of assisting in the sale of the assets of debtor. Debtor then, on March 22, 1990, filed Application to Sell Assets Free and Clear of Liens and Encumbrances. After listing the several categories of assets, the Application said that “... bids will be accepted on all of the above assets for specific parcels thereof in accordance with the EPI bid procedure or as a result of acceptable bids being made prior to the anticipated bid opening date of April 26, 1990 ...”. After notice was given to creditors, an order was entered April 26, 1990, that order stating, in pertinent part, “... that upon the acceptance of any sealed bid by INB National Bank, Debtor be, and it is hereby authorized to sell to the purchaser submitting such accepted bid the assets described in such bid free and clear any and all liens ...”. Meanwhile, EPI sent out its bid package to interested parties, including plaintiff.
A bid was then submitted “on behalf of Koster Industries, Inc. and TMP Acquisition Company, Inc.”, sent by Federal Express, dated April 25, 1990. The bid offered $301,500.00 for Parcels C, D, and E “on an all-inclusive basis, wall-to-wall as inspected by the writer [Ronald J. Koster] and his associates.” (Emphasis supplied). The requisite certified check was enclosed.
On May 2, 1990, INB on behalf of the debtor accepted the bid of plaintiff. Thereafter, debtor continued business until it closed on May 7, 1990.
The task of the court on this motion for summary judgment is, based upon the evidentiary materials provided, to determine, first, whether there is any genuine issue of material fact, and, second, if there is none, whether movant is entitled to judgment as a matter of law. The basis for this statement is to be found at F.R.Civ.P. 56(c), incorporated into bankruptcy practice by F.R.B.P. 7056(c):
(c) Motion and Proceedings Thereon. ... The 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. ...
Movant has provided five depositions in support of its motion.
Movant reads the complaint as a claim only for unjust enrichment. Movant says that such a claim requires that the party unjustly enriched have procured the enrichment by fraud, misrepresentation or bad faith. Movant says that the complaint contains no allegations of fraud and misrepresentation or bad faith against it, but rather those have been asserted only against debt- or and its president, Paul Erickson. Mov-ant says that, since there is no such claim, it is entitled to summary judgment.
Further, movant argues in support of its motion that the bid that plaintiff made is ambiguous and its terms are superseded by the terms of the bill of sale. Movant urges that the deposition evidence makes it clear that the bid was ambiguous, because Koster inspected the assets on April 6, 1990, while TMP inspected the assets on April 16, 1990, and the inventory on those two dates was different. Movant in its memorandum has this to say:
Under the circumstances, for the Bid to be given the construction proffered, a precise date needs to be supplied, to permit the reader of the Bid to understand that the bidder is requesting the impossible; to purchase the inventory of an ongoing business as viewed or as it existed on two separate dates, ten days apart, including inventory that had previously been incorporated into finished goods, sold and shipped to customers. Had the Bid so specified, obviously it would not have been accepted.
Movant says that the evidence shows that plaintiff knew that debtor continued in business during April and was therefore on notice that the inventory would be used to continue operating the business. Movant then argues that the bill of sale, being unambiguous, should be held to govern the *719relationship between the parties. The bill of sale said that the transfer of property was made on an as-is basis, and does not include finished goods.
Plaintiff in its response disagrees that it is necessary to make a showing of fraud, misrepresentation or bad faith to prove a case of unjust enrichment, and further argues that if bad faith is necessary, the actions of movant in manipulating the auction process for its own benefit amounts to bad faith. Further, plaintiff argues that its bid was unambiguous and was an offer to purchase all of the inventory that was viewed on April 16, 1990. Finally, plaintiff urges that the bill of sale cannot control the transaction, because the sale was complete when EPI communicated acceptance to plaintiff on May 2, 1990, and the bill of sale is not an agreement.
After considering the submissions of the parties, we have reached the conclusion that the motion must fail. The testimony of witnesses upon which movant relies cannot alter the basic facts of what occurred here. The secured claim of defendant INB far exceeded any possible realization from the sale of assets of the debtor, and consequently and understandably INB controlled the sale of assets which occurred. EPI was retained by debtor at the behest of INB to liquidate the assets of debtor. EPI ran an auction sale.
As is invariably the case in such sales, the public was informed about the terms of the sale by means of the bid package referred to above. The bid package put together by EPI was a solicitation for offers. Plaintiffs bid was an offer which necessarily incorporated the terms and conditions of the bid package. 7 Am. Jur.2d Auctions and Auctioneers § 16 (1980 and Supp.1993). The terms and conditions of plaintiffs offer, including the amount of inventory that existed when plaintiff viewed it, became part of the contract upon seller’s acceptance on May 2, 1990.
One of the terms in the bid package, again an invariable element in an auction sale, is notice of the time when the public may view the items to be sold. Further, the notice identified the items to be sold. One of those items was inventory. Plaintiff then did what bidders do, it viewed the inventory. It submitted a bid based upon what it had seen. Its bid said that that was what it was doing. Plaintiffs bid was accepted.
In any auction sale, the reasonable expectation of the parties, the bidder and the seller, is that “what you see is what you get.” See Druml Co. v. Capitol Machinery Sales and Service Co., 29 Wis.2d 95, 138 N.W.2d 144 (1966) (citing 77 C.J.S. Sales § 315, at 1160 (1952)) (doctrine of caveat emptor applies to quality and condition of property and thus negates warranties but buyer is nonetheless entitled to receive what he buys). It is simply not thinkable for a party to take the position that a bidder did not buy what it saw at the invitation of the seller, or to take the position that the bidder should have known that what it was going to get was something different from what it saw. Of course, the seller could have altered the usual custom in auction sales by expressly stating that the terms were other than those usual in an auction sale, but EPI was not instructed by its principals to do that.
It is therefore the conclusion of the court, that while there is no genuine issue of fact in the record presented to this court, movant is not entitled to judgment as a matter of law because its position that it was not obligated to convey to an auction sale what the purchaser had viewed pursuant to the terms of the solicitation for offers, is unsound. The motion is denied.
So Ordered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491729/ | OPINION
BOWIE, Bankruptcy Judge:
The Bankruptcy Court entered an order requiring the Washington State Lottery Commission to pay all gross winnings to the bankruptcy trustee, without withholding any of the proceeds. The United States, on behalf of the Internal Revenue Service, appeals. WE REVERSE.
I. FACTS
Pre-petition, the debtor won the Washington State Lottery, entitling him to an annual payment of $50,000, before taxes. At the time of winning, the debtor was married, but has since divorced. During the pendency of the debtor’s Chapter 7 bankruptcy, the trustee settled with the former wife over distribution of the lottery winnings, with the annual payment to be split $10,000 to the former wife and $40,000 to the estate, for a period of years.
The Lottery Commission requires a single payee, with a single tax number, against which to credit the sums required to be withheld under 26 U.S.C. § 3402. The bankruptcy trustee filed a motion to determine tax under 11 U.S.C. § 505(b) [later orally amended to § 505(a)] to determine that the Lottery Commission could pay all winnings to the estate without withholding funds as required under § 3402. The United States opposed, asserting that § 505(b) was not applicable, inter alia, where no tax return had yet been filed for the period in question. After oral argument, the Bankruptcy Court entered the Order appealed from, captioned “ORDER ON WITHHOLDING TAX”, in which the Court found that “the withholding by the *815Lottery Commission or its designee of 20% of the lottery prize for the benefit of the Internal Revenue Service is a withholding in potential payment of an administrative tax claim subject to the jurisdiction of this Court.” Based on § 505(a) “and if necessary § 105,” the Court declared in relevant part:
IT IS HEREBY ORDERED that the Lottery Commission or its designee shall turnover to the estate the entire $50,-000.00 annual distribution of the lottery prize and shall not withhold and remit to the Internal Revenue Service any portion of the $50,000.00 lottery proceeds.
The court also ordered the trustee to file all appropriate tax returns and to withhold and remit to the IRS 20% of the portion payable to the former wife.
II.ISSUES RAISED ON APPEAL
1. Does 11 U.S.C. § 505 afford the Bankruptcy Court a basis for such an order when no tax return has been filed?
2. Is the order of the Bankruptcy Court violative of the Anti-Injunction Act, 26 U.S.C. § 7421?
3. Are funds required to be withheld under 26 U.S.C. § 3402 funds held in trust for the United States and not subject to the jurisdiction of the Bankruptcy Court?
4. Was there any factual basis for the Bankruptcy Court’s determination that “withholding would be adverse to the best administration of the estate”?
Because of this Panel’s resolution of issues 1 and 2, it is unnecessary to reach the remaining issues.
III.STANDARD OF REVIEW
Issues 1 and 2 are issues of law, which are reviewed de novo. In re Neal, 113 B.R. 607, 608 (9th Cir. BAP 1990); In re Cheng, 943 F.2d 1114, 1116 (9th Cir.1991).
IV.DISCUSSION
1. 11 U.S.C. § 505.
The trustee’s motion to the Bankruptcy Court was predicated on § 505(b), but was amended, at least orally, at the hearing on July 28, 1992, to § 505(a). That subsection provides:
(a)(1) Except as provided in paragraph (2) of this subsection, the court may determine the amount or legality of any tax, any fine or penalty relating to a tax, or any addition to tax, whether or not previously assessed, whether or not paid, and whether or not contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction.
(2) The court may not so determine—
(A) the amount or legality of a tax, fine, penalty, or addition to tax if such amount or legality was contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction before the commencement of the case under this title: or
(B) any right of the estate to a tax refund, before the earlier of—
(i) 120 days after the trustee properly requests such refund from the governmental unit from which said refund is claimed;
or
(ii) a determination by such governmental unit of such request.
The threshold problem is that the trustee did not ask the Bankruptcy Court to determine the amount or legality of any tax, fine, penalty or addition to tax. Rather, the relief sought, and ordered, was directed to the Lottery Commission and required the Commission to “turnover to the estate the entire $50,000.00 annual distribution of the lottery prize and shall not withhold and remit to the Internal Revenue Service any. portion of the $50,000.00 lottery proceeds.” The next paragraph of the order makes it even more clear that the Bankruptcy Court was not being asked to determine the amount or legality of any tax. It provides:
IT IS FURTHER ORDERED that the Trustee shall file in the ordinary course of the administration of the estate, the estate’s bankruptcy tax returns and pay any tax due pursuant to such returns ....
*816What the trustee sought, and obtained, was an order of turnover by the Lottery Commission and an order enjoining the Commission from complying with the withholding requirements of the Internal Revenue Code, 26 U.S.C. § 3402(q). Section 505 does not authorize such a proceeding, and the trustee has cited no authority that even suggests it does.
Accordingly, the Bankruptcy Court’s order cannot be sustained as one entered in a proceeding brought under § 505(a). The order itself recites that the Bankruptcy Court relied also on § 105 “if necessary....” The trustee does not rely on § 105 on this appeal, and the United States has correctly recognized that a bankruptcy court’s equitable powers are circumscribed by the Bankruptcy Code. Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 206, 108 S.Ct. 963, 968, 99 L.Ed.2d 169 (1988). See also In re American Bicycle Ass’n, 895 F.2d 1277 (9th Cir.1990).
2. Anti-Injunction Act,
Section 7421(a) of Title 26, United States Code, provides:
Except as provided in section 6212(a) and (c), 6213(a), 6672(b), 6694(c), and 7426(a) and (b)(1), and 7429(b), no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed.
26 U.S.C.A. § 7421(a) (West 1989).
Section 3402 of Title 26, United States Code, establishes the responsibility of certain payors to withhold taxes from monies paid. Subsection q extends withholding to winnings from gambling, including state-conducted lotteries. Subpart (q)(l) provides:
Every person, including the Government of the United States, a State, or a political subdivision thereof, or any in-strumentalities of the foregoing, making any payment of winnings which are sub-fect to withholding shall deduct and withhold from such payment a tax in an amount equal to 28 percent of such payment.2
26 U.S.C.A. § 3402(q)(l) (West Supp.1993). Subpart (q)(3) states that proceeds of more than $5,000 from state-conducted lotteries are winnings subject to withholding.
The United States Supreme Court has recognized “that § 3402 withholding is a method of collection of taxes within the meaning of § 7421(a).” United States v. American Friends Service Com., 419 U.S. 7, 10, 95 S.Ct. 13, 15, 42 L.Ed.2d 7 (1974). In that case, the’ Supreme Court wrote:
[T]he plain wording of the Act [Anti-Injunction Act] ... proscribes any “suit for the purpose of restraining the assessment or collection of any tax.” The District Court’s injunction against the collection of the tax by withholding enjoins the collection of the tax, and is therefore contrary to the express language of the Anti-Injunction Act.
Id.
The trustee argues that the Anti-Injunction Act is not applicable. Rather, the trustee asserts that the full amount of winnings (less the former wife’s share) is property of the estate which is protected by the automatic stay of 11 U.S.C. § 362. The trustee argues that withholding constitutes prepayment of a potential administrative claim of the IRS, the amount of which will be determined after the trustee files a return for the estate.
The linchpin of the trustee’s argument is United States v. Whiting Pools, Inc., 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983). In that case, the Internal Revenue Service seized by levy certain personal property of Whiting Pools. The IRS intended to sell the property to satisfy its tax lien. The day after the seizure, Whiting Pools filed a petition under Chapter 11 to reorganize. The Supreme Court looked to whether the seized property was still property of the estate within the meaning of *817§ 541 such that it was amenable to turnover to the estate under § 542. The Court concluded that property in which secured creditors had an interest, even a possessory interest, remained property of the estate and could be recovered under § 542 if adequate protection was afforded to the creditor. The Supreme Court concluded there was no reason why the IRS should be treated differently from other secured creditors. The Court felt the Bankruptcy Code afforded the IRS other forms of protection. Interestingly, the Court recognized that § 542(a) “also governs turnovers in liquidation and individual adjustment of debt proceedings under Chapters 7 and 13 of the Bankruptcy Code_” 462 U.S. at 208, n. 17, 103 S.Ct. at 2315, n. 17. The Court then stated:
Our analysis in this case depends in part on the reorganization context in which the turnover order is sought. We express no view on the issue whether § 542(a) has the same broad effect in liquidation or adjustment of debt proceedings.
Id.
The Court of Appeals for the Ninth Circuit addressed much of the trustee’s argument in In re American Bicycle Ass 'n, 895 F.2d 1277 (1990). In that case the bankruptcy court had enjoined the IRS from collecting taxes from a non-debtor responsible person who was a principal of the debt- or business. The district court reversed the bankruptcy court on two grounds, one of which was the Anti-Injunction Act. The Ninth Circuit affirmed on the Anti-Injunction Act ground. The debtor argued that “ ‘Congress contemplated bankruptcy to be an exception to the Anti-Injunction Act’ ” (895 F.2d at 1279), and relied on Whiting Pools. The Ninth Circuit recognized that Whiting Pools was based on § 542(a). “No comparable specific statutory exception helps the appellants in the present case.” Id. The court wrote:
We conclude that Whiting Pools does not provide authority for the bankruptcy court’s injunction enjoining collection of the 100% penalty from Anderson. Moreover, nothing in the Bankruptcy Code or its legislative history indicates that Congress intended to override the Anti-Injunction Act in these circumstances.... Only section 105(a) of the Bankruptcy Code might arguably give a bankruptcy court power to enjoin the IRS.... All encompassing as this statute seems to be, however, it does not provide specific authorization empowering a bankruptcy court to enjoin collection of the 100% penalty. On the other hand, the text of the Anti-Injunction Act is specific and unequivocal. We hold that its proscription is not overridden by the general grant of authority provided in section 105(a) of the Bankruptcy Code.
895 F.2d at 1279-80.
In U.S. v. American Friends Service Com., 419 U.S. 7, 95 S.Ct. 13, 42 L.Ed.2d 7 (1974), employees sought an injunction prohibiting the IRS from enforcing the withholding requirements of § 3402 against their employer. The district court granted the injunction, but the Supreme Court reversed. In so doing, the Court wrote:
The District Court’s injunction against the collection of the tax by withholding enjoins the collection of the tax, and is therefore contrary to the express language of the Anti-Injunction Act.
419 U.S. at 10, 95 S.Ct. at 15.
The trustee has cited no authority which establishes that the Bankruptcy Code, as invoked herein, overrides the Anti-Injunction Act of 26 U.S.C. § 7421. In the absence of such authority, and recognizing the general nonbankruptcy law established in American Friends, this panel concludes that the Bankruptcy Court order requiring the Lottery Commission not to withhold despite § 3402 is an order enjoining collection of a tax and violates the Anti-Injunction Act.
V. CONCLUSION
The proceeding brought by the trustee was not a proceeding to “determine the amount or legality of any tax” as contemplated by 11 U.S.C. § 505(a) and was not authorized under that section. The order granted by the Bankruptcy Court enjoined *818the collection of tax by withholding, m violation of the Anti-Injunction Act. Because of our resolution of the foregoing issues, we need not reach, and express no opinion on, the remaining issues asserted on appeal. WE REVERSE.
. For payments received on or before December 31, 1992, withholding was required at 20 percent. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491730/ | MEMORANDUM OPINION
STEPHEN J. COVEY, Bankruptcy Judge.
This matter comes on to be heard upon the adversary complaint filed by Ohio Casualty Insurance Company (“Ohio Casualty”) against the Debtor, Albert R. Smith (“Debtor”) seeking a determination that its debt is nondischargeable pursuant to § 523(a)(2)(B) of the Bankruptcy Code. Ohio Casualty filed a trial brief after which a one day trial was held. Upon hearing the testimony of the witnesses, the arguments of counsel and reviewing the documentary evidence presented, the Court makes the following findings of fact and conclusions of law.
FINDINGS OF FACT
Debtor was the former owner of the Louisville Red Bird Cardinals, a Triple A baseball franchise. Debtor sold his stock in 1984 for $4,000,000.00 or $5,000,000.00 and used the proceeds to pay off debts. As part of the transaction, the corporation loaned Debtor $1,500,000.00. At the time of the sale, Debtor leased all of the concession equipment which he owned personally to an entity known as Kentucky Sports. Kentucky Sports was to pay for the lease over a period of ten (10) years at which time it had the option to purchase the equipment for a nominal amount. The amount of the lease payments equalled the amount of Debtor’s payments on the debt owed to the corporation. As a result, Kentucky Sports made its lease payments directly to the corporation. Debtor described the transaction as “a wash.”
Following the sale, a dispute arose between the Kentucky State Fair Board and Debtor over the lease of the stadium in *849Louisville where the Cardinals played. The Kentucky State Fair Board sued Debtor personally in state court and on May 3, 1990, judgment was entered against Debtor in the amount of $65,000.00.
Debtor thereafter applied for an appeal bond in the above amount from Ohio Casualty. As part of the application, Debtor was required to list a schedule of his assets and liabilities. Debtor had his accountant, Jim Wheeler (“Wheeler”)1, complete the form for his signature. The figures appearing on the application were taken directly from a “compilation” prepared by Wheeler for Debtor for the year ending December 1989. Compilations such as this one were prepared for Debtor annually and Debtor relied upon them in the operations of his business. The compilations stated that they were unaudited and were prepared from information supplied by Debtor.
The application listed Debtor as having a net worth of $1,618,141.00. Debtor “scanned” the application and signed it on May 15, 1990.2 He recognized the figures on the application to be the same as those appearing on his 1989 compilation.
Based upon the application, Ohio Casualty executed a bond on Debtor’s behalf in the requested amount. Debtor subsequently lost the appeal and Ohio Casualty paid the judgment and has a claim against Debtor in the amount of $77,000.00 plus attorney fees and costs.3
There are three main entries appearing on the application which Ohio Casualty alleges are materially false: An amount due from the LRBC Liquidating Trust of $294,-417.00; notes receivable in the amount of $533,036.00; and an investment in oil and gas properties valued at $1,429,179.00.4
The asset listed on the application in the amount of $294,000.00 owed from the LRBC Liquidating Trust represents an accounting entry. It is not a real asset of Debtor. Debtor was not familiar with what this number represented but was informed by his accountant that it was proper accounting procedure to list it as one of his assets. Debtor’s current accountant, Keith Ward, explained the entry as follows: If Debtor had paid the balance due on the loan to the corporation in 1989 when the compilation was prepared, the present value of the monies he would receive from Kentucky Sports over the amount paid would equal $294,000.00. This situation did not exist because Debtor did not have the money to pay the loan. Therefore, this amount should not have been listed as an asset of Debtor.
The entry on the financial statement of $533,000.00 represents notes receivable due to Debtor from three of his children.5 The evidence is conflicting as to whether this figure represented an asset of Debtor on the date of the application. A gift tax return for the year 1990 shows that Debtor made a gift of these notes to his children on January 1, 1990, which was prior to the date the bond application was submitted in May 1990.
However, both Debtor and his current accountant testified that Debtor actually decided to gift the notes due from his children in late 1990, which was after he executed the bond application. The accountant further testified that the date appearing on the gift tax return was backdated for tax benefit purposes on his advice and does not reflect the actual date the gift occurred. Finally, Ohio Casualty introduced no evidence showing that these debts were fictitious or uncollectible.
The Court finds that the testimony of Debtor and his accountant was credible and that on the date the application was com*850pleted the notes from his children were owed to Debtor and represented an asset of Debtor which was properly listed on the application.
Most of the testimony at trial concerned the valuation of Debtor’s interest in oil and gas properties at $1,429,179.00. In the early 1960’s, Debtor invested $50,000.00 with a group known as Venture Exploration which owned a twenty-five percent interest in a number of oil and gas leases covering 60,-000 acres in Southeast Oklahoma. His investment entitled him to a one-sixth interest in Venture Exploration’s twenty-five percent interest. Debtor eventually gave his children a part of his one-sixth interest and at the time he presented the application to Ohio Casualty, he owned seventy percent of his one-sixth interest, with three of his children owning ten percent each.
Debtor was invited to participate in this investment by Richard T. Sonberg (“Son-berg”), a Tulsa attorney formerly employed with the law firm of Houston & Klein. Sonberg has had over twenty years experience in the oil and gas business, including the development and drilling of oil and gas leases. In 1968, he started an independent oil company known as Western Diversified Industries which ran an exploration program. He currently owns and manages a number of drilling companies, one of which is Venture Exploration. He is president of Sundown Exploration Company6, Rega Corporation and Wyndemeer Oil Company and is involved with Cherokee Operating Company.
In 1972, Sonberg became involved with Service Drilling Company which was engaged in a large exploration project in Southeast Oklahoma. He formed Venture Exploration with five other people, one of which was Debtor. Sonberg was instrumental in organizing an agreement between Service Drilling Company and two major pipeline companies for the purchase of the gas produced by the wells. This contract was very favorable to Venture Exploration because the price of the gas was double that of the spot market. Over the years it has produced substantial income for the interest owners, including Debtor.
As stated earlier, the value of Debtor’s interest in the oil and gas wells on the application was taken directly from Debt- or’s 1989 compilation. The compilation states in a note that the value represents the estimated value as determined by Debt- or after consultations with Keplinger & Associates and Venture Exploration. In fact, the.evidence established that it was Wheeler, not Debtor, who arrived at the $1,429,179.00 valuation.
Wheeler relied upon the Keplinger report and the representations of Venture Exploration through Sonberg in computing the value of Debtor’s oil and gas interests. In 1984, Keplinger & Associates gave a written report which estimated the value of the producing wells of Venture Exploration. This report did not value the undeveloped gas reserves. The report estimated Debt- or’s one-sixth interest to be worth approximately $867,000.00. Because Debtor owned only seventy percent of his one-sixth interest at the time of the application his interest was worth $607,000.00 according to the Keplinger report.7
In addition to reviewing the Keplinger report, Wheeler also had telephone conversations with Sonberg and received written evaluations from him. In the late 1980s, Sonberg valued Debtor’s one-sixth interest in the producing wells to be worth approximately $600,000.00. The value was therefore overstated by approximately $800,-000.00.
The $1,429,179.00 figure, while overstated was computed in a reasonable fashion and the Court finds that it was reasonable for Wheeler, based upon the information he had, to value Debtor’s oil and gas interests in this amount. Considering the *851information available to Wheeler, both Debtor and Wheeler in good faith believed the valuation of the oil wells to be accurate.
Any conclusions of law which ought more properly to be findings of fact are incorporated herein by reference.
CONCLUSIONS OF LAW
Ohio Casualty argues that its debt is nondischargeable under § 523(a)(2)(B) which states as follows:
(a) A discharge under section 727 ... of this title does not discharge an individual debtor from any debt—
(2) for money ... to the extent obtained by—
(B) use of a statement in writing—
(i) that is materially false;
(ii) respecting the debtor’s or an insider’s financial condition;
(iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive.
The parties have stipulated that there was a statement in writing regarding Debt- or’s financial condition and upon which Ohio Casualty relied in executing the bond in Debtor’s favor.8 Therefore, the only two elements at issue in this case are whether the statement was materially false and if so whether it was made with the intent to deceive or with a reckless disregard as to its truth. Ohio Casualty has the burden of proving these elements by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).
In order for a statement to be materially false, it must be substantially inaccurate. In re Black, 787 F.2d 503 (10th Cir.1986); In re Reeds, 145 B.R. 703 (Bankr.N.D.Okl.1992). The Court finds that the application presented to Ohio Casualty was materially false in the following respects. It listed as an asset of Debtor the amount of $294,417.00 which in this Court’s opinion did not exist. This figure was based purely on a hypothetical situation. The fact that it was computed using proper accounting procedure does not make it a real asset. The statement also substantially overstated the value of Debtor’s oil and gas properties. Upon reviewing all of the evidence submitted, the Court finds that Debtor’s interest was actually worth $600,000.00 in 1989. Therefore, Debtor’s net worth was overstated by over $1,000,-000.00 and this made the application materially false.
The main issue in this case is whether Debtor presented the application with an actual intent to deceive or with a reckless disregard as to its truth. If a statement is given with a reckless disregard as to its truth or falsity, even though there is no actual intent to deceive, this is sufficient to deny the discharge of the debt. In re Black, 787 F.2d at 506; In re Bailey, 145 B.R. 919, 931 (Bankr.N.D.Ill.1992); In re Reeds, 145 B.R. at 707. Ohio Casualty did not introduce evidence sufficient to establish that Debtor had an actual intent to deceive. In fact, it concedes this point.
Ohio Casualty contends, however, that Debtor’s failure to carefully read the application, his failure to investigate the validity of the numbers, and the fact that the compilation from which the numbers were taken was unaudited constituted a reckless disregard of the truth of the statement.
The Court finds that the Ohio Casualty has not proven by a preponderance of the evidence that Debtor offered the application with a reckless disregard as to its truth. Debtor scanned the application before signing it and was familiar with its contents. He knew that the figures on the application were the same as the figures on his compilation. He believed that the numbers on the compilation were accurate. He *852had always relied upon these compilations in the past and the Court finds that he had a right to do so because all of the figures were computed on a reasonable basis.
Debtor’s accountant, Wheeler, computed the $294,000.00 value using proper accounting procedure. Wheeler explained this to Debtor and the Court finds that Debtor had a right to rely on Wheeler’s expertise as an accountant to make only correct accounting entries. In addition, Wheeler computed the value of Debtor’s oil and gas interests by considering the valuations of two expert’s opinions plus the income information on the wells. There is no evidence that Wheeler intentionally or fraudulently inflated the value of Debtor’s oil and gas interests.
The Court finds that Debtor, who was not knowledgeable in the oil and gas business, had no way of knowing that the figures on the compilation were overstated. Even if Debtor had reviewed the statement more thoroughly and had questioned Wheeler in regard to its accuracy, Debtor would have been told that the numbers were correct. Wheeler had based all calculations upon proper accounting procedure, expert opinion and Debtor’s income from the wells. Wheeler had a right to rely on these authorities and Debtor had a right to rely on Wheeler. For Debtor to do so was not a reckless disregard of the truth.
The issue of whether a debtor has a right to rely upon his financial advisors in the making of a financial statement is thoroughly discussed in In re Aste, 129 B.R. 1012 (Bankr.D.Utah 1991). In this case, the court stated:
The current trend indicates that if the debtor had no reason to believe the information was incorrect and therefore failed to verify the information, reckless intent will not be found. The difference is significant, especially in consideration of the evidentiary standard set forth in Grogan. If the presumption is that a debtor may rely on information reasonably obtained through normal business channels, then a creditor must prove by a preponderance of the evidence that some fact should have caused the debtor to inquire further, and that the failure to inquire was reckless.
S¡! * * † 5Í» if
There is no evidence in the record that the information seen by the Debtor or the errors in the application were such that he “knew or should have known of the falsity of the statement.” (Citation omitted)
s): >}: :j< sjs sjc
If the court adopted [the creditor’s] position, officers or managers of businesses may be prevented from relying upon the financial information provided to them by their accountants or bookkeepers. Without some reasonable cause to believe that the information is incorrect, incomplete, inconsistent, or subject to further inquiry, debtors should be able to rely upon the information obtained by competent, skilled employees responsible for performing that task.
In re Aste, 129 B.R. at 1019-1020.
In a leading case under the Bankruptcy Act, the Tenth Circuit held that a debtor has a right to rely on the expertise of his accountant where he does not know the accountant is falsifying the information. In Wolfe v. Tri-State Ins. Co., 407 F.2d 16, 19 (10th Cir.1969), the Tenth Circuit stated:
[The debtors] testified that they did not instruct the CPA to do other than to make a correct financial statement. They had every right to rely upon [the accountant] to make a correct statement, as do even sophisticated men of long business experience rely upon their trusted CPA to handle these affairs. Therefore, we cannot agree with the reviewing judge that these bankrupts had sufficient knowledge of the falsity of the statement. Nor can we agree with the reviewing court that the bankrupts were guilty of reckless negligence by failure to check over the statement.
Ohio Casualty argues that Debtor is responsible for the fraudulent acts of his accountant. In re Reisman, 149 B.R. 31 (Bankr.S.D.N.Y.1993); In re Coughlin, 27 B.R. 632 (Bankr.BAP 1st Cir.1983). This *853rule of law is correct but is not applicable to the present case.
In all of the decisions cited by Ohio Casualty, the figures placed on the financial statements by the accountant were obviously false and could have been discovered by the debtor upon a cursory examination of the statement. In the present case, in accordance with the above discussion, this is not true.
Bankruptcy and its discharge provisions are meant for the honest but unfortunate debtor. The Court finds that Albert R. Smith is an honest debtor. See Local Loan Co. v. Hunt, 292 U.S. 234, 54 S.Ct. 695, 78 L.Ed. 1230 (1934).
A separate judgment order consistent with the Memorandum Opinion will be entered finding that the debt owed by Debtor to Ohio Casualty is not excepted from discharge pursuant to § 523(a)(2)(B) of the Bankruptcy Code.
. At the time of trial, Wheeler was deceased.
. While the application states that it represents Debtor’s financial status as of December 31, 1990, it is undisputed that it actually reflects Debtor’s status as of December 31, 1989.
. The record is unclear as to why Ohio Casualty had to pay $77,000.00 on a $65,000.00 bond.
. Ohio Casualty challenged other entries on the statement, however, they are not material and it is the above three items which were most heavily litigated.
. The specific amounts owed by each child are set forth on Debtor’s 1989 compilation.
. This company currently manages approximately 100 wells.
. The 1989 compilation states that Keplinger valued Debtor’s interest at $885,000.00 rather than $607,000.00. This larger amount is close to the value of the entire one-sixth interest, however, the discrepancy was not discussed at trial.
. The Court notes that if Debtor had not stipulated to reliance the Court may have found that there was no reliance. The Court finds it difficult to believe that Ohio Casualty would have refused to issue a $65,000.00 appeal bond if it had known that Debtor's net worth was only $618,000.00. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491731/ | *940OPINION AND ORDER TRANSFERRING ADVERSARY PROCEEDING TO DISTRICT COURT
WALTER J. KRASNIEWSKI, Bankruptcy Judge.
This matter is before the Court on the Court’s own motion to refer William and Joyce Walton’s (“the Debtors”) complaint filed May 19, 1993 alleging violations of their Constitutional rights to Equal Protection and Due Process and alleging discrimination under 42 U.S.C. § 1983 to the United States District Court. The Court having closely examined each cause of action in the Debtors’ complaint finds that the Debtors’ allegations require substantial and material consideration of non-code federal statutes that regulate organizations or activities affecting interstate commerce for the resolution of this proceeding and pursuant to 28 U.S.C. § 157(d) withdrawal of this proceeding to the District Court is mandatory. Further, this Court finds that Debtors are entitled to a jury trial in their action alleging violations of 42 U.S.C. § 1983. Since the Sixth Circuit has held that bankruptcy courts are not statutorily authorized to conduct jury trials, this action will be transferred to the District Court.
FACTS
On December 30, 1991, Debtor Joyce Walton filed a voluntary petition under chapter 7 of title 11. Joyce Walton’s husband, Debtor William Walton filed a voluntary petition under chapter 7 of title 11 on February 10, 1992. These cases were consolidated on Debtors’ requests on March 13, 1992, and all further entries docketed on Case No. 92-30440.
The Wyandot County Court of Common Pleas had previously set aside certain transfers of property as fraudulent under O.R.C. § 1336.04 in Case Number 90-CV-89 (“the State Court Action”). The Wyan-dot County Court of Common Pleas prohibited Debtors and Wheatley Corporation, a corporation which was determined to be a fraudulent transferee in the State Court Action, from transferring any assets or property until further court order and appointed a receiver to take charge of any proceeds obtained by Wheatley. William Clark (“Clark”) was appointed as receiver.
This Court granted creditor Ag-Credit, ACA’s (“Ag-Credit”) application for abandonment and an annulment of the automatic stay for certain real property which had been determined to be property of the Debtors in the State Court Action on April 10, 1992. The Court found that the Debtors had no equity in the property. Additionally, this Court dismissed Joyce Walton’s allegations of contempt for violation of the automatic stay against Clark and Ag-Credit. See Opinion and Order Granting Application for Abandonment and Motion for Relief from Stay of Ag-Credit, ACA dated April 10, 1992 (“Abandonment Order”).
On August 6, 1992, this Court issued an opinion denying the Debtors’ demand for protection under the Farm Credit System Act in the real property which had been the subject of the Abandonment Order because the Court lacked jurisdiction over this matter under title 11. See Opinion and Order Denying Debtors’ Demand for Protection Under Farm Credit System Act.
On February 18, 1993, this Court denied Debtors request to void the sale of the land which was the subject of the Abandonment Order because the Debtors did not file an adversary proceeding as required. See Order Denying Request for Order to Avoid Sale.
This Court heard Debtors’ motion for “Entry Alternative Recusal re Common Pleas Court Case No. 90-CV-89” on May 19, 1993. The Debtors’ alleged contempt against a number of parties for violation of the automatic stay. The parties included Clark, Ag-Credit, John Hunter, Jr. (“Hunter”) and Bernard Bauer (“Bauer”), attorneys for Ag-Credit, Charles Bartholomew, Prosecuting Attorney for Wyandot County (“Bartholomew”), and Malcolm Goodman, trustee of the Debtors’ bankruptcy estate (the “Trustee”). These parties have allegedly violated the automatic stay provisions of 11 U.S.C. § 362 in regard to property held by Clark including approximately $10,-000 in cash which is claimed to be the *941property of the Wheatley Company, $555 in cash representing the proceeds from the sale of a corn head and $130 in stock dividends made payable to Debtors. Debtors claim that they possess no interest in any of these assets. Debtors do claim an interest in a state tax refund check payable to Debtors for $920 (the “Refund”) which is held by Clark.
Subsequently on May 19, 1993, the Debtors filed a complaint in this Court stating causes of action including violation of Debtors’ right to Equal Protection, violation of Debtors’ right to Due Process and violation of Debtors’ civil rights. Though Debtors have not cited statutory authority for their civil rights claim, their claim appears premised on 42 U.S.C. § 1983. See 42 U.S.C. § 1983. The Debtors’ first cause of action alleges that Clark, Judge Robert Walker (“Walker”) who was the judge in the State Court Action, Ag-Credit and Hunter have proceeded under color of Ohio statutes to enforce judgement liens in disregard of the automatic stay in bankruptcy, thereby violating Debtors’ civil rights and Constitutional rights to Due Process and Equal Protection. This cause of action further alleges that actions taken by Clark, Walker, Bauer and Hunter in proceedings for the sale of the subject property in the Abandonment Order violated Debtors’ civil rights and Constitutional rights to Due Process and Equal Protection by denying Debtors’ homestead exemptions under O.R.C. § 2329.66. Further, Clark, Ag Credit, Hunter and Bauer allegedly conspired to discriminate against Debtors and deny Debtors Equal Protection and Due Process. The Debtors’ second cause of action alleges that Ag Credit, Hunter and Bauer perpetrated a fraud on this Court which damaged Debtors. Debtors’ third cause of action alleges that Walker and Clark have violated Debtors’ right to Due Process under the Fourteenth Amendment and engaged in a conspiracy to deny Debtors’ right to Equal Protection. Debtors’ fourth cause of action alleges that Bartholomew willfully violated the automatic stay in bankruptcy and conspired with Clark and Walker to defraud Debtors. In addition, Debtors’ fourth cause of action seeks to assert the rights of certain third parties in real property. Each of Debtors’ causes of action seek compensatory and punitive damages.
DISCUSSION
“There is no question this case is the type provided for by the second sentence of § 157(d) which requires mandatory withdrawal by the District Court,” as in Derryberry v. The Toledo Trust Co. (In re Hartley). 55 B.R. 781, 784 (Bankr.N.D.Ohio 1985). Section 157(d) of 28 U.S.C. states:
The District Court may withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion or on timely motion of any party, for cause shown. The District Court shall on a timely motion of a party, so withdraw a proceeding if the court determines that resolution of the proceeding requires consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce.
In Derryberry, this Court noted that “ ‘Congress’ intent can only be conjecture, but perhaps Congress had in mind that District Judges, which consider such matters on a daily basis, are better equipped to determine them than are Bankruptcy Judges’ ”. Derryberry, 55 B.R. at 784 (quoting Collier on Bankruptcy para. 3.01 at 3.41 (15th ed. 1985)).
This Court held that “the mere fact that traditional bankruptcy issues are raised with non-code federal statutes does not permit the bankruptcy court to take jurisdiction in light of § 157(d)”. Derryberry, 55 B.R. at 785 (noting that Michigan Milk Producers Ass’n v. Hunter, 46 B.R. 214 (N.D.Ohio 1985) stands for the same proposition). However, the application of § 157(d) must be narrow “ ‘requiring] withdrawal not simply whenever non-code federal statutes will be considered but rather only when such consideration is necessary for the resolution of a case or proceeding’ ”. Derryberry, 55 B.R. at 785 (quoting In re White Motor Corp., 42 B.R. 693, 704 (N.D.Ohio 1984)).
*942Debtors have alleged in their first cause of action that a state court receiver, a state judge, a creditor in Debtors’ bankruptcy case and the attorney of a creditor in Debtors’ bankruptcy case have violated the automatic stay provisions of 11 U.S.C. § 362 under color of Ohio statutory law, thus depriving Debtors of Equal Protection, Due Process and Debtors’ civil rights under 42 U.S.C. § 1983. Though these allegations present traditional bankruptcy issues, they also require substantial and material consideration of a non-code federal statute for their resolution. One case reviewing the legislative history of 28 U.S.C. § 157(d) indicates that cases which contain substantive civil rights issues were intended to be subject to mandatory withdrawal. Pereira v. New York Hotel and Motel Trades Council (In re Chadbourne Industries, Ltd.), 100 B.R. 663 (S.D.N.Y.1989). The Pereira court quotes Representative Kastenmeier as stating that § 157(d) should be construed to include “ ‘cases involving the National Labor Relations Act, Civil Rights laws, Securities and Exchange Act of 1934 and similar laws’ ”. Pereira, 100 B.R. at 666 (quoting Representative Kastenmeier, 130 Cong.Rec. H1849-50 (daily ed. Mar. 21, 1984)). Civil rights law clearly fits 28 U.S.C. § 157(d)’s requirement of representing “other laws of the United States regulating ... activities affecting interstate commerce”. See Katzenbach v. McClung, 379 U.S. 294, 85 S.Ct. 377, 13 L.Ed.2d 290 (1964) (holding that Civil Rights Act of 1964 regulating activities which affect commerce was a valid exercise of Congress’ power to regulate interstate commerce). Thus, Debtors’ civil rights action is subject to mandatory withdrawal of reference to the District Court under 28 U.S.C. § 157(d).
This Court has stated that it “does not believe that [the language in the second sentence of 28 U.S.C. § 157(d) ] excludes the Bankruptcy Court from making the motion [for mandatory withdrawal of reference]”. Derryberry, 55 B.R. at 785. First, “parties do not have the right to consent to the trial of non-code matters pursuant to § 157(c)(2)”. Derryberry, 55 B.R. at 785 (citing 1 Collier on Bankruptcy para. 3.01 at 3-43 (15th ed. 1985)). Further, “[t]he Court does not agree that the parties may waive the provisions of § 157(d)[,] for to permit waiver would be to allow them to do indirectly what they most assuredly cannot do directly”. Derryber-ry, 55 B.R. at 785. Second, this Court believes that “it is the duty of the Bankruptcy Judge to bring the matter to the District Court’s attention to avoid costly delays and wasted efforts of the parties and the Bankruptcy Court.” Derryberry, 55 B.R. at 786. Therefore, mandatory withdrawal of reference by the Court is required.
Since it is necessary to consider the Debtors’ civil rights claims for complete resolution of the instant adversary action, withdrawal of reference is mandatory under 28 U.S.C. § 157(d). Therefore, in accordance with § 157(d) and judicial economy, this Court finds that it has the right sua sponte to direct withdrawal of reference and transfer this proceeding to the United States District Court.
Further, this Court finds that Debtors are entitled to a jury trial on these causes of action under the Seventh Amendment, and thus, this proceeding must be transferred to the United States District Court. First, Debtors’ complaint represents an action to enforce legal rights under 42 U.S.C. § 1983. Here, as in Curtis v. Loether, the “cause of action is analogous to a number of tort actions recognized at common law”. See Curtis v. Loether, 415 U.S. 189, 195, 94 S.Ct. 1005, 1009, 39 L.Ed.2d 260 (1974) (holding that an action for violation of the fair housing provisions of the Civil Rights Act represented a legal action where a jury trial was required under the Seventh Amendment). The Debtors seek actual and punitive damages. These types of relief were the traditional forms of relief offered in the courts of law. Curtis, 415 U.S. at 195, 94 S.Ct. at 1009. Therefore, Debtors’ claim under 42 U.S.C. § 1983 represents a legal claim. Second, this case does not involve the creation of “ ‘public rights’ ” by Congress where Congress may “assign their adjudication to an *943administrative agency with which a jury trial would be incompatible, without violating the Seventh Amendment’s injunction that jury trial is to be ‘preserved in suits at common law’ Granfinanciera v. Nordberg, 492 U.S. 33, 51, 109 S.Ct. 2782, 2795, 106 L.Ed.2d 26 (1989) (quoting Atlas Roofing Co. v. Occupational Safety and Health Review Comm’n, 430 U.S. 442, 455, 97 S.Ct. 1261, 1269, 51 L.Ed.2d 464 (1977)). The Supreme Court made clear in Granfi-nanciera that “public rights” do not include “ ‘wholly private tort[s]’ ” such as those alleged by Debtors. Granfinanciera, 492 U.S. at 51, 109 S.Ct. at 2795 (quoting Atlas Roofing, 430 U.S. at 458, 97 S.Ct. at 1270)). Third, this Court holds that Debtors have not submitted themselves to the equity jurisdiction of this Court with respect to Debtors’ civil rights claims. Though Granfinanciera held that creditors forfeit the right to a jury trial by filing a claim against the estate, this Court does not believe that Granfinanciera should be read so broadly as to preclude Debtors from a jury trial on their legal claims. Debtors causes of action do not arise “ ‘as part of the process of allowance and disal-lowance of claims’ ” nor are they “integral to the restructuring of debtor-creditor relations”. Granfinanciera, 492 U.S. at 58, 109 S.Ct. at 2799 (quoting Katchen v. Landy, 382 U.S. 323, 336, 86 S.Ct. 467, 476, 15 L.Ed.2d 391 (1966)). Thus, Debtors are entitled to a jury trial on their legal claims.
Accordingly, since the Sixth Circuit has held that bankruptcy courts are not authorized by statute to conduct jury trials, this proceeding will be transferred to the United States District Court. Rafoth v. National Union Fire Insurance Co. (In re Baker & Getty Financial Services, Inc.), 954 F.2d 1169 (6th Cir.1992).
In summary, this Court finds that since it is necessary to consider the Debtors’ civil rights claims for complete resolution of the instant adversary proceeding, withdrawal of reference is mandatory under 28 U.S.C. § 157(d). This Court finds that it has the right sua sponte to direct withdrawal of reference and transfer this proceeding to the United States District Court. Additionally, this Court finds that Debtors are entitled to a jury trial because Debtors’ adversary proceeding represents a legal action which does not involve the adjudication of public rights. Debtors have not submitted themselves to this Court’s equity jurisdiction for determining their legal claims under 42 U.S.C. § 1983. Therefore, since the Sixth Circuit has held that bankruptcy courts are not statutorily empowered to hear jury trials, this proceeding will be transferred to the United States District Court.
For the foregoing reasons, it is
ORDERED that this proceeding be, and it hereby is, transferred to the United States District Court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491732/ | OPINION AND ORDER DENYING REQUEST FOR CONTEMPT OF COURT AND ORDERING RECEIVER TO TURNOVER FUNDS TO BANKRUPTCY TRUSTEE
WALTER J. KRASNIEWSKI, Bankruptcy Judge.
This matter is before the Court upon William and Joyce Walton’s (the “Debtors”) pleading “Entry Alternative Recusal re Common Pleas Court Case No. 90-CV-89” filed with this Court on March 16,1993. The Debtors alleged that a number of parties were in contempt of this Court for violation of the automatic stay under 11 U.S.C. § 362. These parties include the Prosecuting Attorney for Wyandot County, a state court appointed receiver, a creditor of the estate and its attorneys, and the trustee in bankruptcy. Upon consideration of the evidence adduced at the hearing, the Court finds that Debtors’ request for a finding of contempt against Charles Bartholomew, William Clark, Ag-Credit, ACA, John Hunter, Jr., Bernard Bauer, and Trustee Malcolm Goodman is not well taken and should be denied.
FACTS
On December 30, 1991, Debtor Joyce Walton filed a voluntary petition under chapter 7 of title 11. Joyce Walton’s husband, Debtor William Walton filed a voluntary petition under chapter 7 of title 11 on February 10, 1992. These cases were consolidated on Debtors’ request on March 13, 1992, and all further entries docketed on Case No. 92-30440.
The Wyandot County Court of Common Pleas had previously set aside certain *945transfers of Debtors’ property as fraudulent under O.R.C. § 1336.04 in Case Number 90-CV-89 (“the State Court Action”). The Wyandot County Court of Common Pleas prohibited Debtors and Wheatley Corporation, a corporation which was determined to be a fraudulent transferee in the State Court Action, from transferring any assets or property until further court order and appointed a receiver to take charge of any proceeds obtained by Wheat-ley. William Clark (“Clark”) was appointed receiver.
This Court granted creditor Ag-Credit, ACA’s (“Ag-Credit”) application for abandonment and an annulment of the automatic stay for certain real property which had been determined to be property of the Debtors in the State Court Action on April 10, 1992. The Court found that the Debtors had no equity in the property. Additionally, this Court dismissed Joyce Walton’s allegations of contempt for violation of the automatic stay against Clark and Ag-Credit. See Opinion and Order Granting Application for Abandonment and Motion for Relief from Stay of Ag-Credit, ACA dated April 10, 1992 (“Abandonment Order”).
On August 6, 1992, this Court issued an opinion denying the Debtors’ demand for protection under the Farm Credit System Act in the real property which had been the subject of the Abandonment Order because the Court lacked jurisdiction over this matter under title 11. See Opinion and Order Denying Debtors’ Demand for Protection Under Farm Credit System Act.
On February 18, 1993, this Court denied Debtors request to void the sale of the land which was the subject of the Abandonment Order because the Debtors did not file an adversary proceeding as required. See■ Order Denying Request for Order to Avoid Sale.
In this proceeding, Debtors allege that certain parties are in contempt of this Court for violation of the automatic stay. The parties include Clark, Ag-Credit, John Hunter, Jr. (“Hunter”) and Bernard Bauer (“Bauer”), attorneys for Ag-Credit, Charles Bartholomew, Prosecuting Attorney for Wyandot County (“Bartholomew”) and Malcolm Goodman, trustee of the Debtors’ bankruptcy estate (“the Trustee”). These parties have allegedly violated the automatic stay provisions of 11 U.S.C. § 362 in regard to property held by Clark including approximately $10,000 in cash which is claimed to be the property of the Wheatley Company, $555 in cash representing the proceeds from the sale of a corn head and $130 in stock dividends made payable to Debtors. Debtors claim that they possess no interest in any of these assets. Debtors do claim an interest in a state tax refund check payable to William Walton for $920 (the “Refund”) which is held by Clark, however, it was not listed as an asset on Debtors’ bankruptcy schedules.
DISCUSSION
Though the subject matter jurisdiction of the bankruptcy courts is broad, this jurisdiction does not extend to property which is not “property of the estate” under 11 U.S.C. § 541. Section 541 of the Bankruptcy Code provides that the bankruptcy estate includes substantially “all legal or equitable interests of the debtor in property as of the commencement of the case”. See 11 U.S.C. § 541. William Walton stated at the evidentiary hearing that the Debtors did not own nor did they have an interest in the $10,000 held by Clark which, according to William Walton, represents property of the Wheatley Company. William Walton stated that the Debtors had no interest in the proceeds from the sale of a corn head held by Clark in the amount of $555. William Walton stated at the hearing that these funds were the property of Steven Walton. Further, William Walton stated that Debtors claim no interest in the stock dividend checks made payable to Debtors totaling $130.
A review of 28 U.S.C. § 157(b) clearly indicates that an action to recover property in which the Debtors have no interest does not represent a core proceeding. Further, under 28 U.S.C. § 157(c)(1), an action to recover property in which the Debtors have no interest does not represent a proceeding which is “otherwise related to” a case un*946der the Bankruptcy Code. See 11 U.S.C. § 157(c)(1). Even under the most expansive reading of “related to” under § 157(c)(1), Debtors’ claim to recover funds in which they have no interest would not “ ‘conceivably have any effect upon the estate being administered in bankruptcy’ ”. Kelly v. Nodine (In re Salem Mortgage Co.), 783 F.2d 626, 634 (6th Cir.1986) (quoting Mazur v. US. Air Duct Corp., 8 B.R. 848, 851 (Bankr.N.D.N.Y.1981)). This Court has no subject matter jurisdiction over funds held by Clark which purportedly represent proceeds from sale of the property of the Wheatley Company and Steven Walton. Additionally, this Court has no subject matter jurisdiction over the stock dividends made payable to William and Joyce Walton in which Debtors claim no interest.
THE REFUND CHECK
This Court finds that Debtors’ motion for contempt against Bartholomew is not well taken. Debtors have alleged that Bartholomew willfully violated the automatic stay by proceeding against the Refund held by Clark. Section 362(h) of the Bankruptcy Code provides damages for willful violations of the automatic stay. See Archer v. Macomb County Bank, 853 F.2d 497 (6th Cir.1988) (finding willful violation where bank attempted foreclosure on debtor’s real property despite bank’s receiving automatic stay notice from court and demands from debtor’s attorney to cease foreclosure). Bartholomew stated he had no knowledge that any of the funds held by Clark represented property of the estate when he applied to the Wyandot County Court of Common Pleas for payment of the attorney fees of William Walton. Bartholomew’s uncontradicted testimony stated that the Trustee informed Bartholomew that the Debtors’ estate had no claim against the funds held by Clark. Bartholomew’s application to Clark for payment of attorney fees, therefore, cannot be characterized as willful. Further, the Sixth Circuit has held that “speculative evidence and mere conjecture” will not support an award of actual damages. Archer, 853 F.2d at 499. Since the state court denied Bartholomew's claim against the funds held by Clark, the Debtors were not damaged by Bartholomew’s actions. Therefore, the Debtor’s request for a finding of contempt against Bartholomew is denied.
Debtors allegations that Clark willfully violated the automatic stay in violation of 11 U.S.C. § 362 are meritless. Clark’s testimony indicated that prior to learning of Debtors’ bankruptcy he had attempted to cash the Refund. Upon notice of Debtors’ bankruptcy, Clark mailed the Refund to the Trustee. Then, the Trustee returned the Refund to Clark. The Trustee apparently believed that the Refund was subject to liens and should be abandoned to Clark. Clark presently has possession of the Refund in his receivership account. This Court refuses to hold Clark in contempt for his actions in merely receiving the Refund from the Trustee, after the Trustee assured Clark that Debtors’ estate had no interest in the Refund. In addition, Debtors have failed to show any damages resulting from Clark’s actions.
This Court further finds that Clark is not in contempt of court for failure to turnover the Refund to the Trustee in violation of 11 U.S.C. § 543(b). This section requires a custodian such as Clark to turnover property of the estate to the Trustee. In the instant case, Clark did turnover property of the estate to the Trustee on learning that Debtors’ had filed for bankruptcy. Therefore, this Court finds that Clark is not in contempt of this Court for violation of 11 U.S.C. § 543(b).
Debtors have not proved their assertions that Ag-Credit, Hunter and Bauer have violated the automatic stay. Debtors provided no evidence at the evidentiary hearing of post-petition actions taken by Ag-Credit, Hunter or Bauer against the Refund. Further, Debtors provided no evidence that Ag-Credit, Hunter, or Bauer have taken actions against Debtors to collect property of the estate after notice of Debtors’ bankruptcy petition. Therefore, this Court finds that Ag-Credit, Hunter and Bauer did not violate the automatic stay.
*947This Court finds that the Trustee did not violate his duty of care to the bankruptcy estate in either his official capacity as trustee in bankruptcy or in his personal capacity. In Ford Motor Credit Co. v. Weaver, the Sixth Circuit stated that “[a] trustee in bankruptcy can be liable in his official capacity or individually”. Ford Motor Credit Co. v. Weaver, 680 F.2d 451, 461 (6th Cir.1982). The Ford court stated the applicable standard for the trustee acting in the trustee’s official capacity as “the exercise of due care, diligence and skill both as to affirmative and negative duties”. Ford, 680 F.2d at 461 (citations omitted). Mistakes in judgment do not subject the trustee to liability in the trustee’s official capacity. Ford, 680 F.2d at 461 (citations omitted). The trustee in bankruptcy bears personal liability “ ‘for acts willfully and deliberately in violation of his fiduciary duties’ ”. Ford, 680 F.2d at 461 (citations omitted). In the instant case, Trustee exercised his professional judgment in transferring the Refund to Clark. The Refund was neither scheduled nor claimed as exempt with specificity as required by the Bankruptcy Code, Rules and official forms. The Trustee stated that he transferred the Refund to Clark believing the Refund was subject to the secured claims of creditors. While this action may represent a mistake in judgment on the part of the Trustee, it does not rise to the level of a breach of the Trustee’s fiduciary duty. Further, since there was no showing that this act was “willful” or “deliberate”, allegations that the Trustee is liable to Debtors in his individual capacity are without merit.
This Court finds that Clark has a present duty to turnover the Refund to the Trustee for administration as property of the estate pursuant to 11 U.S.C. § 543. Section 554(d) of the Bankruptcy Code provides that “[ujnless the court orders otherwise” property which has not been abandoned after notice and a hearing and which has not been administered in the case “remains property of the estate”. See 11 U.S.C. § 554(d). Clark is a custodian of Debtors’ property who is required to turnover this property to the Trustee under 11 U.S.C. § 543(b). See 11 U.S.C. § 543(b).
Although the Debtors did not list the Refund as property of the estate on their bankruptcy schedules, they may be able to claim an exemption in the Refund. Such an exemption would be limited by 11 U.S.C. § 522(g) of the Bankruptcy Code. See 11 U.S.C. § 522(g). Debtors must file amended bankruptcy schedules in accordance with Rule 1009, Rules of Bankruptcy Procedure, in order to claim entitlement to a specific exemption.
In summary, this Court finds that Debtors’ allegations that various parties were in contempt of this Court for their actions subsequent to Debtors’ bankruptcy filing are not well taken. Further, this Court finds that the Refund should be turned over to the Trustee for administration as part of the bankruptcy estate.
Finally, this Court has repeatedly stated that Debtors’ abuse of the Bankruptcy Code will not be tolerated. See Opinion and Order Denying Reconsideration and Stay dated February 26, 1990 in William J. Walton’s previous Bankruptcy Case No. 1-89-03579. Despite this admonition, Debtors have repeatedly tried to reliti-gate the State Court Action and this Court’s Abandonment Order. Debtors have also repeatedly made meritless allegations that various parties have been in contempt of the automatic stay. Title 11 is available for the protection of a debtor seeking relief in good faith. This Court will not use the Bankruptcy Code to provide a haven for Debtors who have filed multiple petitions involving creditors in extensive litigation. The unnecessary consumption of judicial resources in administering Debtors’ case will not be condoned. Debtors repetitive pleadings require an expenditure of judicial resources which detract from administration of other pending cases. Therefore, this Court hereby prohibits Debtors from filing further frivolous pleadings with this Court. The good faith requirement of title 11 mandates such prohibition.
In light of the foregoing, it is therefore
*948ORDERED that William and Joyce Walton’s request for a finding of contempt of this Court against Charles Bartholomew, William Clark, Ag-Credit, ACA, John Hunter, Jr., Bernard Bauer and Trustee Malcolm Goodman pursuant to 11 U.S.C. § 362 be, and hereby is, denied. It is further
ORDERED that William Clark shall turnover the state income tax refund payable to William Walton to Trustee Malcolm Goodman forthwith. It is further
ORDERED that William and Joyce Walton shall cease filing frivolous pleadings with this Court in order to avoid imposition of sanctions. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491735/ | *225
MEMORANDUM
RALPH H. KELLEY, Chief Judge.
Southern Industrial Banking Corporation (SIBC) was an industrial loan and thrift company. The defendant bought a 30-day investment certificate from SIBC. A few days after the certificate matured, SIBC paid the defendant the face amount plus interest. SIBC filed bankruptcy the next month. The plaintiff is the trustee under SIBC’s Chapter 11 plan. He brought this suit against the defendant to recover the payment as a preferential transfer.
Subsection (b) of Bankruptcy Code § 547 defines a preferential transfer. Subsection (c) defines seven exceptions. 11 U.S.C.A. § 547 (West 1993).
The defendant has moved for summary judgment. She argues that the payment is protected by the exception for payments in the ordinary course of business. The exception protects a transfer made to pay a debt if:
(1) the debt was incurred in the ordinary course of business or financial affairs of both the debtor and the creditor; and
(2) the transfer was made in the ordinary course of business or financial affairs of both the debtor and the creditor; and
(3) the transfer was made according to ordinary business terms; and
(4) the transfer was made within 45 days after the debt was incurred.
11 U.S.C.A. § 547(c)(2) (West 1979).
The trustee contends that the exception does not apply because SIBC’s owners were operating it as a Ponzi scheme when the defendant bought the investment certificate and when she cashed it in.
Judge Paine previously rejected the Pon-zi scheme argument. DuVoisin v. Anderson (In re Southern Industrial Banking Corp.), 87 B.R. 524, 17 Bankr.Ct. Dec. 1015 (Bankr.E.D.Tenn.1988). However, the trustee argued that the Sixth Circuit Court of Appeals had implicitly overruled Judge Paine’s reasoning. This court agreed. In First Federal v. Barrow, the Sixth Circuit held that the exception did not apply, even though the debtor was a legitimate business, because it was operating in a “totally unorthodox and illegal” manner. First Federal v. Barrow, 878 F.2d 912, 918 (6th Cir.1989).
This court is restricted to dealing with only one question. Was SIBC’s payment outside the ordinary course of business because SIBC was a Ponzi scheme or was operating in a totally unorthodox and illegal manner?
The court can grant the defendant partial summary judgment on this question only if there is no genuine issue of material fact, and based on the undisputed facts, the law entitles the defendant to judgment in her favor. Fed.R.Bankr.ProC. 7056 (West 1984).
The trustee filed his own affidavit in support of the Ponzi scheme argument. In his affidavit the trustee testifies as follows.
Jake Butcher controlled the United American Bank of Knoxville. His brother C.H. Butcher, Jr., controlled the City and County Bank of Knox County. In November 1, 1982 the FDIC began a coordinated examination of the banks owned by the Butchers.
C.H. Butcher, Jr., owned or controlled a large amount of SIBC’s stock. He was a director of SIBC and chairman of the board.
SIBC was primarily in the business of making loans secured by automobiles or second mortgages on homes. It also bought commercial paper from furniture and appliance dealers. Beginning in 1981 at the latest, the Butchers began a campaign to increase investments in SIBC so that they could use it to make or hide large commercial loans to themselves and their associates. They decided to use SIBC because it was largely unregulated and unsupervised by the state.
The table below shows the rapid increase in the total of investment certificates, passbook accounts, and VIP accounts.
*226DATE TOTAL INVESTMENTS NET CHANGE (millions) (millions)
12/79 $13,190 $ 4.893
12/80 $22,423 $ 9.232
12/81 $43,100 $20,677
12/82 $71,523 $28,423
01/83 $80,878 $ 9.355
To achieve this increase, the Butchers used a massive advertising campaign and above-market interest rates. For example, in December 1982, SIBC offered investors a return of 19.29% per annum. The media campaign reached its height during the preference period — December 10, 1982 through March 10, 1983.
In his opinion on insolvency, Judge Bare found that SIBC was insolvent on November 30, 1982 by almost $12,000,000. Judge Bare found that SIBC remained insolvent throughout the preference period and was insolvent on March 10, 1983 by almost $20,-000,000. DuVoisin v. Anderson (Southern Industrial Banking Corp.), 71 B.R. 351 (Bankr.E.D.Tenn.1987).
The last paragraph of the trustee’s affidavit is argument instead of a statement of facts. The trustee argues as follows. During the preference period SIBC was unable to pay investors from existing assets because of its massive insolvency. The only way SIBC could pay investors was by soliciting new investments and using the new investors’ money to pay the earlier investors. This made SIBC the same as a Ponzi scheme; it used money from later investors to pay earlier investors, and when the business went bankrupt, the later investors who didn’t have a chance to get paid were stuck with the loss.
The trustee’s affidavit relies heavily on Judge Bare’s opinion on insolvency, DuVoisin v. Anderson (Southern Industrial Banking Corp.), 71 B.R. 351 (Bankr.E.D.Tenn.1987).1
The defendant’s response to the Ponzi scheme argument also relies on Judge Bare’s opinion. Judge Bare found that SIBC had income from interest on installment loans; during January through November 1982, SIBC collected interest total-ling about $5,300,000. The defendant uses this finding of fact to make two points.2
First, it would have taken a large amount of installment loans to generate this much interest in eleven months. The defendant relies on the district court’s opinion on another question for the proposition that the installment loans totalled about $40,000,000 at the time of SIBC’s bankruptcy-
At the time of the filing of the Chapter 11 petition, roughly one half of SIBC’s loans were in the form of consumer installment obligations which it had purchased from retailers. The other half were more or less unsecured loans which had been made to individuals associated with C.H. Butcher, a principal stockholder in SIBC. Of the approximately $40,-000,000 of loans in this category....
DuVoisin v. Anderson (In re Southern Industrial Banking Corp.), 59 B.R. 978, 981 (E.D.Tenn.1986).3
Second, SIBC’s cash flow would have included not only the interest payments but also principal payments on the installment loans.
Judge Bare’s opinion on insolvency also states that SIBC had income from loan fees *227and insurance commissions. But the opinion does not reveal the amount of this income for 1982 or any other year.
The defendant dealt with the branch of SIBC in Morristown, Tennessee. She has filed the affidavit of the branch manager in support of her motion for summary judgment. Some of his statements are relevant to the question now before the court. The branch manager testified as follows.
SIBC routinely accepted deposits for accounts known as passbook accounts and VIP accounts. Both accounts earned interest. The agreements for these accounts allowed SIBC to require a 90-day notice before withdrawal, but SIBC did not ordinarily require any notice. SIBC employees regularly told holders of VIP accounts that they were payable on demand. SIBC routinely paid the holders of- both passbook and VIP accounts on demand.
SIBC sold investment certificates that were for various lengths of time. The interest rate varied according to the term of the certificate. When a certificate matured, the customer could surrender it to SIBC, and SIBC would pay the customer the principal amount of the certificate plus the interest. If the customer wanted to reinvest, she could surrender the certificate, and SIBC would issue a new certificate for the amount the customer wanted to invest. The new certificate would provide for payment of interest at the current rate offered by SIBC.
DISCUSSION
In a Ponzi scheme the crooks may set up a regularly operating business, but its purpose is to lure investors into the scheme; the crooks know the business will not make enough money to repay the investors. Henderson v. Buchanan (In re Western World Funding, Inc.), 52 B.R. 743 (Bankr.D.Nev.1985) aff'd in part, rev’d in part, Buchanan v. Henderson, 131 B.R. 859 (D.Nev.1990), rev’d, Henderson v. Buchanan, 985 F.2d 1021 (9th Cir.1993).
Other Ponzi schemes go down the scale from a few transactions to no legitimate business. See Wootton v. Barge (In re Cohen), 875 F.2d 508, 19 Bankr.Ct.Dec. 883, 21 Collier Bankr.Cas.2d 554 (5th Cir. 1989); Merrill v. Abbott (In re Independent Clearing House Co.), 41 B.R. 985, 12 Bankr.Ct.Dec. 44, 11 Collier Bankr.Cas.2d 196 (Bankr.D.Utah 1984), aff'd in part, rev’d in part, 77 B.R. 843 (D.Utah 1987) (en banc)4; Rafoth v. Bailey (In re Baker & Getty Fin’l Serv., Inc.), 88 B.R. 792 (Bankr.N.D.Ohio 1988).
If the debtor was a Ponzi scheme, a transfer to pay an investor is not protected by the exception for payments in the ordinary course of business. The creditor loses even if the debtor appeared to be a legitimate business, and the creditor didn’t do anything to force the payment. The best explanation for this result may be the simplest. The exception applies to payments by a real business, not to payments by a fake business set up to defraud people.
The trustee sometimes seems to be arguing that SIBC was a Ponzi scheme simply because it was insolvent. Every business that is balance-sheet insolvent is not a Ponzi scheme. The outcome may be the same — earlier debts paid and later debts not paid — but that does not make an insolvent business a Ponzi scheme. Of course, there is more to the trustee’s argument.
The trustee’s affidavit explains the alleged Ponzi scheme as follows. SIBC received money from investors who bought investment certificates or opened passbook accounts. The people in control of SIBC, the Butcher brothers, were using large amounts of the money for “loans” to themselves and their associates, loans that they knew were not likely to be repaid. The Butchers knew that SIBC could not repay the investors from honest earnings, but they used a massive advertising campaign and above-market interest rates to lure *228more and more investors to SIBC. They did this to get money from the later investors to pay the earlier investors and to provide themselves more money for their personal use. The trustee contends that these facts show a Ponzi scheme.
The court can assume that this statement of facts is correct. The Ponzi scheme cases still do not apply to SIBC. In his affidavit the trustee admits that SIBC had been a legitimate business. He does not deny that it continued its legitimate small loan business. The small loan business was a large business that generated a substantial income and cash flow. The undisputed facts show that SIBC was not just a Ponzi scheme or an element in a Ponzi scheme.
This is where the Sixth Circuit’s decision in First Federal v. Barrow becomes important. First Federal v. Barrow, 878 F.2d 912 (6th Cir.1989). The debtor in First Federal v. Barrow was not just a Ponzi scheme or an element in a Ponzi scheme. The debtor was a mortgage company that arranged and serviced mortgages. When the company arranged a mortgage, it was supposed to receive the money from the lender, put it in a separate account, and pass it on to the borrower. The company also serviced mortgages. It was supposed to receive payments from a borrower, put them in a separate account, and pass them on to the lender. The company had money coming in from other services. The company developed a cash flow problem and began using one bank account for all deposits and payments. In the Sixth Circuit’s words, this method of operating was “totally unorthodox and illegal.” First Federal v. Barrow, 878 F.2d 912, 918 (6th Cir.1989). The court held that the payments to the lenders were not in the ordinary course of the mortgage company’s business.
The court might say that the mortgage company’s method of operating had the same effect as a Ponzi scheme. It hid the mortgage company’s financial problems, and the loss was going to fall on the lenders who were to be paid last and their borrowers.
However, there were some key differences. The mortgage company was not set up to be and did not become a scheme for the operators to steal money from the business or its customers. The business was not soliciting new customers just to get money to pay old customers. The mortgage company was a legitimate business that went awry because of financial problems.
The trustee gives a different explanation of the problem with SIBC: the Butchers and their associates were using SIBC to raise money for their personal use, and were taking so much money from SIBC that it was bound to fail and leave some creditors unpaid. This may have been unorthodox and illegal, but the effect was different from the mortgage company’s wrongdoing in First Federal v. Barrow.
The mortgage company’s key duty was to keep the money it received in separate accounts and pass it along only to the creditor or the borrower who was supposed to receive it. When the mortgage company started using one account for all the money, it corrupted the business completely. The mortgage company’s mishandling of the money tainted every transaction, especially payments to lenders. According to the trustee, SIBC was more like a Ponzi scheme in which the overall business was used for fraud. The court, however, has already concluded that the undisputed facts distinguish SIBC from a Ponzi scheme.
Neither logic nor experience requires the court to say that SIBC was one or the other, either a Ponzi scheme or a business that operated in a totally unorthodox and illegal manner. The court must be careful not to over-extend the reasoning of the Ponzi scheme cases and First Federal v. Barrow. See Jobin v. McKay (In re M & L Business Mach. Co.), 155 B.R. 531, 24 Bankr.Ct.Dec. 464 (Bankr.D.Colo.1993). There are at least three underlying reasons for the result in the Ponzi scheme cases and First Federal v. Barrow.
The ordinary course exception may encourage creditors to continue normal dealings with debtors in financial trouble. 1 David G. Epstein et al. Bankruptcy § 6-29 *229at 608 (1992). This leads to the theory that the exception should not apply to payments by a Ponzi scheme or a totally unorthodox and illegal business, because that would aid their survival. The court finds this theory unconvincing. The court doubts that denying creditors the benefit of the exception will help put an early end to a Ponzi scheme or a totally unorthodox and illegal business. American Continental Corp. v. All Preference Defendants (In re American Continental Corp.), 142 B.R. 894 (D.Ariz.1992).
The second theory is that the exception should not apply because it would amount to continuing the effect of the debtor’s wrongdoing. On the other hand, denying creditors the benefit of the exception levels out tbe loss caused by the debtor’s wrongdoing.
' Leveling out the loss among creditors cannot by itself justify denying the exception, since it is the overall purpose of the preference law. The key argument is that applying the exception would continue the effect of the debtor’s wrongdoing.
This makes some sense in Ponzi scheme cases. The earlier investors get paid, and the loss falls on the later investors. If the exception applies, the earlier investors who were paid in the 90-day preference period keep their money, and the investors who were not paid bear the loss. Denying the exception reverses this result to some degree. But see Merrill v. Abbott (In re Independent Clearing House Co.), 77 B.R. 843, 874-75 (D.Utah 1987) (en banc) (leveling effect too minor to justify denying the exception).
Of course, payments by SIBC did not necessarily go to earlier investors ahead of later investors. Over a long period of time this may have been true, but in the short run, payments should have been mixed between earlier and later investors. This must be true because investors could buy investment certificates for different time periods and could routinely collect passbook accounts that did not have due dates.
Furthermore, in First Federal v. Barrow the debtor’s actions wronged two classes of customers at once. When the mortgage company failed, it left lenders without payments that their borrowers had already made and left the borrowers without credit for the payments. Multiply this result by a large number of borrowers and lenders, and leveling out the loss makes sense. SIBC does not involve this kind of problem.
The final theory is that payments by a Ponzi scheme or a totally unorthodox and illegal business are the same as intentional preferences. See, e.g., Mazer v. Broadway Southwest (In re Roemig), 123 B.R. 405 (Bankr.D.N.M.1991); Clark v. A.B. Hirchfeld Press, Inc. (In re Buyer’s Club Markets, Inc.), 123 B.R. 895 (Bankr.D.Colo.1991).5
This theory makes some sense with regard to a Ponzi scheme. The operators of a Ponzi scheme clearly intend to prefer the earlier investors. They intend to keep the scheme going by paying the earlier investors with money from later investors.
This theory does not especially make sense when the debtor was a real business, not just a Ponzi scheme or an element in a Ponzi scheme, and the payments were made when due. When a real business pays debts as they become due, the payments are not the same as intentional preferences to the creditors who were paid.
None of the underlying reasons for the result in the Ponzi scheme eases and First Federal v. Barrow justify the same result on the undisputed facts of this case.
The Arizona district court reached the same result in a case involving very similar *230facts, but its reasoning was somewhat different. American Continental Corp. v. All Preference Defendants (In re American Continental Corp.), 142 B.R. 894 (D.Ariz.1992).
The court will enter a partial summary judgment for the defendant and against the trustee on the argument that the exception in § 547(c)(2) does not apply because SIBC operated as a Ponzi scheme or in a totally unorthodox and illegal manner.
. The defendant has not challenged the trustee’s affidavit on the ground that it is not based on personal knowledge.
. The court is relying on the brief filed by defendant’s lawyers in Duvoisin v. Mallory, Adv. Proc. No. 3-85-0667. The arguments carry over since they are based on SIBC’s business before bankruptcy.
.The trustee has not objected to the defendant’s reliance on Judge Bare's or Judge Edgar’s statement of the facts.
. With regard to the fraudulent transfer issues, the bankruptcy court’s decision was reversed in part and affirmed in part in Merrill v. Dietz (In re Universal Clearing House Co.), 62 B.R. 118 (D.Utah 1986).
. This court has treated First Federal v. Barrow as extending the reasoning of the Ponzi scheme cases, but it might be explained purely as an intentional preference case. The court of appeals said that the debtor was intentionally preferring some creditors. The “totally unorthodox and illegal” language was supported by citation to a case; the court described the case as denying the exception because the payments resulted from the debtor’s pre-bankruptcy planning. The dissenting judge thought that the majority was finding the facts on the question of whether the debtor was intentionally preferring some creditors. First Federal v. Barrow, 878 F.2d 912, 914, 918 & 920 (6th Cir.1989). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491736/ | MEMORANDUM OPINION
JOHN E. RYAN, Bankruptcy Judge.
R. Neil Rodgers (“Trustee”) brought this action under § 548 of the Bankruptcy Code (the “Code”) seeking to recover $307,921.55 (the “Funds”) in fraudulent transfers from James, Wanda and Michael Monaghan and the Monaghan Company, an Arizona General Partnership (“Defendants”). The Mona-ghan Company is owned solely by the Mon-aghans. I granted Trustee’s motion for summary judgment. Defendants asserted a § 550(b)(1) defense as good faith purchasers, who took for value and without notice. At trial, I ruled that Defendants should be treated as one legal entity for purposes of this proceeding. I also found that Defendants received the Funds in good faith and without notice. In a Memorandum Opinion dated April 14, 1993, I held that Defendants were entitled to a § 550(b)(1) defense only to the extent of $10,000 and that the Trustee was entitled to recover $297,-921.55. Defendants asked me to amend my findings of fact and conclusions of law with respect to the April 14 opinion. I took this matter under submission.
JURISDICTION
The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(a) (1991) (the district courts shall have original and exclusive jurisdiction of all cases under title 11), 28 U.S.C. § 157(a) (1991) (authorizing the district courts to refer all title 11 cases and proceedings to the bankruptcy judges for the district) and General Order No. 266, dated October 9, 1984 (referring all title 11 cases and proceedings to the bankruptcy judges for the Central District of California). This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(F) and (H).
STATEMENT OF FACTS
James Anderson was a minority shareholder and manager of Laguna Beach Motors (“Debtor”). Prior to filing its voluntary petition under Chapter 7 of the Code, Debtor was primarily engaged in the business of retailing automobiles.
In December 1986, James Monaghan (“Monaghan”) purchased an option to buy controlling interests in four automobile dealerships from Don Dixon and John Be-langer (the “Belanger Agreement”). In February 1987, with Monaghan’s consent, three of the four dealerships were sold to Steven Bren. As part of the Bren transaction, Bren agreed to assume all of the debt of the one remaining dealership, Sterling Motors, Ltd., a BMW franchise in Newport Beach, California (“Sterling”). As a result, Monaghan had an option to purchase an interest in Sterling that was debt free (the “Option”). The Belanger Agreement provided that Monaghan had the right to purchase a 35% interest in Sterling for $750,-000. According to expert testimony, in 1987 Monaghan’s rights in Sterling had a value of approximately $2.5 million.
In June 1987, Monaghan and Anderson entered into an agreement for Monaghan to convey his rights in Sterling to Anderson for $320,000 in cash, and a $850,000 promissory note secured by the dealership (the “Sterling Agreement”). Apparently, Anderson embezzled the Funds from Debt- or to pay Defendants. Three cashiers checks sent to Defendants bore the legend “Re: Laguna Beach Motors.” However, the Sterling Agreement was signed by Anderson in his individual capacity and was for his sole benefit.
The Sterling Agreement called for an escrow to be opened by Monaghan’s attorneys, as the escrow agent. Further, upon the signing Anderson was required to transfer $100,000 “earnest money” to Defendants. Before September 9, 1987, Anderson and Monaghan were to perform concurrent conditions. Anderson was to transmit an additional $220,000 as a “down payment,” and execute and deliver into escrow a promissory note for $850,000, secured by the Belanger stock. In return, *565Monaghan was to execute and deliver into escrow an agreement of rescission, release, termination or cancellation relating to his interest in Sterling, and he was to execute an instrument of assignment of his interest in Sterling to Anderson (the “Release and Assignment Documents”). By September 9, 1987, Anderson had paid Monaghan the $100,000 in “earnest money,” however neither Anderson nor Monaghan had complied with any of the other concurrent conditions under the Sterling Agreement.
The Sterling Agreement was amended on September 23, 1987 (the “Modified Sterling Agreement”). Under the terms of the Modified Sterling Agreement, the closing date was changed from September 9, 1987 to October 26, 1987. Further, Anderson was to pay Monaghan a $10,000 fee as consideration for the extension of time to perform, an additional $100,000 in “earnest money,” and a reduction in the “down payment” to $120,000. Also, Anderson was required to remit $4,802.78 as interest on the down payment for the period July 9, 1987 to September 23, 1987. Thus, the terms of the purchase were changed to include $200,000 in “earnest money”, a down payment of $120,000 and a secured note for $850,000.
Anderson paid Defendants the following: (1) $200,000 in “earnest money;” (2) $10,-000 modification fee; (3) $93,018 towards the $120,000 down payment; and (4) $4,802.78 in interest.
In a Memorandum Opinion dated July 18, 1991, I held that Defendants were not “initial transferees” under § 550(a)(1). Additionally, on December 2, 1991, I granted summary adjudication in favor of Trustee that the transfer of the Funds to Defendants were avoidable under § 548. I issued my Memorandum Opinion on March 25, 1993, holding that Defendants were good faith purchasers for value under § 550(b)(1) to the extent of the $10,000 modification fee. On April 14, 1993, I amended the March 25, 1993 order to deny Trustee’s costs and attorney’s fees in this proceeding. Accordingly, I ordered Defendants to return $297,921.55 to the Trustee. On June 17, 1993, Defendants brought a motion to amend my findings of fact and conclusions of law.
DISCUSSION
Defendants argue that I should amend the April 14, 1993 Memorandum Opinion pursuant to Federal Rule Civil Procedure 59 (“FRCP”). Trustee responds that Defendants’ FRCP 59 motion is untimely since it was filed 12 days after the entry of the original judgment in this case. FRCP 59 provides that:
“... [o]n a motion for a new trial in an action tried without a jury, the court may open the judgment if one has been entered, take additional testimony, amend findings of fact and conclusions of law or make new findings and conclusions, and direct the entry of a new judgment.” When a court enters an amended judgment, all time for review begins to run anew as long as the amended judgment resolves a genuine ambiguity.
Federal Trade Com. v. Minneapolis-Honeywell, R. Co., 344 U.S. 206, 211-12, 73 S.Ct. 245, 249, 97 L.Ed. 245 (1952).
Here, the original judgment was entered on March 25, 1993. The original judgment was amended to address the unresolved issue of Trustee’s request for fees and costs. On April 14, 1993, an amended judgment was entered finding that Trustee was not entitled to such expenses. I find that the amended judgment resolved a genuine ambiguity. Accordingly, the last date for filing a FRCP 59 motion was April 24, 1993. Since the motion was filed on April 7, 1993, it was timely.
Code § 550 specifies from whom a trustee can recover an avoidable transfer. Section 550(a)(1) allows a trustee to recover from the “initial transferee.” In re Bullion Reserve, 922 F.2d 544, 547 (9th Cir.1991). Under § 550(a)(2), a trustee may also recover from “any immediate or mediate transferee.” Recovery under § 550(a)(2) is limited by § 550(b)(1). Id. Trustee may not recover from a mediate or immediate transferee where the requirements of § 550(b)(1) are satisfied by the *566transferee.1 “In general, section 550(b)(1) fully protects secondary transferees (and in turn their transferees) that have taken for value, in good faith, and without knowledge of the voidability of the transfer.” 4 Collier on Bankruptcy, (15th Ed.) ¶ 550.-03[1], 550-5.
Defendants bear the burden of proof to determine the validity of their § 550(b)(1) defense. Bonded Financial Services v. European American Bank, 838 F.2d 890, 892 (7th Cir.1988).
At trial, I found that Defendants accepted the Funds in good faith and without notice of the avoidability of the transfers. The sole remaining issue, therefore, is whether value was given by Monaghan for the exchange.
Before turning to the issue of value, Trustee argues that any right that Mona-ghan had to purchase the Belanger shares terminated on April 1, 1987. Paragraph 10.01 of the Belanger Agreement provides that “upon dispatch of notice,” Belanger has the right to terminate the contract unless certain conditions are met by the parties before April 1, 1987. Since some of these conditions were not met, Trustee argues that the Belanger Agreement terminated on April 1, 1987. However, at trial Monaghan testified that he never received “notice” of termination of the Belanger Agreement. Further, Trustee has failed to submit evidence substantiating any “notice” of termination. The “upon dispatch of notice” requirement was not met. Thus, for purposes of this proceeding, Monaghan had an enforceable option to purchase the Sterling stock.
Trustee argues that value under § 550(b)(1) is “fair market value.” Defendants respond that § 550(b)(1) value is “reasonably equivalent value.”
In In re Agricultural Research and Technology Group, 916 F.2d 528, 540 (9th Cir.1990), the trustee brought an action against an investment partnership of a corporate debtor under § 544(b). The court held that the transfers were avoidable. The trustee also sought recovery from the limited partners after the investment partnership distributed the avoidable funds to them. The limited partners asserted a § 550(b)(1) defense. The court concluded that under bankruptcy law, distributions to limited partners are classified as “equity security.” Thus, the partnership distributions were not for value because the transfers were on “account of the partnership interests and not on account of debt or property transferred to the partnership .... ” Id. The court relied on the Uniform Fraudulent Transfer Act, comment 2, which states that value is to be determined in light of the Act’s purpose to protect creditors. Id.
In Matter of Still, 963 F.2d 75 (5th Cir.1992), the Fifth Circuit considered whether the Federal Deposit Insurance Corporation (“FDIC”) could assert the § 550(b)(1) defense to an action under § 547. The FDIC had taken over a bank that had earlier obtained a judgment, and garnished the wages of the debtor. The trustee avoided the writs of garnishment under § 547. The FDIC asserted that it gave value under § 550(b)(1) by assuming the Bank’s assets and liabilities under its statutory duties. The FDIC did not pay any cash or other property to the Bank when it succeeded to the Bank’s assets as receiver. The court disagreed with the FDIC stating that, “[t]he Bankruptcy Code does not define ‘value’.” Id. at 76. The court held that:
Congress requires a subsequent transferee to “take for value” in order to merit protection under § 550(b). The FDIC would have us divorce the concept of value from the exchange of the Bank’s assets. We do not think Congress intended the concept of “value” to be so attenuated. The FDIC does not “give *567value” to the Bank simply by performing its statutory duties.
Id. at 78.
Therefore, the court denied the FDIC’s § 550(b)(1) defense for lack of value.
Although Agricultural Research and Still do not provide a clear definition of “value” for purposes of § 550(b)(1), they do require that the transferee transfer something of value that takes into consideration the interests of creditors.
In Bonded Financial Services v. European Amer. Bank, 838 F.2d 890 (7th Cir.1988), the court discussed value under § 550(b)(1). A bank loaned Michael Ryan $655,000. The debtor, an affiliate of Ryan, remitted a $200,000 check to the bank’s order with a note directing the bank to deposit the check into Ryan’s account. Ten days later Ryan instructed the bank to debit $200,000 from his account in order to pay down the $655,000 loan. The court held that the $200,000 transfer from the debtor to Ryan was a fraudulent transfer under § 548(a). The trustee sought to recover the $200,000 from the bank under § 550(a). The trustee contended that under § 550(b)(1) a subsequent transferee must give value to the debtor and the bank only gave value to Ryan. However, the court rejected this view stating that when discussing value, “[a] natural reading looks to what the transferee gave up rather than what the debtor received.” Id. at 897. The court held that the bank had given value in exchange for the $200,000 by reducing debtor’s debt.
Trustee cites In re Auxano, Inc., 96 B.R. 957 (Bankr.W.D.Mo.1989), for the proposition that value under § 550(b)(1) is “fair market value.” In Auxano, the trustee filed an adversary action to set aside the transfer of real estate to ITT Financial (“ITT”). ITT claimed to have a § 550(b)(1) defense. Auxano is the only published case I found that clearly defines value under § 550(b)(1). The court stated that:
[ujnlike Section 549(c) or various other provisions in the Code, the concept of value in Section 550(b)(1) is not modified or circumscribed by such words as fair or equivalent ... in determining whether this is sufficient value to escape recovery by the estate, the Court must be forever mindful of the purpose of the avoidance and recovery powers — to preserve the assets of the estate.
Id. at 965.
The court in Auxano set forth a two-step approach to determine value. Citing Bonded Financial, the court looked at the value of the property transferred and then determined if fair market value was received.
Auxano relies on Matter of Nevada Implement Co., 22 B.R. 105, 106 (Bankr.W.D.Mo.1982), and In re Vann, 26 B.R. 148 (Bankr.S.D.Ohio 1983), for its fair market value standard under § 550(b)(1). However, the Nevada Implement and Vann courts concluded that fair market value should be given for purposes of § 550(a), not § 550(b)(1). The two sections use value for different purposes. Section 550(a) seeks to recover property from a person who has wrongfully taken funds from an estate, while § 550(b)(1) is meant to protect an innocent third party transferee from liability on avoidable transfers.
Section 550(b)(1) provides a bona fide purchaser defense. I believe reference to bona fide purchaser provisions in state law is appropriate in deciding , the standard of value to apply under § 550(b)(1). California Commercial Code (“Cal.Comm.Code”) § 2-403(1) provides protection to bona fide purchasers for value who are transferees of fraudulently transferred goods. Value for purposes of § 2-403(1) is defined under Cal.Comm.Code § 1-201(44). Section 1-201(44) states that a person gives “value” for rights if he acquires them in exchange for any consideration sufficient to support a simple contract.2 California Civil Code *568(“Cal.Civ.Code”) § 1605, which defines good consideration, does not require property exchanged in a contract to equal fair market value.3 A contract is supported by sufficient consideration if there is some benefit to the promisor or detriment to the promisee, regardless of the amount thereof. Booth v. Bond, 56 Cal.App.2d 153, 157, 132 P.2d 520 (1943). Thus, under the Cal. Comm.Code, to become a bona fide purchaser for value, one must give only “sufficient consideration.”
Under the Uniform Fraudulent Transfer Act, Cal.Civ.Code § 3439.08 states that a transfer is not voidable as a fraudulent transfer against a person who takes in good faith and for a “reasonably equivalent value.”4
Additionally, Collier disagrees with Aux-ano’s adoption of fair market value. Collier states that § 550(b)(1) does not require that the value given by the transferee be a fair equivalent. 4 Collier on Bankruptcy, (15th Ed.) ¶ 550.03[1] at 550-15.
Accordingly, I find that “reasonably equivalent value” and not “fair market value” is the proper standard for value under § 550(b)(1). This standard balances the interests of the creditors against those of innocent third parties, provides for the receipt of something more than that which is sufficient to support a contract, is consistent with state law on fraudulent transfers, and leaves the court with some latitude to apply a flexible rather than an exact standard to the facts and circumstances surrounding the transfers.
In In re Morris Communications NC, Inc., 914 F.2d 458 (4th Cir.1990), the court considered what equals reasonable equivalence for purposes of § 548. The court rejected a mathematical formula for determining reasonable equivalence and stated that reasonable equivalence should depend on all the facts of each case, an important element of which is market value. Id. at 467. Although fair market value is not dispositive, it serves as a starting point of review. Id. Another important factor is whether the sale was “an arms’s length transaction between a willing buyer and willing seller.” Id.
In determining value, Bonded Financial instructs that the inquiry should be on what the transferee gave up in exchange for the transfers. Bonded Financial, 838 F.2d at 897. Anderson transferred to Monaghan the Funds in return for the right to purchase the option. This sum includes the $200,000 in earnest money, the modification fee of $10,000, the interest payment of $4,802.78 and the $93,-018 down payment. What value did Mona-ghan give in return? Monaghan transferred no property to Anderson. See Agricultural Research, supra at 6. As a matter of fact, he failed to open the escrow that was the vehicle to consummate the transaction.5 Additionally, he failed to execute and deliver into escrow the Release and Assignment Documents. Monaghan was required to do this by October 26, 1987. Therefore, despite receiving the *569Funds, Monaghan failed to perform his obligations under the Modified Sterling Agreement. Under the circumstances, Monaghan did not transfer reasonably equivalent ■ value to Anderson for the Funds.
Defendants believe that in my April 14, 1993 Memorandum Opinion I erroneously concluded that reasonably equivalent value was not given for the $200,000 earnest money. Defendants argue that since Anderson did not have any ability to perform a concurrent condition, as a matter of law Monaghan had no contractual obligation to establish the escrow or deposit any documentation into that escrow. I found in my April 14, 1993 Memorandum Opinion that Monaghan and Anderson had “conditions concurrent” under the Modified Sterling Agreement. Cal.Civ.Code § 1439 provides that there is no duty for one party to perform a condition concurrent until an offer of performance has been made by the other side.6 I acknowledge that Monaghan had no duty to establish the escrow or deposit the transfer instruments into escrow until Anderson offered to and was able to perform his down payment obligations. The problem with Defendants’ argument is that this is not an action for breach of contract. This is an action to determine whether a third party transferee took for reasonably equivalent value, in good faith and without knowledge of the voidability of the transfer. Accordingly, Cal.Civ.Code § 1439 is not dispositive on the outcome of this proceeding.
Defendants also contend that I should not have grouped the entire $200,000 earnest money to determine whether reasonably equivalent value was given in my April 14, 1993 Memorandum Opinion. Defendants believe that the two transfers of $100,000 in earnest money should be viewed independently for purposes of the § 550(b)(1). I agree. The two transfers occurred at different times and for different purposes.
The original transfer of $100,000 earnest money was made in connection with the purchase of the Option which had to be exercised by September 9, 1987. The second $100,000 earnest money was paid to Monaghan on September 23, 1987 in exchange for an extension of time to October 26, 1987 to close the transaction. Accordingly, the two payments were made at different times and for different purposes. It is, therefore, appropriate to view the payments independently in determining the § 550(b)(1) defense.
Earnest money is defined as “... a comparatively small down payment made as an assurance that the purchaser is in earnest and good faith and that if he fails to purchase the property the deposit will be for-feited_ [i]n effect earnest money operates as liquidated damages.” Bishop Ryan High School v. Lindberg, 370 N.W.2d 726, 728 (1985).
Here, the contract states that in the event that the transaction does not close by October 26, 1987, the Sterling Agreement shall be mutually cancelled and Monaghan may retain any interest already paid on the down payment, or under the note, and may retain the entirety of the earnest money. When Monaghan signed the Sterling Agreement, he received $100,000 in earnest money. In return, he gave his commitment to carry out the terms of the Sterling Agreement. Moreover, Monaghan granted Anderson the exclusive right to purchase his interest in Sterling until September 9, 1987. The exclusive right to purchase an interest has value. Here, Monaghan’s rights were valued at $2.5 million and the Sterling Agreement called for payment by Anderson of in excess of $1 million. The $100,000 earnest money represented approximately 10% of the Sterling Agreement purchase price. Accordingly, I believe that reasonably equivalent value was given by *570Defendants in exchange for the initial $100,000 earnest money.
I find, however, that reasonably equivalent value was not given in exchange for the September 23, 1987 earnest money deposit of $100,000. The payment extended the time for Anderson to pay the balance of the purchase price for October 26, 1987. The Modified Sterling Agreement allowed Anderson 34 additional days to close the transaction. In addition to the $100,000 earnest money, Anderson paid Monaghan a $10,000 modification fee. I do not believe that a 34 day extension is reasonably equivalent value for an additional $100,000 earnest money deposit. The $100,000 earnest money remitted on September 23, 1987 was not, therefore, reasonably equivalent value for purposes of § 550(b)(1).
In addition, I find that reasonably equivalent value was not given for $4,802.78 in interest on the down payment. The $4,802.78 was part of the Modified Sterling Agreement. The payment was remitted to Monaghan on September 23, 1987, representing interest on the down payment for July 9, 1987 to September 23, 1987.
I find that Monaghan gave reasonably equivalent value for the $10,000 modification fee. Since Anderson had not deposited the down payment and note as of September 9, 1987, the Sterling Agreement was to terminate by its own terms. At that point Monaghan ideally could have kept the earnest money and refused to extend the date for Anderson to satisfy his conditions under the Sterling Agreement. Mutual promises to extend time of payment of a debt is good consideration. Bank of America v. Hollywood Imp. Co., 46 Cal.App.2d 817, 821, 117 P.2d 13 (1941). The modification fee of $10,000 is reasonably equivalent value for the extension of time Monaghan gave Anderson to make the down payment. Thus, Monaghan may retain the $10,000 modification fee.
CONCLUSION
The proper standard to determine value for purposes of § 550(b)(1) is reasonably equivalent value. Here, Monaghan did not give value for purposes of § 550(b)(1) for the $100,000 in earnest money transferred on September 23,1987, the $93,018.00 down payment, and the $4,802.78 in interest. These transfers are avoidable under § 550(a)(2) and recoverable from Defendants. I find that Monaghan did give § 550(b)(1) value for the initial $100,000 earnest money and for the $10,000 modification fee.
Separate findings of fact and conclusions of law with respect to this ruling are unnecessary. This memorandum opinion shall constitute my findings of fact and conclusions of law.
. Code § 550(b) provides:
"The trustee may not recover under section (a)(2) of this section from—
(1) a transferee that takes for value, including satisfaction or securing of a present or antecedent debt, in good faith, and without knowledge of the voidability of the transfer avoided.... ”
. Cal.Comm.Code § 1-201(44) defines "value" as
... [e]xcept as otherwise provided with respect to negotiable instruments and bank collections (Sections 3303, 4208 and 4209) a person gives "value" for rights if he acquires them in any of the following ways:
(a) In return for a binding commitment to extend credit or for the extension of immediately available credit whether or not drawn *568upon and whether or not a charge-back is provided for in the event of difficulties in collection.
(b) As security for or in total or partial satisfaction of pre-existing claim.
(c) By accepting delivery pursuant to a preexisting contract for purchaser.
(d) Generally, in return for any consideration sufficient to support a simple contract.
Cal.Comm.Code § 1-201(44) (West Supp.1993).
. Cal.Civ.Code § 1605 states:
Any benefit conferred, or agreed to be conferred, upon the promisor, by any other person, to which the promisor is not lawfully entitled, or any prejudice suffered, or agreed to be suffered, by such person, other than such as he is at the time of consent lawfully bound to suffer, as an inducement to the promisor, is good consideration for a promise.
Cal.Civ.Code § 1605 (West 1982).
. Cal.Civ.Code § 3439.08(a) (West Supp.1993). The section provides:
(a) A transfer of an obligation is not voidable under subdivision (a) of Section 3439.04, against a person who took in good faith and for a reasonably equivalent value or against any subsequent transferee or obligee....
. Defendants argue that the Modified Sterling Agreement was modified a second time. Since I have no evidence of this second modification, I will not consider it for purposes of this proceeding.
. Cal.Civ.Code § 1439 provides:
Performance, etc. of conditions when essential. Before any party to an obligation can require another party to perform any act under it, he must fulfill all conditions precedent thereto imposed upon himself; and must be able and offer to fulfill all conditions concurrent so imposed upon him on the like fulfillment by the other party, except as provided by the next section. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491737/ | MEMORANDUM OPINION
JAMES E. YACOS, Bankruptcy Judge.
7. INTRODUCTION
Before the Court for decision is the trustee’s amended complaint for recovery of approximately $400,000 which was allegedly preferentially transferred to the failed New England Allbank (“Allbank”). The Federal Deposit Insurance Corporation (“FDIC”) was appointed receiver for All-bank and has moved to dismiss the complaint with prejudice pursuant to 12 U.S.C. § 1821(d)(13)(D) on the theory that that subsection defeats this Court’s subject matter jurisdiction. The trustee has continued the repartee by raising due process, conflict of laws, and retroactivity arguments. While colorable, these arguments, with the exception of the issue of retroactivity 1, are not reached as the Court concludes that it does not have subject matter jurisdiction over this adversary proceeding. Accordingly, for the reasons discussed below, the FDIC motion to dismiss will be granted by order entered separately. The following constitute the court’s findings of fact and conclusions of law in accordance with Fed. R.Bankr.P. 7052.
II. FACTS
1. On December 12, 1988, a chapter 11 involuntary petition was filed against N.E.W. — New Entertainment World, Inc. (hereinafter “NEW”).
2. On May 16, 1989 the chapter 11 case was converted to a proceeding under Code chapter 7.
3. On June 6, 1989, the plaintiff was appointed the interim chapter 7 trustee of debtor’s estate.
4. On August 9, 1989, the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (hereinafter “FIRREA”), 12 U.S.C.S. § 1811 et seq., became effective law.
5. On September 8, 1989, the plaintiff became the permanent chapter 7 trustee of the debtor pursuant to Code section 702.
*6276. On December 12, 1990, the Commissioner of Banking for the Commonwealth of Massachusetts appointed the FDIC as the receiver of Allbank.
7. Pursuant to the requirements of FIRREA, the FDIC gave publication notice of Allbank’s insolvency, its appointment as receiver for Allbank, and a March 17, 1991 bar date for the filing of proof of claims against the receivership estate.2
8. Pursuant to the requirements of FIRREA, the FDIC also sent actual written notice to all creditors who appeared on the books and records of Allbank on the date that the FDIC was appointed receiver.
9. On June 11, 1991 the trustee filed its complaint against the FDIC as receiver of Allbank. The complaint was amended on or about August 5, 1991.
III. ARGUMENT OF THE PARTIES
The trustee’s amended complaint alleges that at some unspecified time within the ninety day period immediately prior to the petition date, the debtor sold substantially all of its assets generating approximately $400,000 which it then transferred to All-bank in satisfaction of two promissory notes. The amended complaint also alleges that Allbank did not have a perfected security interest in the debtor’s equipment, inventory, accounts receivable, and general intangibles. Specifically, the trustee claims that while Allbank filed a UCC-1 Financing Statement with the New Hampshire Secretary of State’s office, it never filed the same with the Manchester City Clerk’s office. See N.H.Rev.Stat.Ann. 382-A:9-401(l)(d). Put together, the trustee contends that the $400,000 payment allowed Allbank to receiver more than it would have in a liquidation and was thus preferential. Asserting his status as a lien creditor as of the petition date, 11 U.S.C. § 544(a)(1), the trustee claims a priority right to the $400,000 and seeks a turnover order pursuant to 11 U.S.C. § 550.
In response, the FDIC has moved to dismiss the trustee’s amended complaint for lack of subject matter jurisdiction. The FDIC relies on the FIRREA statute, specifically the combination of subsections 1821(d)(3), (5), and (13), which together establish an administrative procedure for the determination of claims against the receivership estate (hereinafter “administrative claims procedure”). The FDIC points to the undisputed fact that the chapter 7 trustee has never filed a proof of claim with the FDIC as required by FIRREA’s administrative claims procedure. The FDIC further notes that it has already begun making distributions and paid a first dividend to creditors in February, 1991.
The trustee has replied that this Court has jurisdiction via 28 U.S.C. § 1334(b) and notes that under 28 U.S.C. § 157(b)(2)(F), a preference action is a core proceeding under the Bankruptcy Code. The trustee claims he was entitled to actual written notice pursuant to 12 U.S.C. § 1821(d)(3)(B) and (C) and states that he never received actual written notice of the March 17, 1991 “bar date” for filing claims against the Allbank receivership estate. The trustee also argues that the preference cause of action accrued prior to enactment of FIR-REA’s administrative claims procedure such that its application to this proceeding would be an impermissible retroactive application of law. Lastly, according to the trustee, the combination of no actual individual written notice and retroactive application of the FIRREA statute amounts to a deprivation of constitutional due process of law.
The Court conducted a hearing on August 7, 1991 on the defendant’s motion to dismiss and directed further briefing. The Court conducted a further hearing on February 28, 1992 at which time the parties advised the Court that a series of recent decisions would likely impact determination of this proceeding. Based on these representations, the Court concluded that further oral argument was warranted and *628held another hearing on April 7, 1992. At that hearing the trustee strenuously argued against the alleged retroactive application of FIRREA to this proceeding. At the conclusion of the hearing the Court gave the parties another thirty days to brief the retroactivity issue. The FDIC filed its memorandum of law on April 30, 1992 and the trustee replied on May 28, 1992, at which time the Court considered the motion ripe for adjudication.
IV. APPLICABLE LAW
28 U.S.C. § 1334. Bankruptcy cases and proceedings.
(a) Except as provided in subsection (b) of this section, the district courts shall have original and exclusive jurisdiction of all cases under title 11.
(b) Notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts, the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11.
28 U.S.C. § 157. Procedures.
(b)(1) Bankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11, referred under subsection (a) of this section, and may enter appropriate orders and judgments, subject to review under section 158 of this title.
(F) proceedings to determine, avoid, or recovery preferences.
12 U.S.C. § 1821. Permanent Insurance Fund.
(3) Authority of receiver to determine claims. (A) In general. The Corporation may, as receiver, determine claims in accordance with the requirements of this subsection and regulations prescribed under paragraph (4)(A).
(B) Notice requirements. The receiver, in any case involving the liquidation or winding up of the affairs of a closed depository institution shall—
(i) promptly publish a notice to the depository institution’s creditors to present their claims, together with proof, to the receiver by a date specified in the notice which shall be not less than 90 days after the publication of such notice; and
(ii) republish such notice approximately 1 month and 2 months, respectively, after the publication under clause (i).
(C) Mailing required. The receiver shall mail a notice similar to the notice published under subparagraph (B)(i) at the time of such publication to any creditor shown on the institution’s books—
(i) at the creditor’s last address appearing in such books; or
(ii) upon discovery of the name and address of a claimant not appearing on the institution’s books within 30 days after the discovery of such name and address.
* * * * . * *
(5) Procedures for determination of claims. (A) Determination period, (i) In general. Before the end of the 180-day period beginning on the date any claim against a depository institution is filed with the Corporation as receiver, the Corporation shall determine whether to allow or disallow the claim and shall notify the claimant of any determination with respect to such claim.
(ii) Extension of time. The period described in clause (i) may be extended by a written agreement between the claimant and the Corporation.
(iii) Mailing of notice sufficient. The requirements of- clause (i) shall be deemed to be satisfied if the notice of any determination with respect to any claim is mailed to the last address of the claimant which appears—
(I) on the depository institution’s books;
(II) in the claim filed by the claimant; or
(III) in documents submitted in proof of the claim.
(iv) Contents of notice of disallowance. If any claim filed under clause (i) is *629disallowed, the notice to the claimant shall contain—
(I) a statement of each reason for the disallowance; and
(II) the procedures available for obtaining agency review of the determination to disallow the claim or judicial determination of the claim.
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(F) Legal effect of filing, (i) Statute of limitation tolled. For purposes of any applicable statute of limitations, the filing of a claim with the receiver shall constitute a commencement of an action.
(ii) No prejudice to other actions. Subject to paragraph (12), the filing of a claim with the receiver shall not prejudice any right of the claimant to continue any action which was filed before the appointment of the receiver.
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(13)(D) Limitation on judicial review. Except as otherwise provided in this subsection, no court shall have jurisdiction over—
(i) any claim or action for payment from, or any action seeking a determination of rights with respect to, the assets of any depository institution for which the Corporation has been appointed receiver, including assets which the Corporation may acquire from itself as such receiver; or
(ii) any claim relating to any act or omission of such institution or the Corporation as receiver.
11 U.S.C. § 547. Preferences.
(b) Except as provided in subsection (c) of this section, the trustee may avoid any transfer of an interest of the debtor in property—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the filing of the petition; or
(B) between 90 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.
11 U.S.C. § 550. Liability of transferee of avoided transfer.
(a) Except as otherwise provided in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549, 553(b), or 724(a) of this title, the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from—
(1) the initial transferee of such transfer or the entity for whose benefit such transfer was made; or
(2) any immediate or mediate transferee of such initial transferee.
V. DISCUSSION
Jurisdiction of the Bankruptcy Court
By separate memorandum of decision entered this date in the cases Steven Tamposi v. FDIC, ADV No. 92-1055, and Elizabeth Tamposi v. FDIC, ADV No. 92-1056, I have held that 12 U.S.C. § 1821(d)(13)(D) does not trump this Court’s subject matter jurisdiction over an adversary proceeding involving property in the actual or constructive possession of the bankruptcy estate. The Tamposi decision harmonized the Bankruptcy Code and FIRREA in a way that preserved the underlying purpose of each without rendering the key substantive provisions of either meaningless or nullities. See, e.g., California Human Resources Dep’t v. Java, 402 U.S. 121, 130, 91 *630S.Ct. 1347, 1353, 28 L.Ed.2d 666 (1971) (“The purpose of the federal statutory-scheme must be examined in order to reconcile the apparent conflict between the provision of the California statute and § 303(a)(1) of the Social Security Act.”).
The underlying rationale for the Tamposi result was a focus on the location of the res on which a particular adversary proceeding is predicated.3 If the subject res, money or property, is in the actual or constructive possession of the bankruptcy estate, then Code provisions become paramount and FIRREA is not implicated in a way that would bar suit. But the contrapo-sitive of Tamposi, which is called into play in the present adversary proceeding, is that where the res is in the actual or constructive possession of. the receivership estate, then FIRREA’s administrative claims procedure requirements are paramount and must be complied with in order to preserve one’s rights against the receivership estate.
This basic distinction was observed by Judge Conrad in his well-reasoned and persuasive tandem decisions of In re All Season’s Kitchen, Inc., 145 B.R. 391 (Bankr.D.Vt.1992) and In re Purcell, 141 B.R. 480 (Bankr.D.Vt.1992). Purcell and All Season’s Kitchen, both denied the FDIC’s motions to dismiss pursuant to subsection 1821(d)(13)(D), holding that a debtor’s action to determine the validity, priority, and extent of a lien falls outside the FIRREA administrative claims procedure. Purcell, 141 B.R. at 485; All Season’s Kitchen, 145 B.R. at 400. The explicit rationale for the Purcell—All Season’s Kitchen holding is that a debtor is not bound by the FIRREA administrative claims procedure when it is the FDIC making a claim against assets of the bankruptcy estate.
This case represents the opposite in that the debtor is attempting to lay claim to assets of the receivership estate. As I explained in Tamposi, the dividing line is defined by where the asset that will actually be liquidated is located. In Purcell, All Season’s Kitchen, and Tamposi, the disputed assets were in the actual or constructive possession of the bankruptcy estate. Here, the disputed $400,000 was paid over to Allbank prior to its demise back sometime between September and November of 1988.
In this ease it is uncontroverted that the trustee never filed a claim with the receivership estate. This was so despite the fact that he had at the least inquiry notice of the appointment of the FDIC as the receiver for Allbank. Applying the rule of Tamposi to the present case, the conclusion is ineluctable: since the res is and has been prior to the inception of this case in the actual possession of the bank or the subsequent receivership estate, the FIRREA administrative claim provisions apply and 12 U.S.C. § 1821(d)(13)(D) precludes subject matter jurisdiction in this Court.
The trustee did raise a retroactivity issue during this proceeding arguing that the 12 U.S.C. § 1821(d)(13)(D) statute should not be applied retroactively and therefore does not support a preclusion of subject matter jurisdiction in the present case. The FIRREA statute became effective August 9, 1989. While the original chapter 11 petition was filed in December of 1988, the chapter 7 trustee, the plaintiff here, was not appointed preliminarily until June 9, 1989, and permanently on September 8, 1989. Under § 546(a)(1) of the Bankruptcy Code a two-year statute of limitations commenced to run on preference actions upon the appointment of the trustee—not at the time of the original 1988 transfer being attacked. Since § 546(a)(1) runs the statute of limitations from the date of the trustee’s permanent appointment, by reference to § 702 of the Code, the FIRREA provisions were already effective prior to that date and in no sense have to be applied retroactively on the facts of the present case. Indeed, the FDIC was not even appointed receiver of Allbank un*631til December 12, 1990, which triggered the administrative claim procedures under FIR-REA resulting in the March 17, 1991 bar date, which this Court has concluded overrides the Bankruptcy Code provisions but in a timeframe in which the trustee could have complied without losing any rights. No matter how the question is viewed therefore no true retroactivity issue is presented on these facts. Even if a retroactivity issue were presented there is no showing of manifest injustice to the trustee since the effect of applying the FIRREA statute was merely to shorten the time for action when it was still within the power of the trustee to initiate appropriate action to recover the preference from the receivership assets.
As I have today decided that the Court lacks subject matter jurisdiction over the trustee’s amended complaint to recover the alleged preferential transfer, it becomes unnecessary to address his alternative notice and due process arguments. Those issues are appropriately raised in the FDIC administrative process and in any appellate process specified for judicial review of FDIC determinations.
VI. CONCLUSION
For all the foregoing reasons, where the facts are as present in this case, the Court harmonizes the Code and FIR-REA as follows: where the primary tangible or intangible asset is in the actual or constructive possession of the bankruptcy estate, then the Code overrides FIRREA and bankruptcy law controls; obversely, where the contested asset is in the actual or constructive possession of the receivership estate, then the provisions of FIRREA overrides the Code, and must be complied with. Here that means that the FDIC’s motion to dismiss will be granted. A separate order to that effect will be entered contemporaneously with the filing of the decision.
. See discussion at pages 630-31 infra.
. According to the FDIC, the publication notice was printed once per month for three months in a number of local and regional newspapers. The newspapers in which notice was published include the Lowell Sun, The Gardner News, The Worcester Telegram and Gazette, and the Fitch-burg Sentinel And Enterprise.
. The res must be a tangible asset and not a mere inchoate chose in action. In Tamposi the res was both real and personal property to which the attachments had fixed. In the present case, the real asset that underlies the trustee's amended complaint is the approximate $400,000 dollars representing the proceeds of the pre-petition sale of debtor's assets. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491738/ | MEMORANDUM OF DECISION AND ORDER ON PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
ROBERT L. KRECHEVSKY, Chief Judge.
I.
ISSUE
The plaintiff-debtor in possession seeks in this proceeding to recover from the defendant-judgment creditor monies the defendant received prepetition after a levy upon a bank account maintained by the plaintiff. The plaintiff contends the bank account contained only security deposits re*670ceived from the plaintiffs tenants, the segregation of which is mandated by Connecticut statutory law. The defendant argues that even if there were a wrongful levy, the plaintiff’s sole recourse is against the bank where the account is located. There being no material facts in dispute, the plaintiff has moved for summary judgment.
II.
BACKGROUND
The plaintiff, a limited partnership, owns and operates a residential apartment complex known as Winthrop Square Apartments in New London, Connecticut. It maintains at the Bank of Hartford (the Bank) a bank account entitled “Thames River Associates Limited Partnership for Winthrop Square Apartments-Security Reserve” (the Account) in which tenant security deposits are placed.
Security Windows, Inc., the defendant, on or about May 28, 1991, obtained a $42,-000 judgment in state court against the plaintiff. On May 5, 1992, the defendant caused a property execution to be served upon the Bank which the Bank honored by debiting the Account for $34,647, which sum the defendant subsequently received.
The plaintiff filed its chapter 11 petition on December 23, 1992, and after the defendant rejected a demand for return of the monies taken from the Account, the plaintiff filed this adversary proceeding on March 9, 1993. The plaintiff labeled its complaint as one “For Turnover of Property,” and pled that the proceeding was a core proceeding. The defendant in its answer denied the proceeding was core, but has consented to the entry of a final judgment by the court. See Fed.R.Bankr.P. 7012(b) (when responsive pleading states proceeding is non-core, party shall indicate whether it consents to entry of final orders or judgments by bankruptcy judge).1
III.
DISCUSSION
A.
Connecticut General Statutes § 47a-21 governs the status of residential real estate security deposits and the landlord’s duties in maintaining those funds. Under the statute, the landlord has a duty to deposit all tenants’ security deposits into an escrow account in a financial institution.2 The statute provides that the security deposit remains the tenant’s property with the landlord holding a security interest securing the tenant’s lease obligations.3 The statute furthermore provides that the escrow account is not subject to attachment or execution by the landlord’s creditors.4 Recently the statute was amended to make clear that if the landlord’s interest in the real estate is transferred, the escrow ac*671count remains immune from attachment or execution by either the landlord’s or the successor’s creditors.5
It is clear that the Account the defendant executed upon was exempt from execution in satisfaction of the plaintiff’s judgment debt.6
B.
The defendant’s initial claim is that the amendment to Conn.Gen.Stat. 47a-21(c), see note 5, supra, became effective subsequent to the defendant’s levy on the Account and, thus, its prior levy was lawful. It is, however, readily evident from the cited sections of § 47a-21, see notes 2-4, supra, that all escrow accounts for security deposits had been exempt from attachment by a landlord’s creditors, and the amendment explicitly (and probably unnecessarily) applied the exemption to the successor of the original landlord.
c.
An action based on a judgment creditor’s execution upon exempt funds states a claim for damages for wrongful execution. See, e.g., 30 Am.Jur.2d Executions § 758 (execution of “property not subject to execution, such as property exempt by statute, or property of a third person,” gives rise to action for wrongful execution); 33 C.J.S. Executions § 453 (action for wrongful execution exists where levy wrongfully made “on property of the judgment debtor which is exempt”); ARC Inv. Co. v. Tiffith, 164 Cal.App.2d Supp. 853, 330 P.2d 305, 307 (1958) (“A wrongful levy is regarded as a tort; and a levy is wrongful where it is made on property of the judgment debtor which is exempt.”).
The defendant’s contention that it was not aware the funds were taken from a security deposit escrow account is irrelevant because intent or knowledge is not an element of an action for damages caused by wrongful execution on exempt property. See, e.g., 30 Am.Jur.2d § 759. The defendant’s argument that the Bank is the proper defendant in this action is not persuasive. Once a judgment creditor ratifies the wrongful execution by taking possession of the funds and refusing upon demand to return them to the plaintiff, it may be sued alone without either the levying officer or any other third party being joined. Executive Sportsman's Ass’n, Inc. v. Southwest Bank & Trust Co., 436 S.W.2d 184, 185 (Tex.Civ.App.1969) (“A judgment creditor is liable for the manner in which a Sheriff executes a writ of execution if he ... ratifies the wrongful execution.”); 33 C.J.S. § 456 (where execution creditor “refuses, on demand, to direct a release of property wrongfully seized, ... there is a ratification of the wrongful act which renders him equally liable with the officer”); 35 C.J.S. Exemptions § 148 (debtor may maintain action against judgment creditor alone). The defendant cites no authority for its proposition that the plaintiff’s failure to name the Bank as a defendant somehow precludes the defendant’s liability as the execution creditor.
*672IV.
CONCLUSION
Since the facts relevant to this action are not in dispute and since the plaintiff has stated a claim upon which damages for wrongful execution may be granted as a matter of law, the plaintiff’s motion for summary judgment is hereby granted. The plaintiffs pleadings and memoranda make no reference to recovery of damages beyond return of the $34,647 “plus interest” incurred as a result of the wrongful execution. See Staub v. Anderson, 151 Conn. 384, 388, 198 A.2d 207 (1964) (in wrongful execution case, plaintiff was entitled to possession of property wrongfully executed upon and “to recover such damages for the unlawful detention ... as he may prove”). Accordingly, judgment may enter that the plaintiff recover from the defendant the sum of $34,647 with interest from the date of demand. It is
SO ORDERED.
JUDGMENT
This action came on for hearing before the court, Honorable Robert L. Krechev-sky, Chief Bankruptcy Judge, presiding, and a motion for summary judgment having been granted, it is
ORDERED AND ADJUDGED that the plaintiff recover of the defendant the sum of $34,647 with interest thereon at the rate of 3.40 percent per annum as provided by law from the date of demand.
. This court has previously ruled that an adversary proceeding to collect prepetition account receivables was substantially indistinguishable from the state-law contract action in Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), and, therefore, was a non-core but "otherwise related” proceeding that could not be characterized as a Code § 542 turnover proceeding. See Century Brass Prods., Inc. v. Millard Metals Serv. Ctr., Inc. (In re Century Brass), 58 B.R. 838 (Bankr.D.Conn.1986). The claim stated in plaintiffs.complaint is likewise not distinguishable from the claims in Century Brass and Northern Pipeline. Stripped of its turnover label and reliance on Code § 542, plaintiff's complaint states a claim for damages caused by the defendant’s prepetition wrongful execution, and the court will treat it accordingly.
. Section 47a-21(h)(l) provides:
Each landlord shall immediately deposit the entire amount of all security deposits received by him on or after October 1, 1979, from his tenants into one or more escrow accounts for such tenants in a financial institution.
Conn.Gen.Stat.Ann. § 47a — 21(h)(1) (West Supp.1993).
. Section 47a-21(c) provides:
Any security deposit paid by a tenant shall remain the property of such tenant in which the landlord and his successor shall have a security interest....
. Section 47a-21(a)(2) defines "escrow accounts”:
"Escrow account” means any account at a financial institution which is not subject to execution by the creditors of the person in whose name such account is maintained....
. In Connecticut, bank executions upon the accounts of non-natural persons are governed by Conn.Gen.Stat. § 52-367a. Burchett v. Roncari, 181 Conn. 125, 127, 434 A.2d 941 (1980). According to the statute, a plaintiff may execute upon a judgment debtor’s bank account by requesting that the clerk of the court issue an execution with which the serving officer makes demand on a bank. Notice to the debtor before obtaining an execution or making demand is not required. If the bank is indeed indebted to the debtor, it must pay over funds by midnight of the following banking day. A refusal to pay over funds of the debtor is grounds for holding the bank personally liable to the judgment creditor for that amount. The statute does not provide for any procedure by which a debtor can object to the execution before the clerk issues the execution order. See 2 Edward L. Stephenson, Connecticut Civil Procedure § 215, at 915-16 (2d ed. 1971). See also Conn.Gen.Stat.Ann. § 52-350f (West Supp.1993) (“A money judgment may be enforced against any property of the judgment debtor unless the property is exempt from application to the satisfaction of the judgment under ... any ... provision of the general statutes or federal law."). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491739/ | MEMORANDUM OPINION GRANTING MOTION FOR RELIEF FROM STAY
C. HOUSTON ABEL, Chief Judge.
Before the Court is a Motion for Relief from Automatic Stay filed by H. Drue Pir-tle (“Pirtle”). As both sides stated during the hearing, the facts regarding this motion are somewhat unique. After review*782ing the arguments, evidence presented and the relevant law, the Court is of the opinion that the motion should be GRANTED. The following constitutes that Court’s findings of fact and conclusions of law.
JURISDICTION
The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(a) and 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(G) and 11 U.S.C. § 362.
BACKGROUND
The Debtors on March 1,1990, purchased from Pirtle a 14,000 square foot house situated on 16.760 acres of land (“Property”) in Red River County, along with certain personal property contained within.1 The total purchase price was $562,500. To facilitate the purchase, the Debtors executed two notes in favor of Pirtle in the amounts of $475,000 (“Home Note”) and $87,500 (“Personal Property Note”). Additionally, a Deed of Trust was executed contemporaneously with the Home Note that requires, among other things, that the Debtors pay all taxes assessed against the Property.2
The Debtors have paid the Personal Property Note in full. However, starting with the mortgage payment due for July 1992, the Debtors have failed to make the monthly mortgage payments in accordance with the Home Note. The monthly payment on the Home Note is $5,104.37 per month.
The Debtors purchased the Property because of its capability of being used both as their personal residence and to operate their business. The Debtors’ business primarily consists of serving as a consultant, selling and servicing computers and related accessories, and providing computer software training.3 Further, the Debtors assert that their business includes the operation of a function resort4 and the breeding of animals. With the exception of the Debtors, there are no employees.
As a result of Debtors’ default under the Home Note and Deed of Trust, Pirtle began the process of foreclosing his lien against the Property on August 20, 1992, by sending the Debtors a notice of intent to accelerate. Shortly thereafter, the Debtors filed for protection under Chapter 11 on September 11, 1992.5 The primary asset the Debtors sought to protect in bankruptcy, and the asset Pirtle seeks the stay lifted from, is the Property.
The Debtors assert that the reason they filed bankruptcy was because of defects with the Property which prohibit the Property from being utilized as intended. These alleged defects, according to the Debtors, have caused a reduction in cash flow. The Debtors filed a lawsuit in State Court, prior to the filing of bankruptcy, against Pirtle for damages relating to the alleged defects.6 The outcome of this lawsuit, according to the Debtors, will not affect the success of their plan of reorganization (“Plan”).7
DISCUSSION
Pirtle seeks the lifting of the automatic stay pursuant to 11 U.S.C. § 362(d), which provides:
*783(d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay—
(1) for cause, including the lack of adequate protection of an interest in property of such party in interest; or
(2) with respect to a stay of an act against property under subsection (a) of this section, if—
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective reorganization.
Because Pirtle is seeking the relief from the stay, he has the burden of proof as to the Debtors’ equity in the Property, with the Debtors having the burden of proof on all other issues. 11 U.S.C. § 362(g). Pirtle alleges that grounds exist to lift the stay under both § 362(d)(1) and (2). However, because most of the arguments concerned § 362(d)(2), and because § 362(d)(2) is dis-positive of the motion before the Court, the Court will only examine it.
§ 362(d)(2)
A. EQUITY
Pirtle met his burden of establishing that the Debtors have no equity in the Property when the Debtors conceded this fact. However, what was not agreed to by the parties is the value of the Property and how much Pirtle is undersecured. Valuation is important in this motion to lift stay because the Debtors’ Plan will “lien strip” the mortgage on the Property down to the Property’s current value. By lien stripping the mortgage, the Debtors will be able to greatly reduce their financial obligations to Pirtle and enhance the feasibility of their Plan.
The Debtors’ appraiser, Gary Brown (“Brown”), testified that the fair market value of the Property is $116,000.00. This value was derived using the cost approach because there were no available comparable sales in the area for a house of this size. Brown’s analysis was generally based upon Marshall and Swift Residential Cost Handbook as a guide to determine how much it would cost to reproduce the improvements on the Property. Based upon this data, Brown testified that it would cost approximately $600,000 to reproduce the improvements on the Property new, with the value of the land being $12,-500. However, because of depreciation, the value of the improvements are approximately $104,000.8
Pirtle offered his own expert, Preston Combest (“Combest”), as to the value of the Property. Combest has fifteen years of experience as a real estate broker and builder in the area and has appraised real estate in the past. Combest agreed with Brown that the cost approach is the best analysis to use in valuing the Property. However, Combest testified that the fair market value is approximately $421,000. This valuation was derived after taking into account any needed repairs to the Property. These repairs, according to Combest, will cost approximately $20,000. This estimation of the cost of repairs was based upon a prior inspection of the Property and his experience as a builder in the area.
After reviewing the testimony of the two experts, the Court finds Pirtle’s expert to be more credible. Brown’s valuation is based greatly upon what he perceived to be unusual conditions or defects with the Property that are expensive to repair and that make the Property unmarketable unless fixed. However, based on Brown’s own admission, he has no experience as a structural engineer or structural analysis. Additionally, Brown tended to use the “upper-end” in terms of how much it would cost to make any needed repairs. Therefore, his analysis concerning the amount of *784repairs that are needed and the cost of making them is highly questionable.
To the contrary, the Court finds Com-best’s testimony as to the value more credible. Combest recognized in his valuation of the Property that the Property does need repairs. Combest adjusted his valuation based upon his personal knowledge as a builder in the area and not on a general valuation guide as Brown did. This background as a builder provides Combest with much more extensive knowledge regarding the extent of repair the Property needs and the cost. Further, the Court finds that the amount of depreciation in Brown’s appraisal to be greatly exaggerated, especially in light of his own admission that needed repairs may be made to the Property for approximately $175,000.9
However, because the Court finds that Combest was somewhat conservative regarding the needed repairs to the Property, the Court believes that an additional $40,-000 should be added to Combest’s estimation of cost of repairs. This would bring the total cost of repairs under Combest’s estimation to $60,000. After subtracting this additional $40,000 from Combest’s valuation, the Court finds the value of the Property to be $381,000.10 Since it was stipulated between the parties that the Debtors owes approximately $440,000 on the Home Note, the Debtors are clearly without any equity in the Property.
B. IS THE PROPERTY NECESSARY TO AN EFFECTIVE REORGANIZATION
This part of the test is the most difficult because of the dearth of case law regarding the necessity of a house for an effective reorganization when the house is the sole place of business. It is the Debtors’ burden of proof to establish that the Property is necessary for an effective reorganization. 11 U.S.C. § 362(g)(2). Further, the Court is very aware of the strong protection given a debtor’s homestead in the State of Texas.11 See Tex. Const, art. XVI, § 50. Though there are no cases on point, there are at least two Chapter 11 cases which háve tangentially addressed the issue as to when a house is necessary for an effective reorganization.
In 1980, a New York bankruptcy court was confronted with the issue whether a second office at the debtor’s home was necessary for an effective reorganization. In re Sulzer, 2 B.R. 630 (Bankr.S.D.N.Y.1980). In that case, the debtor, a psychoanalyst, maintained an office in New York City as well as in his home. Because the debtor owed back rent, his landlord was threatening to evict him from the office in the city. As a consequence, the debtor’s home became very important to his business in that the debtor was seeing between 50% and 75% of his patients at his home. In its holding, the court found that the home was “not directly instrumental to his relationship with his patients or the gross income derived from his practice.” In re Sulzer, 2 B.R. at 635. The court further stated:
[I]f the debtor’s financial reorganization is dependent upon his maintaining a rent-free office, then this is not the type of luxury to which this court should subscribe within the context of debtor relief. The debtor may continue his practice in any convenient rentable office from which he may generate funds to implement a plan of reorganization. However, the mortgagee cannot, in good faith, be compelled to underwrite the debtor’s desire to conduct his practice from his home.
In re Sulzer, 2 B.R. at 635. Therefore, the court lifted the stay even though the home was generating income as a second office.
In 1991, Judge Monroe, in the Western District of Texas, was confronted with *785the issue as to whether the debtors’ home was an essential key for a successful reorganization in light of the fact that the home was not used to produce income. In re Wilks, 123 B.R. 555 (Bankr.W.D.Tex.1991). In Wilks, the court noted that the debtors’ main objective under their plan of reorganization was to reduce the lien amount on their home to its current market value. Though the court passed on addressing the legitimacy of this objective, the court held that the home was not necessary for an effective reorganization. In re Wilks, 123 B.R. at 562. In reaching this conclusion, the court adopted and analyzed the following objective factors:
a) the nexus between the residence and the debtor’s generation of income;
b) the supply of other suitable housing in the area;
c) the length of time the debtor has been in Chapter 11;
d) whether the residence is a financial burden to the debtor;
e) whether the Chapter 11 was filed solely to stay foreclosure of the home; or
f) whether there is some special reason or circumstance for the debtor to maintain ownership of the residence.
In re Wilks, 123 B.R. at 559. This Court concurs with Judge Monroe as to the appropriateness of these factors and accordingly will use them as well.
NEXUS
It is undisputed that the Debtors’ house is used in the production of income. The Debtors are using the house not only as an office, but to store any equipment that they may have.12 The Debtors’ principal business, consulting and catalogue sales of computers and related accessories, is operated out of an office located in the house.
However, there is no probative evidence that the house is necessary for the Debtors to generate income. See infra. In order for the Debtors to keep the stay in place, the Debtors must show that retention of the house is an integral factor in the success of their plan. La Jolla Mortgage Fund v. Rancho El Cajon Associates, 18 B.R. 283 (Bankr.S.D.Cal.1982). The fact that bankruptcy was filed to save the house does not make the house necessary for an effective reorganization. In re Gregory, 39 B.R. 405, 410 (Bankr.M.D.Tenn.1984). Therefore, though the Property may currently be used by the Debtors to generate income, it is not integral to their business.13
OTHER SUITABLE HOUSING
In determining whether other suitable housing is available, courts should measure the fungibility of the property in question against the debtor’s minimum living requirements. In re Gregory, 39 B.R. at 411. If a debtor can effectively reorganize in another location, such as in a rented apartment, then the debtor’s house is not necessary for an effective reorganization. Id. However, a debtor may succeed on this point by showing that “because of changes in interest rates, the absence of credit, the property’s proximity to work, schools or churches, moving costs, or the availability of alternative housing,” the debtor cannot secure another place to live and work. Id.
As to this factor, the Debtors failed to meet their burden that there is a genuine need for the house. The mainstay of the Debtors’ business is clearly fungible and may be operated out of a much smaller and less extravagant house, or out of rented space in almost any office complex. In fact, before the Debtors relocated their business to Texas from California, the Debtors operated their business from a 2,000 square foot rented office. The Debtors’ testimony that the business in Texas is greatly different from that in California, and therefore needs more space, is not *786credible.14 The evidence presented clearly shows that the essence of the business has not changed since the relocation — computer sales and service. Any actual change in the business is to occur in the future. Therefore, there is nothing about the Debtors’ business which would require that it be operated out of this very large house when it had previously been operated out of a much smaller rented space.
The Debtors’ attempt to argue that the Property is needed as a function resort is not persuasive.15 First, though the Property may have been purchased with this in mind, it was never used as such until after the filing of bankruptcy and shortly before this hearing. And then, only once. Second, this one time use of the Property as a resort brings in other greater concerns. The insurance currently on the Property is a- standard home owners insurance policy and does not cover guests being brought onto the Property for business purposes. In fact, there is some evidence indicating that the insurance on the Property is to be canceled because of this unreported use of the Property to the insurer. Third, the Debtors' Plan fails to state whether appropriate insurance will be obtained in order for the Property to be used as a resort. Additionally, the Plan fails to provide whether the Debtors can even afford the cost of insurance in light of the increased liability that will need to be carried. Fifth, many of the amenities on the Property which will make the Property suitable as a resort, according to the Debtors, need to be repaired.16 However, the Plan fails to adequately account for the cost of making any repairs to these amenities.
And sixth, the Debtors have no true track record of operating a resort, especially the luxurious kind envisioned. As noted previously, up until shortly before the hearing, the Debtors had never used the Property as a resort. There is no financial history to support that the Property could be used as a resort profitably. Neither is there evidence that the Debtors even know how to operate a resort. Further, there is no information regarding how many employees will be needed to operate the Property as a resort in light of the fact the Debtors’ advertisement of the Property as a resort states that there is a “caring staff who will work with you”. This Court is not amenable to permit the Debtors to “experiment” using a creditor’s collateral in a new business venture. Especially, in a business venture on which the Debtors are heavily relying upon to raise sufficient revenue to fund their Plan. Accordingly, the Court finds the Debtors’ ability to generate a profit from operating the Property as a resort to be highly questionable and speculative.17
*787Further, the Debtors have failed to establish that there is no reasonable alternative house available that could be used to operate the business as it was operated prior to bankruptcy. Debtors only attempted to show that there is no available alternative housing in the area for the type of business they plan to operate in the future. The Debtors’ business can easily be operated in a space much smaller than the 14,000 square foot house. The Debtors even admitted during questioning that phone orders from catalogue sales could be received elsewhere.18 Overall, the Debtors’ business is a fungible one that may be relocated to a less extravagant location. There is no probative evidence that there is no suitable housing available from which the Debtors can operate their business and reside. Nor is there probative evidence that the Debtors could not operate their business from an office in another location while they reside in a house they can afford — as they did in California. As long as there is more affordable alternatives available to the Debtors, this Court has grounds to lift the stay. In re Wilks, 123 B.R. at 560 (citing In re McIntyre, 96 B.R. 65, 67 (Bankr.S.D.Miss.1988)).
LENGTH OF TIME IN CHAPTER 11
The Debtors have been in Chapter 11 for a relatively short period. However, because the Plan anticipates lien stripping the mortgage well beyond the value of the house given herein, the Court finds that it is clearly not confirmable as proposed. Based upon the financial information provided to the Court, the Court has serious concerns whether the Debtor could even fund a plan based upon a $381,000 valuation of the Property, and discounting the purely speculative revenue that may be derived from unproven business ventures.
Further, the Plan does not appear to be fair and equitable. Though the only other secured creditor of the Debtors will be paid in full,19 all the creditors with disputed unsecured claims will receive nothing.20 This is troubling in light of the fact the Debtors’ Plan provides for a 2% return to all undisputed unsecured creditors, but the Plan fails to list any such creditors. All unsecured creditors are listed as having a disputed claim.21 Therefore, the only debts which will be repaid under the Plan are those which are secured, while title to all the assets are to reinvest in the Debtors.22
FINANCIAL BURDEN TO THE DEBTOR
Clearly, the mortgage payment on the Property greatly exceeds the Debtors’ financial ability to pay. This is most evident by the extent the Debtors would need to lien strip the mortgage in order to reduce their financial obligation to successfully* fund the Plan. Based on the proposed Plan, the Debtors will reduce their mortgage payment from approximately $5,104 per month to $1,669 per month. The Plan predicts that the reduction in the mortgage payment, along with revenue from other business ventures, will result in a positive net cash flow.
However, because the valuation herein assigned to the Property is much higher than that proposed in the Plan, the Court has reservations as to whether the Debtors could fund the Plan. Based upon a $381,-000 valuation, the Court finds it unlikely that the mortgage payments would be reduced enough to result in a positive net *788cash flow.23 Additionally, if the speculative projected revenue from any new business ventures is set aside, the financial burden of the mortgage debt becomes even greater. With the debt owing to Pirtle being the largest owed by the Debtors to any one creditor, it is self evident that this obligation creates a severe financial burden to the Debtors.
CHAPTER 11 FILED TO STAY FORECLOSURE
As with the prior factor, this factor is clearly self evident. The Debtors testified that they filed for bankruptcy in order to save their house. The filing occurred approximately 20 days after the Debtors received notice of Pirtle's intent to accelerate the debt owed because of non-payment. Therefore, the sole intent for the filing of Chapter 11 was to stay foreclosure of the house.
SPECIAL REASONS OR CIRCUMSTANCES
Regarding this factor, the Court finds no special reasons or circumstances for the Debtors to maintain ownership of the Property. To the contrary, the equities weigh in favor of lifting the stay. The fact that the Debtors have filed a lawsuit against Pirtle for alleged defects on the Property does not warrant that the stay should remain in effect. .The Debtors stated in their Disclosure Statement that the success of their Plan is not dependent upon the Debtors prevailing with the lawsuit. Accordingly, any potential recover from the lawsuit will be a bonus to the Debtors. Further, the Court notes that any alleged defect will only affect the use of the Property as proposed and will not effect the pre-bank-ruptcy use of the Property.
CONCLUSION
The Debtors are attempting to use a procedure that is not available to debtors in either Chapter 7 or 13 — lien stripping. See Dewsnup v. Timm, — U.S. -, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992) (debtor may not lien strip a creditor’s lien on real property in Chapter 7); In re Nobleman, 968 F.2d 483 (5th Cir.1992) (debtor may not bifurcate a secured claim on a principal residence in Chapter 13), cert. granted, — U.S. -, 113 S.Ct. 654, 121 L.Ed.2d 580 (1992). As such, this Court believes it should more strictly apply the standard as to whether the Property is necessary for an effective reorganization. In re Wilks, 123 B.R. at 562.
The application of the above objective factors clearly warrant that the stay should be lifted to permit Pirtle to foreclose on his lien. In analyzing the Debtors’ business prior to bankruptcy, there clearly is nothing unique about the house which requires the Debtors to operate their business from it. The house is merely a luxury item which the Debtors are seeking to keep and which is not essential to the business. See In re Sulzer, 2 B.R. at 634-5. The Debtors are attempting to keep an asset which their business cannot financially support at this time. The fact that it is convenient for the Debtors to operate the business from their house does not make the house necessary for an effective reorganization. Additionally, the Debtors failed in their burden of establishing that there is no alternative housing available for the type of business they operated pre-bankruptcy.
Further, the Debtors admittedly have no equity in the house and they appear to be exaggerating their lack of equity in order to maximize the extent in which they can lien strip the mortgage in the Plan. The treatment of Pirtle’s claim in the Plan, along with the financial burden of maintaining the Property, suggests that an effective reorganization is not in prospect within a reasonable time. See United Savings Association of Texas v. Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365, 376, 108 S.Ct. 626, 633, 98 L.Ed.2d 740 (1988).
Therefore, in accordance with this Memorandum Opinion, an order will be entered simultaneously by the Court GRANTING *789Pirtle’s Motion for Relief from the Automatic Stay.
. The Property is situated in a rural area and is clearly the Debtors’ principal residence.
. Taxes assessed against the Property for the years 1991 and 1992 are owing, totaling over $10,000.
. The selling of computers and related accessories is facilitated through a catalogue.
. Debtors assert that they originally intended to use the Property as a resort at the time of purchase. However, it was not until after the filing of bankruptcy, and shortly before the hearing, did the use of the Property as a resort actually occur. The use of the Property as a function resort was based on the premise that executives would come out to the Property and use its leisure environment to hold board meetings, conferences or training seminars.
. Debtors' large amount of unsecured debt precludes their qualifying for Chapter 13. See 11 U.S.C. § 109(e).
. Also prior to the filing of bankruptcy, Pirtle’s wife filed a lawsuit against the Debtors for libel. Both lawsuits are currently stayed.
. Page 17 in Debtors' Disclosure Statement.
. Brown testified that if physical, functional and external depreciation are considered, the Property has depreciated approximately $496,000. Brown stated the high depreciation was warranted because of the repairs that need to be done to the Property. Brown testified that it would cost approximately $175,000 to repair any deferred maintenance and correct any present construction problems.
. Brown depreciated the total reproduction cost of the improvements new approximately 83%, while Combest only depreciated the improvements 38%.
. This valuation is limited to the purpose of this hearing.
.It was not discussed by either side whether the Property qualifies as a rural homestead. Though the Court questions the Property’s eligibility to qualify as a rural homestead, a ruling regarding this issue is reserved for another day.
. Debtors testified that relatively little equipment, and no inventory, is currently located in the house.
. Though Debtors assert that all of the house is integral to the operation of their business, they have never claimed any expense associated with the house as a business expense on their taxes.
. Debtors' argument that the business in Texas is different from that in California because the business no longer engages in "retail sales” as it did in California is not persuasive. Though it is true that the Debtors no longer maintain a store front to sell computers and the related accessories, the Debtors continue to sell computers from their house. What has changed since the move to Texas is the mode of selling. The Debtors now sell through a catalogue versus using a retail location. Therefore, in essence, the business has not changed.
. The use of the Property as a function resort is the Debtors’ primary argument why they need the Property for an effective reorganization. The Debtors argue that they need all 14,000 square feet of the house and the amenities located on the Property for the use of the Property as a resort to succeed. According to the Debtors, when the Property is operated as a resort, all rooms will be used by the guests, including the master bathroom in the Debtors’ bedroom.
. Located on the Property is a swimming pool, tennis court, gazebo, and a spacious lawn. Each amenity, according to the Debtors, needs some type of repair.
. The Court notes that the Debtors’ Plan also envisions raising significant income from the breeding of cattle and horses. As with the use of the Property as a resort, this is an activity which had not occurred prior to the filing of bankruptcy. To avoid fully discussing this new use of the Property as was done regarding the use of the Property as a resort, the Court will simply find the profitability of this use to be questionable and speculative as well.
As with the resort, this use of the Property appears to be alleged solely for the purpose of establishing that the Debtors must have this Property in order to reorganize. This is apparent in light of the fact that the Debtors currently maintain only three head of cattle and one horse on the Property.
. Debtors' concern that they need to be close to their business at all times in order to handle phone calls that come late at night may be addressed by keeping a business phone line in their house or by using an answering service.
. This creditor has a lien on the Debtors’ Lexus.
. Debtors have listed approximately 73 disputed unsecured creditors in their schedules with claims totaling $778,530.10.
. The unsecured portion of the Home Note is listed in the Plan as a disputed unsecured claim which will receive nothing.
. Included in the assets which are to reinvest in the Debtors is any potential recovery from the Debtors’ lawsuit against Pirtle. The Plan makes no arrangement to distribute any portion of the recovery with the unsecured creditors. As such, there is a potential violation of the absolute priority rule. See 11 U.S.C. § 1129(b)(2).
. Using the $381,000 valuation with the terms proposed in the Plan (15 year amortization at 7.5%), the new monthly payment will be approximately $3,532 per month. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491740/ | MEMORANDUM OF DECISION DISMISSING TRUSTEE’S COMPLAINT FOR TURNOVER OF PROPERTY
BARRY RUSSELL, Bankruptcy Judge.
This matter is before the Court on the complaint of the Trustee, who requests that certain funds belonging to the Debtor and the Debtor’s former spouse, held in an escrow account, be turned over to him pursuant to 11 U.S.C. § 541(a)(2), 542 and 543. For the reasons stated in this Memorandum of Decision, the Trustee’s complaint is dismissed.
FACTUAL AND PROCEDURAL BACKGROUND
The essential facts in this case are not in dispute and can be briefly summarized as follows. On March 17, 1992, Janet Lyn LaNess, (Debtor), filed a Chapter 7 case. At the § 341(a) meeting of creditors, Debtor testified that her bankruptcy estate included community property assets from her previous marriage to Perry LaNess, (LaNess).
The Debtor and LaNess have been divorced since January 30, 1990. During their marriage dissolution proceedings in the Los Angeles County Superior Court, they both listed their family residence in Rancho Palos Verdes, California as a community asset. After the Superior Court entered the judgment of dissolution, it retained jurisdiction to divide the couple’s community property.
In June or July of 1990, Debtor and LaNess sold the family residence. As part of the sales agreement, Warranty Escrow Company, Inc. retained the net proceeds of the sale. The Superior Court subsequently entered a Temporary Restraining Order prohibiting the Debtor and LaNess from withdrawing any of the proceeds from the escrow account.
After Debtor filed her Chapter 7 case, the Trustee filed a Complaint for Turnover of Property and Declaratory Relief requesting that, pursuant to §§ 541(a)(2)1, 542, and 543, the proceeds in the escrow account be turned over to the Trustee because they were the community property of LaNess and the Debtor. LaNess opposed the Trustee’s request and argued that the Trustee had the right to administer only the Debtor’s one-half share of the proceeds. LaNess, in turn, requested that this Court order that his one-half share of the proceeds be turned over to him. On March 11, 1993, this Court ordered that the proceeds be turned over to the Trustee, but prohibited their disposal by the Trustee, pending a determination of whether LaNess’ one-half share of the proceeds is property of the Debtor’s Bankruptcy estate.
On July 2, 1993, a status conference was held on the Trustee’s complaint, at which *918time this Court, sua sponte, raised the issue of whether § 541(a)(2) had been satisfied, specifically whether LaNess, who had been divorced from the Debtor for approximately two years prior to the Debtor’s Chapter 7 filing, was the “debtor’s spouse” as of the “commencement of the case.” The Court suggested that if this requirement were not satisfied, the Trustee’s complaint would have to be dismissed. The Court continued the hearing to August 31, 1993 at which time the Trustee’s complaint would be dismissed if, as a matter of law, the requirements of § 541(a)(2) were not satisfied. Both parties were ordered to brief the issue of whether § 541(a)(2) would apply if the Debtor and her former spouse were no longer married at the time of filing her Chapter 7 case.
DISCUSSION
At the hearing on August 31, 1993, the Trustee argued that the community assets held in the escrow account were part of the Debtor’s bankruptcy estate, and in support of that argument, relied on In re Teel, 34 B.R. 762 (9th Cir. BAP 1983). Teel involved a married couple who had filed for a marriage dissolution, but the husband filed a voluntary Chapter 7 petition prior to the final judgment of dissolution. Id. at 763. The issue presented in Teel was whether the wife’s share of the community assets, which had yet to be divided by the state court, were part of the husband’s bankruptcy estate. Id.
The Court decided that the issue was controlled by 11 U.S.C. § 541 which states in pertinent part that the commencement of a bankruptcy case creates an estate which includes “(a)ll interests of the debtor and the debtor's spouse in community property as of the commencement of the case that is ... liable for an allowable claim against the debtor, or for both an allowable claim against the debtor and an allowable claim against the debtor’s spouse, to the extent that such interest is so liable.” Id. at 763-64 (quoting § 541(a)(2)(B)).
The Court also looked to the applicable section of the California Civil Code which stated that “(t)he property of the community is liable for the contracts of either spouse which are made after marriage.” Id. at 764 (quoting Cal.Civ.Code § 5116).
The Court concluded that because “each spouse has management and control of community property” under California law, the wife’s share of the community property was part of the debtor’s bankruptcy estate. Id.
The facts of the present case are somewhat similar, however there is one fundamental difference which proves fatal to the Trustee’s argument. In Teel, the husband and wife had yet to receive a final judgment of dissolution. Here, the husband and wife had been divorced for approximately two years prior to the wife’s filing for bankruptcy.
The Trustee conceded that this case is controlled by § 541(a)(2) which clearly requires that the estate of the “debtor and the debtor’s spouse” is to be determined as of “the commencement of the case.” § 541(a)(2) makes no reference to a “former spouse,” which LaNess clearly was at the time of the commencement of the case.
A review of the Bankruptcy Code shows that if Congress had intended § 541(a)(2) to apply to former spouses, it knew how to say it. For example, pursuant to § 523(a)(5), certain debts for alimony and child support are not dischargeable when owed “to a spouse, former spouse, or child of the debtor.”
Thus, without some clear mandate from Congress, this Court cannot broaden the definition of “debtor’s spouse” as it is used in § 541(a)(2) to include Debtor’s former spouse.
The Trustee refers the Court to § 11 of the California Family Code, which will take effect on January 1, 1994, which states:
A reference to “husband” and “wife,” “spouses,” or “married persons,” or a comparable term, includes persons who are lawfully married to each other and persons who were previously lawfully married to each other, as is appropriate under the circumstances of the particular case.
Cal.Family Code § 11 (West 1993).
The Trustee, in his brief, argues that this new section “contemplates that, under cer*919tain circumstances, ‘spouse’ refers to former spouse.” Trustee’s brief at page 5.
Section 11 is merely a clarification of Cal.Civ.Code § 4350.52 and states current California law. Nevertheless, § 541(a)(2) is a federal statute not governed by definitions of terms in state statutes obviously intended to apply only to that particular state statute. See 22 Cal.L.Rev.Comm.Rpts. 1 (1992) (“Section 11 applies to the entire Family Code.”); Cal.Civ. Code § 4350.5 (West 1989) (Cal.Civ.Code § 4350.5 is used only in the part of the Cal.Civ.Code “commencing with Section 4000.”).
At the previous hearing, the counsel for the Trustee agreed that if § 541(a)(2) did not apply to the proceeds, that the Trustee would have no claim to LaNess’ one-half share of the proceeds. Therefore, because the Trustee has no interest in LaNess’ one-half share of the proceeds pursuant to § 541(a)(2), the Trustee is ordered to turn over to LaNess one-half of the proceeds and one-half of the accrued interest, and the Trustee’s complaint is dismissed.
A separate order will be entered in conformity with this Memorandum of Decision pursuant to Fed.R.Bankr.P. 9021.
ORDER DISMISSING TRUSTEE’S COMPLAINT FOR TURNOVER OF PROPERTY
For the reasons stated in this Court’s Memorandum of Decision Dismissing Trustee’s Complaint for Turnover of Property, the Trustee’s complaint is dismissed and the Trustee is ordered to turn over to Perry LaNess one-half of the proceeds and one-half of the accrued interest.
IT IS SO ORDERED.
. § 541 provides in pertinent part:
Property of the estate.
(a) The commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held:
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(2) All interests of the debtor and the debt- or’s spouse in community property as of the commencement of the case that is—
(A) under the sole, equal, or joint management and control of the debtor; or
(B) liable for an allowable claim against the debtor, or for both an allowable claim against the debtor and an allowable claim against the debtor’s spouse, to the extent that such interest is so liable.
. Cal.Civ.Code § 4350.5 states in full: As used in this part, other than Title 1 (commencing with Section 4000), the terms "husband” and "wife” refer to persons who are lawfully married to each other and to persons who were previously lawfully married to each other. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491744/ | CORRECTED MEMORANDUM OF DECISION AND ORDER.
KATHLEEN T. LAX, Bankruptcy Judge.
PROCEDURAL HISTORY
This adversary proceeding was commenced by an action in interpleader brought by Hemdale Home Video, Inc. (“HHV”) against NSB Film Corporation (“NSB” or “Debtor”) and Oak,,Productions Inc., Pacific Western Productions, Inc., American Gothic Productions, Inc. and Stan Winston, Inc. (the “Participants”) to determine entitlement to certain funds (the “Profit participation Funds”) arising out of exploitation of the motion picture “The Terminator.” Both NSB and the Participants have asserted claims to the Profit Participation Funds.
NSB filed a cross-complaint against the Participants asserting that any interest of the Participants in the Profit Participation Funds is avoidable as a preferential transfer. The Participants seek dismissal pursuant to F.R.C.P. 12(b)(6), applicable to this adversary proceeding in accordance with F.R.B.P. 7012, on the grounds that the cross-complaint and its attached exhibits establish as a matter of law that the interest transferred was not property of the Debtor.
UNDERLYING AGREEMENTS
1. NSB (then known as Hemdale Film Corporation) and Hemdale Home Video (HHV) entered into a Video Output Agreement dated as of May 31, 1991 (the “NSB-HHV Video Output Agreement”) whereby HHV became the distributor of NSB-owned film titles, including that motion picture bearing the title “The Terminator.”
2. The NSB-HHV Video Output Agreement was amended by a document dated as of February 18, 1992.
3. On May 4, 1992, NSB and the Participants entered into a Settlement and Release Agreement in settlement of an action filed in *153Los Angeles Superior Court entitled Pacific Western Productions, Inc., et. al. v. Hemdale Film Corporation, et. al., No. BC012873 (the “Settlement Agreement”).
4. On May 6,1992, NSB, the Participants and HHV executed a document entitled Exhibit “A” relating to the Settlement and Release Agreement in which, among other things, HHV agreed to pay to the Participants monies due to NSB pursuant to the NSB-HHV Video Output Agreement and to account for said sums to the Participants (the “HHV Acknowledgment”).
5. On September 4, 1992, NSB filed a petition under Chapter 11 of the Bankruptcy Code.
DISCUSSION
The transfer alleged to be preferential was the transfer to the Participants of the Debt- or’s rights to receive payment of the Profit Participation Funds from HHV under the HHV-NSB Video Output Agreement.
The Participants make two arguments:
First, that the Debtor’s right to receive payments from HHV does not give the Debt- or a property interest in the actual funds transferred or to be transferred.
Second, that the payment to the Participants by HHV are additionally not avoidable as preferential because HHV had an independent obligation to pay the Participants pursuant to the HHV Acknowledgement of the Settlement Agreement between NSB and the Participants. The HHV Acknowledgement was signed by NSB, HHV and the Participants.
1. In support of its argument, the Participants rely primarily on the case of In re Marketing Resources International Corp. 41 B.R. 575 (Bankr.E.D.Penn.1984).
In Marketing Resources, at p. 578, the court held that the payment from non-debtor IBM to non-debtor PTC was not avoidable as a preference because IBM used its “own funds [to pay PTC], and, as such, the debtor had no property interest in the money.” The Marketing Resources court further stated that “[d]ue to the liquidity and fungibility of money, only in limited circumstances does an entity have a property interest in specific money held by another legal entity. The mere obligation to pay on a debt does not give the creditor [meaning the bankruptcy debtor] property rights in any of the funds of the debtor [meaning the account debtor or payor of the funds]. Consequently, the debt- or did not have a property interest in the money which was transferred to PTC.” Id., 41 B.R. at 578.
The instant case is distinguishable from the Marketing Resources case. In Marketing Resources, IBM’s obligation ran directly to PTC in settlement of a lawsuit between IBM and PTC. The payment was in satisfaction of its own obligation, not the debtor’s or any antecedent debt owed by the debtor. The debtor merely had a claim against PTC for any funds that PTC got from IBM. In essence/ the debtor was trying to use its avoidance power to levy on funds that PTC received from IBM. This is clear from the court’s recognition that the avoidance of IBM’s transfer would not return money to the bankruptcy estate, but only require PTC to return its money to IBM.
The Marketing Resources court correctly noted that just because an entity may owe money to someone who in turn owes money to the debtor, the debtor doesn’t have a property interest in the funds transferred between the non-debtors. Id. at 578.
In the case before this court, the Settlement Agreement and the HHV Acknowl-edgement indicate that payments from HHV to the Participants discharge obligations of the Debtor to the Participants. The transfer sought to be avoided by the Debtor is not the actual payment of funds from HHV to the Participants, but the avoidance of the right of HHV to pay the Participants directly in satisfaction of the Debtor’s obligations to the Participants. In other words, NSB seeks to avoid the right, given by NSB to the Participants, to receive payments due to the Debt- or.
As the Marketing Resources court noted in its second opinion on a motion to amend its initial judgment, “if an insolvent debtor arranges to pay a favored creditor through the disposition of [an account receivable], to the *154depletion of his estate, it must be regarded as equally a preference whether he procures the payment to be made on his behalf by the debtor in the account — the same to constitute a payment in whole or part of the latter’s debt — or he collects the amount and pays it over to his creditor directly. This implies that, in the former case, the debtor in the account for the purpose of the preferential payment, is acting as the representative of the insolvent and is simply complying with the directions of the latter in paying the money to his creditor.” Id. at 582 n. 5.
The Settlement Agreement between NSB and the Participants requires NSB to “cause” HHV to pay directly certain participation profits to the Participants and provides that such payments shall be “credited” to sums due from NSB to the Participants. In fact, until payments are made, NSB remains obligated to the Participants and guarantees HHV’s performance to the Participants.
The Participant’s argument that the Cross-Complaint is insufficient because it establishes that the NSB relinquished control over future payments from HHV to the Participants begs the question. The transfer of this control is the transfer in issue.
Therefore, the Marketing Resources case does not deal with the particular fact pattern presented in the ease before this court and does not demonstrate, as a matter of law, that NSB has no property interest in the Profit Participation Funds that are the subject of the agreements in question.
When considering a motion to dismiss, the Court must accept as true all factual allegations in the light most favorable to the plaintiff and to deny the request to dismiss unless it appears beyond doubt that the plaintiff could prove no- set of facts in support of his claim that would entitle him to relief. Fed.R.Bank.P. 7012(b); Fed.R.Civ.P. 12(b)(6). Viewed according to this standard, the Marketing Resources case does not dispose of this Debtor’s case.
The Participants’ reliance on the Matter of Van Huffel Tube Corporation, 74 B.R. 579, 585 (Bankr.N.D.Ohio 1987) is also not dispos-itive of this case. The Van Huffel case recognizes that in order to escape avoidance the non-debtor transferor, rather than the debt- or, has to control or direct the payments sought to be avoided. Id., 74 B.R. at 586 (stating “The crucial question is whether [the non-debtor transferor], in fact, exercised control over the funds and directed to whom the funds should be paid”). In the NSB case, the evidence presently before the court does not indicate that HHV was in this position. In fact, the agreements tend to show the opposite: that NSB directed HHV to make the payments to the Participants. Subsequent evidence may cast these agreements in a different light, but on the record before this court, language from the Van Huffel ease cited by the Participants does not decide the issue before this court.
2. The Participants second argument for dismissal, that the payments by HHV are not avoidable because HHV had an independent obligation to pay the Participants, relies heavily on the Ninth Circuit Bankruptcy Appellate Panel case of In re Flooring Concepts, Inc., 37 B.R. 957 (Bankr. 9th Cir.1984).
In the Flooring Concepts case, there was an agreement among the contractor (Konwiser), the sub-contractor debtor, and Shaw (the material supplier) that Konwiser would pay Shaw directly for materials ordered by the debtor. The Bankruptcy Appellate Panel found that the agreement between Konwiser and Shaw was supported by independent consideration that created an independent obligation between Konwiser and Shaw and that transfers pursuant to this independent obligation could not be avoided because they never became part of the bankruptcy estate. Id., 37 B.R. at 961. The consideration consisted of Konwiser’s direct payment to Shaw in exchange for Shaw forbearing on his independent statutory right to place a lien on Konwiser’s property.
The Participants argue that their case is like the Flooring Concepts case because the Participants got direct payments in exchange for “valuable consideration and as a material inducement to [the Participants] entering into the Settlement.” The Participants note in their Reply to the Debtor’s Opposition that the Participants got direct payments of 64.8% of net profits according to the definí*155tion of “net profits” that is set forth in the HHV Acknowledgement and the Participants got the right to accountings from HHV.
Based solely on the agreements and pleadings before the court, it appears that the NSB and the Participants may have received a benefit from the Settlement Agreement between the Participants and NSB in that the lawsuit was settled. The Participants also got assurances from NSB that they would receive direct payments from HHV and a change in the definition of “net profits” that would be applied to determine the sums due. Under the HHV Acknowledgement which was signed by all three parties, it would appear that HHV gave consideration by agreeing to the change in their fee but it is not clear that HHV got in return as “valuable consideration.”
The Participants argue, in their Reply, that the independent “valuable consideration” received by HHV included the right to exploit the Terminator. But the records does not reflect that HHV was a party to the lawsuit being settled or that the lawsuit would have resulted in HHV losing the right to exploit the Terminator if the Participants had prevailed. According to the Settlement Agreement, the lawsuit sought damages, ac-countings and equitable relief. Did the Participants seek to rescind the contract or to enforce it? If the contract between the Participants and NSB had been rescinded, would HHV automatically have lost the right to exploit the Terminator? HHV was not a party to the Settlement Agreement and the Debtor argues that HHV received no consideration for the assignment of NSB’s right to payments from HHV to the Participants.
In the motion before the court, the question of whether the transfer of NSB’s rights to payment by HHV to the Participants is avoidable does not turn on whether the contract between the Participants and NSB was supported by valuable consideration. This is not the question briefed by the parties. Indeed, the contract may have been valid when made and still be avoidable as a preferential transfer.
The question of whether HHV and the Participants made a new contract with an independent obligation running from HHV to the Participants which was supported by valuable consideration on each side is the issue that requires examination in this motion. What was HHVs independent interest in paying the Participants instead of the Debtor? The Complaint in Interpleader filed by HHV indicates that HHV does not care who it pays so long as it only has to pay once. The evidence on this issue is not sufficient to find, on a motion to dismiss, that an independent obligation arose within the reasoning set forth in the Flooring Concepts case.
The issue of whether the agreement between the Participants and NSB can be avoided under 11 U.S.C. § 547 is not the subject of this motion. Instead, this motion raises the issue of whether there is sufficient evidence to determine that the agreement cannot be avoided for the reasons argued. The Participants have not met the requisite burden of showing that the payments directed from NSB to the Participants are not property of the Debtor under the Marketing Resources rationale or that a direct obligation from HHV to the Participants was supported by independent consideration as was the case in the Flooring Concepts case.
Based on the foregoing analysis, the motion to dismiss is DENIED.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491745/ | DECISION ON REMAND
HAROLD L. MAI, Chief Judge.
THIS MATTER came before the court on Remand from the District Court for the District of Wyoming.
The District Court’s instructions upon remand were that this court “should determine whether the evidence offered is sufficient to prove, by a preponderance of the evidence, that the debtors, Mr. and Mrs. Peterson, willfully attempted to evade or defeat their taxes, in accordance with the standards enunciated in Cheek v. United States [498 U.S. 192, 111 S.Ct. 604, 112 L.Ed.2d 617 (1991)].” Peterson v. Commissioner of Internal Revenue, 152 B.R. 329, 335 (D.Wyo.1993).
On remand, the District Court did not reverse any Findings of Fact, all of which had been stipulated to by the parties. Therefore, the court incorporates all of its previous Findings of Fact by reference.
This matter was originally submitted to this court on cross-motions for summary judgment with a stipulation from all parties that there were no material issue of disputed fact. Thus, the IRS chose to submit the matter for decision on only the jointly stipulated facts and exhibits.
Addressing first the case against Mrs. Peterson, there is no evidence in the record that she willfully attempted to evade or defeat taxes, or the payment of taxes. The only evidence in the record concerning Mrs. Peterson is that she signed tax returns and then filed for relief under the Bankruptcy Code shortly after the taxes were eligible for discharge in bankruptcy. The IRS admits that the tax returns she signed were not fraudulent.
As stated in its previous Findings of Fact and Conclusions of Law,
* * * Seeking bankruptcy relief as soon as debts for taxes are arguably dischargea-ble is not per se evidence of a “willful attempt to evade” the taxes. If it were, then it would effectively negate the provisions of the Bankruptcy Code which make debts for taxes generally dischargeable if they have been due for a specific amount of time prior to filing. See 11 U.S.C. § 507(a)(7)(A).
None of the badges of fraud discussed in the case relied upon by the District Court, Berzon v. United States (In re Berzon), 145 *387B.R. 247, 250 (Bankr.N.D.Ill.1992), exist in connection with Mrs. Peterson. There is no evidence that she filed “late” returns because there is no evidence that she had a duty to file tax returns1 for the years in question-1982, 1983, 1984, and 1985.
Under any interpretation of § 523(a)(1)(C), the IRS has not made a prima facie case that Mrs. Peterson “willfully attempted in any manner to evade or defeat” the income taxes owed to the United States.
With regard to Mr. Peterson, the evidence shows that he submitted a W-2 form that claimed 40 exemptions. Subsequently Mr. Peterson filed non-fraudulent 1040 Returns that claimed three (3) exemptions for the years in question. Because Mr. Peterson was employed in the tax years in question, the returns were filed late. They were also filed after he had been contacted by the IRS.
The court cannot agree with the United States that the undisputed facts show only “minimal” payments on the overdue taxes. In order to establish that Mr. Peterson’s effort at repayment were minimal, something more is needed than the fact that the IRS received payments totaling $1,000 in 1988, $1,000 in 1989, and $2,151.66 in 1990, or that only two (2) of the five (5) payments were “voluntary.” For example, evidence that these amounts were less than the Petersons were able to make, might tend to establish a willful attempt to avoid payment of the tax.
The defendant made a deliberate litigation decision to submit this case on the sparse stipulated facts. As noted in this court’s previous Conclusions of Law, the defendant is apparently seeking to establish precedent regarding the minimum necessary to establish “willfulness” of an alleged attempt to avoid a tax, or the payment of a tax.
In order to establish a “willful” attempt to evade payment of taxes, the government must show that the law imposed upon Mr. Peterson a duty to pay the tax, “that he knew of this duty, and that he voluntarily and intentionally violated that duty.” Cheek v. United States, 498 U.S. 192, 200-02, 111 S.Ct. 604, 610, 112 L.Ed.2d 617 (1991). The evidence in this case falls short of showing the factors set forth in Cheek, supra, as establishing “willfulness” of the taxpayer’s action.
It is beyond dispute that Mr. Peterson had a duty to pay federal income tax for the years in question. If the debtor/plaintiff Ronald Alan Peterson had been questioned about his motivation or reasoning in claiming 40 exemptions, the credibility of his responses and the plausibility of his actions could be assessed. However, the government chose not to call Mr. Peterson, or any other witness, and to instead rely solely on documents in its possession. '
As noted above, the stipulated facts and exhibits do not establish that Mr. Peterson knew he had a duty to pay the tax and that he voluntarily and intentionally violated that duty.
As a result, the record in this case does not prove, by a preponderance of the evidence, that the debtors, Mr. and Mrs. Peterson, willfully attempted, to evade or defeat their taxes, in accordance with the standards enunciated in Cheek v. United States.
The court will enter an appropriate judgment, holding the debt of plaintiffs/debtors Ronald Alan Peterson and Barbara Diane Peterson to be dischargeable in bankruptcy.
. On two (2) of Peterson’s 1040 forms, Mrs. Peterson lists her occupation as "housewife.” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491746/ | MEMORANDUM OPINION AND ORDER
HELEN S. BALICE, Bankruptcy Judge.
On August 13, 1993, Merrill Lynch Pierce Fenner & Smith filed an amended application requesting $525,000 in compensation and $108,736.99 for reimbursement of expenses for the period October 26, 1992 through May 27, 1993. For the reasons stated below, the amended application is allowed in the amount of $350,000 in compensation and $41,576.49 in expenses. This is a core proceeding. 28 U.S.C, § 157(b)(2)(A) & (B).
I. Facts
Edisto Resources Corporation and related business entities retained Merrill Lynch in June, 1991 pursuant to a letter agreement as a financial advisor to assist the Edisto entities in a financial restructuring. That letter agreement also provided that Edisto would reimburse Merrill Lynch for “its reasonable out-of-pocket expenses, including the fees and disbursements of its legal counsel, incurred in connection with its activities hereunder.” April 29, 1992 letter, at 6, ^2b.
Edisto and certain of the related entities filed Chapter 11 petitions on October 26, 1992. Because of the “pre-planned” nature of the cases, a plan of reorganization and disclosure statement were also filed on this date.
On December 29, 1992, this court heard and approved Edisto’s modified application to retain Merrill Lynch nunc pro tunc to October 26, 1992. The modified application requested compensation for Merrill Lynch at a *738rate of $75,000 per month, “plus all out of pocket expenses of the type described [in the April 1992 letter agreement].” Docket No. 131, at 2, ¶4. At the hearing, the court emphasized to counsel for Merrill Lynch that each Merrill Lynch professional would be required to aecount for her time through the use of timesheets in accordance with the requirements of this District, and that subsequent fee applications would be carefully reviewed and the amounts requested therein reduced if necessary. See generally Docket No. 139, at 19-22. The retention order reiterated these points and allowed Merrill Lynch to provide services only as “set forth in the [modified] engagement agreement.” Docket No. 131, at 2, ¶2.
A plan of reorganization was ultimately confirmed in the Edisto cases, and thereafter, Merrill Lynch filed its original application for compensation and reimbursement of fees. Both the Office of the United States Trustee and the Unsecured Creditor’s Committee filed objections. In addition, at the hearing on the application, the court pointed out the insufficient nature of the description of services contained in the application. Specifically, the court pointed out the unified description of both pre-petition and post-petition services, a complete absence of Merrill Lynch time sheets (despite the court’s prior instructions), and legal fees and expenses buried in the expense request without corresponding timesheets and expense itemiza-tions. The court also had other questions concerning the request for expense reimbursement. The hearing on Merrill Lynch’s application was continued, and thereafter, Merrill Lynch filed its amended application. A hearing on this amended application was held on September 15, 1993, at which time Merrill Lynch further supplemented the record.
II. Discussion
A. The Request For Compensation Will Be Reduced.
The record in support of the $525,000 request for compensation is still deficient. The amended application’s first description of services still blends together a 17 month pre-petition period with a 7 month post-petition period. While the amended application contains a new “Summary of Activities” section which, on a weekly basis, indicates work performed pre-petition and post-petition, the descriptions indicate that the bulk of Merrill Lynch’s work was performed pre-petition. In particular, during the pre-petition period, Merrill Lynch undertook comprehensive studies of Edisto’s complex liability structure and debt service obligations, the projected cash flow, and alternatives for dealing with Edisto’s long term liquidity problems. Also pre-petition, Merrill Lynch undertook an extensive valuation analysis. Docket No. 654, Exhibit E, at 2. All this work preceded the filing of the initial Chapter 11 plan and disclosure statement on the first day of Edisto’s Chapter 11 case. According to the objection of the Unsecured Creditors Committee, Merrill Lynch was paid $802,731.86 for its pre-petition work.
Post-petition, the majority of Merrill Lynch’s time was spent on considering certain claw-back warrants, revising the plan and disclosure statement, preparing and providing expert testimony, and on matters relating to its own retention and proof of claim. Merrill Lynch has not indicated the number of hours it spent on these post-petition matters, or submitted any other information that would satisfy its burden of proof and allow the court to conclude that $75,000 per month for a total of $525,000 represents reasonable compensation for these post-petition activities. Indeed, Merrill Lynch’s own application implicitly concedes this, as it asks this court to consider the nature and degree of its pre-petition services as a basis for justifying its post-petition fees. E.g., Docket No. 654, at 13, ¶ 23(a), (f) & (g). Thus, the amount of requested compensation must be reduced.
On September 14, 1993 Merrill Lynch and the Unsecured Creditors Committee jointly filed a stipulation resolving the latter’s objection.1 This stipulation provides that: “a total fee of $350,000, rather than the $525,000 *739requested in Merrill Lynch’s application, constitutes reasonable compensation for the actual, necessary services rendered by Merrill Lynch to the Debtors in this case.... ” Based upon this stipulation and the court’s own findings, $350,000 will constitute reasonable compensation for Merrill Lynch’s services.
B. The Request For Expenses Will Be Reduced.
The amended application includes the invoices, timesheets, and expense itemiza-tions of each of the two law firms Merrill Lynch employed. Of the $108,736.99 Merrill Lynch requests in expense reimbursement, $67,738 are for the legal fees of its Texas counsel, Thompson & Knight. Most of Thompson & Knight’s fees relate to work performed on retention and proof of claim matters. By way of background, Merrill Lynch filed a proof of claim on January 14, 1993 for pre-petition obligations due under the engagement agreement. Both the Unsecured Creditors Committee and Edisto filed objections to this claim. Merrill Lynch ultimately withdrew the claim. Docket no. 589.
None of the time relating to retention or proof of claim matters is compensable. As discussed in Section I., the amended retention application sought, and this court approved only those expenses Merrill Lynch incurred in connection with its financial advisory services. The time counsel expended assisting Merrill Lynch on retention and proof of claim matters has nothing to do with the advisory services for which Edisto retained Merrill Lynch in its Chapter 11 case. Moreover, the substantial number of hours Thompson & Knight billed concerning the terms of Merrill Lynch’s retention and compensation, and preparing a proof of claim provided absolutely no benefit to the debtors’ estates. Accord, In re Columbia Gas System, 150 B.R. 553, 555 (Bankr.D.Del.1992) (disallowing in full financial advisor’s legal fees with respect to its own retention).
In determining the amount of compensable time Thompson & Knight performed, the court will consider that firm’s timesheets month by month. For services rendered ending October 31,1992, $7,254.00 is requested; $5,840.50 relate to pre-petition time entries. Another $835.00 relate to retention matters. An entry by M.L. Bengtson on October 10, 1992 for $58.50 contains insufficient detail to determine if it was for a compensable activity. This reduces the requested $7,254.00 to $520.00.
For services rendered through November 30, 1992, entries on November 3rd, 4th, 13th, and 16th and corresponding to $409.00 contain insufficient detail. Fifteen other entries in this month do contain sufficient detail to determine that the activities relate to non-compensable matters (either a retention or proof of claim activity). This reduces the November bill from $3,685.50 to $1001.50.
For services rendered through December 31, 1992, all 22 of the entries relate to non-compensable matters. This eliminates the December bill of $7,457.50.
For services rendered through January 31, 1993, 25 entries in full relate to noncompensable matters. Another two in part relate to noncompensable matters. The remaining compensable time for this month is $1,475.00.
For services rendered after this date, the timesheets contain activity descriptions but no time entries whatsoever. This fact in and of itself would be sufficient to deny in full the requested amount of $39,730.50 relating to this time period. Moreover, a review of the descriptions reveals that most of the activities were again spent on retention and proof of claim matters. The court will allow $6,500.00 in connection with this time period. In the aggregate, these observations reduce the requested reimbursement of Thompson & Knight’s legal fees from $67,738 to $9,496.50.
Of Merrill Lynch’s overall request for expense reimbursement of $108,736.99, $5,384.66 is for the expenses of Thompson & Knight, in connection with its work. Inexplicably, Thompson & Knight includes in this amount $3,320.85 in fees and costs of the local counsel of Merrill Lynch, Bayard Han-delman & Murdoch. Merrill Lynch has separately requested reimbursement for the fees and costs of this law firm. Moreover, since the underlying work of Thompson & Knight was predominantly noncompensable, the *740$5,384.66 expense amount will be reduced to $500.00.
Of the $108,736.99 Merrill Lynch requests in expense reimbursement, $3,797.00 are for the legal fees of its local counsel, Bayard Handelman & Murdoch. An additional $862.34 are for local counsel’s expenses. Of the $3,797.00 amount, all but $425.00 relate to retention or proof of claim matters. Only $425.00 of this amount is thus allowed.
The $425.00 relates to the preparation of Merrill Lynch’s expert witness. Upon review of the itemization of Bayard Handel-man’s expenses, only $200.00 (rental of a conference room) conceivably could relate to this activity. The remainder of the expenses are disallowed.
In summary, Merrill Lynch’s request for reimbursement of its legal fees and expenses is allowed in the amount of $10,621.50. Merrill Lynch has also sought reimbursement of other expenses totaling $30,954.99. This amount will be allowed.
An order in accordance with this Memorandum Opinion is attached.
ORDER
AND NOW, November 2, 1993, for the reasons stated in the attached Memorandum Opinion,
IT IS ORDERED THAT:
1. Merrill Lynch’s application for compensation is allowed in the amount of $350,000.
2. Merrill Lynch’s application for reimbursement of expenses is allowed in the amount of $41,576.49.
. Nothing in the record indicates that the Office of the United States Trustee consents to the terms of this stipulation. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491748/ | OPINION AND ORDER
BILLINGS, District Judge.
This is an appeal from an Opinion and Order, dated September 1, 1993, and amend*10ed September 3, 1993, of the United States Bankruptcy Court for the District of Vermont, denying appellant Anthony Ivanko-vich’s emergency motion to vacate sale of debtor’s assets.
BACKGROUND
On April 27,1990, Appellee-debtor Mt. As-cutney Ski Resort filed a voluntary petition for relief under Chapter XI of Title 11, U.S.C. § 101, et seq. (1978) (Re-organization). On April 21, 1991, the Bankruptcy Court converted these proceedings to Chapter VII of the Bankruptcy Code (Liquidation),1 and appointed John R. Canney, III, as Trustee.
From April, 1991, through May, 1993, the Trustee attempted without success to dispose of debtor’s assets by private sale and by sealed bid auctions. On June 3, 1993, the Bankruptcy Court authorized the Trustee to sell the assets at public auction to the highest bidder, without reserve. Sale notices were published in the national media, and were mailed to more than five thousand people, as well as to all the parties appearing in the bankruptcy proceeding.
On June 25, 1993, Appellee Snowdance Ski Company bid successfully at public auction for debtor’s assets with a bid of $1.1 million, plus Trustee’s commission. Following a status conference on July 2,1993, and a hearing confirming the sale on July 15, 1993, a copy of the Order confirming the sale was served on all parties who had filed appearances in the matter.
Some time thereafter, Appellant Anthony Ivankovieh learned of the sale and ordered a transcript of the confirmation hearing. Appellant, who was a limited partner and equity holder in a party to this proceeding,2 a creditor of debtor Mt. Ascutney Associates, and an unsecured creditor listed on debtor’s Chapter XI petition,3 did not receive official notice of the June 25 auction, or of the subsequent hearing confirming the sale.
Having learned from the Trustee that the sale closing was set for the week of August 23, 1993, on August 30, 1993, Appellant filed an emergency motion to vacate sale of debt- or’s assets, and for submission of competing offer. Appellant alleged that the confirmed sale was defective because Appellant: (1) did not receive notice of the conversion in 1991; (2) did not receive notice of the June 25 auction; and (3) would bid $2.2 million for the debtor’s assets, or double the successful bid.4
The Bankruptcy Court heard Appellant’s emergency motion on August 31, 1993. Before ruling on the motion, the Bankruptcy Court orally authorized the actual closing of the sale. The closing took place on September 1, 1993. Subsequently, on the same day, Appellant filed a motion for a temporary restraining order to prevent the closing from occurring. As the closing had, in fact, taken place, the Bankruptcy Court denied the restraining order and then filed its decision denying Appellant’s motion to vacate.
Finally, the Bankruptcy Court amended its September 1 Order on September 3,1993, by correcting the name of the successful bidder, Snowdance Ski Company. Appellant thereupon appealed the prior order to this Court the same day.
DISCUSSION
Appellant seeks review of the Bankruptcy Court’s Order of July 15, 1993, confirming the sale. Appellant’s motion to vacate sale was in effect a motion pursuant to Fed.R.Civ.P. 60(b), and we review decisions under Rule 60(b) for abuse of discretion. *11Browder v. Director, Dept. of Corrections of III., 434 U.S. 257, 263 n. 7, 98 S.Ct. 556, 560 n. 7, 54 L.Ed.2d 521 (1978). Normally, only the decision refusing Fed.R.Civ.P. 60(b) relief is at issue in such review, In re Alan Gable Oil Development Company, 978 F.2d 1254 (4th Cir.1992), but if a reviewing court does consider the underlying determinations, factual findings are binding unless clearly erroneous, while conclusions of law are reviewed de novo. In re Ionosphere Clubs, Inc. 922 F.2d 984, 988-89 (2d Cir.1990), cert. denied, Air Line Pilots Ass’n, Intern., AFL-CIO v. Shugrue, — U.S.-, 112 S.Ct. 50, 116 L.Ed.2d 28 (1991).
Good faith purchasers in bankruptcy sales are explicitly protected in Section 363(m) of the Bankruptcy Code.5 Although a strict reading of Section 363(m) limits its application to appeals, courts have extended the principle of it to motions to reconsider, In re Pine Coast Enterprises, Ltd., 147 B.R. 30, 33 (Bankr.N.D.Ill.1992), and to Rule 60(b) motions, Khan & Nate’s Shoes No. 2, Inc. v. First Bank of Whiting, 908 F.2d 1351, 1355 (7th Cir.1990).
The principle which animates Section 363(m) is that, absent bad faith, courts ought not break the promises made in bankruptcy sales. As the Pine Coast court stated:
Good faith buyers of property from a bankruptcy estate must be assured that the sale is final and not subject to being upset by the bankruptcy court or appellate court on a whim. If no such assurances are received, the price the buyer will be willing to pay, and thus, the dividend to the creditors, will be reduced.
147 B.R. at 33.
We decline to overturn the Bankruptcy Court’s Order of July 15, 1993. When it confirmed the sale on July 15, 1993, the Bankruptcy Court found that the auction process was fair, and that Snowdance Ski Company was a purchaser in good faith. This Court finds no abuse of discretion in that determination. Snowdance, which has begun the difficult and extensive process of reopening the Mt. Aseutney Ski Area, thus lies within the protection afforded by Section 363(m) and its purchase may not be disturbed.6
CONCLUSION
For the foregoing reasons, the Bankruptcy Court’s Order denying the emergency motion to vacate sale is hereby AFFIRMED.
SO ORDERED.
. The motion to convert from Chapter XI to Chapter VII was done without notice to all creditors, pursuant to an Order of the Bankruptcy Court.
. Appellant was a limited partner and equity holder in the Robert Trent Jones, Jr., Golf and Conference Center, a party to this proceedings.
. Appellant is listed on debtor’s Chapter XI petition as an unsecured creditor, without priority, because of prepetition rentals of his condominium unit in the amount of $10,336.50. In the Chapter XI proceedings, Appellant’s name was listed on the official mailing matrix.
.Assuming that the Appellant’s offer became a sales price, the Appellant would still not receive any monies as an unsecured creditor, without priority.
. 11 U.S.C. § 363(m) provides as follows:
(m) The reversal or modification of appeal of an authorization under sub-sections (b) or (c) of this section of a sale or lease of property does not affect the validity of a sale or lease under such authorization, but an entity that purchases or leases such property in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and such sale or lease were stayed pending appeal.
. In view of our holding, we need not reach or review the issue of notice as it pertains to Appellant. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491749/ | MEMORANDUM OF DECISION
JAMES A. GOODMAN, Chief Judge.
Midwest Engineering, Inc. (“MEI”), Defendant in the above-captioned adversary proceeding, has filed this Motion to Dismiss. After due deliberation, this Court denies the motion.
I. Background
On November 8, 1988, Shape, Inc. (“Shape”) filed a voluntary petition for reorganization pursuant to 11 U.S.C. Chapter 11. On March 23, 1992, the Trustee timely1 filed this adversary proceeding in order to avoid a fraudulent transfer pursuant to 11 U.S.C. § 548. The complaint alleged that the 60% of Shape’s common stock purchased by MEI was obtained via actual fraud or for less than reasonably equivalent value.
*81By order of the Court dated June 30,1992, the Trustee’s complaint was dismissed without prejudice to the extent that it sought relief under § 548(a)(1) or “actual fraud,” due to the Trustee’s failure to plead that cause of action with sufficient particularity as required by F.R.C.P. 9(b). In addition, this Court by an order dated December 9, 1992 prohibited the Trustee from prosecuting its constructive fraud claim through evidence of MEI’s alleged non-disclosure, because of the Trustee’s failure to plead that averment with specificity. Further, the Memorandum of Decision accompanying the December 9,1992 order estopped the Plaintiff from arguing that Shape received less than $20,000 cash plus a $172,263 promissory note for its MEI stock. See Shape, Inc., v. Midwest Engineering, Inc., (In re Shape), Case No. 88-20388, Adv.Proc. No. 92-2048, (Bankr.D.Me. December 9, 1992).
By order of this Court dated July 20,1993, Shape was substituted for the Trustee as plaintiff. On August 18, 1993, MEI filed an additional motion to dismiss this adversary proceeding on the grounds that: (1) Shape lacks standing; (2) Recovery by Shape will not benefit the estate, and; (3) Recovery is barred by the doctrine of equitable estoppel.
II. Motion To Dismiss
In evaluating a motion to dismiss, this Court must accept the facts and allegations set forth in the complaint as true, construing them in the light most favorable to Shape, as the nonmoving party. “The ‘accepted rule’ is that [Shape’s] complaint should be dismissed for failure to state a claim only if it appears beyond doubt that [Shape] can prove no set of facts which would entitle it to relief.” Lessler v. Little, 857 F.2d 866, 867 (1st Cir. 1988); Hughes v. Rowe, 449 U.S. 5, 10, 101 S.Ct. 173, 176, 66 L.Ed.2d 163 (1980).
MEI’s first basis for its motion to dismiss is that Shape lacks standing as the substituted plaintiff to assert a claim under 11 U.S.C. § 548(a)(2). MEI argues that only the Trustee can prosecute such an action. The Court disagrees with this argument. Section 1123(b)(3) of the Bankruptcy Code states that a plan of reorganization may provide for the retention and enforcement of claims by the debtor as well as by a trustee or representative of the estate.2 See, e.g., Join-In International (U.S.A) Ltd. v. New York Wholesale Distributors Corp., 56 B.R. 555, 561 (Bankr.S.D.N.Y.1986); In re Tennessee Wheel & Rubber Co., 64 B.R. 721, 724 (Bankr.M.D.Tenn.1986); In re Southern Indus. Banking Corp., 59 B.R. 638, 642 (Bankr. E.D.Tenn.1986). Shape’s Fourth Amended Plan of Reorganization contains such a provision. It states that “the Reorganized Debtor shall, in its sole discretion, litigate any evidence or recovery actions under sections 544 ... 548 ... of the Bankruptcy Code.” Based on this, MEI has failed to convince this Court that Shape does not have the standing to advance a Section 548(a)(2) claim.
MEI’s second basis for granting dismissal is that any recovery by Shape will not benefit the estate. This Court rejects that argument. A party can not argue post-confirmation that a recovery will not benefit the estate, when the recovery was described in the disclosure statement as an asset of the debtor’s estate, relied upon by creditors, and accepted as part of the consideration under the plan.
MEI’s third argument is that because Shape participated in the negotiation of the sale of the stock, it should be equitably es-topped from contesting whether it received reasonably equivalent value. This argument is without merit because it is contrary to the “voluntary” language of Section 548(a). Section 548(a), by stating “[t]he trustee may avoid any transfer ... if the debtor voluntarily or involuntarily ...,” does not attempt to limit recovery to only involuntary trans*82fers. It makes no difference whether the debtor voluntarily or involuntarily made the transfer, if the required elements of 11 U.S.C. § 548(a)(2) are met the transfer is still fraudulent.
Based on the foregoing, MEI’s Motion to Dismiss is denied.
The foregoing constitutes findings of fact and conclusions of law pursuant to F.R.B.P. 7052.
An appropriate order shall enter.
. By two agreements of the parties, the applicable two-year statute of limitations provided in Section 546(a)(1) was extended to March 23, 1992, the date the complaint was filed.
. Section 1123(b) states in pertinent part:
“(b) Subject to subsection (a) of this section, a plan may—
(3) provide for—
(A) the settlement or adjustment of any claim or interest belonging to the debtor or the estate; or
(B) the retention and enforcement by the debtor, by the trustee, or by a representative of the estate appointed for such purpose, of any such claim or interest ...” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491750/ | MEMORANDUM OF OPINION ON OBJECTION TO DISCHARGE
JOHN C. AKARD, Bankruptcy Judge.
Thomas M. Wheeler, Trustee-in-Bankruptcy (Trustee) filed an objection to the discharge of Randal G. Tharp and Beverly Ann Tharp (Debtors). The Trustee asserted that the Schedules and Statement of Financial Affairs filed by the Debtors were materially false and, therefore, their discharge should be denied under § 727(a)(4)(A) of the Bankruptcy Code.1 The court finds that the discharge should be denied.2
*178APPLICABLE STATUTES, RULES, AND FORMS
Section 727(a)(4)(A) reads in pertinent part:
§ 727. Discharge.
(a) The court shall grant the debtor a discharge, unless—
(4) the debtor knowingly and fraudulently, in or in connection with the case—
(A) made a false oath or account.;
Federal Rule of Bankruptcy Procedure 1007 provides in pertinent part:
Rule 1007. Lists, Schedules, and Statements; Time Limits
(b) SCHEDULES AND STATEMENTS REQUIRED.
(1) Except in a chapter 9 municipality case, the debtor, unless the court orders otherwise, shall file schedules of assets and liabilities, a schedule of current income and expenditures, a schedule of executory contracts and unexpired leases, and a statement of financial affairs, prepared as prescribed by the appropriate Official Forms.
Federal Rule of Bankruptcy Procedure 1008 provides:
Rule 1008. Verification of petitions and Accompanying Papers
All petitions, lists, schedules, statements and amendments thereto shall be verified or contain an unsworn declaration as provided in 28 U.S.C. § 1746.
Federal Rule of Bankruptcy Procedure 1007 provides:
Rule 9009. Forms
The Official Forms prescribed by the Judicial Conference of the United States shall be observed and used with alterations as may be appropriate. Forms may be combined and their contents rearranged to permit economies in their use. The Director of the Administrative Office of the United States Courts may issue additional forms for use under the Code. The forms shall be construed to be consistent with these rules and the Code.
The Introduction and General Instructions to the Official Forms provides that in connection with computer-generated forms: “Instructions provided on the printed forms can simply be built into the computer program; they need not be reprinted on the filed document.” (Reprinted in Bankruptcy Rules; Norton Bankruptcy Law and Practice, Callaghan & Co. 1992-93, p. 689.)
FACTS
Procedural Background
On March 5, 1993, the Debtors filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code together with their Statement of Financial Affairs and Schedules. The United States Trustee appointed Mr. Wheeler as the Trustee in this case. The meeting of creditors pursuant to § 341 was held on April 7,1993. Testimony at the hearing in this matter showed that at the commencement of the meeting of creditors, the Debtors’ attorney asked the Debtors if they wished to make any changes in their Statement of Financial Affairs or Schedules. They, under oath, replied, “No.” Subsequent questioning by creditors revealed substantial omissions from the Statement of Financial Affairs and Schedules.
On April 30, 1993, the Trustee filed his complaint objecting to the discharge of the Debtors in the captioned adversary proceeding. He pointed out numerous deficiencies in the Petition, Statement of Financial Affairs and Schedules. On June 4, 1993, the Debtors filed an answer admitting that there were numerous errors in the Schedules and Statement of Financial Affairs but pointing out that, concurrently with the answer, the Debtors were filing amendments to Schedules B, D, and the Statement of Financial Affairs.
The court heard the trial of the adversary proceeding on November 1,1993. The Debtors requested that Mrs. Tharp be excused *179from attendance because of illness. The Trustee did not object, so the trial proceeded without Mrs. Tharp’s presence.
The Documents Involved
The court notes that the original petition filed on March 5, 1993 appears to be on a computer-generated form. The heading for the names of the parties simply says “In re Randal G. Tharp” and “Name of Joint Debt- or: Beverly Ann Tharp.” Official Form 1 is the form for the voluntary petition. The instructions on that form read “IN RE: (Name of debtor — individual, enter Last, First, Middle)” and “Name of joint debtor (Spouse) (Last, First, Middle).” The form used by the Debtors had a space for adding “All Other Names.” They left that space blank. Form 1 contains the following instructions:
ALL OTHER NAMES used by the debtor in the last 6 years (include married, maiden, and trade names).
ALL OTHER NAMES used by the joint debtor in the last 6 years (include married, maiden, and trade names).
The court heard no evidence as to how long the Debtors have been married. The testimony revealed that Mr. Tharp did most, if not all, of his business under the name of Gwynn Tharp. He also was in partnership with his father-in-law in a business known as Naylor’s Used Cars. Apparently, that business was dissolved in late 1990 when Mr. Naylor filed for bankruptcy. Evidence revealed that Mr. Tharp had notes at the First National Bank of Baird secured by cars which were titled in the name of Naylor’s Used Cars and that as late as 1991 he had floor-planned automobiles with the bank. Naylor’s Used Cars was not mentioned anywhere in the petition. The Statement of Financial Affairs indicates that Mr. Tharp was self-employed during the years 1991, 1992 and 1993. Mr. Tharp testified that during that time he was self-employed as a commissioned salesman at Dave Ford Motors. Additionally, he acquired automobiles for sale for that company and for others. However, the petition contained no trade or business name.
In the portion of the petition entitled “Information Regarding Debtor,” responding to a question entitled: “Nature of Debt,” the Debtors put “Non-Business/Consumer.” Under the heading “Type of Business,” they responded “NA..” Under the heading “Briefly describe nature of business,” they responded “N/A.” The petition and schedules do not mention that Mr. Tharp is self-employed at Dave Ford Motors, nor do they describe his business of buying and selling motor vehicles.
Schedule B — Personal Property, in question 23, asks the Debtors to list all of their “automobiles, trucks, trailers, and other vehicles or accessories.” They replied, “None.” In the amendments filed on June 4,1993, the Debtors acknowledged that they owned one 1983 Cadillac and one 1987 Ford pickup.
On Schedule D — Creditors Holding Secured Claims, the Debtors stated “None.” In the amended schedules filed June 4, 1993, the Debtors acknowledged that they were obligated to Fleet Mortgage for $73,000.00 and to Haverty’s (a furniture store) for $2,364.47. Testimony showed that the two vehicles omitted from their original schedules were subject to a lien held by the First National Bank of Baird. That lien was not mentioned either in the original or in the amended schedules.
The instructions for ' Official Form 6, Schedule B — Personal Property, state that if the property is being held for the debtor by someone else, that person’s name and address must be given. The testimony revealed that one of the vehicles was in the possession of Mr. Tharp’s brother, but that fact was neither revealed in the schedules, nor in the amended schedules. In response to Question 16a. of the Statement of Financial Affairs, the Debtor indicated that he was not in business.
DEBTORS’ RESPONSES
The Debtors asserted a number of defenses to the Trustee’s complaint. First, they claimed that the Debtors had so many creditors (53) and that their activities were so entangled that it was difficult to prepare the schedules. They contended that no harm was done to any creditor by failing to list *180that creditor as secured, because the creditor was listed either as an unsecured creditor, or was listed on the matrix. They also pointed to the fact that on June 3, 1993, they filed amended schedules. Mr. Tharp asserted that most of his friends knew him as Randal Gwynn Tharp.
DISCUSSION
The Petition, Statement of Financial Affairs and Schedules when reviewed in their totality, clearly indicate that the Debtors tried to conceal their business, their true identities, and their assets. Mr. Tharp acknowledged that his business was done under the name of Gwynn Tharp, but the name Gwynn never appears in any of those documents. They listed no secured creditors, although they have at least three. Mr. Tharp acknowledged that automobiles were omitted from the schedules. Additionally, the fact that Mr. Tharp was actively engaged in business was cleverly concealed in these documents. The Debtors are responsible for furnishing all of the information required by the Official Forms. The fact that the forms they used were abbreviated and did not contain all of the questions contained in the Official Forms does not excuse their failure to furnish full and complete information as required by the Official Forms. Both Debtors signed the Petition, Statement of Financial Affairs and Schedules under penalty of perjury.
The Debtors were not forthcoming in providing information.' At the meeting of creditors on April 7, 1993, they stated that the schedules were true and correct. When they were questioned by creditors the falsity of this statement became apparent. After the meeting of creditors the Debtors made no effort to correct the schedules. On April 30, 1993, the Trustee filed the complaint objecting to the discharge. The Debtors still took no action to correct the schedules until June 4, 1993. The amended schedules were not full, complete and accurate.
CONCLUSION
Based on the evidence and testimony, the court cannot but conclude that the Debtors knowingly and fraudulently made false oaths in their Petition, Schedules, and Statement of Financial Affairs in this case. Accordingly, the court finds that their discharge must be denied under. § 727(a)(4)(A).3
. The Bankruptcy Code is 11 U.S.C. § 101 et seq. References to section numbers are references to sections in the Bankruptcy Code.
. This court has jurisdiction of this matter under 28 U.S.C. § 1334(a), 28 U.S.C. § 157(a), and *178Miscellaneous Rule No. 33 of the Northern District of Texas contained in Order of Reference of Bankruptcy Cases and Proceedings Nunc Pro Tunc dated August 3, 1984. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(1), (b)(2)(J).
. This Memorandum shall constitute Findings of Fact and Conclusions of Law pursuant to Bankruptcy Rule 7052. This Memorandum will be published. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491751/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court upon Debtor’s Objection to Proof of Claim, filed by Union Bank of California (hereafter “Union Bank”). A Hearing was convened on Debt- or’s Objection and Counsel agreed to submit written arguments. Both parties submitted Briefs in support of their position. After the Hearing, Counsel agreed to submit Post-Trial Memorandum in-lieu of closing arguments. Creditor’s Counsel comphed with this request. Debtor’s Counsel, after being granted a request to extend time, never filed a Post-Petition Memorandum. The Court has reviewed the written arguments of Counsel, supporting affidavits, and exhibits, as well as the entire record of the case. Based upon that review and for the following reasons, the Debtor’s Objection to Proof of Claim should be Overruled.
FACTS
Donovan and Julie Kennedy (hereafter “Debtors”), on September 11, 1991, entered into a Pre-Computed Interest Motor Vehicle Contract and Security Agreement (hereafter “Contract”) with Cardinale Oldsmobile GMC in California. This Contract provided for the financing of a 1991 Mitsubishi Eclipse. Payments were to be paid on the twenty-sixth (26th) of each month until September 26, 1996. The contract also provided that the Debtors were prohibited from removing the *205vehicle from California for more than thirty (30) days at a time.
This Contract was assigned without recourse to Union Bank. Union Bank received a security interest in the vehicle which was, according to the record, perfected under the laws of California.
In February of 1992, after Donovan Kennedy’s discharge from the army, the Debtors moved to Ohio. They did not notify the Creditors that they had moved until they were in Ohio. The Creditors then commenced to send all correspondences to the Debtors at their address in Ohio.
About the same time the Debtors moved they started to become delinquent in their payments. Although they never completely missed a month they were late in paying several times. In addition, in August of 1992, the Debtors arranged with Union Bank to have that month’s payment deferred. The Debtors missed their September 26, 1992 payment and have not since made a payment.
On September 10, 1992 Donovan Kennedy went to the Wood County Title Department (hereafter “Title Department”) to begin proceedings to retitle the ear in Ohio. The Title Department on the aforementioned date, sent a request to Union Bank asking for the original title and a certified copy of the Security Agreement. When the Title Department received no response from Union Bank, they sent another letter on October 5, 1992 and again received no response.
The Debtors called Union Bank to discover • the reason why the bank was withholding the title. The Debtors were informed that Union Bank would not allow the Debtors to retitle the vehicle in Ohio because of their payment history. Since the car could not be driven without valid Ohio license plates, which cannot be obtained without an Ohio title, Debtors offered to surrender the vehicle. Union Bank agreed and on October 26, 1992 Debtors returned the vehicle to Toledo Auto Auction, a location designated by Union Bank. Union Bank then sold the vehicle and now claim a deficiency of Five Thousand Seven Hundred and Eighty-six Dollars and Eighty-two Cents ($5,786.82).
The procedure of this case is as follows: the Debtors filed their Chapter 13 Bankruptcy Petition on January 13, 1993. Union Bank then filed its Proof of Claim on February 8, 1993 with an Objection to the Claim being filed by the Debtors on March 10, 1993. A Hearing was held on the Debtors’ Objection and Union Bank subsequently filed Closing Arguments and Post-Trial Memorandum. Debtors’ Counsel never filed a Closing Arguments or Post-Trial Memorandum.
LAW
The relevant portions of the Bankruptcy Code are as follows:
11 U.S.C. § 501(a):
A creditor or an indenture trustee may file a proof of claim. An equity security holder may file a proof of interest.
11 U.S.C. § 502
(a) A claim or interest, proof of which is filed under section 501 of this title, is deemed allowed, unless a party in interest ... objects.
(b) ... the court, after notice and a hearing shall determine the amount of such claim in lawful currency of the United States as of the date of the filing of the petition, and shall allow such claim in such amount, except to the extent that— (1) such claim is unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured.
The relevant portions of the California Uniform Commercial Code are as follows:
Cal.Com.Code § 9502(2)
A secured party who by agreement is entitled to charge back uncollected collateral or otherwise to full or limited recourse against the debtor and who undertakes to collect from the account debtors or obli-gors must proceed in a commercially reasonable manner and may deduct his reasonable expenses of realization from the collections. If the security agreement secures an indebtedness, the secured party must account to the debtor for any surplus, *206and unless otherwise agreed, the debtor is liable for any deficiency.
DISCUSSION
Allowance or disallowance of claims against the estate is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B). The case at bar is a core proceeding.
This case arose out of a security agreement devised under the California Uniform Commercial Code. Referral to California law occurs throughout the Security Agreement, by implication then, California law should govern. “In the absence of any controlling federal law, ‘property’ and ‘interests in property’ are creatures of state law.” Barnhill v. Johnson, 503 U.S.-, 112 S.Ct. 1386, 118 L.Ed.2d 39 (1992), citing McKenzie v. Irving Trust Co., 323 U.S. 365 at 370, 65 S.Ct. 405 at 408, 89 L.Ed. 305 (1945).
Pursuant to Cal.Com.Code § 9502 after a debtor has defaulted, the secured party has the right to repossess the collateral and sell it in a commercially reasonable manner. If there is any surplus amount between the selling price and the debt, then the secured party must pay the difference to the debtor. Contra, if there is a deficiency, the debtor is hable to the secured party for the difference between the debt and the selling price.
The major issue in this case is whether the Debtors were in default when they voluntarily surrendered the vehicle. If so, they are hable for the deficiency to Union Bank. It is the Court’s belief that the Debtors were in default at the time of surrender.
Counsel for both parties have focused the issue on the removal of the vehicle from California for more than thirty (30) days. Union Bank contends that the Debtors’ moving, in February, to Ohio, was when the actual default happened. Union Bank contends that Debtors were in default on an obhgation in the Contract not to remove the vehicle from California or, at the very least, to reasonably notify Union Bank before the vehicle was removed from the state. Since the Debtors did neither, they are in default.
The Debtors contend that although they removed the car without telling Union Bank first, they did inform Union Bank shortly thereafter. Union Bank made no objection to the move. The Debtors contend that since Union Bank made no objection they were not in default and as such the ability to retitle the vehicle should not be unreasonably withheld.
The Court is inclined to agree with the Debtors’ position that they were not in default by reason of removing the vehicle from California, but for a different reason. The Court believes that essentially there was a modification of the Contract. This modification arose by the inaction of Union Bank in so opposing the move. Union Bank made no objection and, in fact, began dealing on a regular basis with the Debtor in Ohio. This action, on the part of Union Bank, when looking at all pertinent facts, amounted to a change in the Contract. This change enabled the Debtor to remove the vehicle for more than thirty (30) days from the state of California without being in default. This modification does not, however, force Union Bank to allow retitling of the vehicle in Ohio.
The issue now turns on whether the Debtors were in default on their payments. It is the Court’s belief that they were. According to the Contract, payments were to be made on the twenty-sixth (26th) of each month. The Debtors, since February 1992, had been late paying four (4) times; had bounced one (1) check; and had deferred payment of one (1) monthly installment. In addition the Debtors stopped paying their loan completely in September, 1992.
Failure on the part of Union Bank to allow retitling of the vehicle is not listed in the Security Agreement as a ground for default. However, according to the Security Agreement, nonpayment is grounds for default. Default by the Debtor gives Union Bank the right to accelerate the debt and repossess the vehicle. Surrendering of the vehicle is the equivalent of repossession. American Business Credit Corp. v. Kirby, 122 Cal.App.3d 217, 175 Cal.Rptr. 720, 722 (1981). Thus Union Bank has the right to sell the collateral in satisfaction of the debt and make the debtor liable for any deficiency.
*207It is the Debtors’ contention that Union Bank was in error because they unreasonably withheld title, rendering the vehicle unusable. This action on the part' of Union Bank, contends the Debtors, justified the Debtors’ failure to pay their monthly installment. As stated previously, nowhere in the Security Agreement is failure on the part of Union Bank to allow the Debtor to retitle the vehicle in another state listed as being a means of default. Counsel for the Debtor has argued that it is widely understood that Union Bank should not unreasonably withhold title; however, Counsel has offered no evidence to support this belief. Even if it were an understood premise that Union Bank should not unreasonably withhold title, Union Bank, in this case, does not seem to be acting unreasonably. When the Debtors asked to retitle the vehicle they had become very erratic in paying their monthly payments. It does not seem, taking in to account the Debtors’ payment history, that it is unreasonable to withhold title. In addition, if the Court were to allow the Debtors’ contention, this would set the precedent that a debtor could withhold payment anytime he or she did not agree with a bank’s actions. This is not a precedent the Court will set.
The responsibility to pay monthly installments did not terminate when the Debtors could not obtain proper title. Thus, the Debtors’ inability to retitle the vehicle does not release the Debtors from their responsibility to make payments. When the vehicle was surrendered, the Debtors had not paid Union Bank for, at least, the month of September, 1992. Based on this non-payment and the Debtors’ past payment history, Union Bank was well within their rights to accelerate the lease; to take possession of the vehicle; and to sell it in satisfaction of the debt. As such, the Debtors are liable for the deficiency under Cal.Com.Code § 9502. Therefore the Debtor’s Objection to Proof of Claim should be Overruled.
In reaching the conclusion found herein, the Court has considered the demeanor of the witnesses, all of the evidence, exhibits and arguments of counsel, regardless of whether or not they are specifically referred to in this opinion.
Accordingly, it is
ORDERED that Debtors’ Objection to Proof of Claim- be, and is hereby DENIED.
It is FURTHER ORDERED that the Claim of Union Bank be ALLOWED in the amount of Five Thousand Eight Hundred and Seven Dollars and Forty-seven Cents ($5,807.47). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491754/ | OPINION ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
KATHLEEN P. MARCH, Bankruptcy Judge.
I. INTRODUCTION
This opinion rules on cross-motions for summary judgment. The cross-motions are *261made in a nondischargeability adversary proceeding brought by plaintiff Demetrios James Sophos (Sophos) against joint debtors John William Hibbs (Mr. Hibbs) and Sandra Burris Hibbs (Mrs. Hibbs), who are husband and wife.
Plaintiff Sophos’ motion for summary judgment seeks to hold a federal judgment for intentional copyright infringement nondis-chargeable as to both Mr. and Mrs. Hibbs pursuant to 11 U.S.C. § 523(a)(6).1 Defendants Mr. and Mrs. Hibbs’ cross-move for summary judgment seeking to have the copyright infringement judgment held discharge-able as to each of them.
Both motions also ask the Court to rule whether Sophos can reach the postpetition community or separate property of Mrs. Hibbs, pursuant to 11 U.S.C. § 524(a)(3) and (b)(1),2 to satisfy a judgment of nondis-chargeability against Mr. Hibbs, should a judgment of nondischargeability be obtained against only Mr. Hibbs.
Part IV sets forth the Court’s ruling as to Mr. Hibbs. The Court grants plaintiffs motion for summary judgment against Mr. Hibbs and denies Mr. Hibbs’ cross-motion. The Court holds that the federal copyright infringement judgment is nondischargeable as to Mr. Hibbs pursuant to Section 523(a)(6).
Part V sets forth the Court’s ruling as to Mrs. Hibbs. The Court denies plaintiffs motion for summary judgment and grants Mrs. Hibbs’ cross-motion. The Court holds that the federal copyright infringement judgment is dischargeable as to Mrs. Hibbs.
In Part VI, the Court discusses the question of what property Sophos may reach to collect on his nondischargeable judgment against Mr. Hibbs. The following opinion sets forth this Court’s findings.3
II. FACTS
A. THE DISTRICT COURT COPYRIGHT INFRINGEMENT ACTION.
On May 26, 1988, Sophos commenced a copyright infringement action against Mr. Hibbs, United Amusements, Inc. (a corporation owned by Mr. Hibbs), and Norm Hent-horn (a supplier of United Amusements) in the United States District Court, Central District of California. Mrs. Hibbs was not a party to the action.
The case was eventually tried to a jury presided over by U.S. Magistrate Judge *262George King, United States District Court Central District of California. The jury returned a verdict against Mr. Hibbs and against both of the other defendants. Magistrate Judge King entered judgment against the defendants accordingly.4 There was no judgment against Mrs. Hibbs as she was never a party to the action.
The verdict was a special verdict which was in the form of interrogatories, each answered separately by the jury. The jury found in its special verdict that Mr. Hibbs caused United Amusements to infringe and that Mr. Hibbs personally participated in the acts of United Amusements that constituted infringement.5
WE, THE JURY, FIND THE FOLLOWING:
1. PLAINTIFF’S ACTUAL DAMAGES.
1. Was the Plaintiff actually damaged by the infringements of any of the defendants? Yes x No _
2. DEFENDANT HIBBS’ ROLE.
2. Do you find that Defendant John W. Hibbs did either of the following: (answer yes or no)
i. Caused UNITED AMUSEMENTS to infringe? yes
ii. Personally participated in the acts of UNITED AMUSEMENT that constitute infringement? yes_
WILLFUL, CONSCIOUS OR DELIBERATE INFRINGEMENT.
5.a. Do you find that Defendants' UNITED AMUSEMENTS/HIBBS infringements were or were not willful, conscious or deliberate? If you find that the infringements were willful, conscious or deliberate, then answer “Yes". If you find that the infringements were not willful, conscious or deliberate, then answer "No.”
PERFECT BILLIARDS Yes x No __
MISSION XX Yes x No _
AIRWOLF Yes x No_
5.c. Do you find that Defendant HENTHORN’s infringements were or were not willful, conscious or deliberate? If you find that the infringements were willful, conscious or deliberate, then answer "Yes”. If you find that the infringements were not willful, conscious or deliberate, then answer "No.”
PERFECT BILLIARDS Yes _ No x
MISSION XX Yes _ No x
AIRWOLF Yes_ No x
Signed this 25th day of September, 1989, at Los Angeles, California.
/s/ Paul E. Adkins Jury Foreperson
As evidenced by the special verdicts, the jury also determined that the infringement of Mr. Hibbs and United Amusements was willful. U.S. Magistrate Judge King instructed the jury on willful infringement. The instruction he gave instructed the jury that willful infringement meant “copying with knowledge that the defendants’ conduct constitutes copyright infringement.”6
*263B. FACTS RELEVANT TO THE CROSS-MOTIONS.
In ruling on the cross-motions, the Court has relied only upon the following items: (1) the federal copyright judgment,7 (2) the special verdicts answered by the jury,8 (3) the special jury instruction on the definition of willful infringement,9 (4) a portion of the deposition of Norm Henthorn (taken in the infringement case and filed with the court -in support of the instant motion),10 and (5) a portion of the deposition of John Hibbs (taken in the infringement case and filed with the court in support of the instant motion).11
The portion of the Henthorn deposition considered by the Court is page 16, lines 1-25. There, Norm Henthorn testified that he had asked Mr. Hibbs whether he (Henthorn) should remove Sophos’ copyright notice from products he (Henthorn) was copying for United Amusements. According to Hent-horn, Mr. Hibbs said he (Hibbs) would have to consider it and would “get back to” Hent-horn. Then, according to Henthorn, Mr. Hibbs or someone from United Amusements called him (Henthorn) and told him (Hent-horn) to remove the copyright notices.
The portion of the John Hibbs deposition considered by the Court is page 22 line 14 through page 23 line 18. At first, Mr. Hibbs denied the above conversation occurred. However, Mr. Hibbs then admitted that such a conversation may have occurred — but stated he did not recall the conversation. Finally, Mr. Hibbs said that he would not say Henthom was lying.
The Court also considered page 22 line 12 and page 38 lines 20-25 and page 39 lines 1-5 of the John Hibbs deposition. There, Mr. Hibbs admitted to having knowledge of the copyright from the date the copyright infringement action commenced and admitted to selling products at the time of his deposition — which was after the commencement of the copyright infringement action.
In addition to these items, both sides filed declarations which attempted to relitigate many of the issues already tried in the District Court case. This Court, however, does not find it necessary or proper to, in effect, retry the copyright infringement case. The cross-motions for summary judgment can be decided relying only on the above five items — none of which involve any factual disputes.
As discussed below, the principles of res judicata and collateral estoppel preclude this Court from retrying or changing the outcome on issues already determined in the copyright infringement case. Sophos and Mr. Hibbs have already had a full jury trial, which resulted in a verdict, where the factual issues raised by these motions were decided. It would waste the resources of both this Court and the parties to relitigate the same issues that the copyright infringement jury already decided. Even more important, it would be contrary to the principles of res judicata and collateral estoppel to change the jury’s decision on any of the issues the jury has already decided.
*264III. APPLICABLE LAW
A. STANDARDS FOR SUMMARY JUDGMENT.
Rule 56, incorporated by F.RJB.P. Rule 7056, provides that the “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.Proc. 56(c).
A moving party’s burden on a summary judgment motion contains two components. First, the moving party must satisfy the burden of production (and the manner of satisfying this burden depends upon which party has the burden of persuasion on the claim). Second, the moving party must satisfy the burden of persuasion on the motion. Celotex Corp. v. Catrett, 477 U.S. 317, 330, 106 S.Ct. 2548, 2556, 91 L.Ed.2d 265 (1986) (citing 10A C. Wright, A. Miller, & M. Kane, Federal Practice and Procedure § 2727, p. 121 (2d ed. 1983)); Anderson v. Liberty Lobby, 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
1. Burden of production.
a. If movant has burden of persuasion on claim.
When the moving party bears the burden of persuasion on the claim, that party satisfies the burden of production on the motion by supporting the motion with evidence that demonstrates entitlement to a judgment as a matter of law if the evidence is uncontroverted. See 10A C. Wright, A. Miller, & M. Kane, Federal Practice and Procedure § 2727, p. 129-131 (2d ed. 1983).
Once the movant satisfies its initial burden of production, the burden of production shifts to the nonmovant. The nonmovant satisfies the burden by either’producing evidence that demonstrates the existence of a genuine issue for trial or submitting an affidavit requesting additional time to conduct discovery. Furthermore, the nonmovant’s evidence must be accepted as true for purposes of the summary judgment motion. See Bushie v. Stenocord Corp., 460 F.2d 116 (9th Cir.1972).
b. If movant does not have burden of persuasion on claim.
When the moving party does not bear the burden of persuasion on the claim, that party satisfies the burden of production on the motion in either of two ways. The mov-ant may submit evidence that negates an essential element of the nonmovant’s claim. Alternatively, the movant may show that the nonmovant’s evidence is insufficient to establish an essential element of the nonmovant’s claim. See 10A C. Wright, A. Miller, & M. Kane, Federal Practice and Procedure § 2727, p. 129-131 (2d ed. 1983).
2. Burden of persuasion on motion.
As noted, the party moving for summary judgment has the ultimate burden of persuading the court that “there is no genuine issue as to any material fact.” Thus, the court must determine whether a dispute exists over a material fact and, if so, whether the dispute is genuine.
Since the Celotex trilogy of cases in 1986, the party opposing a summary judgment motion needs more than a scintilla of opposing evidence to defeat the motion. Pursuant to the Celotex trilogy, the test for a genuine dispute is whether a reasonable jury could reasonably find for the nonmovant— meaning, the facts in the nonmovant’s opposition must be sufficient to support a verdict in the nonmovant’s favor (i.e., sufficient to survive a motion for judgment notwithstanding the verdict or directed verdict made at the close of all the evidence).12 This opinion applies this test, plus the principles of res judicata and collateral estoppel, to the issues defined by Section 523(a)(6) of the Bankruptcy Code.
B. ELEMENTS OF NONDIS-CHARGEABILITY UNDER SECTION 523(a)(6).
Section 523(a)(6) of the Bankruptcy Code provides that a discharge under Section 727 *265shall not discharge an individual debtor from any debt “for willful and malicious injury by the debtor to another entity or to the property of another entity.” 11 U.S.C. § 523(a)(6). Thus, pursuant to Section 523(a)(6), Mr. Hibbs does not receive a discharge of (1) a debt (2) where the debt is for an injury to another entity or property of another entity, if that injury is (3) caused by Mr. Hibbs and is (4) willful and (5) malicious.
The plaintiff must satisfy each element by a preponderance of the evidence. See Grogan v. Garner, 498 U.S. 279, 289, 111 S.Ct. 654, 661, 112 L.Ed.2d 755 (1991). Although the holding in Grogan was as to the burden of proof issue for. Section 523(a)(2)(A) actions, the Supreme Court stated in dictum that the preponderance standard applies to all actions under Section 523(a). The Ninth Circuit has since adopted the preponderance standard for Section 523(a)(6) actions, consistent with the dictum in Grogan. See In re Littleton, 942 F.2d 551, 554 (9th Cir.1991).
C. THE DOCTRINES OF FORMER ADJUDICATION.
1. Res Judicata (Claim Preclusion).
Pursuant to the doctrine of res judicata, a judgment in a prior suit is considered conclusive on the parties to the judgment and those in privity with them “as to every ground of recovery that was actually presented in the action, but also as to every ground which might have been presented.” Southern P.R. Co. v. U.S., 168 U.S. 1, 47, 18 S.Ct. 18, 27, 42 L.Ed. 355 (1897). “Res judicata thus encourages reliance on judicial decisions, bars vexatious litigation, and frees the courts to resolve other disputes.” Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979).
For claim preclusion to operate, three elements must be present. First, the judgment must have been final, valid, and on the merits. Second, the parties in the subsequent action must be identical to those in the first action. Third, the claim in the second action must involve matters properly considered included in the first action. See, e.g., Derish v. San Mateo-Burlingame Bd. of Realtors, 724 F.2d 1347, 1349 (9th Cir.1983).
2. Collateral Estoppel (Issue Preclusion).
Pursuant to the doctrine of collateral es-toppel, 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 by the same parties or their privies.” Southern P. R. Co. v. United States, 168 U.S. 1, 48-49, 18 S.Ct. 18, 27, 42 L.Ed. 355 (1897); Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 n. 5, 99 S.Ct. 645, 649 n. 5, 58 L.Ed.2d 552 (1979).
“To preclude parties from contesting matters that they have had a full and fair opportunity to litigate protects their adversaries from the expense and vexation attending multiple lawsuits, conserves judicial resources, and fosters reliance on judicial action by minimizing the possibility of inconsistent decisions.” Montana v. United States, 440 U.S. 147, 153-54, 99 S.Ct. 970, 973-74, 59 L.Ed.2d 210 (1979).
For issue preclusion to operate, the issue sought to be precluded must be identical in both actions and must have been actually litigated, decided, and necessary to the judgment.13 See, e.g., Davis & Cox v. Summa Corp., 751 F.2d 1507 (9th Cir.1985).
To test for identity of issues, one must consider both factual identity and legal standards. The test is necessarily strict. Issue preclusion “must be confined to situations where the matter raised in the second suit is identical in all respects with that decided in the first proceeding and where the controlling facts and applicable legal rules remain unchanged.” Commissioner v. Sunnen, 333 *266U.S. 591, 599-600, 68 S.Ct. 715, 720, 92 L.Ed. 898 (1948).
As discussed supra, Grogan and cases following Grogan make clear that the preponderance standard applies to all Section 523(a) actions. Thus, the applicable legal rules for the burden of proof are the same in both the copyright infringement action and the present nondischargeability action so there is no impediment to applying collateral estoppel based on a different standard for the burden of proof.
The test for determining whether the issue to be precluded was actually litigated and decided in the first proceeding, and was necessary to the Court’s judgment, is a straight forward factual inquiry. Furthermore, “[njecessary inferences from the judgment, pleadings and evidence will be given preclu-sive effect.” Davis & Cox v. Summa Corp., 751 F.2d 1507, 1518 (9th Cir.1985).
IV. ANALYSIS: MR. HIBBS
As noted, Section 523(a)(6) makes nondisehargeable a debt “for willful and malicious injury by the debtor to another entity or to the property of another entity.” The following discussion analyzes each element of Section 523(a)(6) within the framework of a motion for summary judgment.
A. FIRST ELEMENT — EXISTENCE OF A DEBT.
Whether a debt exists is a material issue under Section 523(a)(6). The Code defines debt to mean liability on a claim. 11 U.S.C. § 101(12). Claim means a right to payment, whether or not such right is reduced to judgment. See 11 U.S.C. § 101(5)(A).
Plaintiff Sophos has met his burden of production by attaching a copy of the intentional copyright infringement judgment. Plaintiff submits that he is entitled to judgment as a matter of law because the judgment is res judicata as to the existence of a debt.
The Court grants plaintiff Sophos summary adjudication on this element. This Court is barred'by res judicata from reexamining the jury’s determination that Mr. Hibbs is liable to Sophos. See In re Comer, 723 F.2d 737 (9th Cir.1984). Although there was once a factual issue as to the existence of liability, defendant is barred from raising any possible defense. In fact, Mr. Hibbs does not deny the existence of the debt (so there is no genuine dispute on this element).
1. Calculation of Interest as Part of Amount to Be Held Nondisehargeable.
The total amount of the judgment, before interest, is $201,086.28. The second amended judgment here at issue was entered nunc pro tune to September 27, 1989.
Pursuant to the nonbankruptcy federal statute governing interest on district court judgments, plaintiff is entitled to post-judgment interest on this judgment “... calculated from the date of the entry of the judgment, at a rate equal to the coupon issue yield equivalent (as determined by the Secretary of the Treasury) of the average accepted auction price for the last auction of fifty-two week United States Treasury bills settled immediately prior to the date of the judgment.” 28 U.S.C. § 1961(a) (emphasis added). This statute provides that interest is to be computed daily to the date of payment and compounded annually. See 28 U.S.C. § 1961(b).
The floating federal reserve rate as of September 27, 1989, the date of the judgment, was 8.19%. Using this rate, post-judgment interest on the $201,086.28 must be given at 8.19% per year and compounded annually until the judgment is paid.
2. Total Amount of Debt that is Nondisehargeable.
Using the dates and rates as just stated, and compounding annually, the total amount of post-judgment interest owed to the date of this judgment is $59,620.56. Thus, the total amount of the judgment which is sought to nondisehargeable as to Mr. Hibbs, including interest, is $260,706.84. In addition, this amount will continue to accrue interest at 8.19% from date of entry of this judgment until this judgment is paid in full.
B. SECOND ELEMENT — WILLFUL.
Whether Mr. Hibbs acted willfully is a material issue under Section 523(a)(6). Under the Code, courts uniformly define willful as an intentional act which caused an inju*267ry.14 The Ninth Circuit has defined the test as follows: “The creditor must show the debtor acted intentionally. The intent required is the intent to do the act at issue, not intent to injure the victim.” In re Britton, 950 F.2d 602, 605 (9th Cir.1991) (emphasis added).
Plaintiff has met his burden of production by attaching a copy of the jury’s special verdict. Plaintiff submits that he is entitled to judgment as a matter of law because the jury found that Mr. Hibbs acted intentionally and collateral estoppel bars any further dispute over this issue.
The jury specifically found that Hibbs caused United Amusements to infringe and that he personally participated in the acts of United Amusement that constitute infringement. The court finds that Mr. Hibbs’ intent to personally participate in the acts is a necessary inference from the judgment. Thus, the court grants plaintiff summary adjudication on the element of willfulness. Cf. Davis & Cox v. Summa Corp., 751 F.2d 1507, 1518 (9th Cir.1985) (“[njecessary inferences from the judgment, pleadings and evidence will be given preclusive effect.”).
Even without the application of collateral estoppel, Mr. Hibbs has submitted no evidence to show that he did not intend to do the acts. Thus, he has not shown the existence of a genuine dispute as to this issue.
C. THIRD ELEMENT — MALICIOUS.
Malice is the most problematic element under Section 523(a)(6). Malice is not a defined term in the Bankruptcy Code. As a result, courts have struggled to articulate a test, and the resulting decisions are not uniform.
1. Ninth Circuit’s Test for Malice.
The Ninth Circuit’s test for malice is articulated in three cases. Impulsora Del Territorio Sur v. Cecchini (In re Cecchini), 780 F.2d 1440 (9th Cir.1986); Transamerica Commercial Finance Corporation v. Littleton (In re Littleton), 942 F.2d 551, 554 (9th Cir.1991); Britton v. Price (In re Britton), 950 F.2d 602, 605 (9th Cir.1991). Cecchini established the test, while Littleton and Brit-ton clarify the test (and arguably modify it).
In Cecchini, the Ninth Circuit held that a wrongful act, when done intentionally, is willful and malicious for purposes of Section 523(a)(6) even absent proof of a specific intent to injure when it necessarily produces harm and is without just cause or excuse. See Impulsora Del Territorio Sur v. Cecchini (In re Cecchini), 780 F.2d 1440 (9th Cir.1985).
In Littleton, the Court provided a three step process to finding malice under Section 523(a)(6). The Creditor must show that (1) the debtor committed a wrongful act; (2) the act necessarily produced harm, and (3) the act was without justification or excuse. See Transamerica Commercial Finance Corporation v. Littleton (In re Littleton), 942 F.2d 551, 554 (9th Cir.1991). Furthermore, the Littleton Court adopted the Ninth Circuit BAP’s test for “necessarily produced harm” to mean that the act must be targeted at the creditor, at least in the sense that the act is certain or almost certain to cause financial harm. Id. at 555.
Finally, the Britton Gourt reaffirmed that a creditor need not prove the debtor specifically intended to injure the victim for there to be malice under Section 523(a)(6). See Britton v. Price (In re Britton), 950 F.2d 602, 605 (9th Cir.1991). However, the Court seemed to adopt the Tenth Circuit’s test insofar-as it provided the creditor must show the debtor’s actual knowledge or the reasonable foreseeability that his conduct will result in injury to the creditor. Id. 950 F.2d at 605 (quoting C.I.T. Fin. Serv., Inc. v. Posta (In re Posta), 866 F.2d 364, 367 (10th Cir.1989)).
2. Application of Malice Test.
a. Debtor Committed a Wrongful Act.
Whether the debtor committed a wrongful act is a material issue. Plaintiff has met his burden of production by attaching a copy of *268the intentional copyright infringement judgment. Plaintiff submits that he is entitled to judgment as a matter- of law because the judgment is res judicata as to debtor’s wrongful act.
The Court grants plaintiff summary adjudication on this element. This Court is barred by res judicata and collateral estop-pel from reexamining the jury’s determination that Mr. Hibbs committed a wrongful act. See In re Comer, 723 F.2d 737 (9th Cir.1984). Although this was once a factual issue, Mr. Hibbs is barred from raising any possible defense. In fact, Mr. Hibbs does not deny that his acts were wrongful unless protected by some affirmative defense. As evidenced by the judgment entered against him, no defense was found to apply to protect Mr. Hibbs’ conduct from constituting copyright infringement.
b. Actual Knowledge of Harm and Disregard thereof?
Whether debtor had actual knowledge of Sophos’ copyright and disregarded Sophos’ rights with respect to the copyright are material issues. This test is essentially the same test used by courts to determine whether a party has committed an intentional tort.
Here,- plaintiff has met his burden of production by attaching the jury’s special verdict, the jury instruction of willful infringement, and portions of the John Hibbs deposition. The jury specifically found that Mr. Hibbs’ copyright infringement was willful. The special jury instruction defined willful to mean “copying with knowledge that [his] conduct constitutes copyright infringement.” Furthermore, in his deposition Mr. Hibbs acknowledged that he knew of the existence of Sophos’ copyright. He also admitted to selling the video game art even though he was aware of Sophos’ copyright.
' The Court grants plaintiff summary adjudication on the element of malice. First, collateral estoppel precludes any further dispute of this element because the test for willful infringement is identical to the Ninth Circuit’s test for malice (i.e., actual knowledge of harm and disregard). Second, there is no genuine dispute as to whether Mr. Hibbs was aware of the copyright and proceeded to injure Sophos’ economic interests in the face of that knowledge because Mr. Hibbs admitted those facts in his deposition,
c. Act was Without Justification or Excuse.
Whether debtor’s wrongful act was without justification or excuse is a material issue. Plaintiff has met his burden of production by attaching a copy of the intentional copyright infringement judgment. Plaintiff submits that he is entitled to judgment as a matter of law because the judgment is res judicata as to debtor’s act of intentional copyright infringement being without justification or excuse.
The Court grants plaintiff summary adjudication on this element. This Court is barred by res judicata and collateral estop-pel from reexamining the jury’s determination that Mr. Hibbs’ act is without justification or excuse. See In re Comer, 723 F.2d 737 (9th Cir.1984). Although there was once a factual issue at the time of the copyright case, Mr. Hibbs is presently barred by the judgment from raising any possible defense. Thus, there is no factual dispute on this issue.
D. FOURTH ELEMENT — INJURY TO PROPERTY OF ANOTHER.
Whether Sophos’ property was injured is a factual question and a material issue. Plaintiff has met his burden of production by attaching a copy of the jury’s special verdict. Plaintiff submits that he is entitled to judgment as a matter of law because the jury found that his copyright interest was injured and collateral estoppel bars further litigation on that point.
The Court grants plaintiff summary adjudication on' the element of injury to property of another. The jury expressly found that Sophos was injured. When asked: “Was [Sophos] actually damaged by the infringements of any of the Defendants?,” the jury unambiguously indicated its findings by checking the yes box. The issue of injury is identical in this action. And, it was actually litigated and decided in the District Court case, and was necessary to the judgment.
E. FIFTH ELEMENT — CAUSATION: DEBTOR CAUSED THE INJURY.
The final material question is whether the debtor caused the injury to Sophos’ property. Once again, plaintiff has met his burden of production by attaching a copy of special *269verdict. Plaintiff submits that he is entitled to judgment as a matter of law because the jury found that Mr. Hibbs caused the injury. Sophos asserts that collateral estoppel prohibits any further dispute over the element of causation.
The jury specifically found that Mr. Hibbs caused United Amusements to infringe and that he personally participated in the acts of United Amusement that constitute infringement. The Court finds that the issue of causation is identical in both actions and that it was actually litigated, decided, and necessary to the District Court’s judgment. Thus, the Court grants plaintiff summary adjudication on the issue of causation.
Since all elements necessary for judgment under 11 U.S.C. § 523(a)(6) have been established by plaintiff Sophos, the Court grants summary judgment in favor of Sophos and against Mr. Hibbs, holding $260,706.84 non-dischargeable pursuant to Section 523(a)(6). Mr. Hibbs’ cross-motion is denied.
V. ANALYSIS: MRS. HIBBS
As previously discussed, one element of nondischargeability is the existence of a debt. Mr. Hibbs owes a debt to Sophos — as evidenced by the federal judgment. However, Sophos did not obtain a judgment against Mrs. Hibbs. She was not even a defendant in the federal copyright infringement action.
Furthermore, Sophos cannot now assert a cause of action against Mrs. Hibbs for the activities memorialized in the judgment against Mr. Hibbs because any such cause of action is now time barred. The federal Copyright Act,- 17 U.S.C. § 101-810, has a three year statute of limitations.15 Since the infringement occurred before the 1989 verdict, it is now too late to bring any copyright infringement suit against Mrs. Hibbs for that infringement, even assuming arguendo she was actually involved or vicariously hable.
Mrs. Hibbs owes no debt to Sophos because there is no judgment against her and because any unliquidated claim for the previously sued on infringement is time barred. As such, summary judgment is granted in favor of Mrs. Hibbs, and the Court holds that the judgment against Mr. Hibbs is discharge-able as to Mrs. Hibbs. It should also be noted that none of the other elements of 11 U.S.C. § 523(a)(6) were established as to Mrs. Hibbs, but it is unnecessary to reach these issues.
VI. THE EFFECT OF A NONDIS-CHARGEABLE JUDGMENT AGAINST ONE SPOUSE ON THE OTHER SPOUSE’S PROPERTY
Even though the debt is dischargea-ble as to Mrs. Hibbs, plaintiff can still reach Mrs. Hibbs’ community property to satisfy its nondischargeable judgment against Mr. Hibbs. As Collier’s concludes, Congress made a policy decision “that the economic sins of either spouse would be forever visited upon the community property of the spouses” (including after acquired community property) when it enacted 11 U.S.C. §§ 524(a)(3) and 524(b)(1)(A) and (B). See 3 Collier on Bankruptcy § 524.01 (King 15th ed. 1983).
Sections 524(a)(3) and (b)(1) allow Sophos to proceed against the postpetition community property of both Mr. and Mrs. Hibbs to satisfy his nondischargeable judgment against Mr. Hibbs. Of course, plaintiff may pursue Mr. Hibbs’ postpetition separate property to satisfy the nondischargeable judgment as well.
In fact, debtors admitted in their briefing that Section 524(b)(1) allows plaintiff to reach postpetition community property of Mr. and Mrs. Hibbs to satisfy any judgment held nondischargeable as to Mr. Hibbs, even if the judgment is discharged as to Mrs. Hibbs. See Debtors’ Reply Memorandum of Points and Authorities and Declarations in Support of Hibbs Motion for Summary Judgment at page 26, lines 3-6.
Although plaintiff can reach the postpetition community property of Mr. and Mrs. Hibbs, plaintiff may not reach any post-petition separate property of Mrs. Hibbs to seek satisfaction of its nondischargeable judgment .against Mr. Hibbs. Plaintiff has not advanced any evidence or theory which would allow reaching the postpetition separate property of Mrs. Hibbs.
*270Pursuant to California Civil Code Section 5120.130, “Except as otherwise provided by statute: (1) The separate property of a married person is not liable for a debt incurred by the person’s spouse before or during the marriage.” The only potentially applicable exception to nonliability, as far as this case is concerned, is California Civil Code § 5122. That provision states: “(a) A married person is not liable for any injury or damage caused by the other spouse except in cases where he or she would be liable therefore if the marriage did not exist.” Here, no such basis is claimed or proven.
As noted above, there might have been an argument that.Mrs. Hibbs could somehow have been liable for the copyright infringement on the theory she was a co-owner of United Amusements. However, the three year statute of limitations for copyright infringement of 17 U.S.C. § 507(b) would time bar plaintiff from now making any claim against Mrs. Hibbs for infringement that was completed before the 1989 judgment.
VIL CONCLUSION
The Court grants summary judgment in favor of plaintiff Sophos against Mr. Hibbs, holding that the federal copyright infringement judgment in favor of Sophos is nondis-chargeable. The amount of the nondis-chargeable judgment is $260,706.84, which includes accrued interest to date of entry of this judgment. This judgment will continue to accrue interest, from date of entry until the judgment is fully paid, at 8.19% per annum compounded annually. 28 U.S.C. § 1961(a) & (c). Mr. Hibbs’ cross-motion seeking summary judgment of dischargeability is denied.
The Court grants summary judgment in favor of Mrs. Hibbs against plaintiff Sophos, holding that the federal copyright infringement judgment in favor of Sophos is dis-chargeable as to debtor Mrs. Hibbs. Sophos’ cross-motion for summary judgment against Mrs. Hibbs is denied.
The postpetition community property of the Hibbs and the postpetition separate property of Mr. Hibbs may be reached to satisfy the nondischargeability judgment given herein to Sophos against Mr. Hibbs. Any postpetition separate property of Mrs. Hibbs may not be reached to satisfy the nondis-chargeable judgment against Mr. Hibbs.
This opinion shall constitute the Court’s Findings of Fact and Conclusions of Law. A judgment will be entered consistent with this opinion. Plaintiff is ordered to prepare judgment consistent with this opinion.
ORDER DENYING MOTION OF JOHN WILLIAM HIBBS TO RECONSIDER COURT’S PREVIOUS GRANT OF SUMMARY JUDGMENT AGAINST JOHN WILLIAM HIBBS AND MAKING CLARIFYING AMENDMENT TO PRIOR OPINION GRANTING SUMMARY JUDGMENT
Dec. 6, 1993.
The Motion of Defendant John William Hibbs to Reconsider this Court’s previous grant of Summary Judgment against Mr. Hibbs came on for hearing on December 1, 1993 at 10:00 a.m. Debtor was represented by counsel Daniel C. Carmichael, III, Esq. who substituted into the adversary proceeding, and Movant was represented by counsel Theresa W. Middlebrook, Esq. The Court, having reviewed the pleadings and having heard oral argument, denies the motion, as follows:
(1) No new law or facts are cited by Mov-ant’s Motion to Reconsider. The Supreme Court case primarily relied on by John Hibbs in the Motion to Reconsider, Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979) had been cited during previous oral arguments by debtor John Hibbs, then in pro per. Thus, neither the test of Federal Rules of Bankruptcy Procedure Rule 9023, nor the test of Rule 9024, for granting reconsideration was met.
Rather, the arguments John Hibbs previously made pro per at the hearing on the Motion for Summary Judgment were repeated at the hearing on the Motion to Reconsider by his newly substituted in lawyer.
(2) The Brown case, supra, is distinguishable from the present case. Brown involved a situation where the stipulated judgment *271from the nonbankmptcy forum did not reflect what cause of action the stipulated judgment was entered on, and therefore did not decide all elements necessary to determine whether the debt was dischargeable or non-dischargeable. In contrast, the Federal District Court judgment for intentional copyright infringement at issue in the instant case, plus the special verdict answered by the jury, plus the other items reviewed by the bankruptcy court, did decide all elements necessary to determine nondischargeability of John Hibbs’ debt under 523(a)(6). Even counsel for debtor conceded at the hearing on the Motion to Reconsider that items ruled on by the jury in the Hibbs’ case could not be decided differently by this Court due to the principles of res judicata and collateral estop-pel.
(3) Hibbs’ argument, as stated by his counsel at the hearing on the Motion to Reconsider, reduced to arguing that certain elements necessary for a finding of violation of 11 U.S.C. § 523(a)(6) had not been adversely decided to Mr. Hibbs. Hibbs is in error in so claiming, as this Court has already ruled in its previous opinion dated October 26, 1993, which granted summary judgment against Mr. Hibbs. No cause has been shown for reversing that ruling.
(4) To avoid argument over whether the applicable principle is res judicata or collateral estoppel, the Court hereby amends its prior opinion dated October 26, 1993 as follows:
Editor’s Note: Amendments incorporated for publication.
. Section 523(a)(6) makes nondischargeable a debt "for willful and malicious injury by the debtor to another entity or to the property of another entity.” 11 U.S.C. § 523(a)(6). There are only ten reported decisions under the Bankruptcy Code which specifically deal with section 523(a)(6) and copyright infringement. See In re Pineau, 149 B.R. 239 (D.Me.1993); MRB, Inc. v. Marshall (In re Marshall), 144 B.R. 930 (Bankr.M.D.Fla.1992); In re Pineau, 141 B.R. 522 (Bankr.Me.1992), rv'd, In re Pineau, 149 B.R. 239 (D.Me.1993); In re Watson, 117 B.R. 291 (Bankr.W.D.Mo. 1990); In re Lynch, 1990 WL 126199, 1990 Bankr.Lexis 2517; In re Elms, 112 B.R. 148 (Bankr.E.D.La.1990); In re Remick, 96 B.R. 935 (Bankr.W.D.Mo.1987); In re Robinson, 76 B.R. 145 (Bankr.W.D.Mo.1987); In re Gabaldon, 55 B.R. 431 (Bankr.D.N.M.1985); In re Mossier, 51 B.R. 229 (Bankr.D.Colo.1985).
. Section 524 provides, in part:
(a) A discharge in a case under this title—
(3) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect or recover from, or offset against, property of the debtor of the kind specified in section 541(a)(2) of this title that is acquired after the commencement of the case, on account of any allowable community claim, except a comma-nity claim that is excepted from discharge under section 523, 1228(a)(1), or 1328(a)(1) of this title, or that would be so excepted, determined in accordance with the provisions of sections 523(c) and 523(d) of this title, in a case concerning the debtor’s spouse commenced on the date of the filing of the petition in the case concerning the debtor, whether or not discharge of the debt based on such community claim is waived.
(b) Subsection (a)(3) of this section does not apply if—
(1)(A) the debtor's spouse is a debtor in a case under this title, or a bankrupt or a debtor in a case under the Bankruptcy Act, commenced within six years of the date of the filing of the petition in the case concerning the debtor; and (B) the court does not grant the debtor's spouse a discharge in such case concerning the debtor's spouse;
.The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and 11 U.S.C. § 523. This matter is a core proceeding within 28 U.S.C. § 157(b)(2)(I). This matter was referred to the Court pursuant to the Standing Order of Reference of the United States District Court, Central District of California. This opinion constitutes this Court’s findings and conclusions pursuant to F.R.B.P. Rule 7052.
.The Second Amended Judgment provides: Pursuant to the jury's findings on the special verdict form, IT IS ADJUDGED as follows: Plaintiff DEMETRIOS JAMES SOPHOS shall have judgment:
1. Against defendants UNITED AMUSEMENTS, INC. and JOHN W. HIBBS, jointly and severally, in the sum of TWO HUNDRED ONE THOUSAND EIGHTY-SIX DOLLARS AND TWENTY-EIGHT CENTS ($210,086.28).
2. Against defendant NORM HENTHORN in the sum of FIFTY SIX THOUSAND THREE HUNDRED AND THIRTY-ONE DOLLARS AND SEVENTY CENTS ($56,331.70).
DATED: This 12th day of December, 1989, NUNC PRO TUNC to judgment filed September 27, 1989.
.The July's Special Verdict provides:
.Instruction 13, on willful infringement, given by Magistrate Judge King was as follows:
WILLFUL INFRINGEMENT
One of the issues for you to decide is whether the defendant’s willfullv. consciously or deliberately infringed plaintiff's copyrights. Willful means copying with knowledge that the defendants' conduct constitutes copyright infringement. *263Whefher the required knowledge is present and the infringement is willful is for you to decide based upon all the evidence. You may consider, among other things, the following:
(1) Did defendants have knowledge of plaintiff's claim of copyright before the commenced their infringement?
(2) Did the defendants fail to seek and obtain competent legal advice from an attorney before they initiated any possible infringing actions?
(3) Did the defendants continue infringing after receiving notice and commencement of a lawsuit?
The presence of any of these factors may be sufficient to support a finding of willful, conscious or deliberate infringement.
. The Second Amended Judgment is attached to Plaintiffs Motion for Summary Judgment as Exhibit 5.
. The Special Verdicts are attached to Plaintiffs Motion for Summary Judgment as Exhibit 3.
. The Special Jury Instruction 13 on the definition of Willful Infringement is attached to Plaintiffs Motion for Summary Judgment as Exhibit 4.
. The deposition of John Norman Henthom was filed with Plaintiffs motion for summary judgment.
. The deposition of John Hibbs was filed with Plaintiffs motion for summary judgment.
. Pursuant to the recent amendments to F.R.C.P. Rule 50, motions for directed verdict are now called motions for judgment as a matter of law. See Fed.R.Civ.Proc. 50.
. In Montana, the Supreme Court suggested a three step approach to applying the doctrine of collateral estoppel. (1), whether the issues presented in the second suit are in substance the same as those resolved in the first; (2), whether controlling facts or legal principles have changed significantly since the first judgment; (3), whether other special circumstances warrant an exception to the normal rules of preclusion. Montana v. United States, 440 U.S. 147, 155, 99 S.Ct. 970, 974.
This Court's discussion in the opinion focuses on step one. With respect to step two, the court finds that the controlling facts and legal principles have not changed. With respect to step three, the Court finds than an exception to collateral estoppel is not warranted.
. Under the Act, the willfulness element caused some confusion. In Tinker, the Supreme Court held that willfulness could be established by showing reckless disregard. See Tinker v. Colwell 193 U.S. 473. 24 S.Ct. 505. 48 L.Ed. 754 (1904). In enacting .the Code, Congress clarified the fest by expressly overruling Tinker to the extent the Supreme Court found reckless disregard to be the equivalent of willfulness.
. The statute of limitations is 11 U.S.C. § 507(b) "Civil Actions — No civil action shall be maintained under the provisions of this title unless it is commenced within three years after the claim accrued.” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491755/ | *295
ORDER ON OBJECTION TO CLAIM
LEWIS M. KILLIAN, Jr., Bankruptcy Judge.
THIS CAUSE was heard before the Court on the objection of Senior Care Properties, Inc., a debtor-in-possession (“Debtor”), to the claim of the Tallahassee Memorial Regional Medical Center (“TMRMC”). At the hearing on the debtor’s objections to claims, the Court directed the parties to submit memo-randa of law within 20 days, and file responses to those memoranda within an additional 10 days. Within these pleadings, the parties raise argument as to the propriety of service of debtor’s objection to claim upon TMRMC and of each parties’ attempt to introduce additional evidence through the use of affidavits following the conclusions of the hearing. The Court finds that neither party has been prejudiced in the presentment of law or fact due to any potential or actual flaw in service of the objection upon TMRMC. Furthermore, the Court finds that the affidavits may be accepted as evidence as to relevant facts not in dispute. Those facts addressed by the affidavits which are in dispute are irrelevant to the resolution of the issues before this Court. These preliminary matters having been considered and resolved, the Court makes the following findings of fact and conclusions of law in accordance with Bankruptcy Rule 7052.
TMRMC’s claim arises from its treatment of and care given to Catherine Fields, a former resident of the debtor’s nursing home facility (the “nursing home”). On or about October 10, 1990, the Debtor “transferred” Ms. Fields from its facility in Eastpoint, Florida to TMRMC’s hospital in Tallahassee, Florida. The transfer of Ms. Fields was authorized by her physician at the nursing home, Dr. Photis Nichols, on October 10, 1990. Dr. Nichols authorized the transfer based on his belief that his diagnosis of Ms. Fields’ condition as respiratory failure with tracheal secretions and pseudomonis required immediate hospitalization.1 Nursing records show that TMRMC was notified of the patient’s transfer at 8:20 a.m. on the morning of October 10, and that the patient was transported by ambulance to the hospital at 4:00 p.m. that afternoon. The records also indicate that the patient was “discharged” by the nursing home on October 12, 1990.
The patient was accepted by the hospital through its emergency room and treated for two days. The patient’s brother was notified by a letter dated October 10, 1990 that the nursing home would “not accept back” Ms. Fields due to the facility’s inability to deliver proper patient care, and that Ms. Fields had been “returned” to the TMRMC hospital due to serious illness. The hospital was informed of the nursing home’s decision to not readmit Ms. Fields subsequent to its acceptance of Ms. Fields as a patient.
The hospital seeks the allowance of a claim in the amount of $4,336.70 which it asserts resulted from charges incurred for non-acute care provided during the five day period it took the hospital to secure another nursing home for Ms. Fields.2 TMRMC asserts that the debtor’s actions are tantamount to “patient dumping”, a situation for. which TMRMC asserts it is legally entitled to seek recovery from the debtor. The debtor, on the other hand, argues that neither the transfer agreement in place between the parties nor applicable statutory law or case authority give TMRMC any grounds to seek recovery for its discharge of Ms. Fields. We find no authority, either in language in the parties’ transfer agreement or in the appropriate statutes, to support TMRMC’s claim against the debtor. Accordingly, the debt- or’s objection to claim must be sustained.
The starting point in analyzing the merits of TMRMC’s claim against the debtor begins with the transfer agreement between the parties. On January 10,1990, the parties entered into a transfer agreement which requires, inter alia, the nursing home to notify TMRMC when a transfer of a patient is being made. The agreement fails to specify *296how much advance notice is required, nor does it provide a remedy if such notice is not given the hospital. Thus, the issue of whether or when notice of Ms. Fields’ impending transfer was given is irrelevant since the agreement provides no remedy for the nursing home’s failure to give adequate notice. Moreover, the agreement states:
Neither [TMRMC] nor [the nursing home] shall assume any responsibility for the collection of any accounts receivable other than those incurred as a result of rendering services directly to the patient. Neither institution shall be liable for debts, obligations, or claims of a financial or legal nature incurred by the other institution, and each institution assumes full responsibility for its own maintenance.
Although this language is far from clear and precise, it appears the parties intended each to be responsible for the administration, maintenance and operation of its own facility. The document evidences an intent to not create a joint venture between the parties to deliver medical and nursing home services to common patients. Accordingly, we find no basis for TMRMC’s claim against the Debtor in the transfer agreement.
If grounds for TMRMC’s claim are to be found, then it must be found within the provisions of state and federal law governing the administration and operation of nursing home facilities. TMRMC cites § 1395dd of Title 42 of the United States Code and § 395.1041 of the Florida Statutes in support of its position that the transport of a patient from a nursing home to a hospital for the purpose of avoiding the expense associated with the care of a patient is prohibited. Section 1395dd is the provision of the Social Security Act which deals with the examination and treatment for emergency medical conditions. Subsection (a) requires a hospital to perform an examination for the purpose of determining whether an emergency medical condition3 exists when a patient makes a request for emergency medical treatment. If the patient is found to have an emergency medical condition, the hospital must provide such medical treatment as may be required to stabilize the patient’s medical condition or transfer the patient to another facility in accordance with § 1395dd(c). Section 1395dd(e) states that a transfer is “appropriate” when the transferring hospital provides such treatment as is required to minimize the risks to the patient’s health, the receiving hospital has available space, qualified personnel to treat the patient’s condition and agrees to accept the patient, the medical records of the patient have been transferred to the receiving hospital, the transfer is effected by qualified personnel, and when the transfer meets such other requirements as may be found necessary by the Social Security Administration. Most importantly, § 1395dd contains a provision which permits any medical facility which incurs a financial loss as a direct result of a participating hospital’s violation of § 1395dd to recover its damages under state law in which the hospital is located. 42 U.S.C. § 1395dd(d)(2)(B).
Florida Statute § 395.1041 addresses the delivery of emergency medical services and transfers relating thereto within the context of hospital licensing and regulation. The statute states that emergency medical services are to be rendered by a hospital without regard to the patient’s ability to pay for those services. Fla.Stat.Ann. § 395.-1041(3)(h) (West 1993). In addition, no hospital to which another hospital is transferring a patient for emergency medical services may require the transferring hospital to pay or guarantee payment of the patient’s treatment as a condition of admitting the patient. Id. The section also includes a penalty provision which allows a hospital to recover damages incurred as a result of a physician’s or hospital failure to comply with its requirements. Fla.Stat.Ann. § 395.1041(5)(d) (West 1993) (effective July 1, 1993).
Neither statute affords TMRMC a basis for asserting a claim against the estate. Section 1395dd is, by its terms, limited to *297only those situations where a hospital is the transferring party. The term “hospital” is a defined term under the Social Security act, and the scope of the definition does not include nursing home facilities like that operated by the Debtor. See, 42 U.S.C. § 1395x. The state statute similarly provides for a definition of “hospital” that fails to include nursing home facilities. See, Fla.Stat.Ann. § 395.002(12) (West 1993).
Even if we were to agree with TMRMC’s assertion that § 1395dd and § 395.1041 prohibited the transfer of a patient by a nursing home with the intent to avoid the expense of caring for the patient, we could find no basis for its claim because TMRMC presented no evidence nor did it argue that the nursing home was not being paid for the services it rendered to Ms. Fields. That the nursing home was apparently-motivated to discharge Ms. Fields due to the difficulties in properly caring for her is clear, however, such motivation alone is insufficient to find the nursing home engaged in patient dumping. The essence of patient dumping is the willful attempt to shift the unreimbursed expense associated with the care of a patient to another care provider. See, Dade County v. American Hospital of Miami, Inc., 502 So.2d 1230 (Fla.1987). The fact that Medicaid paid for Ms. Fields’ care up to the time she was transferred to TMRMC precludes a finding that the nursing home engaged in patient dumping.
TMRMC also argues that Ms. Fields’ medical condition was not an emergency at the time of her transfer and that she was transferred in violation of her patient rights as provided by statute. Neither point is relevant to the Court’s determination. Patient dumping is not predicated on the medical condition of the patient, but rather on the intent to avoid an unreimbursed expense of earing for the patient. Id. Additionally, TMRMC’s assertion that the patient’s condition was not an emergency is inconsistent with the fact that TMRMC admitted Ms. Fields through its emergency facilities. As noted earlier, hospitals are required under 42 U.S.C. § 1395dd(a) to examine patients so as to determine whether an emergency medical condition exists. The fact that TMRMC admitted Ms. Fields gives rise to an inference that its emergency room personnel concluded that her condition required emergency care. Lastly, state statute makes clear that any cause of action arising from a violation of the rights afforded patients under § 400.022 of the Florida Statutes is personal to the patient. Fla.Stat. Ann. § 4,00.023 (West 1993). Thus TMRMC has no standing to make claim against the debtor’s estate based on any violation of Ms. Fields’ rights as a patient in the nursing home.
There being no basis for TMRMC’s claim against the debtor’s estate, it is
ORDERED and ADJUDGED that the debtor’s objection to the claim of TRMC be, and hereby is sustained.
DONE AND ORDERED.
. At the time of her transfer Ms. Fields weighed in excess of 450 pounds and was comatose.
. The charges were not paid by Medicaid, apparently the patient’s sole source of health insur-anee, because Medicaid does not pay for hospitalization beyond that necessary to treat an acute condition.
. An emergency medical condition is defined as a condition manifesting itself by acute symptoms of sufficient severity (including severe pain) such that the absence of immediate medical attention could reasonably be expected to result in: (1) placing the health of the individual in serious jeopardy, (2) serious impairment of bodily functions, or (3) serious dysfunction of any bodily organ or part. 42 U.S.C. § 1395dd(e)(l). | 01-04-2023 | 11-22-2022 |
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