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https://www.courtlistener.com/api/rest/v3/opinions/8491757/ | MEMORANDUM OF DECISION
JAMES A. GOODMAN, Chief Judge.
This matter arises out of an application by Counsel for compensation and reimbursement of expenses in the representation of Richard J. Fraser and Erlene L. Fraser (the “Frasers”), who filed for Chapter 13 protection on September 21, 1988. On February 23,1989, the case was converted to a Chapter 7 proceeding and the law firm of Platz & Thompson (the “Applicant”) represented the Frasers in the total proceedings, as well as in an action for non-dischargeability commenced by creditor, Nelson & Small, Inc., against the Frasers on May 4, 1989 (the “Nelson & Small non-dischargeability action”). On April 22, 1992, Applicant submitted an interim application for attorney’s fees. By Memorandum of Decision and Order dated July 21, 1992, this Court allowed payment of compensation and fees relating to the Chapter 7 estate.1 In addition, in the July 21, 1992 ruling, this Court stated that it would, follow the precedent established in In re Deihl, 80 B.R. 1, 2 (Bankr.D.Me.1987) and permit attorney’s fees and costs in the defense of the Nelson & Small non-discharge-ability action. But, the Court reserved final judgment on the áctual amount to be awarded to Applicant until the Nelson & Small non-dischargeability action was resolved.
On June 23, 1993 the Nelson & Small non-dischargeability action was settled. On September 8,1993, Applicant submitted an interim application for attorney’s fees and costs totalling $8,875.75.2 The trustee objects to the application to the extent that it includes compensation for defense of the Nelson & Small non-dischargeability action. Trustee cites to In re Kingsbury, 146 B.R. 581 (Bankr.D.Me.1992) for support. In Kings-bury, Judge Haines ruled that compensation was unavailable for defending non-discharge-ability actions.
Applicant argues that, notwithstanding Kingsbury, attorney’s fees should be granted because this Court’s order of July 21,1992 is the “law of the case.” This doctrine expresses the general practice of refusing to open what has been decided. In re Johns-Manville Corp., 40 B.R. 219, 226 (S.D.N.Y.1984) citing Slotkin v. Citizens Cas. Co. of New York, 614 F.2d 301, 312 (2d Cir.1979) cert. denied sub nom American Mutual Ins. Co. v. Slotkin, 449 U.S. 981, 101 S.Ct. 396, 66 L.Ed.2d 243 (1980). Because the Court’s *327July 21,1992 holding was a final decision, the “law of the case” applies here. The ruling allowed the Applicant attorney’s fees for the defense of the Nelson & Small non-dis-chargeability action, and judgment was withheld only concerning the amount to be awarded to Applicant. Therefore, this Court awards Applicant fees and expenses in the amount of $8,875.75.3
The foregoing constitutes findings of fact and conclusions of law pursuant to F.R.Bky.P. 7052.
An appropriate order shall enter.
EXHIBIT A
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MAINE
In Re: RICHARD J. FRASER AND ERLENE L. FRASER,
Debtors
Chapter 7
Case No. 88-20328
July 21, 1992.
MEMORANDUM OF DECISION
Platz & Thompson (“Applicant”), attorneys for the above-captioned Debtors, has filed a Revised Application For Attorney’s Fees (the “Application”), in which Applicant seeks compensation for services rendered in the amount of $11,107.75 and reimbursement of expenses in the amount of $297.87, for total compensation of. $11,405.62.1 The Application has been segregated to reflect services rendered in the originally-filed Chapter 13 case, the converted Chapter 7 case, and the defense of the Debtors against a non-dis-chargeability complaint filed by creditor Nelson & Small. The Chapter 7 trustee has objected to three aspects of the Application: 1) intra-office conferences which the trustee alleges were not actual or necessary, or were duplicative; 2) the practice of “lumping” services into large blocks of time; and 3) payment from this estate of attorneys’ fees incurred in defending the non-dischargeability complaint.
As a preliminary matter, it should be noted, that Applicant has indicated hourly rates of $90.00 and $95.00 per hour for the two attorneys who apparently performed services for the Debtor, but the Application fails to specify which attorney performed each task. Furthermore, the Application states that paralegal time was billed at $47.50 per hour. The itemization itself, however, indicates that paralegal time was charged at $45.00 per hour. Due to the Applicant's failure to specify “the name of the individual performing such task” and the corresponding hourly rates in accordance with Local Bankruptcy Rule 2016(a), this court will compensate the attorneys at $90.00 per hour for all tasks performed, and will allow compensation for paralegal fees at $45.00 per hour. Accordingly, the maximum compensation for services which the Applicant may be awarded is $10,559.25.2
INTRA-OFFICE CONFERENCES
Throughout the period January, 1989 to March, 1992, Applicant expended 2.15 hours in intra-office conferences regarding several matters. While it is true that such conferences can be unnecessary or duplicative, 2.15 hours over a three-year span seems to this Court to be a reasonable expenditure of time. When several attorneys of the same law firm are concurrently working on a case, it is reasonable to expect that a small percentage of time will be spent coordinating efforts and discussing various situations. Each intra-office conference billed in the Application *328was limited to less than an hour, with the majority under one-half an hour. In fact, most conferences involved the claims of Nelson & Small, the creditor who initiated the non-dischargeability action. Under these circumstances, this Court finds that the time spent on such conferences was necessary and reasonable.
TIME CONSOLIDATION
In two separate entries, the Applicant has consolidated, or “lumped,” many smaller tasks into one larger block of time. The first, entitled “All Written Communications Concerning Case,” was entered on January 22,1990 for 4.10 hours; the second entry was on April 7, 1992 for 1.40 hours, and is la-belled “Written Communications (Correspondence).” Although these amounts are almost de minimis, the trustee is correct in’ his assertion that this type of “lumping” is impermissible. Such entries do not conform to Local Bankruptcy Rule 2016(a), which provides that the itemization “contain the date each task was performed ... and a description of the nature of each service performed and the time expended in its performance.” (emphasis added) This degree of minute detail is not meant to frustrate or punish an applicant for compensation, but is required to aid the court’s determination of whether services rendered were fair, reasonable and necessary pursuant to 11 U.S.C. § 330(a). The “lumping” involved in this case is not egregious; however, it cannot go ignored. Based on this Court’s determination of reasonable compensation for these services, the 5.5 hours allocated to “written communication” shall be allowed in the reduced amount of 2 hours, thereby lowering the total amount of fees by $315.00.3
NON-DISCHARGEABILITY DEFENSE
In defending the non-dischargeability complaint, Applicant has expended almost 60 hours, totalling $4,992.75 in fees, for both attorney and paralegal time.4 The trustee argues that these fees should not be paid out of estate funds because the services benefit-ted the Debtor and not the estate. In support, the trustee points out several cases from outside of this jurisdiction which espouse the majority view that costs associated with non-dischargeability actions are not compensable from the estate. However, courts in this district have consistently held to the contrary. In 1987, the Bankruptcy Court for the District of Maine held that “a rigid rule to disallow attorney’s fees rendered in defense of a nondischargeability action is inappropriate. Such a rule would surely contravene Congress’ policy to permit an honest debtor a fresh start by forcing the debtor to defend an objection to discharge or an objection to the dischargeability of individual debts without necessary legal counsel.” In re Delhi, 80 B.R. 1, 2 (Bankr.D.Me.1987). The Deihl decision was based in part on the notion that a debtor should obtain complete relief, including a “fresh start,” when filing for bankruptcy. Thus, it would be inequitable to deny an honest debtor the legal counsel necessary to defend that debt- or’s right to a discharge.
This Court intends to follow this well-reasoned precedent. However, the non-dis-chargeability proceeding in this case remains pending. The docket reflects that in May, 1992, the presiding bankruptcy judge denied the Plaintiffi'Creditor’s motion for summary judgment on each count of the complaint and ordered a final pretrial conference to be held, at which time a trial date will be’established. Under these circumstances, it seems imprudent for this Court to decide whether the attorneys’ fees associated with that proceeding should be allowed. Instead, this Court will reserve this determination until the non-dischargeability proceeding has been resolved, at which time the Debtors’ honesty and entitlement to a discharge can be more thoroughly analyzed.
Therefore, at this time the Applicant shall be awarded $5,251.50 as compensation for services rendered, and $297.87 as reimbursement for actual expenses and, with respect to the $4,992.75 incurred in connection with the *329non-dischargeability action, the decision will be reserved until that action has been resolved.
The foregoing constitutes findings of fact and conclusions of law as required by Bankruptcy Rule 7052.
An appropriate order shall issue.
ORDER
In accordance with a Memorandum of Decision of even date herewith, it is hereby
ORDERED that the above-captioned debtors’ attorneys shall be awarded $5,251.50 as compensation for services rendered, and $297.87 as reimbursement for actual expenses, and it is further
ORDERED that decision is reserved with respect to $4,992.75 incurred by debtors’ attorneys in the defense of a non-dischargeability complaint filed against the debtors by creditor Nelson & Small, until such proceeding is resolved and the debtors’ attorneys have notified this court of such resolution, and it is further
ORDERED that all other fees sought herein are disallowed.
. The July 21, 1992 Memorandum of Decision is attached as Exhibit A.
. This figure represents fees and costs in the amount of $403.88 for administration of the Chapter 7 estate, and $8,471.87 relating to the non-dischargeability action.
. The holding here is limited to this single case, and in so ruling the Court does not intend at this time to consider the issues raised and determined in the Kingsbury decision.
. In fact, the Applicant has sought only $9,657.75 in fees. This $1450 difference represents a retainer which the Applicant has subtracted from his fee application. Of course, all fees must be approved by this Court whether or not paid out of retainer funds. Thus, this Court will examine the full amount of fees which are itemized for the period in question.
. This sum represents 115.75 hours of attorney time at $90 per hour, plus 3.15 hours of paralegal time at $45 per hour.
. As noted above, this Court assumes the $90.00 rate is in effect.
. The figure of $4,992.75 corresponds to 54.15 hours of attorney time, which this Court assumes is being billed at $90.00 per hour, plus 2.65 hours of paralegal time at $45.00 per hour. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491758/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court upon Plaintiffs Complaint to Avoid Preferential Transfer to Thompson, Hiñe and Flory (hereafter “Defendants”) and Defendants’ Answer. At the Trial, the parties were afforded the opportunity to present testimony, 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 to the extent that the transfer was made on account of an antecedent debt which Debtor incurred before the transfer was made, Plaintiff may avoid as a preference the transfer of a check made payable to Defendants by Debtor on or about October 4, 1990; and that the Plaintiff may recover, for the benefit of the estate, the amount to Thirty Nine Thousand Two Hundred Eighteen and 80/100 Dollars ($39,218.80).
FACTS
The parties have stipulated to the following facts:
1. Defendants served as legal counsel for Debtor prior to the filing of its Chapter 7 case.
2. Upon receipt of remuneration totalling Sixty Pour Thousand One Hundred Eighty Seven and 29/100 Dollars ($64,187.29), Defendants rendered a legal opinion which was relevant to a business transaction between Debtor and John Morrell & Company (hereafter “Morrell”).
3. The amount paid to Defendants for its legal opinion in the Morrell transaction equals the amount due Defendants for antecedent legal services performed and billed as follows:
a. April 9, 1990 $19,277.29
b. April 30, 1990 $20,669.62
c. May 17, 1990_$24,240.38
$64,187.29
4. Debtor was insolvent at the time that the check was issued to Defendants on October 4, 1990.
5. Debtor filed its Petition for Relief under Chapter 7 on October 17, 1990.
6. After receipt of payment, Defendants performed additional legal services with a value of Three Thousand Six Hundred Seventy Four and 74/100 Dollars ($3,674.74) for which they never received payment.
In addition to these stipulations, Richard E. Streeter, partner in Defendants’ law firm, testified that as a condition precedent to the rendering of the Morrell opinion, Debtor was required to bring “relatively current” its outstanding debt. Debtor was not billed separately for services performed in conjunction with the issuance of the Morrell opinion. The entire amount paid was applied to legal services performed and billed by Defendants on April 9,1990; April 30,1990; and May 17, 1990.
In open court, Counsel agreed that Defendants’ receipt of Sixty Four Thousand One Hundred Eighty Seven Thousand and 29/100 Dollars ($64,187.29) exceeds that which would be received under a Chapter 7 liquidation. Counsel further agreed that the amounts of Twenty One Thousand Two Hundred Ninety Three and 75/100 Dollars ($21,293.75) and Three Thousand Six Hundred Seventy Four and 74/100 Dollars ($3,674.74) constitute “new value” as defined in 11 U.S.C. § 547(a)(2). Moreover, Counsel agreed that the amount in controversy is actually Thirty Nine Thousand Two Hundred Eighteen and *39980/100 Dollars ($39,218.80)1. Also in controversy is an additional Fifty Five Dollars ($55.00) which Plaintiff claims is attributable to services rendered for Debtor on an unrelated matter.
LAW
11 U.S.C. § 547. Preferences
(a) In this section—
(2)“new value” means money or money’s worth in goods, services, or 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;
(b) Except as provided in subsection (c) of this section, the trustee may avoid any transfer of an interest of the debtor in property—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the filing of the petition; or
(B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and
(5) that enables such creditor to receive more than such creditor would receive if—
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
(c) 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 contemporaneous exchange;
(2) to the extent that such transfer was—
(A) in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the transferee;
(B) made in the ordinary course of business or financial affairs of the debtor and the transferee; and
(C) made according to ordinary business terms;
11 U.S.C. § 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.
DISCUSSION
Proceedings to determine, avoid, or recover preferences are core proceedings under 28 U.S.C. § 157(b)(2)(E). This Court must determine if the Thirty Nine Thousand Two Hundred Eighteen and 80/100 Dollars ($39,-218.80) paid to Defendants by Debtor for *400purposes of bringing its account current; and the Fifty Five and 00/100 Dollars ($55.00) purportedly attributable to other work performed by Defendants, are preferences which may be avoided and recovered by the Trustee under 11 U.S.C. § 547(b) and 11 U.S.C. § 550 respectively. As a result, this case is a core proceeding.
Pursuant to 11 U.S.C. § 547(b), Plaintiff has the burden of proving the avoidability of the transfer as a preference. In accordance with 11 U.S.C. § 547(g), Defendants have the burden of proving the nonavoidability of a transfer under Subsection (c) of 11 U.S.C. § 547. To the extent that a transfer is avoided under 11 U.S.C. § 547 as a preference, Plaintiff may recover, for the benefit of the estate, the property or value of the property transferred pursuant to 11 U.S.C. § 550.
It is uncontroverted that the transfer was made for Defendants’ benefit; while Debtor was insolvent; within ninety (90) days before Debtor filed its Petition; and that Defendants received more than they would receive under a Chapter 7 liquidation. The parties’ dispute centers upon whether the payment was made on account of an antecedent debt owed by Debtor before the transfer was made. Defendants argue that the payment was made for new value or services rendered on the Morrell matter, and consequently, is excepted from avoidance by Plaintiff. Plaintiff argues that the amount received should be avoided as a preference since all of the elements for avoidance under 11 U.S.C. § 547 coexist. Plaintiff also argues that under 11 U.S.C. § 550, the estate is entitled to recover the entire value transferred to Defendants since the October 4, 1990 payment was made on account of an antecedent debt.
Counsel agree that Twenty Four Thousand Nine Hundred Sixty Eight and 49/100 Dollars ($24,968.49) of the Sixty Four One Hundred Eighty Seven and 29/100 Dollars ($64,-187.29) paid to Defendants on October 4, 1990 is considered new value since it is directly attributable to legal services performed in contemplation of the Morrell transaction. The amount of “new value” is comprised of Twenty One Thousand Two Hundred Ninety Three and 75/100 Dollars ($21,-293.75) in fees and expenses expended during August, 1990 through October, 1990 on the Morrell case; and Three Thousand Six Hundred Seventy Four and 74/100 Dollars ($3,674.74) in services, for which Defendants never received compensation, performed on the Morrell matter after October 4, 1990. Plaintiff may not avoid this transfer to the extent that it was made to be a contemporaneous exchange for new value given to Debt- or; and is in fact, a substantially contemporaneous exchange for new value.
This Court finds that Defendants conceded in open court that four (4) of the five (5) elements under 11 U.S.C. § 547(b) coexist. The only element to be demonstrated by Plaintiff is whether payment of the remaining Thirty Nine Thousand Two Hundred Eighteen and 80/100 Dollars ($39,218.80) was made for or on account of the antecedent debt owed by Debtor before the transfer. Plaintiff has established five (5) salient points which prove that the balance ($39,218.80) is not a contemporaneous exchange for new value and therefore avoidable.
First and most significantly, Mr. Streeter testified upon both direct and cross-examinations that Defendants demanded payment on Debtor’s account prior to the publishing of its opinion in the Morrell transaction. Second, Defendants did not generate a new bill for services rendered in the Morrell transaction. Third, the payment made on Debtor’s account balance is conspicuously equivalent to the collective amount due for invoices issued on April 9,1990; April 30,1990; and May 17, 1990. Fourth, the itemized statements for April 9, 1990; April 30, 1990; and May 17, 1990 reflect work which was completed for Debtor which had no relevance to the Mor-rell matter. Fifth, the itemized statement of Debtor’s account indicates that Defendant applied the proceeds from the October 4, 1990 check to invoice amounts dated April 9, 1990; April 30,1990; and May 17,1990, all of which were for services unrelated to the Morrell transaction.
These five (5) factors prove that Thirty Nine Thousand Two Hundred Eighteen and 80/100 Dollars ($39,218.80) of the October 4, 1990 transaction is for or on account of an antecedent debt owed by Debtor before the transfer was made. Plaintiff has failed to *401specifically prove the avoidability of the Fifty Five and 00/100 Dollars ($55.00). Except for the amount of the transfer which Plaintiff concedes constitutes new value, Defendants have failed to show the nonavoidability of any other amount in question. To the extent that a portion of the October 4, 1990 transaction was in payment of an antecedent debt, the transfer is subject to avoidance by Plaintiff under 11 U.S.C. § 547(b). Plaintiff may recover, to the extent that a transfer is avoided under Section 547, for the benefit of the estate, the property transferred or its value. Consequently, Plaintiff is entitled to recover Thirty Nine Thousand Two Hundred Eighteen and 80/100 Dollars ($39,218.80) for the benefit of the estate.
In reaching the conclusion found herein, the Court has considered the demeanor of the witness, 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 to the extent the transfer in which Debtor paid Defendants Sixty Four Thousand One Hundred Eighty Seven and 29/100 Dollars ($64,187.29) was made for or on account of an antecedent debt owed by Debtor before the transfer was made, the transfer is avoidable by Plaintiff.
IT IS FURTHER ORDERED that to the extent that the October 4,1990 transaction is avoided, Plaintiff is entitled to recover from Defendants for the benefit of the estate the sum of Thirty Nine Thousand Two Hundred Eighteen and 80/100 Dollars ($39,218.80).
IT IS FURTHER ORDERED that Defendants shall make payment arrangements, if necessary, with Plaintiff by October 15,1993.
. $39,218.80 is the result of the following mathematical calculation: $64,187.29 (the amount of the check made payable to Defendants on October 4, 1990) minus the sum of $21,293.75 (value of legal services performed on Morrell transaction) and $3,674.74 (value of legal services performed after receiving payment on October 4, 1990 for which Defendants did not receive payment.) | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491760/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
MARY D. SCOTT, Bankruptcy Judge.
THIS CAUSE came before the Court upon the trial of the complaint objecting to discharge. A document entitled Petition to Object to Discharge was filed with the clerk’s office on February 18, 1993, in which the plaintiff asserted that the debtors’ discharge should be denied, stating grounds under sections 727(a)(2), (3) of the Bankruptcy Code. An answer was filed denying these charges. In contrast to its pleading, the plaintiffs preliminary pretrial statement asserted that the debtors engaged in fraud, citing Bankruptcy Code sections 547 and 548.1 In the pretrial submissions and at trial, the plaintiff asserted that the debt was nondischargeable for fraud, pursuant to section 523(a)(2)(A). At trial, the debtor Paul Franklin2 objected to any proceeding under section 523 inasmuch as that action had never been pleaded. Accordingly, the debtor argues, the action is time barred under Rule 4007, Federal Rules of Bankruptcy Procedure, and Bankruptcy Code section 523(c).
The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(a), 1334. Moreover, this Court concludes that this 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), (J).
The debtor is correct that trial of any issue under section 523(a) is inappropriate. First, plaintiff never filed an action under section 523(a). This is not merely a formalistic requirement. Under bankruptcy law, there is a distinction between discharge and dischargeability. Objections to discharge under section 727 are filed on the basis of the debtor’s conduct in the bankruptcy case or conduct with regard to his assets. Objections may be grounded upon such acts as a failure of the debtor regarding his duties of record-keeping, 11 U.S.C. § 727(a)(3), truthfulness to the trustee and the court, 11 U.S.C. § 727(a)(4), or concealing assets, 11 U.S.C. § 727(a)(2). See generally Irving Federal Savings and Loan Association v. Billings (In re Billings), 146 B.R. 431, 433-35 (Bankr.N.D.Ill.1992).
Dischargeability, in contrast, refers to discharge of a particular debt in a bankruptcy proceeding. Objections to dischargeability of a debt are based upon a debtor’s actions with regard to the particular debt. A complaint to determine dischargeability may be grounded upon such acts as procuring money by fraud, 11 U.S.C. § 523(a)(2), embezzlement or larceny, 11 U.S.C. § 523(a)(4), or wilful and malicious injury, 11 U.S.C. § 523(a)(6). See generally Irving Federal *669Savings and Loan Association v. Billings (In re Billings), 146 B.R. at 433-34.
The distinction between the two concepts, and the pleading requirements for each, discharge and dischargeability, is one which the Bankruptcy Courts enforce. The assertion of an objection to discharge in no manner preserves any rights with regard to an objection to dischargeability of a debt. See Irving Federal Savings and Loan Association v. Billings (In re Billings), 146 B.R. at 435 (“Irving Federal erred when it assumed that the court granted it an extension to proceed under § 727 on April 29, 1992 merely because the court extended the time to proceed under § 523. Discharge and dis-chargeability are based on separate policies and are governed by distinct procedural rules.”). The strong policy in favor of the “fresh start” require that the bankruptcy courts construe strictly these sections and rules. See generally In re Kirsch, 65 B.R. 297, 300 (Bankr.N.D.Ill.1986). Thus, a complaint objecting to discharge will not serve as notice of an action objecting to dischargeability.
In the instant ease, the complaint asserts causes of action under section 727(a). Not until the filing of the pretrial stipulations, on October 21,1993, four days prior to trial, did plaintiff indicate he had an objection to the dischargeability of a debt. Inasmuch as the time for filing such an action is long past,3 the defendant’s objection to trial on a dis-chargeability action under section 523(a) has merit.
Since plaintiff presented its case addressing only the elements for a fraud nondis-chargeability action under section 523(a)(2)(A), the record is devoid of any evidence supporting a denial discharge pursuant to section 727(a). Accordingly, the complaint must be dismissed on the merits.
Even were an action under section 523(a)(2) properly before the Court, plaintiffs action fails. In order to demonstrate that a debt is nondischargeable, plaintiff was required to plead and prove that
(1) the debtor made the representation;
(2) that at the time the debtor made the representation, he knew them to be false;
(3) that the debtor made the representations with the intention and purpose of deceiving the creditor;
(4) that the plaintiff relied on such representation;
(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).
Plaintiff presented proof that the debtor Paul Franklin Cox was in the cattle business. Operating like many other cattlemen, Cox would purchase livestock at one market, sell it at another, and use the proceeds from the sale to pay for the cattle. Generally, Cox paid the seller within the week of purchase with the proceeds. In this manner, Cox would purchase cattle from the plaintiff Cattlemen’s Livestock on Thursday, sell the cattle within a few days, and, the next Thursday, again appear at Cattlemen’s Livestock sale. Paying for the last week’s cattle, he purchased cattle to sell during the following week. Cattlemen’s Livestock would not extend credit beyond the first sale. That is, Cox could not purchase additional cattle until the prior purchase was paid in full.
In or around October 1993, Danny McGrew and his mother, Betty McGrew, the operators of Cattlemen’s Livestock, became concerned about Cox’s operation. They noticed that he was purchasing increasing amounts of cattle. Accordingly, on October 22, 1993, they held a conversation with Cox at which time he assured them that he intended to pay for all cattle that he purchased at Cattlemen’s Livestock. Cox paid for the cattle he bought on the subsequent two *670Thursdays, October 22,1992, and October 28, 1992.
On November 5, 1992, Cox appeared at Cattlemen’s Livestock, paid $68,000 for cattle he and his father had purchased the prior week.4 Cox then purchased more cattle to sell. Cox did not pay for the cattle purchased on November 5, 1992. On November 13, 1992, unable to pay his debts, Cox filed a voluntary Chapter 7 petition in bankruptcy.
Plaintiff asserts that the promises to pay, made on October 22, 1992, and the implicit promises made by the purchase of cattle on November 5,1992, were fraudulent such that the debt for cattle purchased on November 5, 1992, is nondisehargeable pursuant to section 523(a)(2)(A). While it is true that fraud must generally be proven by circumstantial evidence, having heard the testimony and viewed the demeanor of the witnesses, the Court finds no evidence of fraud or fraudulent intent on the part of the debtor.
The only credible evidence before the Court is that the debtor promised to pay for the cattle he purchased on November 5,1992, but did not do so. “A bare promise to be fulfilled in the future, which is not carried out, does not render the debt nondisehargeable under section 523(a)(2)(A).” Kotan v. Austin (In re Austin), 132 B.R. 1, 3 (Bankr.E.D.N.Y.1991). Accord Sears Roebuck and Company v. Faulk, 69 B.R. 743, 750 (Bankr.N.D.Ind.1986). The Court believes Cox’s testimony that the purchase of cattle and any promises were made in good faith, with the intent to repay the debt. Such good faith promises or acts are not misstatements nor misrepresentations of fact. See Mason Lumber Co. v. Martin (In re Martin), 70 B.R. 146, 150 (Bankr.M.D.Ala.1986). The Court believes the Cox is an honest but unfortunate debtor for whom the relief provided by the Bankruptcy Code is proper. Accordingly, even were the issue of the dis-chargeability of the debt owed to Cattlemen’s Livestock before the Court, the debt would be dischargeable.
ORDERED that the debt owed by John Franklin Cox to Cattlemen’s Livestock is dischargeable in this bankruptcy case. Judgment will be entered by separate Order.
IT IS SO ORDERED.
JUDGMENT
This action came on for trial before the Court, Honorable Mary Davies Scott, U.S. Bankruptcy Judge, presiding, and the issues having been duly tried and a decision having been duly rendered,
It is Ordered and Adjudged that the defendant Janice Kay Cox is DISMISSED with prejudice. A discharge in bankruptcy pursuant to section 727 will be entered.
It is Ordered and Adjudged that the complaint is dismissed with prejudice as to the debtor, Paul Franklin Cox; that the debtor Paul Franklin Cox shall receive a discharge in bankruptcy pursuant to section 727(a); and that the debt owed by Paul Franklin Cox to Cattlemen’s Livestock is dischargeable in this bankruptcy proceeding.
It is so Ordered.
. Actions under section 547 or 548 may be asserted only by the trustee. Thus, the plaintiff creditor had no standing to assert these sections as causes of action. In any event, such actions were never pleaded or otherwise pursued by plaintiff.
. The pretrial stipulations submitted by the parties advised the Court that the defendant Janice Kay Cox was not liable on the debt in dispute such that she should be dismissed from the adversary proceeding.
. A complaint objecting to discharge under section 727(a) must be filed within "60 days following the first date set for the meeting of creditors held pursuant to § 341(a).” Fed.R.Bankr.Proc. 4004(a). A complaint objecting to dischargeability of a debt must be filed within time limits prescribed by Rule 4007(c).
. Cox’s father is also in the cattle business. Part of the funds delivered to Cattlemen's Livestock on November 5, 1992, was for cattle purchased by or on behalf of the father. Although their names were not the same, it was not uncommon for the livestock sales entities to confuse the names of father and son. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491761/ | MEMORANDUM OPINION
STEPHEN A. STRIPP, Bankruptcy Judge.
This is the court’s decision on a motion by Federal Home Loan Mortgage Corporation (“FHLMC”) for relief from the automatic stay. The motion was brought under section 362(d)(1) of title 11, United States Code (“Bankruptcy Code” or “Code”). This court has jurisdiction under 28 U.S.C. §§ 1334(b), 157(a) and 151. This is a core proceeding under 28 U.S.C. § 157(b)(2)(G). FHLMC holds a foreclosure judgment on the debtor’s residence and seeks to conduct a foreclosure sale. The debtor opposes the motion and seeks to pay off the foreclosure judgment pursuant to his chapter 13 plan. In addition to the lien which the mortgage gave FHLMC on the debtor’s residence, the mortgage also created a security interest in the following personal property:
... rents, issues and profits ... and also, all the right, title and interest of the Mortgagor in and to any and all equipment, fixtures, tools, goods and chattels now used or hereafter to be used in connection with the operation or enjoyment of the premises or any part thereof ...
The legal issue presented on this motion is whether FHLMC had any further security interest in said personal property after its foreclosure judgment was entered. If FHLMC’s security interest in personal property survived the foreclosure judgment, then FHLMC’s rights can be modified under Code section 1322(b)(2) by paying the judgment under a chapter 13 plan. If, however, the security interest in personal property did not survive the foreclosure judgment, then FHLMC’s rights under the judgment cannot be modified under Code section 1322(b)(2). The court holds that the security interest in personalty created by the mortgage did not survive the foreclosure judgment, and FHLMC’s rights thereunder cannot be modified under a chapter 13 plan. FHLMC’s motion is therefore granted.
FINDINGS OF FACT
FHLMC obtained its foreclosure judgment on May 12, 1992. A foreclosure sale had not yet been conducted when the debtor filed a petition for relief under chapter 13 on August 2,1993. FHLMC filed the subject motion on October 26, 1993. The court reserved decision on November 23, 1993. The mortgage which FHLMC foreclosed also created a security interest in personal property as set forth above.
CONCLUSIONS OF LAW
Code section 1322(b)(2) provides that a chapter 13 plan may
modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence ...;
11 U.S.C. § 1322(b)(2). When a foreclosure judgment has been entered on a debtor’s *764residence in New Jersey, the judgment holder’s rights cannot be modified by a chapter 13 plan unless the judgment holder also has other collateral. First Nat. Fidelity Corp. v. Perry, 945 F.2d 61 (3d Cir.1991). In this case FHLMC did have a security interest in personal property before the foreclosure judgment was entered. However, a mortgage merges into a foreclosure judgment under New Jersey law. Matter of Roach, 824 F.2d 1370 (3d Cir.1987). The question presented here is whether the foreclosure judgment terminated FHLMC’s security interest in the personal property.
It has been held that as a general rule “the terms of a mortgage are merged into a foreclosure judgment and thereafter no longer provide the basis for determining the obligations of the parties.” In re Stendardo, 991 F.2d 1089,1095 (3d Cir.1993). An exception to that rule exists “if the mortgage clearly evidences [the parties’] intent to preserve the effectiveness of [a particular] provision post-judgment.” Id. In Stendardo no such intent was found, so the debtors’ obligation under the mortgage to pay property taxes and insurance premiums ended when the mortgage merged into the judgment. Id.
Although the primary purpose of a mortgage is to create a security interest in real property, it can also have other purposes, including creating a security interest in personal property. Wilson v. Commonwealth Mortgage Corp., 895 F.2d 123, 129 (3d Cir.1990). Of course, a security interest in personal property must be perfected in accordance with article 9 of the Uniform Commercial Code, N.J.S.A. 12A:9-101 et seq., whereas a mortgage hen is perfected by re-cordation under N.J.S.A. 46:16-1. Moreover, a mortgage is not the customary means of creating a security interest in personal property. A separate security agreement is ordinarily executed for personal property.
Under Stendardo, if the parties intend that a security interest in personal property created by a mortgage shall survive the merger of the mortgage into a foreclosure judgment, such intention must be clearly expressed. The court finds no such intention here. FHLMC’s security interest in personal property therefore ended when the mortgage merged into the foreclosure judgment. Since FHLMC’s only remaining collateral when the petition was filed was the real property, Perry applies and FHLMC’s motion is granted.
FHLMC shall submit Standard Order 29 within ten days on notice to the debtor. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491779/ | ORDER GRANTING TRUSTEE’S MOTION TO STRIKE DEFENDANT’S DEMAND FOR A JURY TRIAL
ROBERT A. MARK, Bankruptcy Judge.
The plaintiff Trustee in this adversary proceeding filed a Motion To Strike Defendant’s Demand For A Jury Trial (the “Motion to Strike”). The sole issue presented is whether, by filing a proof of claim in this bankruptcy case, the Defendant waived his right to a jury trial on all counts of the complaint.
BACKGROUND
The Trustee filed a five-count adversary complaint against Defendant on November 23, 1993 seeking: 1) turnover of property to the estate of Omni Capital Group, Ltd. (“Omni”) pursuant to 11 U.S.C. § 542(b) alleging usurious loans; 2) avoidance of an alleged fraudulent conveyance of $15,000.00 on August 10, 1991 under 11 U.S.C. § 548(a)(1) and recovery for the benefit of creditors pursuant to 11 U.S.C. § 550; 3) avoidance and recovery of the same alleged fraudulent conveyance under 11 U.S.C. § 548(a)(2) and § 550; 4) avoidance of several transfers between 1988 and 1991 under FlaStat. § 726.105(l)(a) and 11 U.S.C. § 544, and recovery pursuant to Fla.Stat. § 726.108 and 11 U.S.C. § 550; and 5) avoidance and recovery of the Count IV transfers under Fla.Stat. § 726.105(l)(b) and 11 U.S.C. § 544, and Fla.Stat. § 726.108 and 11 U.S.C. § 550. Prior to the filing of the adversary complaint, the Defendant had filed proofs of claim against Omni’s estate in the aggregate amount of $834,375.40. •
*608The Defendant filed an Answer To Complaint and Demand For Jury Trial on December 30, 1993. The Trustee’s Motion to Strike was filed on January 6, 1995. Defendant filed a written response on January 27, 1994 and counsel presented oral argument on February 10, 1994. Upon considering the Motion to Strike and response, the arguments of counsel, and controlling Supreme Court authority, the Court finds that the Defendant is not entitled to a jury trial on any of the counts in the Trustee’s adversary complaint. Accordingly the Motion to Strike is granted.
DISCUSSION
Defendant argues that despite his filing of proofs of claim in the bankruptcy case, he nonetheless is entitled to a jury trial on Counts IV and V of the adversary complaint on the theory that these counts are “actions at law which do not involve an integral part of restructuring the debtor-creditor relationship.” This assertion runs contrary to controlling Supreme Court precedent.
The Supreme Court has made expressly clear in Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989) and Langenkamp v. Culp, 498 U.S. 42, 111 S.Ct. 330, 112 L.Ed.2d 343 (1990) that by filing a proof of claim, a creditor waives any right to jury trial for preference actions. This is so because such actions, by virtue of the creditor’s claim, arise as part of the claims-allowance process and are integral to the restructuring of debtor-creditor relations and entirely within the Bankruptcy Court’s equity jurisdiction:
In Granfinaneiera we recognized that by filing a claim against a bankruptcy estate the creditor triggers the process of “allowance and disallowance of claims,” thereby subjecting himself to the bankruptcy court’s equitable power. If the creditor is met, in turn, with a preference action from the trustee, that action becomes part of the claims-allowance process which is triable only in equity. In other words, the creditor’s claim and the ensuing preference action by the trustee become integral to the restructuring of the debtor-creditor relationship through the bankruptcy court’s equity jurisdiction. As such, there is no Seventh Amendment right to a jury trial.
Langenkamp, 498 U.S. at 44, 111 S.Ct. at 331 (citations omitted; emphasis in original).
For present purposes, there is no discernible difference between a preference action and a fraudulent conveyance action, and indeed the Supreme Court in Granfinaneiera referred to them interchangeably. See, Granfinanciera, 492 U.S. at 58, 60 fn. 15, 109 S.Ct. at 2799, 2800 fn. 15. Nor is there any difference between a fraudulent conveyance action under § 548 of the Bankruptcy Code, or under Florida statutes by virtue of § 544(b), as Greenberg appears to be suggesting by distinguishing Counts IV and V from the others in the adversary complaint. Furthermore, the Defendant’s factual assertions in his response to the Motion to Strike that the alleged transactions did not occur, or are unrelated to his claims, have no effect on this Court’s equity jurisdiction or the Defendant’s right to a jury trial.
Once a creditor files a claim in a bankruptcy ease, both preference actions and fraudulent conveyance actions against that creditor become part of the equitable process of allowing and disallowing claims and restructuring the debtor-creditor relationship. If a proof of claim is not filed, fraudulent conveyance claims generally are actions at law at law triable by jury. By filing a claim, a defendant subjects himself to the equitable jurisdiction of the Bankruptcy Court and the right to jury trial ceases to exist. Langenkamp, 498 U.S. at 45, 111 S.Ct. at 331.
There is no doubt under controlling Supreme Court precedent that in circumstances such as these, where a defendant has filed a proof of claim in the bankruptcy case, there is no entitlement to a jury trial on fraudulent conveyance actions. Accordingly, it is—
ORDERED as follows:
1. The Trustee’s Motion tp Strike is granted.
2. The Defendant’s demand for jury trial is stricken.
DONE and ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491780/ | ORDER OF DISMISSAL WITH PREJUDICE
A. JAY CRISTOL, Chief Judge.
The Debtor, Phoenix Land Corporation commenced these Voluntary Chapter 11 Proceedings on June 29, 1998 at 4:30 P.M. after the Circuit Court of the Eleventh Judicial Circuit, in and for Dade County, Florida (Florida State Court) entered a Final Summary Judgment of Foreclosure of unimproved real estate, the single asset owned by the Debtor at the time of the commencement of these proceedings. The Summary Final Judgment Determined that the Debtor was indebted to Hattie B. Hinds and E. Eugene Price, [ (Personal Representative of the Estate of Ernest Price, Deceased), hereinafter “Secured Creditors”], in the sum of $1,175,-060.60 exclusive of attorneys fees. The Summary Final Judgment was to bear interest at 12% per annum, and a sale of the collateral-ized unimproved property was scheduled for 11:00 A.M. on June 30, 1993.
On June 24,1993, the State Court denied a rehearing of its Final Summary Judgment. The Debtor, subsequent to the commencement of these proceedings did on July 1,1993 file its Notice of Appeal addressed to the State Court’s Summary Final Judgment.
At a time when no Disclosure Statement or Plan of Reorganization had been filed in these Voluntary Chapter 11 Proceedings, the Secured Creditors filed an omnibus motion seeking the dismissal of these proceedings alleging that they were not filed in good faith. This pleading sought relief from stay, the granting of adequate protection and sanctions against the Debtor, its principals and the attorney for the Debtor in accordance with the provisions under Bankruptcy Rule 9011.
The Secured Creditors’ omnibus motion was brought on for hearing before the Court on October 5, 1993. During the hearing, the Secured Creditors produced an Appraisal and an Appraiser that was prepared to testify the unimproved real estate of the Debtor had a market value of $810,000 as of August 20, 1993.
The Debtor claimed that it had an equity in the property since the value of the property was at least $1,500,000.
The record reveals that the Debtors, from the time they acquired the property from the Secured Creditors Mortgagees had never paid real estate taxes levied on said property, did not pay any interest on the indebtedness, and that the entire indebtedness including interest and unpaid taxes was due and payable approximately eighteen (18) months pri- or to the commencement of these proceedings.
On October 7, 1993, the Court entered an order continuing the October 5, 1993 hearing to October 27, 1993 and ordered the Debtor to file a Disclosure Statement and a Plan of Reorganization by 5:00 P.M., October 25, 1993.
The interim Order granted the Secured Creditors’ Motion for partial relief from stay and permitted counsel for said Creditors to obtain a Mortgage Foreclosure Sale Date subsequent to October 25, 1993.
The Court afforded the Debtor an opportunity to obtain an appraisal of the real estate to substantiate its contention that the property involved had a minimum value of at least $1,500,000. Had the Debtor obtained an appraisal, the Court would have conducted an evaluation hearing on October 27, 1993.
Finally, the Court reserved jurisdiction over the subject matter and the parties to consider the Secured Creditors’ motion for Bankruptcy Rule 9011 sanctions for stopping the State Court sale.
The Debtors failed to file a Disclosure Statement and a Plan of Reorganization before the date set by the Court, failed to produce a real estate appraisal of the property which would have put in issue the Debtor’s contention that the property had a value of more than $810,000
*176The Debtor’s schedules reveal that most of its unsecured debt is owed to Insiders with the exception of $12,310.03.
From the record, the Court is convinced that the Debtor filed these Voluntary Chapter 11 Proceedings in bad faith and for the sole purpose of delaying and thwarting the Secured Creditors from obtaining the relief they acquired from the State Court. The Debtors have no realistic means available to reorganize this single asset case.
In accordance with the prevailing law in the Eleventh Circuit [Phoenix Piccadilly, Ltd., 849 F.2d 1393 (11th Cir.1988); See also Albany Partners, 749 F.2d 670 (11th Cir. 1984)]. This Court may consider any factor which evidences a Debtor’s intent to abuse the judicial process, particularly where said factor evidences that a Voluntary Petition was filed to delay or frustrate the legitimate efforts of the Secured Creditors to enforce their rights. [In re Phoenix Piccadilly, Ltd., supra at 1394; see also In re Panache Development Company, 123 B.R. 929 (Bkrtcy. S.D.Fla.1991) and cases relied upon therein].
The foregoing shall constitute Findings of Fact and Conclusions of Law, and it is therefore
ORDERED
1. That the Voluntary Petition filed in this case was not filed in good faith and the same is hereby dismissed with prejudice and the Debtors are precluded from re-filing a voluntary petition seeking relief under Title 11 of the United States Bankruptcy Code for a period of one year from the effective date of this Order.
2. The Court reserves jurisdiction to assess sanctions in accordance with Bankruptcy Rule 9011 against the Debtors, its officers and directors, R.C. Eichenberger and Ronald D. Yanks, and its attorney Charles Neustein.
3. In accordance with Bankruptcy Rule 9014, the Secured Creditors shall file their motion seeking sanctions against the Debtor, its officers, directors and attorney, the respondents shall reply to said motion within ten days after service. At a duly scheduled hearing, the Court will determine if any sanctions in favor of the Secured Creditors shall be awarded.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491781/ | ORDER GRANTING SECURED CREDITORS’ MOTION FOR RULE 9011 SANCTIONS
A. JAY CRISTOL, Chief Judge.
This Order grants HATTIE B. HINDS and E. EUGENE PRICE, Personal Representative of the ESTATE OF ERNEST PRICE, Deceased, (hereinafter “Secured Creditors”) Motion for Rule 9011 Sanctions against Phoenix Land Corporation, R.C. Ei-chenberger, its Vice President and Charles Neustein, its attorney, jointly and severally.
In entering this Order the Court considered the Schedules and the Statement of Affairs filed by the Chapter 11 Debtor, and the entire record of the proceedings, the response filed to the Secured Creditors Motion for Sanctions and the oral representations made by counsel for the Debtor in open Court during the hearing on the matter held by this Court on December 21, 1993.
The foregoing contains the following facts which this Court relied upon in granting the relief sought.
1. These Voluntary Chapter 11 Proceedings were commenced by the Debtor on June 29, 1993 at 4:30 P.M.
2. The Debtor’s only asset is an undeveloped parcel of real estate situated and located in Dade county, Florida.
3. The real estate had been pledged to secure a loan owed to the Secured Creditors in the amount of $799,500.
4. Said loan was entered into on October 28, 1988 and was evidenced by a non-recourse promissory note and a mortgage securing the pledge.
5. In addition to the periodic payments of interest, the Note required the Debtor to pay ad valorem real estate taxes annually. The principal of the note was due and payable in full, on or before October 27, 1989.
6. In 1991, when the Debtor was in default of the provisions of the Note and Mortgage the Secured Creditors filed a Mortgage Foreclosure proceeding in the Circuit Court of the Eleventh Judicial Circuit, in and for Dade County, Florida, Case No. 91-48741 (State Court). The Debtor defended the foreclosure action.
7. The State Court entered a Summary Judgment on June 1, 1993 foreclosing the lien on the property and directed that a sale be conducted on June 30, 1993.
8. The total amount of the judgment entered by the State was $1,175,060.60 which included:
(a) principal indebtedness of $799,599.00
(b) Interest, December 28, 1989 to June 1, 1993 of $245,854.90
(c) reimbursement for payment of outstanding ad valorem taxes for the years 1988, 1989 and 1990 paid by the Secured Creditors $ 77,817.02
(d) interest on the 1988, 1989 and 1990 unpaid taxes at 8% per annum in accordance ■with the terms of the Note and Mortgage from September 24, 1992 to June 1,1993 $ 10,812.00
(e) outstanding ad valorem property taxes for 1991, 1992 through March 19, 1993 $ 45,076.74
The State Court reserved jurisdiction to award attorneys fees for the Mortgagees’ attorneys.
9. The Debtor filed a Motion for Rehearing, which the State Court denied on June 24, 1993. As previously noted, these Voluntary Chapter 11 Proceedings were commenced on June 29, 1993, on the eve of the date set for the State Court Foreclosure Sale.
10. The Debtor’s schedules and the record reflect that the Debtor owed very little to unsecured, non-priority, non-insider creditors.
*17811. On October 7, 1993, this Court entered its order granting the Secured Creditors Interim Relief on their Motion to Dismiss (allowed the Secured Creditors to obtain a new State Court sale date). Annexed hereto and incorporated herein, as Exhibit “A”, is a copy of said Order.
12. The Appraisal of the value of the unimproved real estate involved submitted by the Secured Creditors establishes a value of the property t'o be $810,000 as of August 20, 1993. Therefore the lien held by the Secured Creditors is undersecured in relation to the debt owe.
13. The Debtor did not comply with this Court’s Order of October 7,1993 wherein the Court reserved jurisdiction to award sanctions in connection with the delay of the State Court Mortgage Foreclosure sale.
14. Finally, on November 5, 1993, the Court dismissed these proceedings with prejudice but reserved jurisdiction in connection with conducting a hearing on the Secured Creditors’ Motion seeking Sanctions against the Debtor, its officers and attorneys. Attached hereto and made a part hereto as Exhibit “B”, is a copy of the November 5, 1993 Order.*
15. The Secured Creditors in accordance with this Court’s Order (Exhibit “B”) filed their application to impose sanctions to be assessed against the Debtor, R.C. Eichenber-ger and Charles Neustein jointly and severally-
16. The Orders of October 7, 1993 and November 5, 1993 were not appealed and therefore they establish the law of the Case.
17. The Debtor filed a response to said application and on December 22, 1993 the Court conducted a hearing on the application and the Response.
18. The Response filed by the Respondents as well as the argument and testimony offered during the hearing conclusively establish that these voluntary Chapter 11 Proceedings were instituted to delay the State Court Foreclosure Sale at the expense of the Secured Creditors.
19. The Court cannot accept what the Respondents felt and what they truly believed, but Reorganization is something that is allowed at the Debtor’s risk and the Debt- or’s expense, not the Secured Creditors’ risk and the Secured Creditors’ expense.
20. At a time when the stay had been lifted and the case had been dismissed as a bad faith filing and the time to appeal had expired, the Debtor and its representatives attempted to make an offer to acquire the real estate involved at a price which was $275,000 below the amount of the Judgment without even considering the loss of interest suffered by the Secured Creditors and the five years of real estate taxes which were charged to the Secured Creditors.
21. The argument and the evidence presented by the Respondents at the hearing conclusively establish that this case is governed by the doctrine of Phoenix Piccadilly and analogous cases. See Phoenix Piccadilly, Ltd., 849 F.2d 1393 (11th Cir.1988) in accord with Albany Partners, 749 F.2d 670 (11th Cir.1984). See also In re Humble Place Joint Venture, 936 F.2d 814, 818 (5th Cir.1991); In re Carco Partnership, 113 B.R. 735 (Bkrtcy.M.D.Fla.1990); In re McCormick Road Associates, 127 B.R. 410 (Bkrtcy. N.D.Ill.1991).
22. The evidence reflects that the Secured Creditors suffered the following damages as a result of the postponement of the State Court June 30, 1993 Sale:
(a) Attorneys Fees $18,056.00
(b) Appraisal Fee $ 3,000.00
(c) Appearance $ 150.00
(d) Re-advertizing the State Court Sale $ 179.00
(e) Lost interest (12% per an-num, in accordance with the State Court Judgment) from 7/12 through 12/31/93 — 172 days @ $270/ day* $46,440.00
*179The foregoing shall serve as Findings of Fact and Conclusions of Law.
A judgment against the three Respondents jointly and severally shall be entered separately in accordance with the applicable rules in the amount of $67,825.10. The said judgment shall provide that for the purposes of these Chapter 11 proceedings a per diem charge of interest in the amount of $270 commencing with January 1, 1994 on the principal sum of $810,000 (value of the real estate in these Chapter 11 Proceedings, supra) until it is paid and discharged.
DONE AND ORDERED.
EXHIBIT A
Oct. 8, 1993
ORDER GRANTING SECURED CREDITORS INTERIM RELIEF ON MOTION TO DISMISS
HATTIE B. HINDS and E. EUGENE PRICE (Personal Representative of the Estate of Ernest Price, Deceased), hereinafter “Secured Creditors”, jointly and severally moved this Court to dismiss these voluntary Chapter Proceedings on the grounds that the same were not filed in good faith. The Motion also sought relief from stay, adequate protection, reduction of the Exclusivity Period within which the Debtor is required to file a Plan of Reorganization and Disclosure Statement and Rule 9011 sanctions. Bankruptcy Rule 9011.
The Court entertained argument on the said Motion on October 5, 1993 and makes the following findings:
1. The Debtor’s estate is comprised of a single asset constituting unimproved real estate situated and located in Dade County, Florida.
2. The said real estate is pledged to the Secured Creditors for the repayment of a note in the principal amount of $799,500
3. On June 1, 1993, the Circuit Court of the Eleventh Judicial Circuit, in and for Dade County, Florida entered a Final Summary Judgment of Foreclosure in favor of the Secured Creditors in an amount of $1,175,060.60 exclusive of attorneys fees. The Judgment is subject to an interest charge of 12% per annum. The sale of the property was scheduled for 11:00 A.M., on June 30, 1993.
) 4. A Motion for Rehearing in the State Court Foreclosure Suit was filed by the Debtor and denied on June 24, 1993.
5. On June 29, 1993, at 4:30 P.M. the Debtor filed its petition commencing these voluntary Chapter 11 Proceedings.
6. After the commencement of these proceedings the Debtor filed a Notice of Appeal in the State Court Mortgage Foreclosure seeking to review the State Court Summary Judgment of Foreclosure.
7. The Schedules reveal that the unsecured priority claims held by third parties other than insiders of the Debtor (five in number) are owed $12,310.00. The remaining unsecured debt is owed to Insiders.
8. The Secured Creditors claim that the unimproved real estate is valued at $810,000 as of August 20, 1993, to support that position, they produced an appraisal during the hearing. The Debtor claims the property is worth $1,500,000, but has no appraisal to support said contention.
9. The Debtor’s Exclusivity Period within which to file a Plan of Reorganization and a Disclosure Statement will expire in approximately twenty-two days, to wit: October 27, 1993.
10. The Court has taken judicial notice of the Debtor’s schedules and the conflict therein.
11. The Court has further considered the prevailing law in the Eleventh Circuit, as set forth in Phoenix Piccadilly, Ltd., 849 F.2d 1393 (11th Cir.1988); Albany Partners, 749 F.2d 670 (11th Cir.1984) and it appears that the facts and the law support the Secured Creditors’ position.
12. However, the Court, in keeping with the Congressional intent of a “fresh start” and affording Debtors an opportunity to reorganize and being fully advised in the premises, it is
ORDERED AND ADJUDGED
1. That the Debtor on or before October 25, 1993 at 5:00 P.M., shall file its Plan of *180Reorganization and a Disclosure Statement and serve a copy thereof on the attorney for the Secured Creditors.
2. If upon receipt of a copy of the filed Plan the Secured Creditors or their attorney deems the same not confirmable in accordance with the Bankruptcy Code, or not filed in good faith, the Court, upon an emergency basis, will set a hearing on the matters raised by the Secured Creditors’ Motion to Dismiss the Voluntary Petition for not having been filed in good faith, including but not limited to granting the Secured Creditors adequate protection,
3. If the Debtor files an appraisal of the real estate involved, it shall forthwith serve a copy of said appraisal on counsel for the Secured Creditors and if said appraisal disputes the appraisal of Budny & Heath dated August 20, 1993, a copy of which has been served upon the Debtor’s attorney, then this Court shall have an evaluation hearing on the 27th day of October, 1993 at 10:45 a.m., at the United States Bankruptcy Court, Courtroom 1410, 51 S.W. First Avenue, Miami, Florida.
4. The automatic stay provided for in 11 U.S.C. § 362 is modified to permit the Secured Creditors and their counsel to obtain a sales date in the Foreclosure Proceedings provided said sale is not held on or before October 25, 1993.
5. The Court shall retain jurisdiction over the subject matter and the parties to enter such orders as it deems just and proper, including but not limited to considering the Secured Creditors’ Motion for Rule 9011 sanctions or stopping the sale.
DONE AND ORDERED.
/s/ A.J. Cristol
A.J. CRISTOL Chief Judge, U.S. Bankruptcy Court
Editor’s Note: Exhibit B is separately published at 164 B.R. 174.
Interest is computed on a principal amount of $810,000 which represents the value of the real estate. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491782/ | OPINION AND ORDER ON COMPLAINT TO DETERMINE PRIORITY OF LIENS
BARBARA J. SELLERS, Bankruptcy Judge.
On April 9, 1992, Larry E. Staats, Trustee, filed a complaint seeking to determine the validity, extent and priority of liens against the assets of the bankruptcy estate of B & B Printing Co., Inc. All claims against the estate’s assets have been dismissed, compromised, or reduced to default judgment except those of defendants John J. Guzzo (“Guzzo”); the United States of America, Internal Revenue Service (“United States”); and the Ohio Bureau of Employment Services (“OBES”).
Pursuant to 28 U.S.C. §§ 1334(b), 157(b)(2), and the General Order of Reference entered in this district, this Court has jurisdiction to hear and finally determine this core proceeding.
The parties have stipulated to the relevant facts in this matter, including a stipulation recognizing the validity of each party’s lien. The issues presented for determination are: (1) whether the filing date of the first United States’ notice of tax lien acted as an attachment for all subsequent federal tax lien filings through relation back, and (2) whether, based on the 45-day rule and choate lien theory, the liens of the United States, once choate, attached prior to the liens of other parties with interests in after-acquired property.
I. The “Relation Back” Theory
In its brief, the United States asserts that all notices of tax lien filings relate back to its first filings on September 16, 1985. (United States Brief, p. 5). In support of this proposition, the United States cites United States v. Bank of Celina, 721 F.2d 163 (6th Cir.1983).
In Bank of Celina, the bank attempted to set off a customer’s debt even though the United States previously had filed notices of tax liens against the customer’s assets. The Court of Appeals for the Sixth Circuit held that the United States was entitled to the monies used to set off the customer’s obligation to the bank. In so holding, the court stated that “once a federal tax lien has attached to a taxpayer’s property, that property remains subject to the lien when transferred from the taxpayer to a third party.” Id. at 169.
United States’ reliance on Bank of Celina for support of its “relation back” theory is misplaced. Although the Sixth Circuit espouses such a theory, it was expressed “[b]e-fore proceeding to the merits” of the case, and was not used by the court in its legal analysis. Bank of Celina at 166. Thus, the support of the “relation back” theory used by the United States in the case at bar is mere dicta, and has no legal authority.
United States, citing Peterson v. United States, 511 F.Supp. 250 (D.Utah 1981), further states that the filing of the first tax lien notice puts interested parties on notice and imparts to the parties an obligation to inquire as to the accumulating tax obligation. (United States Brief, p. 5). Thus, United States argues, it is secured for the actual amount of tax liability as it accumulates, not just for the amount recorded.
The problem with the United States’ analysis is two-fold. First, Peterson is a district court decision from Utah and, thus, is not controlling authority for the “relation back” theory. Second, Peterson is contrary to the applicable statutory authority.
26 U.S.C. § 6321 states:
“If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including 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, whether real or personal, belonging to such person.” (Emphasis added).
The application of a “relation back” theory in which a subsequent tax lien “relates back” to the filing date of a prior tax lien disregards the fact that 26 U.S.C. § 6321 requires that a person be liable for the tax before the lien is created. If a lien “relates back” to a filing *275date before the creation of that lien, it allows the United States a lien before the taxpayer is liable for the tax.
Moreover, 26 U.S.C. § 6322 states:
... [T]he lien imposed by section 6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed ... is satisfied or becomes unenforceable by reason of lapse of time. (Emphasis added).
This statutory language is in direct conflict with the theory relied upon by the United States. If a subsequent tax lien “relates back” to the filing date of a prior lien, it becomes effective for purposes of priority against holders of state created liens before the actual date of assessment. Such a result is clearly contrary to the express language of 26 U.S.C. § 6322.
Finally, 26 U.S.C. § 6323(a) states that a 26 U.S.C. § 6321 lien “shall not be valid against any purchaser, holder of a security interest, mechanic’s lienor, or judgment lien creditor until notice thereof ... has been filed ... ”. The purpose of this provision is to protect subsequent secured creditors from a “secret tax lien”—a lien in which the creditor would have no notice—imposed by the United States. The “relation back” theory thwarts such a purpose. Such a theory allows a secured creditor to be defeated by a lien of which he/she had no notice. Therefore, 26 U.S.C. § 6232(a) implicitly speaks against such a theory.
The “relation back” theory espoused by the United States is contrary to the statutory authority of 26 U.S.C. §§ 6321, 6322, and 6323(a). Moreover, the United States has presented no colorable authority to this Court to uphold such a theory. Thus, this Court holds that tax liens of the United States arising from assessments for discrete tax obligations made subsequent to the initial lien filing do not “relate back” to the prior tax lien filed by the United States.
II. The Choate Lien Theory
A validly perfected tax lien requires a notice .of federal tax lien to be filed. 26 U.S.C. § 6823. Thus, perfection of United States’ lien did not commence prior to the filing of such notice.
For a state lien, the identity of the lienor, the property subject to the lien, and the amount of the lien must be established in order for such lien to be ehoate. See, United States v. New Britain, 347 U.S. 81 at 84, 74 S.Ct. 367 at 369, 98 L.Ed. 520 (1954) and United States v. Pioneer American Ins. Co., 374 U.S. 84, 83 S.Ct. 1651, 10 L.Ed.2d 770 (1963). In determining the property subject to the state lien, the Supreme Court stated that the test is that the identity of the property subject to the lien must be established. United States v. Vermont, 377 U.S. 351 at 358, 84 S.Ct. 1267 at 1271, 12 L.Ed.2d 370 (1964). In United States v. McDermott, et al., — U.S. -, 113 S.Ct. 1526, 123 L.Ed.2d 128 (1993), the Supreme Court clarified that “attachment to particular property was also an element of what was meant by ‘perfection’ in New Britain.”
Clearly, if Defendant Guzzo’s state lien were perfected before the United States’ tax lien was perfected, Guzzo’s lien would have priority under the doctrine of “first in time, first in right.” Rankin & Schatzell v. Scott, 25 U.S. (12 Wheat) 177 at 179, 6 L.Ed. 592 (1827). In these circumstances, Guzzo’s state lien properly identified the lienor and the amount of such lien as required by New Britain. However, Guzzo’s lien was not “perfected” within the meaning of New Britain because the property subject to the lien was not established as required in Vermont, and the debtor did not have rights in the property. Thus, the security interest had not attached to the property as required by McDermott.
That Guzzo’s state lien was not “perfected” within the meaning of Neiv Britain does not necessarily mean that the United States was “first in time.” As with Guzzo, the United States’ after-acquired portion of the tax lien did not attach to established property, and, therefore, was not “perfected” when notice was filed. However, the recently decided McDermott case speaks squarely to the issue of competing interests in after-acquired property where one party is the federal government and one party is a state lienor.
In McDermott, the Supreme Court stated that the filing of notice under 26 U.S.C. *276§ 6323 “renders the federal tax lien extant for ‘first in time’ priority purposes regardless of whether it has yet attached to identifiable property.” McDermott, — U.S. at -, 113 S.Ct. at 1530.
The Supreme Court further specified that because 26 U.S.C. § 6323 set out specific exceptions to the filing of notice provision (e.g. commercial transactions financing agreements), matters not falling within an exception presume that the federal tax lien prevails. McDermott, — U.S. at-, 113 S.Ct. at 1530. The Supreme Court stated that “the federal tax lien is ordinarily dated, for purposes of ‘first in time’ priority against § 6323(a) competing interests, from the time of its filing, regardless of when it attaches to the subject property.” McDermott, — U.S. at-, 113 S.Ct. at 1530.
The policy rationale of not adhering to a strict “first in time” rule emanates from the nature of the competing liens. Although a strict presumption is ordinarily appropriate as between private parties, a different standard applies when one of the parties is the government, acting in a taxing capacity. The government is “unable to decline to hold the taxpayer liable for taxes,” and “notice of a previously filed security agreement in after-acquired property does not enable the government to protect itself.” McDermott, — U.S. at-, 113 S.Ct. at 1531. Thus, in this situation, “the federal tax lien must be given priority.” McDermott, — U.S. at-, 113 S.Ct. at 1531.
Relying on Ohio Rev.Code § 1309.-01(A)(15), Guzzo argues that accounts receivable are not after-acquired property. Assuming, for purposes of argument, that accounts receivable are not after-acquired property under state law, the result is the same. The case before the Court involves competing liens of the federal government and a private party asserting rights under state law. Federal law, decided in New Britain, Pioneer American, and McDermott, is controlling. Future accounts receivable, whether or not called after-acquired property for Uniform Commercial Code purposes, are not property identified and established at the time the lien is recorded.
III. Conclusion
Based on the foregoing, the Court finds that the priority of liens shall be the following:
(1) $5,200 to Defendant Guzzo for a purchase money security interest in one Miller color printing press;
(2) Up to $1,710.75 to Defendant OBES for personal property in existence on 8/7/85;
(3) $19,386.80 to Defendant United States for all property in existence and/or after-acquired;
(4) Up to $13,069.23 to Defendant OBES for personal property in existence on 10/2/85, 1/6/86, 4/3/86, 7/2/86, 9/29/86, 1/2/87, 9/28/87, and 1/7/88;
(5) Up to $78,679.18 to Defendant Guzzo for all property in existence from 2/10/88 to 2/28/88;
(6) Up to $53,564.11 to Defendant United States for all property remaining.
To the extent the OBES and Guzzo lien amounts require proof of property in existence at certain times and such property cannot be shown, United States has priority.
A judgment will be issued consistent with this finding.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491783/ | MEMORANDUM OPINION AND FINDINGS OF FACT AND CONCLUSIONS OF LAW
ERWIN I. KATZ, Bankruptcy Judge.
Motel Investment Group, Inc. (“Debtor”) is a corporation formed to acquire a motel property (the “Motel”). The Motel was owned and operated by Michael Wu (“Wu”). Wu, together with John Huang, William Lin and Judy Chen, formed the corporate debtor as a vehicle to transfer the property to the new group who would then finance its rehabilitation and conversion into a Best Western Inn. After Debtor acquired the Motel through an oral installment contract (the “Agreement”), and renovations were completed, a dispute arose between Wu and the other shareholders. Debtor fell into arrears on payments due under the Agreement. Wu filed suit against Debtor in state court seeking Debtor’s ouster under the Illinois Forcible Entry and Detainer Act (735 ILCS §§ 5/9-101 — 321 (1993)). A Default Judgment and Order of Possession was entered in Wu’s favor. Debtor succeeded in having the default judgment vacated and obtained leave to answer or otherwise plead. However, rather than wage the battle for possession in state court, Debtor chose to file its bankruptcy petition. It then filed this Complaint for Turnover of the Motel under 11 U.S.C. § 542. Wu objects to the turnover and seeks, by counterclaim, a judicial determination that the Agreement is null and void, and that Debtor has forfeited all its rights thereunder, including any right to recover payments made thereunder, and its interest in the Motel. After considering the evidence and arguments presented, the Court finds that Debtor may be entitled to turnover of the Motel if it can demonstrate that Wu’s interest will be adequately protected. Because the Court finds that the Agreement does not include an express forfeiture provision, the prayer in Wu’s counterclaim for forfeiture of Debtor’s rights and interests under the Agreement is denied. The Court applied a preponderance of the evidence standard to this trial.1 No final order will be *286entered pending the conclusion of the adequate protection hearing.
The Court’s jurisdiction to hear this matter derives from 28 U.S.C. § 1334 and General Rule 2.33(A) of the United States District Court for the Northern District of Illinois. It is a core matter under 28 U.S.C. § 157(b)(2)(A) and (E).
FACTS
Introduction
Many of the material facts are not in dispute. The parties entered into the Agreement in early September, 1990, wherein Wu was to convey the Motel to Debtor for a purchase price of $1.2 million. The purchase price included the assumption of a $280,000 mortgage (the “Benyon Mortgage”) and $920,000 to be paid to Wu. While Debtor did not formally assume the Benyon Mortgage, it was responsible for paying the monthly installments of $4,000 and, in addition, real estate taxes and insurance premiums after September, 1990. The parties disagree as to whether the Agreement included a $300,000 downpayment to Wu, when the installments due to Wu were to commence, and when title was to pass.
Debtor concedes that it defaulted under the Agreement. As of mid-November, 1992, it had failed to make at least three payments on the Benyon Mortgage, and had not paid an aggregate of $63,605.98 in real estate taxes for 1991 and 1992, or $5,785.00 in insurance premiums. Wu advanced these payments in Debtor’s stead to protect the property and was not reimbursed. In November, 1992, Wu served Debtor with a Notice to Declare Forfeiture, listing the admitted defaults as well as the failure to pay 27 installments of $6,335.03 each that Wu claimed were due to him. The claimed defaults were not cured within the allotted 30 days, and Wu thereupon served Debtor with a Declaration of Forfeiture and instituted forcible entry proceedings in the Circuit Court of Cook County to retake possession of the Motel. He won a default judgment and order of possession and evicted Debtor. He has remained in possession ever since, notwithstanding that Debtor was successful in having thet. default judgment vacated.
Chronology
Throughout the events related herein, Wu has been the record owner of the Motel — a two-story, 53-unit building, built in the early 1960’s. Prior to his association with Debtor, Wu owned the Motel individually, and operated it as a Royal 8 Motel. He bought the Motel in 1980 from Alfred Benyon for $850,-000, making a $250,000 downpayment and giving Benyon a purchase money second mortgage for $420,000. NBD Skokie Bank held the first mortgage in the amount of $180,000. Wu operated the Motel from 1980 to 1990 with the help of his wife, family and a few employees. Prior to his dealings with Debtor, he never missed a payment on either mortgage in ten years.
In 1989, Wu received an offer to purchase the Motel for $1.23 million. William Lin, Wu’s accountant since 1975, reviewed the books with the potential buyer’s accountant. The sale wasn’t completed because the buyer found another property. Wu estimates that his equity in the Motel in mid-1990 was approximately $800,000, based on the amount offered in 1989 less the balance on the two mortgages. In mid-1990, he owed $143,000 on the NBD mortgage and $280,000 on the Benyon mortgage.
In late spring of 1990, Wu entertained the idea of converting the Motel to a Best Western Inn, wanting to take advantage of its international reservation network. Wu told his idea to John Huang, whom he had known for ten years, and who Wu was aware had recently bought the Best Western in La-Grange, Illinois. When Huang heard Wu’s plan, he offered to buy shares in the Motel and to assist him in obtaining the franchise. He told Wu that he had considered buying the Motel himself ten years earlier. The two had several conversations along these lines, and in early July, Huang introduced Wu to Judy Chen, one of his employees, who was also interested. Shortly thereafter, Lin joined the discussions.
Huang, Chen, Lin and Wu met twice in August, 1990 — on the 16th and the *28722nd — to discuss the terms of the proposed venture. At the suggestion of Lin, who, as a CPA and director of New Asia Bank, was apparently the most commercially sophisticated and respected member of the group, they agreed to form a corporation which would acquire ownership and renovate the Motel so it could be operated as a Best Western Inn franchise. Debtor was formed in September, 1990, whereupon the parties entered into an oral purchase agreement.2 The original investors were Lin, Huang, Judy Chen, Dr. Samuel Chen, and Wu. They each invested $100,000 in Debtor in August or September in return for a 20% interest.3 Dr. Chen subsequently changed his mind, and Wu bought out his interest, paying him $30,000 in April, 1991 and $70,000 in May, 1991. Thereafter, Wu had a 40% interest and Lin, Huang and Judy Chen each retained a 20% interest. The Debtor’s four shareholders also became its directors and officers. Huang became the president, Wu the vice pi'esident, Chen the secretary and Lin the treasurer.4 Lin received the monthly bank statements and prepared all of Debt- or’s tax returns and financial statements.
Debtor agreed to buy the Motel for $1.2 million, with a $300,000 downpayment and the remaining $900,000 to be paid in monthly installments. The installments, amounting to approximately $10,000 per month, would in-elude $4,000 per month on the balance of the Benyon Mortgage, and monthly payments of $6,335 to Wu on his balance of $620,000. The NBD mortgage was paid in full as part of Wu’s downpayment.5 The corporation was responsible for real estate taxes and insurance premiums. There was contradictory testimony regarding when title was to pass to the Debtor under the Agreement. The Court finds, based on the parties’ understanding of the nature of installment contracts for real estate, the unreliability of Debtor’s witnesses, and the circumstances related herein, that the Agreement provided that title would pass after Wu had been paid in full.
Of the $500,000 invested by the individuals, $300,000 was deemed paid to Wu as a down-payment as follows: The first mortgage to NBD in the amount of $143,428.75 was paid in full; half of Wu’s investment was credited in the amount of $100,000; $32,000 was paid in real estate taxes for the first eight months of 1990 when Debtor was not in possession; and $24,525.37 was paid to Wu in cash.
The Court finds that, unlike most land installment contracts, the Agreement did not include a forfeiture provision. The only evidence adduced to establish such a provision was testimony by Wu and Lin regarding the parties’ understanding that if Debtor did not make all its payments under *288the Agreement it could lose the Motel. In view of the strictness with which Illinois courts construe forfeiture provisions6 and the fundamental principle that “equity abhors a forfeiture,”7 the fact that no written evidence was adduced to substantiate such a provision, and the weakness of the testimony on this point, the Court finds there is insufficient evidence to support the existence of a forfeiture provision.
On September 1,1990, the Motel closed for renovations. Huang and Wu were to oversee the renovations. Because Wu lived five blocks from the Motel, and Huang lived in Milwaukee, Wisconsin, Wu would make payments from Debtor’s checking account as they arose, and Huang would travel to Chicago once a week and initial the check stubs, as Debtor’s president, to approve the payments. On August 27, 1990, Debtor entered into an agreement with Grand Hospitality Management, Inc. to manage the renovations. While the agreement estimated a budget of approximately $480,000, the- shareholders realized that additional funds would be required.
On November 14, 1990, Wu obtained a $50,000 short-term unsecured construction loan from New Asia Bank (“NAB”) to pay the general contractor. The loan was approved by the shareholders and wired to Debtor’s account. On November 17, 1990, to replace the short-term loan and obtain additional funds to begin renovations, Wu borrowed $300,000 from NAB on a personal note secured by a mortgage on his residence. Lin submitted the required corporate documentation for the loan. After $50,000 was used to pay off the short-term construction loan, the remaining $250,000 was transferred to Debt- or’s bank account.
The cost of renovations totaled $680,000. Wu obtained two additional short-term construction loans of $50,000 each, on January 25, 1991, and February 12, 1991. On February 27, 1991, Debtor borrowed an additional $300,000 from NAB on a note secured by a mortgage on the Motel. Wu signed this note both individually, as title holder, and in his capacity as vice president and treasurer of Debtor. Huang, Chen and Lin’s wife signed as guarantors. The proceeds of the second loan were used first to pay off the two $50,-000 short-term construction loans, and the remainder was wired to Debtor’s corporate accounts.8 Interest payments on both $300,-000 loans were claimed as deductions on Debtor’s 1990 and 1991 tax returns, and were made by automatic withdrawals from Debt- or’s corporate account. Huang stopped the automatic payments in June, 1992, and, at the time of trial, the second loan was in default, with a balance of $275,000. In June, 1993, NAB filed a lawsuit against Wu individually and against Chen and Huang as guarantors.
The Motel opened as a Best Western on March 20, 1991. Business was bad from the start, worrying the investors. Only four or five rooms were rented per night. Huang and Chen managed the Motel until mid-May, when Shell Hospitality Group, Inc. (“Shell”) took over. Shell managed the Motel through May, 1992 when its contract expired. After the contract with Shell expired, Lin, Chen and Huang, constituting a majority of the shareholders, changed the locks on the Motel to keep Wu off the premises, and modified *289the authorization on the bank accounts to exclude Wu.
In 1990, Debtor paid the real estate taxes and insurance premiums. In 1991, it paid the first installment of real estate taxes, but failed to pay the second. Wu paid $24,317.80 in real estate taxes for Debtor in 1991. In 1992, Wu paid both installments of real estate taxes, in the amount of $39,288.18, and $5,785.00 in insurance premiums. As of November, 1992, Debtor had failed to make the following payments: 27 monthly installments to Wu of $6,335.03 each, totaling $171,045.81; five monthly installments of $4,000 on the Benyon Mortgage, totaling $20,000; $63,-605.98 in real estate taxes for 1991 and 1992; and $5,785.00 in insurance premiums.
On November 11, 1992, Wu served Debtor with a Notice of Intent to Declare Forfeiture, setting forth the amounts in default, totaling $260,436.79, and indicating Wu’s intention to evict Debtor from the Motel under either the Forcible Entry and Detainer Act or the Illinois Mortgage Foreclosure Act if the defaults were not cured within 30 days. Debt- or made no payments to Wu during the next 30 days, and on December 14, 1992, Wu served a Declaration of Forfeiture on Debtor. The Declaration declared that Debtor had forfeited all of its rights, and all payments it had made to Wu, under the Agreement, and demanded immediate possession of the Motel. On December 14, 1992, Wu filed a Verified Complaint For Possession in the Circuit Court of Cook County. The Declaration of Forfeiture was recorded with the Cook County Recorder of Deeds on December 16, 1992. On January 14, 1993, the Circuit Court entered a Default Judgment and Order of Possession, and Wu took possession. Debtor filed a motion on February 5, 1993 to vacate the default judgment, and on March 2, 1993, the circuit court vacated the default judgment and granted Debtor leave to answer or otherwise plead. Rather than file an answer or seek to retake possession in the state court proceeding, Debtor filed its Chapter 11 petition on March 8, 1993.
Wu has remained in possession during the pendency of these proceedings. When he reentered the Motel in January, 1993, the Best Western international reservation network and water had been shut off, and the telephone, cable and garbage companies had threatened to disrupt services because payments were in arrears. Wu borrowed $13,-000 to bring the payments current and reestablished the services necessary to the operation of the Motel. The Motel continues to operate as a Best Western franchise under Wu.
After filing the petition in this Court, Debtor filed a Motion for Turnover. Wu objected, asserting that a proceeding for turnover under 11 U.S.C. § 542 can only be brought as an adversary proceeding under Fed.R.Bankr.P. 7001. An order was entered denying the motion without prejudice, and the status quo was maintained by agreement of the parties.
DISCUSSION
Debtor’s Breach
Having observed the demeanor of the witnesses, and viewing the testimony and other evidence in its entirety, the Court finds that Debtor’s defaults under the Agreement constitute an unexcused material breach thereof. Debtor alleged both in its Response to Wu’s Request to Admit Facts and at trial that it ceased meeting its obligations under the Agreement because it discovered, after being in possession of the Motel and its records for a year and a half, that Wu had not transferred title to the Motel and that he had made unauthorized withdrawals from Debtor’s checking account. At trial, Debtor adduced the testimony of two of its principals, John Huang and William Lin. The Court finds the testimony of Huang and Lin unreliable and Debtor’s explanations implausible. To the contrary, the weight of the evidence supports Wu’s testimony that (1) the parties agreed that title would pass upon payment in full of the purchase price, and (2) Wu’s use of corporate funds was authorized.
Debtor has failed to introduce any evidence to support its allegation that Wu misappropriated corporate funds. The payments that it attempted to show were unauthorized have all been accounted for in the facts related herein. The payments include amounts credited towards the downpayment and the amounts taken from the two $300,000 *290NAB loans to pay off the three short-term construction loans. The shareholders approved all of these payments at the time they were made. Huang, Debtor’s president, initialed the check stubs of all payments made from the corporate accounts. Lin, a CPA, a director of NAB, and accountant for both Debtor and Wu individually, reviewed all of Debtor’s monthly bank statements. He prepared all Debtor’s financial statements and tax returns, and prepared Wu’s tax returns. He was fully aware of Debtor’s and Wu’s financial transactions. If Wu’s use of corporate funds had been amiss, it would not have taken until May of 1992 for the other shareholders to find out. Given the close scrutiny by Huang and Lin of payments from corporate funds, and that the allegedly unauthorized payments have been accounted for, the Court finds implausible Debtor’s allegation that Wu misused corporate funds.
It is equally implausible that the transfer of title was a condition precedent to Debtor’s performance under the Agreement. No one testified that the parties intended that Wu was to receive a purchase money mortgage. Moreover, if the immediate transfer of title had been part of the Agreement, Debtor’s principals would have insisted that Wu transfer such title prior to proceeding under the Agreement.
The version of events presented by Huang and Lin is inconsistent with the expectations of reasonable businessmen, especially in light of their expertise and participation in Debt- or’s activities and financial concerns. In addition, their testimony attempting to establish the terms of the Agreement appears fabricated. Debtor attempted to introduce, through the testimony of Huang and Lin, typewritten documents that were purportedly the official minutes of the corporate directors’ meetings wherein the parties agreed to the terms of the Agreement. After cross examination, however, Debtor took the position that the typewritten pages were a transcription from handwritten corporate notes. Debtor represented to the Court that Judy Chen would authenticate the typewritten documents. When Chen failed to testify, it became apparent that the documents were prepared in anticipation of the present litigation to support Debtor’s theory of the case. Debtor’s attempt to introduce documents that were prepared- specifically for use at trial as business records damages its credibility with respect to the remainder of its testimony. Moreover, it has failed to introduce evidence to account for its failure to meet its obligations under the Agreement. Wu, therefore, may pursue the remedies available to an installment contract seller, subject to Debtor’s rights under the Bankruptcy Code.
Wu’s Possession
Debtor argues that Wu’s possession is wrongful because he proceeded under the Illinois Forcible Entry and Detainer Act (735 ILCS 5/9-101 — 321 (1993))9 rather than the Illinois Mortgage Foreclosure Law (735 ILCS 5/15-1101 — 1706 (1993))10 when he ejected Debtor. Regardless of whether the *291facts in this case gave rise to an action under the Forcible Entry and Detainer Act, Wu entered the Motel under court order. After Debtor had the Default Judgment and Order of Possession vacated, while Wu was still in possession, it was free to pursue its available remedies, if it had any, to oust him. Had Debtor proceeded before the state court it would have lost. Debtor was, and is, in breach of the Agreement. It could not, therefore, maintain a possessory right superior to Wu’s. During the pendency of the bankruptcy proceedings and the present adversary action Wu has remained in possession by agreement of the parties, thereby maintaining the status quo until a determination could be made on the merits of the cause. Having heard the merits, the Court finds, by virtue of Debtor’s default under the Agreement and its failure, at least thus far, in the present action to demonstrate adequate protection of Wu’s interest, that Wu’s possessory interest is superior to that of Debtor. The Court therefore finds that Wu took possession under proper authority, and has remained in rightful possession during the pendency of this litigation.
Equitable Conversion
Notwithstanding its material default, at the time of the filing of the bankruptcy petition, Debtor had a sufficient equitable interest for the Motel to be considered property of the estate under 11 U.S.C. § 541, subject to Wu’s rights under the Bankruptcy Code. Whether Debtor had an interest in the Motel as of the commencement of the bankruptcy case is a question of state law. Butner v. U.S., 440 U.S. 48, 54, 99 S.Ct. 914, 917, 59 L.Ed.2d 136 (1979) (“[Determination of property rights in assets of a bankrupt’s estate left to state law.”); In re Atchison, 925 F.2d 209, 210 (7th Cir.1991). As previously discussed, since there was no forfeiture provision in the Agreement, and since the default order of possession was vacated prior to the filing of the petition in bankruptcy, Debtor had an interest in the Motel, either as contract purchaser or as owner. In Shay v. Penrose, 25 Ill.2d 447, 449, 185 N.E.2d 218, 219-20 (1962) the Illinois Supreme Court recognized that under Illinois law, under certain conditions, the doctrine of equitable conversion confers equitable ownership upon the buyer upon entering into an installment contract for real property. See also In re Streets & Beard Farm Partnership, 882 F.2d 233, 235 (7th Cir.1989) (Seventh Circuit applied the doctrine of equitable conversion to hold that an installment contract for real property is not an executory contract under the Bankruptcy Code); Rosewood Corp. v. Fisher, 46 Ill.2d 249, 257, 263 N.E.2d 833, 838 (1970).11 While in material default of the Agreement at the time it filed for bankruptcy, Debtor retained an interest in the Motel, and is thus entitled to cure the default and reinstate the Agreement in its attempt to reorganize. See 11 U.S.C. §§ 1123(a)(5)(G) and 1124(2); U.S. v. Whiting Pools, Inc., 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983) (debtor retained an interest in property seized by IRS prior to filing of Chapter 11 petition); Matter of Madison Hotel Associates, 749 F.2d 410, 419 (7th Cir.1984) (Chapter 11 debtor’s plan of reorganization may cure default of an accelerated loan). Wu’s remedies,12 therefore, arising from Debtor’s material breach, may be held in abeyance while the rights of the parties are examined in accordance with the Bankruptcy Code.
Termination of Debtor’s Interest
Wu argues that he terminated Debtor’s interest prepetition. Notwithstanding the recognition in Illinois that an equitable interest may, in an appropriate case, pass to the buyer upon entry into the installment contract, such interest may be terminated. Courts have consistently held that a buyer’s interest in an installment contract may be terminated in accordance with express forfeiture provisions included therein. See In re Layton, 138 B.R. 219, 222 (Bankr.N.D.Ill. *2921992); In re Jones, 99 B.R. 877 (Bankr. N.D.Ill.1989); Bocchetta v. McCourt, 115 Ill.App.3d 297, 299-300, 71 Ill.Dec. 219, 221, 450 N.E.2d 907, 909 (1983); Brown v. Jurczak, 397 Ill. 532, 540, 74 N.E.2d 821, 825 (1947); see also Illinois Fair Plan Ass’n v. Astirs, Inc., 89 Ill.App.3d 422, 425, 44 Ill.Dec. 684, 687, 411 N.E.2d 1050, 1053 (1980) (equitable conversion unavailing to purchaser after contract forfeited); Hartman v. Hartman, 11 Ill.App.3d 524, 528, 297 N.E.2d 199, 202 (1973) (same). However, Illinois does not allow forfeiture of an installment contract in the absence of an express contractual provision. Hettermann v. Weingart, 120 Ill. App.3d 683, 688-89, 76 Ill.Dec. 216, 220, 458 N.E.2d 616, 620 (1983); Lovins v. Kelley, 19 Ill.2d 25, 28, 166 N.E.2d 69, 71 (1960); see also Dahm, Inc. v. Jamagin, 133 Ill.App.3d 14, 15, 88 Ill.Dec. 326, 328, 478 N.E.2d 641, 643 (1985) (“Although forfeitures are not favored, courts will enforce forfeiture provisions where the right is clearly shown and injustice will not result”); Bocchetta, 115 Ill.App.3d at 299-300, 71 Ill.Dec. at 221, 450 N.E.2d at 909 (in the event of buyer’s default, seller must strictly follow the remedies set forth in the contract).13 Because the Agreement does not contain a forfeiture provision, Wu’s Declaration of Forfeiture was ineffective in terminating Debtor’s interest prepetition. Having established that both Wu and Debtor have interests in the Motel, upon the filing of the bankruptcy petition their respective rights are somewhat altered under the Bankruptcy Code.
Turnover
Before the Court may grant an order for turnover under § 542(a) of the Bankruptcy Code,14 Debtor must show (1) an interest in the property it seeks, and (2) upon request from an entity with an interest in such property, adequate protection of such entity’s interest during the pendency of the bankruptcy proceedings.15 See Hill, 156 B.R. at 1006. Debtor acquired an interest in the Motel that was not terminated pre-petition. Wu’s interest is also manifest. He is the record owner, retaining a secured interest until payment in full under the Agreement. Therefore, Debtor is entitled to turnover of the Motel, subject to a demonstration that Wu’s interest is adequately protected.
Neither party has addressed the issue of adequate protection, upon which the Court’s decision must rest. Wu has not demanded it, relying on his argument that Debtor’s interest was terminated prepetition. Debtor has not offered it. Wu carries the initial burden to demand that his interest be adequately protected. See Whiting Pools, 462 U.S. at 204, 103 S.Ct. at 2313 (“At the secured creditor’s insistence, the bankruptcy court must place such limits or conditions on the trustee’s power to sell, use, or lease property as are necessary to protect the *293creditor.”); In re World Communications, Inc., 72 B.R. 498, 502 (D.Utah 1987) (timely request by secured party required for entitlement to adequate protection); In re Alpa Corp., 11 B.R. 281, 289 (Bankr.D.Utah 1981) (burden on entity having interest in property to request demonstration of adequate protection); cf. In re Aegean Fare, Inc., 33 B.R. 745, 748-49 (Bankr.D.Mass.1983) (where perishable nature of debtor’s food inventory necessitated immediate action on its turnover complaint, bankruptcy court raised the question of adequate protection sua sponte, treating the secured creditor’s objection to turnover as a request for adequate protection). Wu has not made a specific demand for assurance of adequate protection. His actions, however, go much further. He has retaken possession of the Motel and seeks to terminate all Debtor’s interests therein. Such action may be considered as an election to rescind the Agreement and a demand for adequate protection.
CONCLUSION
The Court therefore finds that (a) Debtor Motel Investment Group, Inc. has breached its agreement with Wu, (b) Wu has no right to forfeit the Agreement, and (c) Wu is entitled to his common law remedies for breach of the Agreement. Debtor shall serve its offer of adequate protection on Wu by March 28, 1994, and a hearing on the sufficiency of adequate protection shall be held on April 20, 1994, at 2:00 p.m. together with the hearing on the Amended Disclosure Statement and Plan of Reorganization.
. Some cases have held that in Section 542 hearings the burden of proof should be by "clear and convincing evidence.” See In re Hill, 156 B.R. 998, 1006 (Bankr.N.D.Ill. 1993); In re Robertson, 115 B.R. 613, 620 (Bankr.N.D.Ill.1990); In re Bloom, 91 B.R. 445 (Bankr.N.D.Ohio 1988); In re De Berry, 59 B.R. 891, 896 (Bankr.E.D.N.Y. 1986) (citing Oriel v. Russell, 278 U.S. 358, 49 S.Ct. 173, 73 L.Ed. 419 (1929)). In this case it *286matters not, since the result is the same under either standard.
.At trial, Debtor attempted unsuccessfully to establish a written memorandum through the use of purported corporate minutes. No other documents were introduced to evidence a written agreement. The Illinois Statute of Frauds has been waived, however, since both parties acknowledge the existence and subject matter of the Agreement. See R.J.N. Corp. v. Connelly Food Products, Inc., 175 Ill.App.3d 655, 663, 125 Ill.Dec. 108, 113, 529 N.E.2d 1184, 1189 (1988) (it is well established that the Statute of Frauds may be waived by an acknowledgement of the agreement and the subject matter thereof); McCollum v. Bennett, 98 Ill.App.3d 80, 82, 53 IlI.Dec. 677, 679, 424 N.E.2d 90, 92 (1981) (same). In addition, where an agreement is manifest from the performance of the parties, the Statute of Frauds will not bar its enforcement. Monetti, S.P.A. v. Anchor Hocking Corp., 931 F.2d 1178, 1183 (7th Cir.1991); Payne v. Mill Race Inn, 152 Ill.App.3d 269, 277-78, 105 IlI.Dec. 324, 330-31, 504 N.E.2d 193, 199-200 (1987). Here, the parties' actions throughout the subject time period indicates an understanding on both sides that an agreement was in place.
. There was contradictory testimony on behalf of Debtor regarding the characterization of the initial investments. The Court finds that the entire amounts were invested in exchange for shares of the corporation and that no portions thereof constituted loans.
. Although it is unclear when, at some point during the events related herein Wu replaced Lin as treasurer.
. Debtor alleged that the payment to NBD was unauthorized, and claimed that it ceased meeting its obligations under the Agreement in 1992 when it purportedly first discovered that the payment had been made. Debtor has introduced no evidence to substantiate either that the payment was unauthorized or that Debtor failed to discover the payment until mid-1992. Wu’s testimony that the payment was intended as part of Debt- or’s $300,000 downpayment to him comports with the evidence in its entirety.
. See In re Layton, 138 B.R. 219, 222 (Bankr.N.D.Ill.1992); Hettermann v. Weingart, 120 Ill. App.3d 683, 688-89, 76 Ill.Dec. 216, 220, 458 N.E.2d 616, 620 (1983); Bocchetta v. McCourt, 115 Ill.App.3d 297, 300, 71 Ill.Dec. 219, 221, 450 N.E.2d 907, 909 (1983); Tobin v. Alexander, 63 Ill.App.3d 397, 400, 20 Ill.Dec. 368, 370-71, 380 N.E.2d 45, 47-48 (1978); Kelly v. Germania Sav. & Loan Ass'n, 28 Ill.2d 591, 594, 192 N.E.2d 813, 816 (1963). Kingsley v. Roeder, 2 Ill.2d 131, 137, 117 N.E.2d 82, 85 (1954).
. Aden v. Alwardt, 76 Ill.App.3d 54, 59, 31 Ill.Dec. 514, 517, 394 N.E.2d 716, 719 (1979); Rose v. Dolejs, 1 Ill.2d 280, 289-290, 116 N.E.2d 402, 409 (1953).
.As in the case of Wu's payment of the NBD mortgage, Debtor alleges without substantiation that Wu's repayments of the three $50,000 short-term construction loans from the proceeds of the two $300,000 secured loans were unauthorized, and that its discovery in mid-1992 of these payments prompted it to cease meeting its obligations under the Agreement. Again, Debtor’s allegations conflict with the evidence in its entirety, while Wu's testimony that the payments were authorized is consistent with the larger picture.
. 735 ILCS 5/9-102 provides in pertinent part: (a) The person entitled to the possession of lands or tenements may be restored thereto under any of the following circumstances:
(5) When a vendee having obtained possession under a written or verbal agreement to purchase lands or tenements, and having failed to comply with the agreement, withholds possession thereof, after demand in writing by the person entitled to such possession; provided, however, that any such agreement entered into on or after July 1, 1987 where the purchase price is to be paid in installments over a period in excess of 5 years and the amount unpaid under the terms of the contract at the time of the filing of a foreclosure complaint under Article XV, including principal and due and unpaid interest, is less than 80% of the original purchase price shall be foreclosed under the Illinois Mortgage Foreclosure Law.
. 735 ILCS 5/15-1106 provides in pertinent part: (a) ... [T]he following shall be foreclosed in a foreclosure pursuant to this Article:
(2) any real estate installment contract for residential real estate ... under which (i) the purchase price is to be paid in installments over a period in excess of five years and (ii) the amount unpaid under the terms of the contract at the time of the filing of the foreclosure complaint, including principal and due and unpaid interest, at the rate prior to default, is less than 80% of the original purchase price of the real estate as stated in the contract, (emphasis added)
(c) ... A contract seller may at its election enforce in a foreclosure under this Article any real estate installment contract entered into on or after the effective date of this Amendatory Act of 1986 and not required to be foreclosed under this Article, (emphasis added)
. For the purposes of this opinion, the Court need not consider the extent of the Shay v. Pen-rose holding or whether Streets & Beard is limited to its direct holding.
. Under common law, Wu may elect to rescind or, in the alternative, enforce the contract and seek damages. Hepperly v. Bosch, 172 Ill.App.3d 1017, 1022, 123 Ill.Dec. 70, 73, 527 N.E.2d 533, 536 (1988); Herrington v. McCoy, 105 Ill.App.3d 527, 61 Ill.Dec. 130, 434 N.E.2d 67 (1982).
.This principle is distinguishable from case law that holds that a contract buyer may forfeit its downpayment or earnest money when the seller is ready and able to conclude the agreement. The latter principle arises from the recognition that a buyer who pays a deposit or earnest money receives value in the nature of an option. See Linster v. Regan, 108 Ill.App.2d 459, 248 N.E.2d 751 (1969) (buyer forfeited deposit on purchase of restaurant even if forfeiture clause found to be invalid); Glenn v. Price, 337 Ill.App. 637, 86 N.E.2d 542 (1949) (defaulting purchaser forfeits its downpayment when the vendor is ready and able to comply with the terms of the contract); First Nat’l Bank of Barrington v. Oldenburg, 101 Ill.App.3d 283, 56 Ill.Dec. 766, 427 N.E.2d 1312 (1981) (where buyers defaulted on land contract, vendors allowed to retain earnest money without showing of actual damages suffered on account of buyers' default); Pruett v. La Salceda, Inc., 45 Ill.App.3d 243, 3 Ill.Dec. 917, 359 N.E.2d 776 (1977) (vendor of realty entitled to retain earnest money upon buyers' anticipatoiy repudiation of contract despite absence of contractual provision authorizing such retention).
. 11 U.S.C. § 542(a) (1993) provides in pertinent part: [A]n entity, other than a custodian, in possession, custody, or control, during the case, of property that the trustee may use, sell, or lease under section 363 of this title, or that the debtor may exempt under section 522 of this title, shall deliver to the trustee, and account for, such property or the value of such property, unless such property is of inconsequential value or benefit to the estate.
. 11 U.S.C. § 363(e) (1993) provides: Notwithstanding any other provision of this section, at any time, on request of an entity that has an interest in property used, sold, or leased, or proposed to be used, sold, or leased, by the trustee, the court, with or without a hearing, shall prohibit or condition such use, sale, or lease as is necessary to provide adequate protection of such interest. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491784/ | ORDER GRANTING MOTION TO DISMISS
MARY D. SCOTT, Bankruptcy Judge.
THIS CAUSE is before the Court upon the counterclaim defendants’ motion to dis*315miss, filed on December 27, 1993. This adversary proceeding was filed on November 4, 1993, upon the filing of Debtors’ “Motion for Turnover” against Bob Whorton and the Yell County Sheriff. Both defendants have answered the complaint.
On December 13, 1993, the debtors filed a document entitled “Counterclaim for Contempt” against Bob Whorton and Deloria Whorton. Since no other adversary proceeding was pending, and debtors failed to place an adversary proceeding number on the pleading, the counterclaim was filed in this adversary proceeding. The debtors, plaintiffs in the action, seek by “counterclaim” to assert an action for contempt against both Deloria and Bob Whorton.1
The Court is unaware of any procedure by which a plaintiff counterclaims against defendants. If debtors wish to sue for contempt, they should do so in the context of their previous Chapter 7 ease, not in this Chapter 11 proceeding. Moreover, filing a “counterclaim” in the pending adversary proceeding in which they are already plaintiffs is without basis in law or procedure.
Even were the “counterclaim” properly before the Court, it fails to state a cause of action. The “counterclaim” seeks to have the defendants held in contempt for violating the discharge injunction under 11 U.S.C. § 524. The debtors assert that since they received a discharge in their prior Chapter 7 proceeding, any action by Bob Whorton, through the Sheriff, violates the discharge injunction. The discharge injunction under section 524 prohibits creditors from pursuing discharged debtors to collect a discharged debt. However, in this instance, the debt owed to the Whortons was not discharged in the prior Chapter 7 case. In re Benham, 157 B.R. 655 (Bankr.E.D.Ark. 1993). Accordingly, the discharge injunction does not prohibit acts to collect that debt. See United States v. Ellsworth, 158 B.R. 856, 858 (M.D.Fla.1993) (“Since the debt in this case is nondisehargeable, no further action is necessary by the creditor, and the creditor is not prohibited by the permanent injunction, created in section 524(a)(2), from collecting debts owed it.”). Based upon the foregoing, it is
ORDERED that the Motion to Dismiss, filed on December 27, 1993, is GRANTED.
IT IS SO ORDERED.
. Deloria Whorton is not a party to this action as she was not named in the original complaint. Moreover, it does not appear that a summons was ever properly served upon her. See Fed. R.Bankr.Proc. 7004 (requiring service be effected upon a debtor by serving both debtor and debt- or's attorney). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491785/ | OPINION
JONES, Bankruptcy Judge:
BACKGROUND
On February 19, 1993 Appellant Seymour Licht (“Licht”) filed a Motion to Terminate the Equity Holders Committee (“Motion to Terminate”) in the America West bankruptcy case. On February 27, 1993, the Official Committee of Equity'Security Holders (“Equity Committee” or “Committee”) filed a motion to strike Licht’s Motion to Terminate. The Committee also requested that Licht be sanctioned and that he be precluded from appearing pro se before the bankruptcy court pursuant to the court’s equity powers under 11 U.S.C. § 105.
The court held a hearing on March 1,1993, , and entered an order on March 3 denying Licht’s Motion to Terminate and ordering Licht to refrain from appearing or filing pleadings in the bankruptcy case pro se unless (1) he first obtained leave of court or (2) he employed legal counsel.
On March 3, 1993, Licht filed a motion to vacate the court’s order, which motion was denied due to Licht’s failure to follow the court’s instructions to obtain prior approval. Licht also filed a motion for stay pending appeal both before the bankruptcy court and the Bankruptcy Appellate Panel. Both motions were denied.
Licht now appeals the denial of his right to appear pro se in the instant case pursuant to 28 U.S.C. § 1654. We affirm.
STANDARD OF REVIEW
We review the bankruptcy court’s findings of fact for clear error. We review the bankruptcy court’s conclusions of law de novo. In re Siriani, 967 F.2d 302 (9th Cir. 1992).
*317DISCUSSION
1. Findings of Fact
The bankruptcy court made the following findings of fact in its March 3, 1993 order:
After due consideration of the motion, the applicable law, the record herein, and under the present posture of the case, the Court finds and concludes that Movant is a senior partner of “See More Light Investments”. Consequently, this Court finds and concludes that Dr. Licht is attempting to represent some type of business association. The Court is unable to discern the type of business association Dr. Licht represents because he merely states in his Motion that he is a senior partner in “See More Licht Investments”.
The bankruptcy court found that Licht was attempting to represent See More Light Investments. Licht argues that he was representing only himself. As proof, Licht has appended to his opening brief an exhibit showing an America West Airlines debenture worth $10,000.00 registered in his name personally. The Equity Committee points out that the document is dated March 9, 1993, eight days after the hearing in which the court announced its ruling. Although it is unclear what legal consequences follow from changing the name on the debenture from See More Light Investments to Seymour Licht individually, the timing of the name change in the context of the bankruptcy court’s March 3 order shows a blatant attempt by Licht to circumvent the bankruptcy court.
The gist of Licht’s argument on appeal is that the bankruptcy court did not have enough information before it to make the finding that Licht was representing See More Light Investment and not himself personally. Licht does not argue or show on appeal (other than the exhibit aforementioned) that his pro se appearances were for the sake of self representation. The contrary inference can be drawn from all of the documents filed by Licht before the March 3, 1993 bankruptcy court order. In each of those documents Licht represented himself using the following language:
Now comes Dr. Seymour Licht P.E. (“Licht”) Senior partner of See More Light Investments a holder of a significant amount of the Debtor’s publicly held subordinated debentures ...
E.g., Objection to America West’s Motion to Purchase Officers’ and Directors’ Liability Insurance at 1 (Sept. 3, 1992).
Whether Licht has personally owned debentures in America West Airlines and the timing of such ownership would be an easy fact to prove simply by producing copies of the debentures themselves to the bankruptcy court. Other than the debenture dated March 9, 1993, Licht has failed to come forward with any such documentation in the record. Consequently, Licht has failed to show that the bankruptcy court clearly erred in finding that Licht, in appearing pro se, was attempting to represent some type of business entity.
2. Conclusions of Law
The bankruptcy court found as a matter of law that corporations and other unincorporated associations must appear through an attorney. C.E. Pope Equity Trust v. United States, 818 F.2d 696, 697 (9th Cir.1987); Church of the New Testament v. United States, 783 F.2d 771, 773-74 (9th Cir.1986). The court also found that partnerships must appear through an attorney. Eagle Assocs. v. Bank of Montreal, 926 F.2d 1305 (2d Cir.1991).
Licht fails to articulate his only colorable argument: that See More Licht Investments is a partnership and that partnerships in the Ninth Circuit are different from other legal entities. The Ninth Circuit in Pope held: “Although a non-attorney may appear in pro-pria persona in his own behalf, that privilege is personal to him. He has no authority to appear as an attorney for others than himself.” Pope, 818 F.2d at 697 (citations omitted).
The United States Supreme Court has held:
Thus, save in a few aberrant cases,2 the lower courts have uniformly held that 28 *318U.S.C. § 1654, providing that “parties may plead and conduct their own eases personally or by counsel,” does not allow corporations, partnerships, or associations to appear in federal court otherwise than through a licensed attorney.
Rowland v. California Men's Colony, — U.S. --•, -, 113 S.Ct. 716, 721, 121 L.Ed.2d 656 (1993) (citations and footnotes omitted, emphasis and footnote added). Roivland cites as authoritative Eagle Associates which emphasized that the movant had failed to show that he was authorized to appear on behalf of other partners with whom his interests might be incongruous. Such is also the instant case.
CONCLUSION
Licht has failed to show that the bankruptcy court clearly erred in its findings of fact or erred in its conclusions of law. Consequently, the bankruptcy court’s order is hereby affirmed.
. Citing among other cases, United States v. Reeves, 431 F.2d 1187 (9th Cir.1970). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491786/ | ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
ALEXANDER L. PASKAY, Chief Judge.
THIS is a Chapter 7 liquidation case and the matter under consideration is a Motion for Summary Judgment directed to Count III of a Complaint filed by W.H. Ford, as Trustee for himself and for his three children (Plaintiff) in the-above captioned adversary proceeding. In his four-count Complaint the Plaintiff originally sought a determination that the debt due and owing by Jenny Lee Ford (Debtor) to the Plaintiff is nondis-chargeable pursuant to § 523(a)(3), (a)(4) and (a)(6). The Plaintiffs Complaint also sought, in Count IV, a determination that the Debtor is not entitled to the protection of the general discharge by virtue of § 727(a)(4)(A).
On October 21, 1993, this Court entered an Order dismissing the claims in Count II. On October 26, 1993, this Court granted the Debtor’s Motion for Summary Judgment on the claims set forth in Counts I and IV, which according to the Plaintiff would justify resolution of the remaining claim, set forth in Count III of the Complaint, in favor of the *365Debtor as a matter of law. The facts pertinent to resolution of the claim in Count III are indeed undisputed and are as follows:
At the time relevant, the Debtor’s husband, J. Robert Ford, was a principal in Ford Brothers, Inc., a corporation operating a business in the State of Michigan. On November 21, 1980, Ford Brothers, Inc., (Ford Brothers) executed a promissory note in favor of the Plaintiff, in the amount of $545,000.00, as a settlement of a litigation that was then pending in the United States District Court for the Southern District of Ohio, Western Division. As a part of this settlement, the Debtor on behalf of Ford Brothers executed a Security and Escrow Agreement in which Ford Brothers pledged 249.5 shares of stock as collateral to secure the obligation under the Promissory Note executed by Ford Brothers. J. Robert Ford, the Debtor’s husband, also personally guaranteed the Promissory Note.
Subsequently, Ford Brothers defaulted on the Promissory Note and on January 5,1989, the Plaintiff filed suit in the Court of Common Pleas, Lawrence County, Ohio against J. Robert Ford and Ford Brothers, Inc. On September 21, 1989, the Court of Common Pleas entered judgment in favor of the Plaintiff and against J. Robert Ford and Ford Brothers, Inc., jointly and severally, in the amount of $73,745.31. The Judgment authorized the Plaintiff to exercise his rights under the Security and Escrow Agreement as to the Ford Brothers stock.
On July 28, 1989, during the pendency of the litigation and before the entry of the judgment, J. Robert Ford the Debtor’s husband, transferred his interest in certain real property located in Wayne County, West Virginia to his wife, the Debtor. In addition, on June 17, 1991, J. Robert Ford and the Debt- or executed a Deed of Trust on the West Virginia property to David Reed and Henry Keyes, Trustees for One Valley Bank of Huntington, Inc, (Huntington Bank) to secure payment of a $200,000.00 loan.
In 1991, the Plaintiff filed suit in West Virginia against J. Robert Ford, the Debtor, and the Huntington Bank in the Circuit Court of Wayne County, West Virginia. The Plaintiffs three-count Complaint sought avoidance of the transfer of the West Virginia property as a fraudulent conveyance, an injunction against further transfers of this property, a judicial sale of the West Virginia property, to levy execution upon the shares of Ford Brothers, Inc. stock, subordination of the Huntington Bank lien to the lien of W.H. Ford on the West Virginia property, for money judgment in the amount of $73,745.31 and for punitive damages in the amount of $500,000.00. The matter was tried without jury. On November 19, 1992, the Circuit Court entered judgment against the Debtor in the amount of $213,461.82. (Exh. J). However, the final judgment does not specify upon which counts of the Complaint the judgment is entered. In addition, the judgment does not make any specific findings of willful, malicious or fraudulent conduct by the Debt- or.
On February 18,1993, the Debtor filed her Petition for Relief under Chapter 7 of the Bankruptcy Code. On June 7, 1993, the Plaintiff filed the Complaint before this Court, seeking a determination that the debt is nondischargeable pursuant to § 523(a)(6).
Based upon the foregoing, the Plaintiff contends that the final judgment in the West Virginia litigation establishes all of the operating elements of a claim of nondis-chargeability under § 523(a)(6) of the Bankruptcy Code, and therefore, under the principle of collateral estoppel, the Debtor is precluded from relitigating these issues before this Court. In opposition, the Debtor contends that the Final Judgment is not clear as to which of the three counts judgment was entered.
The doctrine of collateral estoppel, or issue preclusion prohibits relitigation of an issue which was already litigated and determined by a Court of competent jurisdiction. The Eleventh Circuit has recognized the principle of issue preclusion and has held that the Bankruptcy Court is precluded from relitigation issues only if:
(1) The parties to the prior litigation were identical;
(2) The issues at stake in the bankruptcy proceeding were identical to those involved in the prior litigation;
*366(3) The issues at stake in the bankruptcy proceeding were actually litigated in the prior litigation;
(4) Determination of the issues in the prior proceeding were a critical and necessary part of the judgment; and
(5) The standard of proof in the prior action must have been at least as strong as the standard of proof in the adversary proceeding.
In re St. Laurent, 991 F.2d 672 (11th Cir. 1993); In re Halpern, 810 F.2d 1061 (11th Cir.1987). The Debtor concedes that the parties to the West Virginia litigation were identical and the standard of proof was at least as strong as the standard of proof required for a determination of discharge-ability pursuant to § 523(a)(6).
Considering that the Complaint filed originally in the Circuit Court in West Virginia bears only a slight resemblance to the operating elements of a viable claim of nondis-chargeability, it is clear that with the possible exception of the claim set forth in Count III, none of the other claims have anything to do with a claim of nondischargeability of the Debtor’s liability under § 523(a)(6). Inasmuch as the final judgment is not specific as to which count judgment is entered, this Court is satisfied that to apply the doctrine of collateral estoppel would not be appropriate. Therefore, the Plaintiff is not entitled to judgment in its favor as a matter of law.
Therefore, it is
ORDERED,. ADJUDGED AND DECREED that the Motion for Summary Judgment is denied. It is further
ORDERED, ADJUDGED AND DECREED that a pre-trial shall be scheduled on April 7,1994 at 2:00 p.m. at Barnett Plaza, 2000 Main Street, Suite 302, Ft. Myers, Florida to consider all counts of the Complaint.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491787/ | MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court upon Debtors’ Objection to Claim of the IRS; Memorandum for United States in Opposition to Objection to Claim of Internal Revenue Service; Debtor’s Reply Brief; and Supplement to Debtors’ Brief. The Court has reviewed the written arguments of Counsel, supporting affidavits, all correspondences and exhibits, as well as the entire record in the case. Based upon that review, and for the following reasons, the Court finds that Debtors’ Objection should be Sustained in Part and Overruled in Part.
FACTS
The Internal Revenue Service (hereafter “IRS”) assessed taxes and filed notices of existing tax liens on Karen Babich’s Employee Stock Ownership Plan and Debtors’ principal residence. These tax liens were assessed and notices filed according to the following chart:
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On May 22, 1992, Debtors filed for relief under Chapter 7 of the Bankruptcy Code listing the IRS as a Creditor. Some of these claims were listed as general unsecured claims on the original Proof of Claim. Pursuant to the Amended Proof of Claim several of the claims were recharacterized as secured claims by virtue of the prior existence of the tax liens. Debtor filed an Objection and Brief in Opposition to the IRS’ claims.
At the conclusion of the Chapter 7 proceeding, the IRS attempted to levy upon Debtors’ real property and advertised the sale of the real property. To prevent the sale, Debtors filed a Petition pursuant to Chapter 13 of the Bankruptcy Code. Debtors’ claimed statutory exemptions for their principal residence and the stock plan pursuant to 11 U.S.C. § 522 and Ohio Revised Code § 2329.66. The IRS did not object to Debtors’ claimed exemptions. Debtors’ Plan of Reorganization proposed that the Debtors pay the IRS Ten Thousand Four Hundred and 00/100 Dollars ($10,400.00) plus 9% interest over a period of sixty (60) months. Upon conclusion of all payments, Debtors’ Plan considered the liens extinguished and the tax liability satisfied. Again, the IRS failed to file a written objection to Debtors’ Plan.
LAW
26 U.S.C. § 6322 (1954) reads as follows:
Unless another date is specifically fixed by the law, the lien imposed by section 6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed (or a judgment against the taxpayer arising out of such liability) is satisfied or becomes unenforceable by reason of lapse of time.
26 U.S.C. § 6502 (1990) provides, in pertinent part:
Where the assessment of any tax imposed by this title has been made within the period of limitation properly applicable *583thereto, such tax may be collected by levy or by a proceeding in court, but only if the levy is made or the proceeding begun-— (1) within 10 years after the assessment of the tax.1
26 U.S.C. § 6334 (1954) provides, in pertinent part:
(a) Enumeration. There shall be exempt from levy—
(6) Certain annuity and pension payments. — Annuity or pension payments under the Railroad Retirement act, benefits under the Railroad Unemployment Insurance Act, special pension payments received by a person whose name has been entered on the Army, Navy, Air Force, and Coast Guard Medal of Honor roll (38 U.S.C. 562), and annuities based on retired or retainer pay under chapter 73 of title 10 of the United States Code.
(13) Principal residence exempt in absence of certain approval or jeopardy
Except to the extent provided in subsection (e), the principal residence of the taxpayer (within the meaning of section 1034).
(c) No other property exempt. — Notwithstanding any other law of the United States (including Section 207 of the Social Security Act), no property or rights to property shall be exempt from levy other than the property specifically made exempt by subsection (a).
(e) Levy allowed on principal residence in case of jeopardy or certain approval Property described in subsection (a)(13) shall not be exempt from levy if—
(1) a district director or assistant district director of the Internal Revenue Service personally approves (in writing) the levy of such property, or
(2) the Secretary finds that the collection of tax is in jeopardy.
11 U.S.C. § 522(e) of the Bankruptcy Code provides:
(c) Unless the case is dismissed, property exempted under this section is not liable during or after the case for any debt or the debtor that arose, or that is determined under section 502 of this title as if such debt has arisen, before the commencement of the case except—
(2) a debt secured by a lien that is—
(B) a tax lien, notice of which is properly filed.
DISCUSSION
Debtors’ argument is twofold. First, the IRS failed to object to Debtors’ claim for exemptions under 11 U.S.C. § 522. As a result, the IRS is precluded from contesting its validity. Second, the IRS failed to object to Debtors’ Plan of Reorganization within the statutorily prescribed time and therefore the IRS is bound by the terms of the Plan. In the alternative, the Debtors assert that the taxes have become legally uncollectible due to expiration of the applicable statute of limitations. The IRS claims that even though the tax liabilities were discharged in the Chapter 7 case, the liens remain in effect on Debtors’ real and personal property. The IRS also claims that under 11 U.S.C. § 522(c)(2)(B), Debtors’ exempt property remains subject to the tax liens; and therefore Debtors’ pension and real estate are still subject to levy.
As a result of the arguments made by Debtors and the IRS, this Court must determine first, which statute of limitations applies to each tax due; second, when the statute begins to run; third, what events, if any, tolled the statute’s running; and fourth, whether appropriate action has been taken by the IRS which affects Debtors’ exemption or the placement of tax liens on Debtors’ principle residence and Karen Babich’s Employee Stock Ownership Plan.
I. CORE PROCEEDING.
The issues before this Court include Debtors’ objection to the claim of the IRS and Debtors’ entitlement to certain statutory exemptions. Pursuant to 28 U.S.C. § 157(b)(2)(B), core proceedings include the *584determination of the allowance or disallowance of claims against the estate or exemptions from property of the estate. This case is a core proceeding.
II. STATUTE OF LIMITATIONS.
In November, 1990, the time period within which the IRS has to begin collection of taxes due after assessment, was extended from six (6) years to ten (10) years. 26 U.S.C. § 6502 (1991 Update). The effective date provision of the federal tax collection statute of limitations has been construed to mean that if a tax would be discharged as computed by the six (6) year period as of the November, 1990 effective date of extended statute of limitations, the tax was subject to the six (6) year limitations period. In re Dakota Industries, Inc., 131 B.R. 437 (Bkrtcy.D.S.D.1991). In the event that the tax would not be discharged as computed by the six (6) year period, the tax is subject to the ten (10) year limitations period. Id. at 441. The tax does not have to be actually collected within the statutory period, rather, a “levy must be made or a proceeding in court commenced” within the six (6) or ten (10) year period. 26 U.S.C. § 6502.
A. Applicable Statute of Limitations.
Since Debtors’ tax liability arose prior to the enactment of the November, 1990 Amendment, the Court must first determine if the six (6) year or ten (10) year statute of limitations is applicable. The applicable statute of limitations is determined by assessing whether the six (6) year statute would have run by the date of the November, 1990 Amendment. Id. at 441. The date upon which the tax lien arises is the date of assessment of the tax. United States v. Pioneer American Insurance Company, 374 U.S. 84, 83 S.Ct. 1651, 10 L.Ed.2d 770 (1963); United States v. General Motors Corp., 929 F.2d 249 (6th Cir.1991); reh’g denied (6th Cir. August 15, 1991); Cipriano v. Tocco, 757 F.Supp. 1484 (E.D.Mich.1991), recons, denied, 772 F.Supp. 344 (E.D.Mich.1991).
In the case at bar, the dates of assessment in the IRS’ Proof of Claim are deemed correct. The 1977, 1978, 1979, and 1980, taxes were all assessed in September, 1981. The statute of limitations under the six (6) year statute expired in September, 1987, three (3) years prior to the November, 1990 Amendment. Thus, the six (6) year statute of limitations applies to all four (4) years’ assessments. However, the 1984 assessed taxes which were assessed on June 10, 1985, would have an effective statute of limitations which expires on or about June 10,1991. Since the statute of limitations expires after the enactment of the November, 1990 Amendment, the ten (10) year statute of limitations applies to the 1985 tax.
B. When the Statute Begins to Run.
Next, the Court must ascertain when the applicable statute of limitations commences. Pursuant to 26 U.S.C. § 6502(a), the applicable statute of limitations begins to run on the date that tax is assessed. According to the Proof of Claim, the assessment date for the 1977 tax period is September 21, 1981; the 1978, 1979 and 1980 tax periods are September 7, 1981; and the 1984 tax is June 10, 1985. Absent some basis for tolling the statute, the IRS is precluded from collecting these assessments if collection efforts were not initiated prior to September 21, 1987 and June 10, 1995.
There exists four (4) sets of circumstances which will affect the tolling of the statute of limitations. The first of these includes what appropriate action, if any, was taken by the IRS within the statutorily applicable time. The second is the affect that the filing of bankruptcy within the statutorily applicable time had upon the tolling of the statute. The third is whether Debtors engaged in fraudulent activities which would toll the statute. The fourth is whether the Debtors and the IRS agreed to extend the collection period.
Typically, upon the filing of bankruptcy, the statute of limitations is tolled during the duration of the case and for a period of sixty (60) days thereafter. See 26 U.S.C. § 6213(f)(1). ,In this case there were no bankruptcy proceedings initiated prior to the expiration of the six (6) year period and therefore the statute cannot be tolled by this exception. Moreover, there is no evidence of fraud on the part of the Debtors nor is there *585proof of an agreement extending the collection period. Accordingly, the statute will not be tolled by any of these exceptions. The only remaining circumstances under which the IRS may avoid preclusion under the statute of limitations is the action commenced by the IRS to collect Debtors’ outstanding taxes prior to 1991.
The 1978,1979 and 1980 tax liabilities were assessed on September 7, 1981, yet no action was taken by the IRS to collect the deficiency until well after the expiration of the six (6) year period. The first cognizable action was the filing of a Notice of Tax Lien (hereafter “Notice”) with the Wood County Recorders Office. This filing was completed on October 8, 1987, approximately thirty (30) days beyond the six (6) year period. Consequently, the IRS is precluded from asserting claims for the 1978, 1979 and 1980 tax years.
On July 12, 1982, the IRS took action by filing Notice with respect to the 1977 tax liability. This tax, which was assessed within the six (6) year period, may be collected by levy or by a proceeding in court only if commenced within the six (6) year period. 26 U.S.C. § 6502. This raises an issue regarding whether the filing of the Notice constitutes a “levy made or court proceeding begun” under 26 U.S.C. § 6502. A Notice to Tax Lien is merely a procedural device which evidences the taxpayer’s liability to the United States. See 26 U.S.C. § 6323(f) et seq. A levy is defined as the actual “seizure,” by any means, of salary or wages or other property for unpaid taxes. 26 U.S.C. § 6331(b). By definition, the Notice does not constitute a levy nor does the Notice require the commencement of a court proceeding prior to issuance. The evidence shows that the IRS’ first attempt to collect Debtors’ delinquent taxes was the effort to sell the real estate in 1991. Since there is no evidence that the IRS took any action to initiate a levy or court proceeding within the statutory six (6) years, the IRS is likewise foreclosed from collecting the 1977 claim.
The 1984 tax liability, however is subject to the ten (10) year statute of limitations. Based upon an assessment date of June 10, 1985, the statute of limitations on the 1984 tax liability expires on or about June 10, 1995. Consequently, the IRS is not barred from the collection of the 1984 tax liability by the statute of limitations.
C. Effect of Lien on Debtors’ Exempt Property
The question raised by the Debtors is whether the IRS may levy upon Debtors’ pension plan or real estate, both of which the Debtors claim as exempt under 11 U.S.C. § 522, for purposes of collecting the 1984 tax liability. The Debtors claim that the IRS’ failure to object to the exemptions within thirty (30) days after the conclusion of the meeting of creditors under Bankruptcy Rule 4003, precludes it from contesting the validity of the claims. Taylor v. Freeland & Krontz, — U.S. --, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992). While the Debtors are correct that even noncolorable claims may become binding upon the Creditor if no objection is raised, the Debtors fail to realize the scope of applicability in the filing of a Notice of Tax Lien. The IRS’ failure to object to the claimed exemptions is of no consequence since even exempt property remains subject to a tax lien until the amount due is satisfied or becomes unenforceable due to lapse of time. See 26 U.S.C. § 6322 and 11 U.S.C. § 522(e)(2)(B). The Bankruptcy Code does not require an objection under these circumstances. In re Driscoll, 57 B.R. 322 (Bankr.W.D.Wis.1986).
In sum, the IRS is barred from collecting Debtors’ 1977,1978,1979 and 1980 tax liabilities for its failure to act within the attendant statute of limitations. Karen Babich’s Employee Stock Ownership Plan, despite the holding of Patterson v. Shumate, — U.S. -, 112 S.Ct. 2242, 119 L.Ed.2d 519 (1992) is still subject to the tax lien for Debtors’ 1984 tax liability. Debtors’ principal residence is likewise subject to the tax lien for Debtors’ 1984 tax liability.
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
*586ORDERED that Debtors’ Objection to the Claim of the IRS for Debtors’ 1977, 1978, 1979 and 1980 tax liabilities be, and hereby is, SUSTAINED; and that Debtors’ Objection to the Claim of the IRS for Debtors’ 1984 tax liability be, and hereby is, OVERRULED.
. This section was amended on November 5, 1990, to read ten (10) years instead of the previously designated six (6) years. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491788/ | DECISION ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
BURTON PERLMAN, Chief Judge.
In this Chapter 7 bankruptcy case, creditors Repro-Art Service, Inc. and the Provident Bank (“movants”) have filed a joint motion on objections to exemptions claimed by the debtor. Pre-trial conference was held regarding the objections and as a consequence cross-motions for summary judgment were filed by the movants and by the debtor. Debtor had filed motions to strike in connection with the objections. These were mooted by the proceedings at the pretrial conference.
This court has jurisdiction of this matter pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this District. This is a core proceeding arising under 28 U.S.C. § 157(b)(2)(A) and (B).
*593Two species of exemption are here in issue. The first is certain retirement funds in 401k and IRA accounts. The other is a claimed exemption of the entire equity in debtor’s residence. We deal with these claims of exemption separately.
1. Retirement funds. In his schedules, debtor claims an exemption of $4,660.00 in a 401k account from Cline-Anderson; $13,-400.00 in a Nationwide IRA account; and $60,300.73 in “rollover IRAs from 401k of previous employer.” In his schedules, therefore, debtor is claiming an exemption for retirement funds totaling $78,360.73.
In resolving the objection to this claim, this court is obliged to apply Ohio Revised Code § 2329.66. The test there set forth is that such funds can be exempted only to “the extent reasonably necessary for the support of the person and any of his dependents.” We apply this test to the facts.
The facts are undisputed. Debtor is 46 years old and is employed as vice president of international sales at Liebel Florsheim at a salary of $80,000.00 per year. Debtor worked for Liebel Florsheim from 1972 until 1987 in various sales and marketing positions. He left Liebel Florsheim in November, 1987, when his position was vice president of sales and marketing at a salary of approximately $75,000.00 per year. He returned to Liebel Florsheim in April, 1992. Debtor is married, and his wife works outside the home. She is employed by Community Mutual at a salary of approximately $45,000.00 per year. Debtor and his wife have two children, ages 24 and 19. The older child is married and is no longer dependent on debtor. The other child is a college student. Sheris dependent upon her parents for approximately $8,000.00 per year in expenses. The family currently has no medical problems. Debtor currently contributes to a 401k plan at his employer, and is currently contributing the maximum amount of $7,700.00 per year. Debtor’s wife also contributes to a 401k plan with her employer.
On these facts, it is clear to us that the funds claimed exempt may not be exempted because they are not “reasonably necessary for the support of the person and any of his dependents.” We reach this conclusion in light of the age of the debtor and his established earning capacity. These factors taken together show conclusively that debtor has adequate time to assemble a retirement fund hereafter. We deal with cases such as the present on a case-by-case basis. In re Kochell, 732 F.2d 564 (7th Cir.1984). The factors upon which we rely are well established in this field. In re Flygstad, 56 B.R. 884 (Bankr.N.D.Iowa 1986).
2. Homestead exemption. In his schedules, debtor states that there is an equity of $85,-500.00 in his residence. Movants object to this exemption. The basis for the claim of exemption is that debtor says that he holds it with his wife as tenants by the entireties. Movants contend that this cannot avail debt- or.
In their objection, movants assert, first, that the requisite formalities to establish a tenancy by .the entireties pursuant to Ohio law are not present, and, second, even if there is a survivorship tenancy, creditors of debtor can levy against his interest.
Debtor and his wife took title to their residence at 11534 Kemperwoods Drive in Cincinnati, Ohio, in 1983. The granting clause in their deed provided:
... does hereby GRANT, BARGAIN, SELL AND CONVEY to the said William L. Cline and Carole A. Cline, for their joint lives remainder to the survivor of them, his or her heirs and assigns forever, the following described REAL ESTATE ...
This language closely paralleled that of the Ohio statute, Ohio Revised Coded § 5302.17, in effect in 1983, which required certain form language to create a tenancy by the parties in Ohio, that statutory language being:
for valuable consideration paid, grant(s), covenants (if any) to husband and wife, for their joint lives, remainder to the survivor of them ...
We hold that the language employed in the deed to debtor and his wife was sufficient to create a tenancy by the entireties. See In re Havens, 68 B.R. 403 (S.D.Ohio 1986).
Some background about tenancies by the entireties should be stated. Entireties estates entered Ohio law in 1972, there having *594been no common law tenancy by the entire-ties recognized in Ohio prior thereto. It was the established law in Ohio with respect to tenancies by the entireties that an estate so held could not be partitioned by a creditor of one of the tenants. Central National Bank of Cleveland v. Fitzwilliam, 12 Ohio St.3d 51, 465 N.E.2d 408 (1984). This was the state of the law in Ohio until 1985.
Then, in 1985, the Ohio legislature enacted §§ 5302.20 and 5302.21 in addition to amending § 5302.17. These enactments substantially changed the law regarding surviv-orship tenancies in Ohio. Thereafter, pursuant to § 5302.20(C)(4), a creditor of one sur-vivorship tenant could reach that tenant’s interest in the real estate. After 1985, a tenancy by the entireties as it was known from 1972 to 1985 could no longer be created in Ohio.
In the case before us we have a tenancy by the entireties created prior to 1985, and a contention by movants that such tenancy is not insulated from the claims of creditors of one of the joint tenants, the reason that it is not insulated being the adoption in 1985 of § 5302.20(C)(4). Debtor, to the contrary, contends that his interest in his residence is not subject to that latter section of the Ohio Revised Code.
The ultimate question, then, is whether the 1985 survivorship enactment has any application to an entireties tenancy which arose under the pre-1985 statute. We hold that it does not. Our basis for so holding is that that is the clear import of Ohio Revised Code § 5302.21(A), which provides as follows:
(A) Sections 5302.17 to 5302.20 of the Revised Code do not affect deeds that were executed and recorded prior to the effective date of this section and that created a tenancy by the entireties in a husband and wife pursuant to section 5302.17 of the Revised Code as it existed prior to the effective date of this section. If spouses covered by such deeds are tenants by the entireties on the day prior to the effective date of this section, such deeds continue to be valid on and after such effective date, and, unless they choose to do so, the spouses do not have to prepare a deed, as described in section 5302.17 of the Revised Code as effective on the effective date of this section, creating in themselves a sur-vivorship tenancy.
To hold otherwise would render meaningless the express desire of the Ohio legislature to preserve a “tenancy by the entireties in a husband and wife pursuant to § 5302.17 of the Revised Code as it existed prior to the effective date of this section.” To say that the chief attribute of a tenancy by the entire-ties, immunity from the creditors of a tenant, was removed by the 1985 legislation would be to read § 5302.21(A) out of the statute.
The joint movants argue that that ought precisely to be the effect of the statutory enactment in 1985 of § 5302.20(C)(4), supporting this contention by reference to Spitz v. Rapport, 78 Ohio App.3rd 330, 604 N.E.2d 801 (Cuyahoga County, 1992). In the Spitz case, Alma Rapport and her son Roger held an interest in a condominium by joint and survivorship deed, the interest having been acquired in 1983. In 1986, Alma attempted to terminate the survivorship rights of the joint tenancy by conveying her interest to a third party and having the third party transfer the interest back to Alma. Such a device would have been effective prior to the time that Ohio Revised Code § 5302.20 was adopted in 1985. But the 1985 enactment of § 5302.20(C)(2) expressly disabled such a device. The administrator of Alma’s estate, contending that his decedent’s interest passed to her estate and not to Roger upon her death, argued that § 5302.20, “which prohibits ... unilateral termination of survivor-ship rights, does not apply to this case because it was enacted after the joint tenancy was created.” Id. at 333, 604 N.E.2d 801. Rejecting the claim of the administrator that § 5302.20 “was not intended to apply to preexisting joint tenancies”, the court said that § 5302.20(C) did apply to the situation, notwithstanding that the estate was created pre-1985, and that the ban against alteration of survivorship interests by one of the joint tenants did apply despite the fact that the estate was created pre-1985. Id. at 333-34, 604 N.E.2d 801.
The Spitz case, however, is entirely distinguishable from that before us. It was not a *595tenancy by the entireties which was at issue in Spitz, but rather a joint tenancy with right of survivorship. As stated by the court in Spitz, the only basis for the tenancy in the transaction there in issue arose by contract. This is to be contrasted with the estate in the case before us. In the present case the estate was created by statute. In Spitz, the court found that there was nothing in the contract which was inconsistent with § 5302(C)(2). By contrast, § 5302(C)(4) is totally inconsistent with case law as it stood prior to the 1985 enactment. See National Bank of Cleveland v. Fitzwilliam, 12 Ohio St.3d 51, 465 N.E.2d 408 (1984).
In light of the foregoing discussion, we hold that the objection of joint movants to the claim of exemption in retirement funds is well taken and will be sustained. The objection of joint movants to the claim of exemption by debtor in his residence held with his wife as tenants by the entireties is without merit and will be overruled. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491791/ | ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 case and the matters under consideration are cross-motions for summary judgment filed by Michael A. Cromer (Debtor) -and the Debtor’s former wife, Patricia Cromer (Plaintiff). The Motions were filed in connection with the Plaintiffs Complaint in which the Plaintiff seeks to except from the Debtor’s general discharge the debt allegedly owed to the Plaintiff, based on §§ 523(a)(2), 523(a)(5), and 523(a)(6) of the Bankruptcy Code. The facts relevant to the resolution of this controversy as they are established in the record are as follows:
Prior to the commencement of this case, the Debtor and the Plaintiff had been married. In 1990, the parties began dissolution of marriage proceedings in the Circuit Court for Pinellas County, Florida. On June 11, 1990, the Circuit Court entered a Final Judgment of Dissolution of Marriage. As part of the Final Judgment, the Circuit Court incorporated the Marital Settlement Agreement (Agreement) entered into by the Debtor and his then-spouse.
The Agreement provided, inter alia, in Paragraph 3, that “[t]he Husband shall not at any time hereafter contract, nor incur any liabilities on behalf of the Wife, nor take any action which might obligate or charge her credit in any manner except as set forth herein or as mutually agreed by the parties.” In addition, Paragraph 18 of the Agreement provided that the “Husband and Wife waive and forever discharge any claim for alimony from the other, whether lump sum, rehabilitative, periodic, temporary or permanent in nature.”
It is without dispute that, notwithstanding this provision, subsequent to the entry of the Final Judgment and prior to the commencement of this case, the Debtor incurred numerous charges due to the use of credit cards issued to both the Debtor and his then-spouse by Chevy Chase Savings Bank, F.S.B. (Bank). The Bank is now pursuing the Plaintiff and seeks payment of the charges made by the Debtor by virtue of the credit issued by the Bank.
On September 11, 1992, the Debtor filed his voluntary Petition for Relief under Chapter 7 of the Bankruptcy Code. On February *6825, 1993, the Plaintiff filed an Amended Complaint to Determine Dischargeability of Debt. In Count I of the Complaint, the Plaintiff contends that the Debtor made the charges knowing that the Debtor was violating the terms of the Final Judgment and therefore the Debtor’s actions constituted actual fraud. In this Count, the Plaintiff seeks a determination that the debt owed to the Plaintiff should be excepted from the Debtor’s general discharge pursuant to § 523(a)(2)(A).
In Count II of the Complaint, the Plaintiff contends that the Plaintiff has a property right in her credit rating and that the actions of the Debtor were willful and malicious and made with the actual intent to injure her credit rating. Therefore, according to the Plaintiff, the obligation owed as a result of the credit card used by the Debtor should be excepted from the overall protection of the general bankruptcy discharge pursuant to § 523(a)(6).
In Count III of the Complaint, the Plaintiff contends that the purpose of the provision in the Settlement Agreement which prohibits the Debtor from incurring liabilities on behalf of the Plaintiff or obligating her credit was intended to assist the Plaintiff and furnish the Plaintiff with maintenance and support. Thus, according to the Plaintiff, the obligation represented by the balance owed on the credit card attributable to the Debt- or’s charges should be nondischargeable pursuant to § 523(a)(5). The provisions of the Bankruptcy Code upon which the Complaint is based provide, in pertinent part, as follows:
§ 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 from any debt—
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition ...
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(5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with State or territorial law by a governmental unit, or property settlement agreement, but not to the extent that
(B) such debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support ...
* # * * ❖ ^
(6) for willful and malicious injury by the debtor to another entity or to the property of another entity ...
The burden of proof to sustain a claim of nondischargeability based upon § 523 of the Bankruptcy Code is placed upon the party seeking to except the debt from discharge by a mere preponderance of the evidence. Grogan v. Garner 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). To prevail on a claim of nondischargeability based on § 523(a)(2)(A) the plaintiff must establish with the requisite degree of proof that: (1) the debtor obtained money, property, services, or credit or the extension of or the renewal of credit; (2) by false pretenses, misrepresentation or by actual fraud; and (3) the plaintiff in reliance suffered loss and injury as a proximate result of the false representations by the debtor. Even assuming, without admitting, that the Debtor had no intention to live up to his undertaking that he would not incur any further liabilities by using of the credit card issued to him and to his spouse, this breach of the promise still would not be sufficient to establish a viable claim under § 523(a)(2)(A) of the Bankruptcy Code. This is so because the injury claimed by the Plaintiff did not result from any reliance on the Debtor’s undertaking set forth in Paragraph 18 of the Agreement.
Even a cursory reading of this Section and consideration of the undisputed facts recited earlier leaves no doubt that the Debt- or did not obtain any money, property, services, credit or the extension or the renewal of credit from the Plaintiff. While it might *683be contended that the Debtor did in fact obtain credit, albeit indirectly, by using the credit card, this proposition does not bear close analysis and to accept same would be stretching the scope of § 523(a)(2)(A) to an illogical limit. Based on the foregoing, this Court is satisfied that this record is lacking sufficient proof to establish a viable claim under § 523(a)(2)(A) of the Bankruptcy Code.
Considering the next claim of nondis-chargeability, it is equally evident that this record would not support this claim based on § 523(a)(5). First, in Paragraph 18 of the Marital Property Settlement, the Plaintiff expressly waived any claim for lump sum, rehabilitative, periodic, temporary or permanent in nature, and forever discharged any claim for alimony whether lump sum, rehabilitative, periodic, temporary or permanent in nature. Moreover, a construction of this Section to include, as urged by the Plaintiff, that the Debtor’s promise not to use the credit cards was, in fact, an indirect way to furnish to her alimony, maintenance or support, all of which she expressly waived would also stretch beyond common sense, in light of the plain and clear language of the Marital Property Settlement.
This leaves for consideration the claim based on § 523(a)(6). The Plaintiff argues that the Debtor willfully and maliciously injured property of the Plaintiff by injuring her credit rating. Whether or not one’s unimpaired financial condition is a cognizable property right was considered by this Court earlier in Matter of Campbell, 44 B.R. 116 (Bankr.M.D.Fla.1984). Campbell involved the construction of the predecessor of § 523(a)(6), § 17(a)(8) of the Bankruptcy Act of 1898, which basically had the identical provision with the current version set forth in § 523(a)(6). In that context, the Court construed the term “property” as “something subject to ownership, transfer or exclusive possession and enjoyment, which may be brought within the dominion and control of a court through some recognized process,” citing Ward v. Prenzi, 3 B.R. 165 (Bankr. D.Ariz.1980); Lawrence T. Lasagna, Inc. v. Foster, 609 F.2d 392 (9th Cir.1979); Gleason v. Thaw, 236 U.S. 558, 35 S.Ct. 287, 59 L.Ed. 717 (1915).
There is nothing in the legislative history of § 523(a)(6) dealing with this subject which indicates that the case law interpreting the statutory predecessor of § 523(a)(6) no longer represents a proper construction of the term “property” as that term is used in § 523(a)(6). Clearly one’s right to a good credit rating is no different than one’s right to an unimpaired financial condition. Based on the foregoing, this Court' is satisfied that the extension of credit and credit rating are not species of “property” which would be covered by § 523(a)(6).
In sum, this Court is satisfied that based on the undisputed facts on this record, the Debtor is entitled to a judgment in his favor as a matter of law. Based upon the foregoing, this Court is satisfied that all three counts should be dismissed.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Summary Judgment as to Counts I, II, and III filed by the Plaintiff is hereby denied. It is further,
ORDERED, ADJUDGED AND DECREED that the Motion for Summary Judgment as to Counts I, II, and III filed by the Debtor is hereby granted. A separate final judgment shall be entered in accordance with the foregoing.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491793/ | ORDER DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND GRANTING THE DEFENDANT’S CROSS-MOTION FOR SUMMARY JUDGMENT
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 case, and the matter under consideration is the dischargeability of certain tax obligations owed by the Plaintiffs to the United States of America (Government) for the calendar years 1987, 1988, and 1989. In its single count complaint, Mr. and Mrs. Greco (Debtors) contend that their tax obligations are dischargeable pursuant to 11 U.S.C. § 727(a). In its amended answer, the Government contends that the Debtor’s tax obligations are excepted from discharge by operation of 11 U.S.C. § 523(a)(1)(A). Debtors filed a motion for summary judgment. The Government then filed its own cross-motion for summary judgment contending that there are no genuine issues of material facts and that they are entitled to a judgment as a matter of law.
*687The facts of this case are indeed undisputed. The Debtors filed federal income tax returns for 1987, 1988, and 1989 on or about April 17, 1990, April 17, 1990, and April 15, 1990, respectively. There is no dispute that the tax returns for 1987 and 1988 were filed late. Based upon the returns filed by the Debtors, the IRS made the following assessments:
Date of
For 1987_Assessment: June 4, 1990
Tax.$6,363.00
Est. Tax Penalty.$ 343.66
Delinquency Penalty.$1,431.68
Failure to pay tax penalty.$ 827.19
Interest.$1,978.24
*Fees & Costs.$ 12.00
Date of
For 1988_Assessment: June 4, 1990
Tax.$8,453.00
Est. Tax Penalty.$ 541.00
Delinquency Penalty.$1,901.93
Failure to Pay Tax Penalty .$ 591.71
Interest.$1,348.32
Date of
For 1989_Assessment: June 11, 1990
Tax.$6,286.00
Est. Tax Penalty.$ 4.00
Subsequent to the June 1990 assessments, the IRS audited the Debtors tax returns for the three years in question. As a result of that examination, the IRS made the following assessments against the Debtors:
Date of
For 1987 Assessment: February 22,1993
Audit Deficiency of Tax.$15,188.00
Negligence Penalty.$ 5,910.09
Delinquency Penalty.$ 3,129.00
Miscellaneous Penalty.$ 5,388.00
Date of
For 1988_Assessment: February 22,1993
Audit Deficiency of Tax.$15,120.00
Negligence Penalty.$ 1,179.00
Delinquency Penalty.$ 2,858.00
Miscellaneous Penalty.$ 5,893.00
Date of
For 1989_Assessment: February 22,1993
Audit Deficiency of Tax.$11,602.00
Miscellaneous Penalty.$ 2,320.00
Interest.$ 4,332.05
*Fees & Costs.$ 12.00
The Debtors filed their bankruptcy petition under Chapter 7 on July 23, 1993. The United States has not filed a proof of claim.
The claim of nondischargeability asserted by the United States Government is based on § 523(a)(1)(A) which provides:
§ 523. Exceptions to discharge
(a) A discharge under section 727, 1141, 1228(b) or 1328(b) of this title does not discharge an individual debtor from any debt—
(1) for a tax or a customs duty—
(A) of the kind and for the periods specified in section 507(a)(2) or 507(a)(7) of this title, whether or not a claim for such-tax was filed or allowed [...] (emphasis added).
Thus, the determination of whether the tax liability of the Debtors will be dischargeable will turn on the provisions of § 507(a)(7), specifically, § 507(a)(7)(A)(ii). That section reads as follows:'
§ 507. Priorities
(a) The following expenses and claims have priority in the following order:
(7) Seventh, allowed unsecured claims of governmental units; only to the extent that such claims are for—
(A) a tax on or measured by income or gross receipts—
(ii) assessed within 2^0 days, plus any time plus 30 days during which an offer in compromise with respect to such tax that was made within 240 days after such assessment was pending, before the date of the filing of the petition [...] (emphasis added).
As a general rule, a taxpayer must be assessed, if at all, within three years after the tax return is filed. 26 U.S.C. § 6501(a). Matter of Youngcourt, 86 B.R. 715 (Bkrtcy. M.D.Fla.1988). The statute of limitations for the 1987, 1988, and 1989 tax years were, respectively, April 15, 1991, April 15, 1992, and April 15, 1993. In the instant case, the first assessment, based on the Debtor’s returns, was made by the IRS in June óf 1990, before the statute of limitations found in 26 U.S.C. § 6501 had run on any of the taxable years in question. The second assessment, made in February of 1993 and based on the same taxable years as the first assessment, was made well within 240 days before the petition for relief was filed. Based on the *688forgoing, it is clear that the taxes in question are not within the overall protection of the general bankruptcy discharge available to individual debtors pursuant to § 727 of the Bankruptcy Code. In re Oldfield, 121 B.R. 249 (Bkrtcy.E.D.Ark.1990). Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion for Summary judgment filed by the Plaintiffs be, and is hereby, denied. It is further
ORDERED, ADJUDGED AND DECREED that the Defendant’s Cross-Motion for Summary Judgment be, and is hereby, granted, and a final judgment will be entered in accordance with the forgoing.
DONE AND ORDERED.
Fees & Costs were assessed on October 22, 1990.
Fees & Costs were assessed on August 2, 1993. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491794/ | ORDER ON OBJECTION TO CLAIM
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 liquidation case originally commenced as a Chapter 11 case on August 20, 1991 and converted to a Chapter 7 liquidation case on June 26, 1992. On December 17, 1992 the Debtors filed a Motion for Refund of Excess Monies claiming that there will be more than sufficient funds on hand to pay all allowed claims. On January 25, 1993, this Court entered an Order denying the Motion. On September 13,1993, V. John Brook, Jr. (Trustee) filed his Notice of Surplus Funds indicating a surplus of approximately $150,000. On November 2, 1993 the Debtors filed a Second Renewed Motion to Refund Excess Funds. On January 12, 1994, this Court granted the Second Renewed Motion and directed the Trustee to immediately refund to the Debtors the sum of $50,000.
The matter under consideration is an Objection to Claim #41 which was filed as a general unsecured claim in the amount of $6,079.75 by Fleming Chiropractic Clinic (Clinic). The original Objection to Claim under consideration was filed on November 2, 1993 in which the Debtors challenged the claim filed by the Clinic on the basis that the claim has been paid by insurance or has been released and the Debtor is not indebted to the Clinic in any amount. On January 13, 1994, the Debtors filed a supplemental Objection to the claim of the Clinic alleging that the interest payable on the allowed claim of the Clinic would be Federal judgment rate and not Florida judgment rate or market rate and also challenged the portion of the claim which includes a claim for attorneys fees. The original Objection to the claim of the Clinic was set for final evidentiary hearing in due course at which time the following facts relevant to the resolution of this controversy were established:
The Debtor, Roy Schmidt, is a college graduate having been extensively involved in business over many years and acting as an officer of a corporation. On September 20, 1990, the Debtor was involved in an automobile accident. He visited the Clinic in order to obtain treatment on October 10, 1990. On this visit he signed a document entitled “To The New Patient — Outline of Procedure for New Patients.” (Debtor’s Exh. No. 1) Just above the signature line the document includes the following statement:
I understand and agree that health and accident insurance policies are an arrangement between an insurance carrier and myself. Furthermore, I understand that the Doctor’s Office will prepare any necessary reports and forms to assist me in making collection from the insurance and that any amount authorized to be paid directly to the Doctor’s Office will be credited to my account on receipt. However, I clearly understand and agree that all services rendered me are charged directly to me and that I am personally responsible for payment. I also understand that if I suspend or terminate my care at this office, any outstanding charges for professional services rendered me will be immediately due and payable, (emphasis supplied)
It is without dispute that the Debtor signed this document on October 10, 1990 together with a second document entitled “Irrevocable Assignment, Lien and Authorization Insurance Benefits and Attorney.” This document recites, inter alia, that:
I understand that I remain personally responsible for the total amounts due the Office for their services. I further understand and agree that this Assignment, Lien and Authorization does not constitute any consideration for the Office to await payments and they may demand payments from me immediately upon rendering services at their option, (emphasis supplied)
*698According to the billing practice of the Clinic, the Debtor received at the end of each visit a printout referred to during the trial as a “receipt” which is in fact not a receipt at all in the conventional sense but merely a printout indicating charges for a particular visit together with a notation for the next appointment. (Debtor’s Exh. No. 6) Numerous statements indicate “no charge” albeit some do. According to the office manager of the clinic, if the actual billing was a claim to be submitted to the insurance company in toto, no charge was recorded for the patient. It appeal’s that on January 1, 1991 the Debtor and the Clinic were notified by the Debtor’s insurance company, Ocean Casualty (Insurance Company) that the Insurance Company would no longer honor any request for payment and had suspended coverage. Notwithstanding, the Debtor continued to visit the Clinic. It is without dispute that he received several treatments on the dates indicated thereafter.
As a common practice, the Clinic obtained a Letter of Protection from the Debtor during the Debtor’s first visit, in which the Debtor agreed that, in the event of a settlement, he will pay the balance due by him out of the settlement which, in this instance, was 20% of the total charges made. When the Clinic was informed that the coverage was suspended and the Insurance Company would not honor any more requests for payment, the Clinic repeatedly requested a Letter of Protection from the attorney who supposedly represented the Debtor in his personal injury action. However, the Clinic was unable to obtain a Letter of Protection because all of the attorneys identified as representing the Debtor declined to furnish such a letter because, according to them, they did not represent the Debtor in any lawsuit. After the notification by the Insurance Company that the coverage had been suspended, the office manager of the Clinic contacted the Debtor to discuss the method of paying the charges incurred by the Debtor. The Debtor stated that he was unable to pay but requested what is called a “super statement” (Claimant’s Exh. No. 4) which recites in chronological sequence all activity on account between October 10, 1990 and December 1, 1993.
Before the suspension of coverage the Clinic submitted bills to his Insurance Company and, in fact, received payments to the extent of coverage, the sum of $1,998.80. The Clinic attempted to collect the difference from the Insurance Company and hired an attorney for this purpose. In the meantime the Insurance Company was ordered liquidated by the Circuit Court in Leon County on October 12, 1992 and all policies issued by Ocean Casualty were canceled effective November 12, 1992. (Claimant’s Exh. No. 10)
The challenge of the Debtor to the allowance of the claim of the Clinic is based on a two-fold proposition. First, it is contended by the Debtor that notwithstanding the clear and unambiguous language of the two documents signed by the Debtor on his initial visit (Claimant’s Exh. 1 and 2), these documents were orally modified by an agreement with Dr. Fleming and his assistant, Mr. Nusbaum, to the extent that the Clinic would not hold him personally responsible for the bills but would look solely to the insurance company for recovery. In the alternative, the Debtor contends that under applicable law, it was the obligation of the Clinic to pursue the claim against the Insurance Company and proceed to enforce the rights granted to the Clinic by the Assignment (Claimant’s Exh. No. 2) and, therefore, the claim of the Clinic should not be allowed. For this proposition, the Debtor cites the case of Ayares-Eisenberg Perrine v. Sun Bank, 455 So.2d 525 (Fla. 3d DCA 1984).
In opposition to the Objection, counsel for the Clinic points out that the obligation of the Debtor to pay for services rendered by the Clinic as expressed by the clear unambiguous language of both Exhibits 1 and 2 leaves no doubt that the Debtor understood that he would be personally liable for the charges and there is no credible evidence in this record to establish that this written agreement was orally modified, a proposition denied by Dr. Fleming and by the Office Manager. Concerning the second proposition, it is contention of counsel for the Clinic that the insurance company was liquidated; that the Clinic made efforts to collect and there is no realistic expectation that the Clinic would receive any satisfaction of its claim concern*699ing the treatments rendered to the Debtor from anyone, including FIGA, an entity apparently handling the liquidation of the affairs of the Debtor’s erstwhile insurance company.
Having considered this matter this Court is satisfied that the Debtors’ Objection to the allowance of the claim is without merit, should be overruled and the claim should be allowed, albeit only in the amount of $5,960.20, to which the claimant agrees, for the following reasons:
It should be noted at first that a proof of claim filed in the proper form is presumed to be valid and shall be allowed unless the objection to the same is sustained. As stated in the House and Senate Report accompanying § 502, a proof of claim or interest is prima facie evidence of the claim. H.Rep. No. 595, 95th Cong., 1st Sess. 352 (1977); S.Rep. No. 989, 95th Cong., 2d Sess. 62 (1978), U.S.Code Cong. & Admin.News 1978, p. 5787. Next, although it is not urged by the Clinic, it is well established that a written contract cannot be modified by parol evidence unless the Court finds that the contract is ambiguous or there is credible evidence that there is a subsequent oral agreement canceling and replacing the original written agreement. Sears v. James Talcott, Inc., Fla., 174 So.2d 776. It is a well established doctrine that the parol evidence rule protects valid, complete, and unambiguous written instruments from any verbal assault that would contradict, add to, subtract from, or affect its construction. Thus, parol evidence will only be considered if there is clear, competent evidence that the subsequent par-ol contract was intended to cancel and supersede the original written contract. In the instant case, there is not competent evidence that a parol contract even existed.
Based on the foregoing, this Court is satisfied that the written documents (Claimant’s Exhs. No. 1 & 2) are controlling and, therefore, it is clear that the Debtor did assume personal liability for all the bills, including the portion which was supposed to be paid but was not paid by the insurance company. This leads to the next proposition urged by the Debtor that in any event the Clinic is premature in pursuing the claim against the Debtor individually because it failed to pursue its assignment rights granted to it by Exhibit 2.
In support of this proposition, the Debtor relies on the case of Ayares-Eisenberg Perrine v. Sun Bank, supra. In that case the District Court of Appeals held that a bank’s action in suing on a note was premature until it fulfilled its responsibility concerning disposition of collateral. This case involved the interpretation of Fla.Stat. § 679.07(1) (1981) in which the Court relied on Norton v. National Bank of Commerce of Pine Bluff, 240 Ark. 143, 149, 398 S.W.2d 538, 541 (1966). In that case the court dealt with the proposition that before a secured party is entitled to assert a deficiency the secured party has an obligation to notify the debtor of the disposition of the collateral. Even a cursory reading of this case indicates that its holding is totally inopposite to the undisputed facts involved in this contested matter. Even assuming without admitting that the Clinic would be required to spend a great amount of money in an attempt to recover a claim against a defunct insurance company, this requirement would certainly defy common sense and logic and would be a great exercise in futility.
For the reasons stated, this Court is satisfied that the Debtors’ Objection to Claim #41 is without merit and should be overruled.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that Debtors’ Objection to Claim # 41 be, and the same is hereby, overruled. It is further
ORDERED, ADJUDGED AND DECREED that Claim #41 filed by Fleming Chiropractic Clinic be, and the same is hereby, allowed as a general unsecured claim in the amount of $5,960.20.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491795/ | MEMORANDUM
JOHN D. SCHWARTZ, Chief Judge.
This matter is before the court on the Debtor’s pro se motion for Turnover of Funds. No responses being filed, the court makes the following determination pursuant to Rule 7052.1
The Warren Newport Credit Union (“Judgment Creditor”) obtained a state court *752judgment against the Debtor on May 21, 1993. The American National Bank of Lib-ertyville (“Bank”) was then served with a non-wage Garnishment Summons and Written Interrogatories. (See 735 ILCS 5/12— 701, 705). The Summons had a return date of June 30, 1993.
On June 29, 1993, the Debtor commenced this bankruptcy proceeding under Chapter 7 of the Bankruptcy Code. Schedule B of the Debtor’s petition set forth his personal property and as part of such lists approximately $600 in a checking account. In Schedule C of the petition, the Debtor claimed a personal property exemption on his $600 interest in a checking account.
As a result of the Summons, the Bank withheld $624.06 from the Debtor’s checking account, number 40030050. On September 17, 1993, the Debtor filed a Motion for Turnover of Assets (“Motion”).
The Debtor’s motion seeks the turnover of the $624.06 for two reasons. First, that the property is exempt under Illinois law and recognized as being such by the Bankruptcy Code. Second, the Judgment Creditor’s judgment was obtained within 90 days of bankruptcy and therefore, the Judgment Creditor’s service of the garnishment summons is an attempt to collect on that judgment in violation of the preference restrictions of § 547.
Under Illinois law, the servicing of the garnishment summons creates a lien on the property held by garnishee, in the amount of the balance due on the judgment. 735 ILCS 5/12-707. Based on the fact that the Summons had a return date of June 30, 1993, it was issued between May 31st and June 9th and must be presumed to have been served pre-bankruptcy. See 735 ILCS 5/12— 705 (requiring a summons return date between 21 and 30 days after the date of issuance.) Thus, the service of the summons created a pre-bankruptcy lien on the $624.06 in the Debtor’s checking account.
Since the garnishment lien is a judgment lien under the § 101(37) of the Bankruptcy Code, the appropriate motion would be one seeking to avoid the fixing of a lien pursuant to § 522(f). See In re Garcia, 155 B.R. 173 (N.D.Ill.1993); Bryant v. General Electric Credit Corp., 58 B.R. 144 (N.D.Ill. 1986); In re Weatherspoon, 101 B.R. 533 (Bankr.N.D.Ill.1989) (all avoiding a wage deduction lien under § 522(f)(1) after service of the wage deduction summons but before the wage deduction order). The court so treats the Debtor’s pro se motion. Section 522(f)(1) allows a debtor to avoid a judicial lien. It “is designed to protect a bankrupt debtor’s entitlement to all of his exemptions, even in the event that a creditor beats him to the courthouse and obtains a lien on property that would otherwise would be exempt.” Garcia, 155 B.R. at 175 (N.D.Ill.1993).
Section 522 gives a Debtor the power to exempt certain property that is otherwise property of the estate. However, § 522(b) gives a state the power to use their own exceptions instead of or as an optional alternative to the § 522(d) exceptions. The Illinois legislature has decided that the Illinois statutory exemptions will apply instead of the federal exemptions. 735 ILCS 5/12— 1201. Illinois allows a debtor to exempt personal property valued up to $2,000. 735 ILCS 5/12-1001, Cf. In re Woodworth, 152 B.R. 258, 259 (Bankr.C.D.Ill.1993); see also In re Nabers, 102 B.R. 705 (Bankr.S.D.Ill. 1989). Thus, in the case at bar, the Debtor could exempt up to $2,000 in cash, whether it is held in the Debtor’s hand or by a third party. Cf. Deschauer v. Hilt, 105 Ill.App.3d 657, 61 Ill.Dec. 399, 402, 434 N.E.2d 552, 555 (1st Dist.1982) (interpreting old Ill.Rev.Stat. ch. 52 para. 13 (1979) (since amended on numerous occasions)).
As part of the duties imposed on a garnishee under 735 ILCS 5/12-707, the garnishee must hold “subject to the order of the court any non-exempt indebtedness or other non-exempt property in his or her possession, custody or control belonging to the judgment debtor or in which the judgment debtor has any interest.” Because the Debt- or would have the right to exempt the cash if he personally held it, that cash is also exempt from a garnishment when it is held by a third party. Cf. Hilt, 61 Ill.Dec. at 402, 434 N.E.2d at 555 (deciding under old versions of garnishment and exemption statutes that garnishment proceedings are subject to personal property exemption laws.)
*753The court notes that a preference claim is not applicable to the case at bar because § 547 does not apply to a debtor’s action under Chapter 7.
For the reasons set forth herein the court will void the lien and issue a separate order directing the Bank to turnover the withheld funds.
. All "Rule” references are to the Fed.R.Bankr.P. Rule 7052 is applicable to this motion pursuant to Rule 9024.
All section reference are to 11 U.S.C. being the "Bankruptcy Code” or "Code,” unless other wise stated. Non-section numerical references are to the ILCS, unless otherwise stated. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491796/ | HELEN S. BALICE, Bankruptcy Judge.
MEMORANDUM OPINION AND ORDER
The First National Bank of Boston (FNB) in its complaint seeks declaratory and injunc-tive relief to remedy alleged conduct of Columbia Gas System, Inc. (CG). FNB is the indenture trustee for security holders under an indenture whereby funds were borrowed to provide for an employee stock ownership plan (ESOP) within CG’s Employees’ Thrift Plan of Columbia Gas System.
FNB’s amended complaint contains three grounds: tortious interference under state law, tortious interference under federal common law and breach of duty. FNB’s original complaint contained only the first two counts. CG’s motion for summary judgment was filed in response to the original complaint.
I. Jurisdiction
This action is based upon CG’s post-petition conduct relating to a pre-petition contract. The factual and legal issues raised in this proceeding are intertwined with reorganization issues. The action is a core proceeding. See, e.g., In re West Electronics, Inc., 128 B.R. 900 (Bankr.D.N.J.1991); In re Hughes-Bechtol, Inc., 132 B.R. 339 (Bankr. S.D. Ohio 1991), aff'd, 144 B.R. 755 (S.D. Ohio 1992).
II.Legal Standard for Summary Judgment
Summary judgment may be granted only if there is no genuine issue of material fact and CG is entitled to judgment as a matter of *886law. .Viewing the record in the light most favorable to FNB, the court concludes that CG’s motion must be denied. Fed.R.Civ.P. 56(c), Williams v. Borough of West Chester, 891 F.2d 458, 463-64 (3d Cir.1989); United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 993, 8 L.Ed.2d 176 (1962); Tigg Corp. v. Dow Corning Corp., 822 F.2d 358, 361 (3d Cir.1987); Baker v. Lukens Steel Co., 793 F.2d 509, 511 (3d Cir.1986); Gans v. Mundy, 762 F.2d 338, 341 (3d Cir.), cert. denied, 474 U.S. 1010, 106 S.Ct. 537, 88 L.Ed.2d 467 (1985).
III. Facts
CG established an employee benefit plan (the plan) for its subsidiaries’ employees in 1958. In order to hold, administer and invest the plan’s assets, CG utilized a trust (the Employees Thrift Plan of Columbia Gas System Trust). Effective April 1990, the plan and trust were enhanced to include a leveraged employee stock ownership plan (the ESOP), a feature designed to provide company stock to the plan’s beneficiaries.1
To finance the ESOP, the trust borrowed the funds. The ESOP trustee entered into an indenture with the Bank of New York2 and issued $91,750,000 of 9.875% Amortizing Debentures, Series A, due November 30, 2001. The trustee used the funds to purchase 2,000,000 shares of Columbia’s common stock at $45% per share. This stock was deposited and held in an account called Fund “E.”
The ESOP device provided for ESOP Debt Service Contributions and ESOP Allocation Contributions to be made by CG and its subsidiaries to the trust. The ESOP trustee was to pay principal and interest on the loan and release stock from Fund “E” and allocate it to participating employees’ individual accounts.
The amount of stock released was determined by a mathematical formula. If the amount to be released from Fund “E” under the formula was insufficient to match the employees’ contributions, then CG or its subsidiaries were required to provide the difference by making the ESOP Allocation Contributions to the trust to be disbursed to the employee accounts. (ESOP Matching Allocations).
The trust was obligated to repay principal and interest to the debenture holders on May 31 and November 30 of each year, ending November 30, 2001 (indenture section 4.01). CG guaranteed the transaction on a subordinated basis (indenture section 10.01). Prior to CG’s July 1991 bankruptcy filing, the trust paid all installments of principal and interest due to debenture holders. Additionally, the ESOP trustee made one post-petition payment — the trustee paid the November 30, 1991 installment in the amount of $5,673,-123.54 by paying $5,626,819.50 on or about December 31, 1991 and $46,304.04 on or about January 15, 1992.
Thereafter, CG announced that further debt service payments would not be made until distribution to all creditors was made under the plan of reorganization. Accordingly, payments of principal and interest due on May 31, 1992 and November 30, 1992 in the amounts of $5,954,664.65 and $5,872,731.71, respectively, were not made.3 The parties agree that these events constitute default under the indenture section 6.01(l)(a).
Following this default, the indenture trustee filed a proof of claim dated February 14, 1992 in CG’s bankruptcy case pursuant to CG’s guaranty of the loan transaction.
Notwithstanding the ESOP trustee’s failure to pay the principal and interest payments to the debenture holders, the trustee continued to pay the ESOP Matching Allocations to the employee accounts. Shortly thereafter, FNB, in its capacity as indenture trustee representing the interests of the debenture holders, filed this proceeding against CG.
*887IV. Discussion
CG advances six grounds in support of its motion for summary judgment. For simplicity, these can be classified into three categories: ERISA law, bankruptcy law and contract law.
A. ERISA Laiu
The ESOP is an employee benefit plan which is governed by the Employment Retirement Income Security Act of 1974 (ERISA). CG advances three grounds under ERISA law to justify its request for summary judgment: FNB’s lack of standing, preemption and ERISA prohibitions.
1. Standing
CG argues that since FNB is not a participant, beneficiary or fiduciary, it lacks standing to bring its action under ERISA’s civil enforcement scheme. ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3). FNB counters that its standing to sue under § 502 is irrelevant because its action is not brought under ERISA nor does it rely on ERISA § 502 in any way. The court agrees with FNB. The amended complaint clearly states that the action is brought under state law, federal common law, and contractual duty theories, not ERISA law. CG’s contention that this is actually a disguised ERISA § 502(a)(3) action is without merit.
2. Preemption
CG argues that FNB’s action is preempted by ERISA which provides that ERISA “shall supersede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan ...” ERISA § 514(a), 29 U.S.C. § 1144(a). Such laws include “all laws, decisions, rules, regulations, or other State action having the effect of law.” ERISA § 514(c)(1), 29 U.S.C. § 1144(e)(1). CG requests that the court construe the provision broadly, in accordance with its interpretation of United States Supreme Court decisions.
FNB argues that the scope of ERISA preemption is not unbounded. It further argues that ERISA preemption does not extend to preempt this state law cause of action. FNB contends that its unique status distinguishes this case from those actions which ERISA § 514 preempts. Specifically, because FNB is not a plan participant, beneficiary, fiduciary or employer (“a non-principal ERISA entity”), it contends that preemption should not bar its action. The court agrees with FNB and finds that this action is not preempted by ERISA.
Generally, the Supreme Court has construed ERISA § 514 broadly, holding that if a cause of action relates to an ERISA-cov-ered plan, it is pre-empted. Ingersoll-Rand Co., v. McClendon, 498 U.S. 133, 140, 111 S.Ct. 478, 483-84, 112 L.Ed.2d 474 (1990). The definition of “relates to” extends to state actions which “ha[ve] a connection with or reference to such a[n ERISA] plan.” Shaw v. Delta Air Lines, 463 U.S. 85, 97, 103 S.Ct. 2890, 2900, 77 L.Ed.2d 490 (1983). However, the Supreme Court has also noted that “[n]otwithstanding its breadth, we have recognized limits to ERISA’s pre-emption clause.” Ingersoll-Rand, 498 U.S. at 139, 111 S.Ct. at 483 (citing Mackey v. Lanier Collection Agency & Service, 486 U.S. 825, 108 S.Ct. 2182, 100 L.Ed.2d 836 (1988) and Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 23, 107 S.Ct. 2211, 2223-24, 96 L.Ed.2d 1 (1987)).
In applying these rules to a preemption analysis, the Court has also stated that “in any pre-emption analysis ‘the purpose of Congress is the ultimate touchstone.’ ” Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 105 S.Ct. 2380, 85 L.Ed.2d 728 (1985) (citation omitted). ERISA’s purpose is as follows:
It is thus clear that ERISA’s pre-emption provision was prompted by recognition that employers establishing and maintaining employee benefit plans are faced with the task of coordinating complex administrative activities. A patchwork scheme of regulation would introduce considerable inefficiencies in benefit program operation, which might lead those employers with existing plans to reduce benefits, and those without such plans to refrain from adopting them. Preemption ensures that the administrative practices of a benefit plan *888will be governed by only a single set of regulations.
Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 11, 107 S.Ct. 2211, 2217, 96 L.Ed.2d 1 (1987). Therefore, preemption bars most plaintiffs’ actions which are brought outside of ERISA under varied state laws. The provision promotes uniformity by forcing plaintiffs to sue under a single statute, ERISA.
Preemption of this cause of action, however would not promote this purpose. If preemption were applied, it would bar FNB’s action under state law. FNB cannot bring its action under ERISA because it lacks standing to sue under ERISA § 502, ERISA’s exclusive civil enforcement mechanism. See part A.I., supra. Hence, preemption would bar FNB’s state cause of action outside of ERISA and leave it without a cause of action within ERISA.4 The court concludes that because this claim does not fall within the scope of ERISA § 502, it is not preempted by ERISA § 514. Cf. Jacob v. Smithkline Beecham, 824 F.Supp. 552 (E.D.Pa.1993) (stating “[i]n the ERISA context; only claims that fall within the broad scope of ERISA’s civil enforcement provision are completely preempted.”).
Similar reasoning was applied in Hospice of Metro Denver, Inc. v. Group Health Ins. of Okla., Inc., 944 F.2d 752, 756 (10th Cir. 1991), where a hospice sued an insurance company for misrepresenting that a patient was covered. The hospice had treated the uninsured patient in reliance on the insurance company’s statement that he was covered. In response to the defendant’s ERISA preemption argument, the court found that:
Denying a third-party provider a state law action based upon misrepresentation by the plan’s insurer in no way furthers the purposes of ERISA ... An action brought by a health care provider to recover promised payment from an insurance carrier is distinct from an action brought by a plan participant against the insurer seeking recovery of benefits due under the terms of the insurance plan.
Id. Like the hospice, FNB is a “third-party” to the ERISA transaction which would be denied the opportunity to bring its claim by ERISA preemption.
A case closely on point with this action also made a distinction based on the plaintiffs status. In In re American Continental Corp./Lincoln Savings and Loan Securities Litigation, 794 F.Supp. 1424 (D.Ariz.1992), purchasers of debentures and the Resolution Trust Corporation sued the owner of a savings and loan institution under state law, alleging mismanagement of an ESOP. In finding that preemption was inapplicable, the court stated that preemption governs “rights and obligations as between employee retirement plans and plan participants.” American Continental, 794 F.Supp. at 1455. Preemption did not govern the tort claims brought by the debenture holders. Id.
CG argues that there is no Supreme Court decision which limits ERISA preemption to causes of action brought by “principal ERISA entities.” However, as FNB explains, the Supreme Court cases upon which CG relies were all brought by “principal ERISA entities.”5 The Court has not di*889rectly addressed the question of whether actions brought by “non-principal ERISA entities” who lack standing to sue within ERISA are preempted by ERISA.
In dictum, however, the Court made a relevant distinction between two types of actions. Mackey v. Lanier Collection Agency & Service, Inc., 486 U.S. 825, 832-33, 108 S.Ct. 2182, 2186-87, 100 L.Ed.2d 836 (1988). The first type involved enforcement actions under § 502 brought by ERISA entities to secure specified relief. The second type involved “lawsuits against ERISA plans for run-of-the-mill state-law claims such as unpaid rent, failure to pay creditors, or even torts committed by an ERISA plan.” 486 U.S. at 833 & n. 8, 108 S.Ct. at 2187 & n. 8. In this second category of claims, the plaintiffs were “non-principal ERISA entities.” The Court stated that while these claims obviously affected and involved ERISA plans and their trustees, this type of action was not preempted. Id. This court agrees with this distinction.
In summary, for all of the reasons stated above, FNB’s state law cause of action is not preempted.
Having decided that FNB’s state law tor-tious interference claim is not pre-empted by-ERISA, it is not necessary to address FNB’s alternative argument that its cause of action may be sustained independently under federal common law other than to note: The United States Supreme Court has held that, in enacting ERISA, Congress established a comprehensive statutory scheme to govern employee benefit plans and further intended that the courts would develop a distinct federal common law of rights and obligations under ERISA regulated plans. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989); See e.g. Plucinski v. I.A.M. Nat. Pension Fund, 875 F.2d 1052 (3rd Cir.1989).
3. ERISA Prohibitions
CG’s remaining ERISA argument is best summarized in its final statement on the issue: “[accordingly, the Indenture Trustee’s cause of action cannot be maintained because the remedy it seeks, reallocation [of contributions made to employee accounts], is prohibited by ERISA.” In its amended complaint, FNB requests several forms of relief, including an order declaring CG’s actions to constitute interference with plan compliance, an injunction from further interference, and other relief deemed appropriate by the court. Notwithstanding these clearly stated requests, CG focuses exclusively on the remedy set forth in paragraph 3 of the Amended Complaint and omits discussion of any other remedies. In light of the numerous forms of relief requested, the court rejects CG’s argument that summary judgment should be granted on this basis.
B. Bankruptcy Law
CG argues that the relief sought by FNB requires a post-petition payment of a pre-petition debt which is contrary to bankruptcy law and policy, particularly 11 U.S.C. §§ 502, 507 and 362. CG further asserts that FNB seeks to convert its claim under CG’s guaranty from subordinated, unsecured and non-priority status to a preferred status. The court rejects this argument for the following reasons.
First, CG’s argument assumes that FNB’s action is premised on CG’s guaranty on the indenture. This is not so. In its complaint, FNB alleges that it is seeking to enforce rights that it possesses within the indenture. FNB is not here seeking to enforce the guaranty.
Second CG’s contention that FNB seeks payment as a pre-petition creditor in violation of the Code’s priority scheme is incorrect. FNB does not request that funds be taken from the bankruptcy estate to satisfy this debt.
Finally, the court rejects CG’s argument which states as follows:
Neither the ESOP Trust nor the assets of the ESOP Trust are property of Columbia’s estate, and therefore the funds paid to the Indenture Trustee for debt service would flow out of the Columbia subsidiar*890ies and into the pockets of the Debenture holders without- any benefit to Columbia [Gas]. This would totally distort the priorities of the Bankruptcy Code and grant to the Debenture Holders a security interest windfall not expected when they acquired their interests.
CG’s vague argument appears to be that if CG’s subsidiaries’ payments to the trust were characterized as ESOP Debt Service Contributions rather than ESOP Allocation Contributions, the payment would become an improper payment to a pre-petition creditor with no benefit to the estate.
The court rejects this argument because CG cites no legal basis for its “standard.” In addition, CG fails to coherently explain how the bankruptcy estate realizes a greater benefit by paying ESOP Allocation Contributions rather than ESOP Debt Service Contributions. ESOP Debt Service Contributions are paid to the trust and then to the debenture holders. ESOP Allocation Contributions are paid to the trust and then to employees’ individual accounts. In both situations, the funds are disbursed to third parties with no apparent benefit to the bankruptcy estate. Moreover, payments made by CG or its subsidiaries were post-petition for post-petition obligations.
C. Contract Law
Columbia Gas asserts two arguments based on contract law.
1. Limited Recourse
CG argues that FNB’s cause of action is outside the scope of the limited recourse provided in the indenture, and therefore, it cannot be brought. FNB, on the other hand, contends that its action fits squarely within the limited recourse permitted and is a means of enforcing this recourse.
The parties’ positions hinge upon their different interpretations of indenture and plan language. Ironically, while the parties’ interpretations are directly opposed to one another, each contends that the applicable language is “clear and unambiguous.” The court finds that the applicable indenture and plan language is clear and unambiguous.
The principal provisions at issue as addressed by the parties are indenture section 6.12 and plan section 4.3. Section 6.12, entitled “Limited Recourse,” defines the scope of the debenture holders’ remedies and provides:
Notwithstanding anything in this Indenture to the contrary,
(a) neither the ESOP Trustee nor the Securityholders of any Series in enforcing or obtaining satisfaction of any obligation of the ESOP Trust hereunder and under the Securities shall have any recourse, whether by levy or execution or otherwise, against the ESOP Trust, or any of their properties or assets, except that such persons shall have rights to (1) any cash contributions made by Columbia Gas (or its Subsidiaries) to the ESOP Trust to satisfy the ESOP Trust’s obligations under the Securities and (2) any earnings attributable to the investment of such contributions.
(emphasis added). Similar language was included in the prospectus. This language is required by ERISA and the Internal Revenue Code. 29 C.F.R. § 2550.408b-3(e) and 26 C.F.R. § 54.4975-7(b)(5).
The parties differ in their interpretations of “cash contributions made ... to the ESOP Trust to satisfy the ESOP Trust’s obligations under the Securities.” Indenture section 6.12(a)(1). CG argues that FNB’s recourse is limited to only those payments which CG or its subsidiaries made to the trust with the intent to pay ESOP Debt Service Contributions. Accordingly, if CG intended that the payments be characterized as ESOP Allocation Contributions, FNB could not reach the payments.
In addition to relying on the plain language of section 6.12(a)(1), CG relies on references to CG’s intent to pay ESOP Debt Service Contributions and ESOP Allocation Contributions in the plan’s definitions of those terms. For instance, the plan defines ESOP Debt Service Contributions as “contributions by Employers to the Trust which are intended to be used ... to repay principal and interest on an Acquisition Loan.” The plan defines ESOP Allocation Contributions *891as “contributions made by Employers to the Trust pursuant to Section 4.3(b) which are intended to be used to ensure that the company ESOP matching contribution requirements of Section 4.1 are satisfied.” CG also cites plan section 4.4(a) providing:
[Prepayments of principal and interest on any Acquisition Loan shall be made by the Trustee ... only from (a) ESOP Debt Service Contributions made by Employers to enable the Trustee to repay such Acquisition Loan....
CG interprets this provision to mean that the debenture holders may be paid “only from ESOP Debt Service Contributions made expressly for that purpose.”
FNB argues that CG’s purpose or intent when it pays the trust is immaterial to section 6.12(a)(1), as CG may not choose to pay either ESOP Allocation Contributions or ESOP Debt Service Contributions. FNB contends that all payments made to the trust ‘when installments to debenture holders are due are automatically ESOP Debt Service Contributions. Furthermore, these payments are automatically subject to recourse under section 6.12(a)(1), as they are “cash contributions made ... to the ESOP Trust to satisfy the ESOP Trust’s obligations under the Securities.”
FNB’s interpretation of indenture section 6.12(a)(1) hinges upon its interpretation of plan section 4.3, the second provision at issue. Plan section 4.3 provides:
(a) ESOP Debt Service Contributions. Whenever one or more Acquisition Loans are outstanding, ESOP Debt Service Contributions shall be made by the Company or Employers in cash at such times and in such amounts which, when aggregated with any earnings attributable to any ESOP Debt Service Contributions, any Allocated Dividends and Unallocated Dividends ... will enable the Trustee to pay any currently maturing obligation under such Acquisition Loan ...
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(b) ESOP Allocation Contributions. In addition to the ESOP Debt Service Contributions referred to in Section 4.3(a), each Employer will contribute for each Plan Year, or more frequently as directed by the Committee, ESOP Allocation Contributions in cash in an amount equal to the amount required to make up the difference between: (i) the total amount equal to the ESOP Matching Allocations required for the Plan Year pursuant to Section 4.1, and (ii) the total fair market value determined in accordance with Section 4.5(c) of the total of all Leveraged Shares allocated to such eligible Participants’ ESOP Company Matching Allocations Accounts during the Plan Year in accordance with Section 4.2. ESOP Allocation Contributions by the Company may be made in shares of Company common stock in an amount equal to the amount required under this Section or in any amount when combined with cash so contributed equals the amount required hereunder. The ESOP Matching Allocation to the Participants’ ESOP Company Matching Allocations Accounts on such Valuation Date shall be drawn from either or both of the following sources: (i) Company common stock released directly (or indirectly, through the Intermediate Holding Account) during the Plan Year containing the Valuation Date, and (ii) Company common stock acquired with the ESOP Allocation Contributions made pursuant to this Section 4.3(b).
FNB reads section 4.3 as follows: First, CG or its subsidiaries must pay ESOP Debt Service Contributions in accordance with subsection 4.3(a). Second, and only if sufficient stock was not released by Fund “E” to match employee contributions, CG or its subsidiaries must make the additional ESOP Allocation Contributions in accordance with subsection 4.3(b).
To support this interpretation, FNB cites the mandatory language “shall,” used exclusively in subsection 4.3(a) governing ESOP Debt Service Contributions. Moreover, FNB points to the subsection 4.3(b) stating that ESOP Allocation Contributions are paid “in addition to” the ESOP Debt Service Allocation.
*892CG counters that plan subsections 4.3(a) and 4.3(b) are not in sequence or order of preference, but rather “stand side by side without one being preferred over the other.” Accordingly, CG contends it can pay either and is not required to make ESOP Debt Service Contributions first. In support of its position, CG cites the dictionary definition of “in addition to,” meaning “besides” or “as well as.” The court rejects the analysis of CG.
Neither party addressed other sections between §§ 4.1 through 4.5. Section 4.3 is clear when read in context with those plan sections. These provisions govern a mandatory sequence of events triggered by payment of ESOP Debt Service Contributions to the trust. Specifically, the ESOP trustee uses the Debt Service Contributions to pay principal and interest to the debenture holders. Plan section 4.4(a). The precise amount of this payment then factors into a mathematical formula — the formula which governs the amount of stock which Fund E will release and allocate to employees’ personal accounts. Plan sections 4.4 and 4.5. CG or its subsidiaries must use this allocation to calculate the payment of ESOP Allocation Contributions. Plan section 4.3(b). Accordingly, CG or its subsidiaries cannot pay ESOP Allocation Contributions without first paying Debt Service Contributions.
FNB’s analysis is correct to the extent it argues that CG or its subsidiaries’ cash payments to the trust made when installments to debenture holders are due are ESOP Debt Service Contributions. FNB’s cause of action is within the limited recourse permitted in the indenture. Section 6.12(a)(1). Thus, summary judgment must be denied.
2. Improper Pursuit of CG Subsidiaries
CG next argues that FNB is improperly pursuing CG subsidiaries. It contends that the indenture limits FNB to pursuing the ESOP Trust for unpaid principal and interest and CG on its guaranty. CG further argues that FNB’s requested relief “mak[es] the Columbia [Gas] subsidiaries guarantors of the Debenture and giv[es] the Debenture holders full recourse to ESOP trust assets.”
FNB responds that it is not pursuing CG’s subsidiaries. Rather, it is pursuing payments previously made to the ESOP trust and ■ disbursed by the ESOP trustee. After reviewing the complaint, the court concludes that FNB is correct. Moreover, since CG fails to explain how its subsidiaries will become guarantors of the debenture, this argument is without merit.
An Order in accordance with this Memorandum Opinion is attached.
ORDER
AND NOW, March 24, 1994, for the reasons stated in the attached Memorandum Opinion, IT IS ORDERED that the motion of The Columbia Gas System, Inc. for summary judgment is DENIED.
. ESOP's are defined in 26 U.S.C. § 4975(e)(7).
. The Bank of New York was the original indenture trustee to the transaction at issue. On November 19, 1991, the plaintiff, First National Bank of Boston, replaced the Bank of New York.
.In addition, since the filing of this proceeding, additional installments have become due and remain unpaid. The amounts of these installments are not part of the record.
. This court's reasoning is not affected by the existence of Columbia Gas' guaranty of the transaction. Even if that guaranty is ultimately enforced, the remedy contained therein is not equivalent to that which FNB seeks in this proceeding.
. FNB provided the following cases and parenthetical explanations in support of its position: Ingersoll-Rand v. McClendon, 498 U.S. 133, 111 S.Ct. 478, 112 L.Ed.2d 474 (1990) (employee's state law wrongful discharge claim was preempted by ERISA); FMC Corp. v. Holliday, 498 U.S. 52, 111 S.Ct. 403, 112 L.Ed.2d 356 (1990) (employee's daughter's action for declaratory judgment that Pennsylvania's anti-subrogation law applied to prohibit employer's claim for subrogation); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987) (employee brought state law claims for breach of contract and bad faith against insurance company were preempted by ERISA); Caterpillar, Inc. v. Williams, 482 U.S. 386, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987) (former employees sued former employer for breach of individual employment contracts); District of Columbia v. Gr. Wash. Bd. of Trade,-U.S.-, 113 S.Ct. 580, 121 L.Ed.2d 513 (1992) (employer sued District of Columbia and its mayor to enjoin enforcement of District of Columbia’s statute governing the continuation of health insurance for injured employees eligible for worker’s compensation benefits); Shaw v. Delta Air Lines, Inc., 463 U.S. 85, *889103 S.Ct. 2890, 77 L.Ed.2d 490 (1983) (employers brought declaratory judgment actions, alleging that two New York statutes were preempted by ERISA). Plaintiff's Brief, at 19 n. 1. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491797/ | MEMORANDUM OF OPINION ON MOTION TO RECONSIDER JUDGMENT
JOHN C. AKARD, Bankruptcy Judge.
Several Defendants moved the court to reconsider its entry of a judgment against them. Finding that the judgment resulted from a settlement announced in open court, the court denies the motions for reconsideration.1
FACTS
On April 19, 1993, Floyd D. Holder, Jr., the Trustee-in-Bankruptcy for Omni Video, Inc. (Trustee), filed this adversary proceeding against Gerant Industries, Inc. a/k/a L.A. Entertainment, Inc. (Gerant) and various other Defendants.2
On July 27, 1993, the court called various motions filed in this adversary proceeding for hearing. The parties appeared and advised the court that they wished to negotiate. Following lengthy negotiations, court reconvened and the parties announced that they had reached a “global settlement” of all issues between them. The Trustee then read the terms of the settlement into the record. They provided that the Defendants would pay $220,000 to the Trustee-in-Bankruptey and $30,000 to Randall C. Barnett in full satisfaction of all claims held by the Trustee, Mr. Barnett, and Pioneer Communications Corporation (a company controlled by Mr. Barnett) against each of the Defendants, and that each Defendant would release all claims against the Trustee, Mr. Barnett and Pioneer Communications Corporation. Within thirty days, the Defendants would deliver $250,000 to fund the settlement to the escrow account of Robert L. Jones (attorney for Gerant and other Defendants). In open court, each of the following Defendants approved the settlement:
a. Gerant Industries, Inc., Turbo, Inc., Greater Indemnity & Casualty Insurance Co., Ltd., Daniel Lezak, and En-viro Trading Co., Inc. by their attorney, Robert L. Jones.
b. California Equity Investment Trust, Sherman Mazur, Adele Kaplan, Holm-by Capital Partners, L.P., Ruzam Holdings, Inc., and Jonathan Bernard by their attorney, Tommy J. Swann.
c. Elaine Greenberg Melnyk by her attorney, Seymour Roberts, Jr.
d. OTR/California Stock Transfer and George Houston by their attorney, James E. Joplin.
e. Randall C. Barnett and Pioneer Communications Corporation by their attorney, Elizabeth Kilbride.
The parties understood that Fed. R.BANKR.P. 2002 required the Trustee to give notice of the settlement to all creditors and parties in interest, who would have an opportunity to object to the settlement. The court stated that, assuming no objections, it would approve the settlement. The parties were concerned that the adversary trial was scheduled and, in view of the settlement, wished to avoid further trial preparations. Therefore, the court withdrew the trial setting. The court also authorized the Trustee to make limited distributions to creditors on receipt of the funds.
After due notice, the court held a hearing on October 27, 1993 to determine if the settlement should be approved. The only objection to the settlement was filed by Mr. Jones, who expressed concern that the Trustee sent out the notice of settlement before formal settlement documents were signed. A Com*25promise and Settlement Agreement was circulated to the parties’ attorneys, but it was never executed. Mr. Jones stated that within a few days after the announcement of the settlement, his clients advised him that the $250,000 would not be funded. He advised the other parties and attempted to negotiate another settlement. Mr. Jones stated, “Obviously, we’re not going to dispute that the parties reached the terms of the settlement, nor dispute what the transcript says.” (Tr. 6). He further stated, “I believe, perhaps, that it may be appropriate for the court to approve the settlement, given that the settlement is what it is, but I don’t see how — it seems to me that you would have to have a separate proceeding to enforce that settlement.” (Tr. 9) He also questioned whether there was, in fact, a settlement since the money was not funded.
The court found that a binding settlement had been announced on the record and granted judgments for the Trustee and Mr. Barnett which were entered on November 22, 1993. Several of the Defendants filed motions to reconsider the judgment.
On December 1,1993, Mr. Jones, on behalf of Gerant and the other defendants represented by him, filed a motion under Fed. R.BankR.P. 9023 for a new hearing and for an order vacating the judgment. On page 3 of that motion he stated, “After much discussion and negotiation, the parties that were represented at such meeting agreed to a settlement. This settlement was announced on the record with the court on July 27, 1993.” However, on page 4, he stated, “The judgment does not represent the parties’ agreement. It was clearly the agreement and understanding of the parties to the settlement that, in the event the settlement was not funded, the settlement was off and the matter would proceed to trial. The settlement that was announced on the record specifically provided that the sum of $250,000 would be deposited in the undersigned counsel’s trust account within thirty (30) days.”
Mr. Jones pointed to the Notice of Intent to Compromise Controversy (Notice) by the Trustee which contained the following language: “Defendants failure to deposit the above funds by the due date shall terminate this pending compromise automatically without further order of the Court and the case will be fully reinstated, including discovery.” In another paragraph, the notice stated that the “parties mutually agree to abate the above-pending adversary, including discovery, while notice of compromise is pending to all parties in interest and during the pending of any contested hearing on this Notice of Compromise.”
The motion filed on December 1, 1993 by Mr. Swann on behalf of the Defendants whom he represents tracks, almost word for word, the motion filed by Mr. Jones. On the same day, Mr. Joplin, on behalf of the Defendants whom he represents, filed a motion adopting Mr. Jones’ arguments. On December 10, 1993, Mr. Roberts, on behalf of the Defendant he represents, filed a similar motion adopting Mr. Jones’ arguments. The court heard the arguments of the parties on January 19, 1994. On January 20, 1994, Mr. Roberts filed a withdrawal of his motion.
DISCUSSION
This matter is governed by Rule 11 of the Texas Rules of Civil Procedure, which provides:
No agreement between attorneys or parties touching any suit pending will be enforced unless it be in writing, signed and filed with the papers as part of the record, or unless it be made in open court and entered of record.
Federal courts sitting in Texas are obligated to follow that rule. Anderegg v. High Standard, Inc., 825 F.2d 77 (5th Cir.1987), cert. denied, 484 U.S. 1073, 108 S.Ct. 1046, 98 L.Ed.2d 1009 (1988). The Fifth Circuit said: “We have held that Rule 11, although to be found among the Texas Rules of Civil Procedure, is nonetheless also a rule of substance akin to the parol evidence rule and applicable for that reason to Texas diversity cases tried in our federal court system” (citation omitted). Id. at 80.
In determining whether the settlement should be enforced, the court must look to the record made in open court, not to the subjective understandings of any party, nor to improvident statements made by the *26Trustee in the Notice. The Defendants agreed to a judgment and made promises to fund it. The Defendants having failed to make the promised payments, the court finds the judgments against them should be enforced. Kennedy v. Hyde, 682 S.W.2d 525, 526 (Tex.1984). An agreement announced on the record becomes binding even if a party has a change of heart after he agreed to its terms but before the terms are reduced to writing. In re Paolino, 78 B.R. 85, 89 (Bankr.E.D.Pa.1987). See also Kreidle v. Department of the Treasury (IRS) (In re Kreidle), 145 B.R. 1007, 1013 (Bankr.D.Colo.1992) (stating that oral stipulations made on the record cannot be withdrawn); and Federal Land Bank v. Cupples Farms (In re Cupples Farms), 128 B.R. 769, 773 (Bankr.E.D.Ark.1991) (finding that oral stipulations are binding).
The court has carefully reviewed the record of the July 27, 1993 hearing. The record clearly shows that the $250,000 was to be deposited to Mr. Jones’ trust account within 30 days. The obvious purpose of that was to ensure that the funds would be available when the releases were exchanged and the dismissal orders signed. Nothing in the record indicates that if the funds were not so deposited, the settlement was withdrawn or set aside. Further, nothing in the transcript of the July 27, 1993 hearing supports the Trustee’s statement that if the funds are not deposited, the compromise would automatically terminate.
The facts in this case are quite similar to those in White Farm Equip. Co. v. Kupcho, 792 F.2d 526 (5th Cir.1986) in which, following announcement of the settlement in open court, one party sought to escape his obligation by asserting that he would be unable to fund the settlement. He also raised various defenses to the settlement, including the fact that a settlement agreement had not been signed. The Fifth Circuit upheld the trial court’s judgment enforcing the settlement, stating:
This appeal unsuccessfully seeks to set aside a judgment enforcing a settlement agreement reached after the case was called for trial and thereafter read into the record and approved by the court. Litigants may not disavow compacts thus made and approved, for avoiding the bargain would undermine its contractual validity, increase litigation, and impair efficient judicial administration.
Id. at 528
Mr. Jones objected to the entry of a judgment against his clients on procedural grounds, but he does not suggest what procedure should be followed. Having failed to fulfill their agreement announced in open court, they should certainly not be surprised that this court entered a judgment against them. A federal court has the inherent power to enforce an agreement which settles litigation. Borden v. Banacom Mfg. & Mktg., Inc., 698 F.Supp. 121, 123 (N.D.Tex.1988). “Unless the defendants can demonstrate that the judgment differs materially from their agreement, or that their agreement was invalid under state law at the time it was made, a federal court may hold them to their word by incorporating the terms of their agreement into a final judgment.” White Farm Equip., 792 F.2d at 530. In the present case, the Defendants neither demonstrated that the judgment differs materially from their agreement nor did they allege that it was invalid under state law.
In argument, Mr. Swann asserted that the Defendants had an agreement that the $250,000 would be funded by Gerant and it would, therefore, be inequitable to sustain the joint and several judgment against all of the Defendants. This argument cannot be sustained for two reasons. First, it was not set forth in any of the pleadings filed by Mr. Swann. Second, the transcript of the July 27, 1993 hearing does not reflect any agreement among the Defendants as to the payment of the $250,000. The court asked if the Defendants had an agreement amongst themselves as to how the money was to be paid. Mr. Jones replied that they did, but he did not further elaborate. In agreeing to the settlement on the record, the attorneys for the various Defendants did not make any reference as to how much each of them was to pay toward the settlement fund. From the standpoint of the Trustee and Mr. Barnett, it makes no difference whether one or more of the Defendants makes the payment. *27A Defendant who pays the judgment can take appropriate action to seek contribution from the other Defendants.
CONCLUSION
The parties made a binding agreement, on the record, on July 27, 1993. The court holds that agreement should be enforced. The motions for rehearing will be denied.3
. This court has jurisdiction of this matter under 28 U.S.C. § 1334(b), 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(b)(1), (b)(2)(B), (F), and (H).
. At that time the bankruptcy proceedings of Omni Video, Inc. were pending in this court’s Abilene Division, Case No. 193-10077. The adversary proceeding was given an Abilene Division number, 193-1012. On August 8, 1993, the Omni Video, Inc. case was transferred to the Lubbock Division where it was given Case No. 593-50473 and this adversary proceeding was transferred to the Lubbock Division where it was given No. 593-5059.
. This Memorandum shall constitute Findings of Fact and Conclusions of Law pursuant to Fed. R.Bankr.P. 7052. This memorandum will be published. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491798/ | ORDER ON ESTIMATION OF CLAIMS
ALEXANDER L. PASKAY, Chief Judge.
THIS IS A confirmed Chapter 11 case and the matter under consideration is the estimation of the contingent and unliquidated claims filed by Accent Homes, Inc., Woodvale Management Corp., Woodvale at Cypress-head, Inc., Hearthstone at Cypresshead, Inc., Dupree General Contractors, Inc., Foglia Construction Company, Inc., and Foglia-Du-pree Custom Homes, by and through its general partners, Dupree General Contractors, Inc. and Foglia Construction Company, Inc. (Claimants) against the Chapter 11 Debtor, Barrett Home Corp., flk/a Arthur Rutenberg Corp. (Debtor). The claims un*52der consideration are basically a restatement of the claims filed by the Claimants in their suit against the Debtor in the Circuit Court of Broward County, Florida prior to the commencement of this Chapter 11 case. In the three count Complaint filed in that suit the Claimants sought money damages in Count I based on an alleged civil conspiracy between the Debtor and an entity known as Nar.co Realty, Inc. (Narco); in Count II on an alleged violation of Florida’s anti-trust statute, Fla.Stat. § 542.18; and, in Count III on an alleged violation of Fla.Stat. §§ 772.103, and 772.104, the Florida civil Rico Statute, rendering the Debtor liable for treble damages. The facts as established at the final evidentiary hearing can be summarized as follows:
At the time relevant, Narco was the developer of a project known as Cypresshead, a high-end residential development located in Broward County, Florida. In 1983 Cypress-head was in financial trouble due to the depressed real estate market resulting in lack of sales. In order to boost sales, Narco entered into an agreement (Main Agreement) with the Debtor. Narco hoped to salvage the project through its affiliation with the Debt- or, a well known, large scale builder of expensive homes, hoping that the Debtor’s participation in the project and its name and expertise would put the development on the right track. Pursuant to the Main Agreement, the Debtor agreed to permit the use of its name in advertising; to construct model homes, and also agreed to purchase up to 170 lots from Narco. In return, Narco agreed to spend certain minimum amounts to advertise the development, and to make lots available to the Debtor at prices below Narco’s standard builder’s price offered to other builders.
It appears that after the Debtor started its participation in the development pursuant to the Main Agreement, Narco called a meeting of numerous smaller builders, including the Claimants, to discuss a program for the sale of building lots to the builders in Cypress-head. At that meeting a representative of Narco represented to the Claimants that the Debtor was involved in the project and that it was paying the standard builders price for lots in Cypresshead. It is alleged that a representative of the Debtor attended at least one meeting and remained silent and did not correct the statement when the statement concerning the lot prices was made by the representative of Narco. Notwithstanding, it is without dispute that pursuant to an addendum to the Main Agreement, Narco agreed to discount the sales price of the lots purchased by the Debtor and the Debtor did, in fact, receive a discount on the lot sales and did not pay the standard builders price paid for lots by other builders. It is further without dispute that the documentary stamps on the deeds involving the lot sales by Narco to the Debtor indicated a higher purchase price than was actually paid by the Debtor. It is equally true, however, that this was not the idea of the Debtor and was done at the insistence of Narco to do so for reasons not clear from this record. Be that as it may, this Court is satisfied that this was not part of any grand scheme of conspiracy and certainly not done to defraud these claimants. Out of the 170 deeds which were recorded by the Debtor, only one deed was said to have been actually examined by the Claimants pri- or to the commencement of this litigation.
Concerning the basis of the claims asserted by the Claimants seriatim, this Court is satisfied that this record does not support a civil conspiracy between Narco and the Debtor but is really nothing but a sound advantageous business relationship to both Narco and the Debtor and not entered into with the aim to harm anyone but merely to assist a successful development of the project. The fact, if it is a fact, that at the meeting described earlier a representative of the Debtor failed to speak up and contradict the representative of Narco concerning the alleged statement that the Debtor pays the standard contractors price for the lots is of no consequence. This is so because even if it is true, the silence or failure to speak up did not amount to an actionable fraud because there was no duty to speak on the part of the representative of the Debtor and absent a duty imposed by law, mere silence and failure to disclose material facts falls short of establishing false representations. In re Cifalia, 124 B.R. 124, 126 (Bankr.M.D.Fla.1991). In the instant case, there was no fiduciary relationship between the Claimants *53and the Debtor which would give rise to an affirmative duty to speak.
The Claimants have also asserted that the actions of the Debtor in recording documentary stamps which reflect a price higher than that which was actually paid is evidence of a civil conspiracy between the Debtor and Narco which fraudulently induced the Claimants into further investment at Cypresshead. This contention is likewise without merit. To prevail on such a claim, the Claimants must demonstrate an affirmative misstatement on the part of the Debtor upon which the Claimants relied to their material detriment. Assuming arguendo that the recording of the documentary stamps was an affirmative misstatement, the Claimants have failed to show any reliance on the documentary stamps which did not truly reflect the price paid by the Debtor. The evidence demonstrated that only one of the one hundred-seventy deeds recorded was in fact examined.
Next, the allegation that the Main Agreement between Narco and the Debtor resulted in restraint of trade in violation of the anti-trust statute of this State, Fla.Stat. § 542.18 is equally without merit.
FlaStat. § 54,2.18. Restraint of trade or commerce.
Every contract, combination, or conspiracy in restraint of trade or commerce in this state is unlawful.
As noted in the case of St. Petersburg Yacht Charters v. Morgan Yacht, 457 So.2d 1028 (Fla.App. 2 Dist.1984), “horizontal restraints” are those imposed within the distribution level, e.g., by some dealers refusing to sell to other dealers. Vertical restraints, even assuming such exists, are not considered to be per se anti-trust violations.
In the present instance, Narco did not refuse to sell lots to the Claimants and the fact that the Debtor had some competitive advantage by obtaining lots for a price less than the claimants were required to pay, is insufficient to establish a violation of the Statute.
The test for whether or not the conduct of the Debtor offends Fla.Stat. § 542.18, Florida’s Antitrust statute, is governed by the “rule of reason.” This test is applied to conduct or transactions which are otherwise lawful, even though they might appear to have an anticompetitive effect. St. Petersburg Yacht Charters, Inc. v. Morgan Yacht, Inc., 457 So.2d 1028 (Fla. 2d DCA 1984). Under the rule of reason test, alleged antitrust violations require proof relating to the anticompetitive effects of the conduct alleged, but the Court is required to “weigh all of the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition.” Continental T.V. Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 49, 97 S.Ct. 2549, 2557, 53 L.Ed.2d 568 (1978).
When one applies the rule of reason test to the facts of the case at hand, any anticompet-itive effects of the price differential in the lot sales are far outweighed by the legitimate economic business reasons which Narco had in offering to sell the lots to the Debtor at a price lower than the price the Claimants were required to pay. It is undisputed that the ability of the Debtor to purchase lots at a price lower than that paid by the Claimants gave the Debtor a competitive advantage in the Cypresshead development. However, there were certain undertakings and obligation assumed by the Debtor which were not assumed by the Claimants. For instance, the Debtor, pursuant to its Main Agreement with Narco, was required to purchase one hundred and seventy lots and was required to build, furnish and to staff model homes. No similar obligations were required of the Claimants. In fact, the Debtor’s requirement to build model homes may have produced a procompetitive effect rather than anticompetitive because model homes would enhance the attractive nature of Cypresshead and thus would benefit all the builders including the Claimants at Cypresshead.
Also, it should be noted that Narco brought the Debtor into the Cypresshead development at a time when the entire project was in extreme financial difficulty and was at the verge of collapse under these extreme conditions. It was reasonable for Narco to seek out a developer with superior prestige and expertise in order to save a *54failing development. Based on the foregoing, this Court is satisfied that the Debtor is not hable to the Claimants under Fla.Stat. § 542.18 for any antitrust violations.
The Claimants’ allegations that the Debtor violated the Florida Civil RICO statutes are likewise without merit. Fla.Stat. § 772.103 states:
Fla.Stat. § 772.103 Prohibited activities.
It is unlawful for any person: who has with criminal intent received any proceeds derived, directly or indirectly, from a pattern of criminal activity ...
Fla.Stat. § 772.104 Civil cause of action. Provides that
any person who proves by clear and convincing evidence that he has been injured by reason of any violation of the provisions of s. 772.103 shall have a cause of action for threefold the actual damages sustained
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Fla.Stat. § 772.104 clearly indicates that the burden of proof to establish a viable claim pursuant to § 772.104 requires clear and convincing evidence to show that the person charged with engaging in prohibited activities had a criminal intent and received proceeds from a pattern of criminal activity. There is nothing in this record which warrants that the Debtor acted with criminal intent and, moreover, the record is devoid of any evidence that the Debtor was engaged in a pattern of criminal activity both of which are indispensable elements of a viable claim under § 772.104.
The Debtor’s participation in the Cypress-head development was nothing but an economically sound business undertaking, i.e., building upscale homes in the project. Its Agreement with Narco had none of the characteristics of a classic criminal pattern required under this Statute.
In sum, this Court is satisfied that the claimants equally failed to establish a viable claim under § 772.103 and § 772.104.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the estate is not hable to the Plaintiffs and, therefore, it is not necessary to proceed to estimate their claims.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491801/ | ORDER STRIKING COUNTER-COMPLAINT
MARY D. SCOTT, Bankruptcy Judge.
THIS CAUSE is before the Court upon a sua sponte review of the file. On February 1, 1994, the Pine Bluff Arsenal Federal Credit Union filed a motion for relief from stay, to which the debtor filed, on March 8, 1994, a response and, contained in the same document, a “Counter-Complaint for the Return of Property to the Debtor’s Estate.” The Pine Bluff Arsenal Federal Credit Union filed a response to the “counter-complaint” on March 11, 1994.1
The matters raised in the counter-claim are properly raised in an adversary proceeding, but are improperly filed within the context of the motion for relief from stay. See Hancock Bank v. Jefferson, 73 B.R. 183, 185 (S.D.Miss.1986); National Westminster Bank, U.S.A. v. Ross, 130 B.R. 656, 670 (S.D.N.Y.1991). Accordingly, the portion of the pleading setting forth a counter-claim will be stricken from the response, see Fed.R.Bankr.Proc. 7012, without prejudice to the debtor filing a proper adversary proceeding.
ORDERED that the “Counter-Complaint for the Return of Property to the Debtor’s Estate,” contained within the Response to Motion for Relief From Stay,” filed on March 8, 1994, is hereby stricken from the Response.
IT IS SO ORDERED.
. This Court has addressed issues similar to those raised by the parties in In re Washington, 137 B.R. 748 (Bankr.E.D.Ark.1992). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491802/ | MEMORANDUM DECISION
STEVEN H. FRIEDMAN, Bankruptcy Judge.
Thomas L. Schreiber and Jane L. Schreiber (“Creditors”) seek in their Amended Creditors’ Complaint Objecting to Discharge of Debtor to have their claim in the amount of $20,000.00 excepted from discharge under 11 U.S.C. §§ 523(a)(2)(A) and (a)(4). Ronald E. Selby (“Debtor”) has answered and the matter was tried on February 28, 1994.
In Count I of their complaint, Creditors seek relief under Section 523(a)(2)(A) for sums advanced based upon Debtor’s false representations. In Count II, Creditors seek relief under Section 523(a)(4) based upon Debtor’s fraud while acting in a fiduciary capacity. The Court, having considered the testimony, the evidence presented, the candor and demeanor of the witnesses, and the arguments of counsel, concludes that Creditors have failed to prove that their claim should be excepted from Debtor’s discharge.
Debtor has been a resident of the State of Florida since 1974, conducting business as a real estate investor under the corporate name of Property Finders, Inc. until January of 1993.1 Debtor met Creditors several years prior to the transaction which is the subject of the instant adversary proceeding, when Creditors were in the market for the purchase of a residential condominium. On that occasion, Debtor, as a registered Florida real estate broker, acted in said capacity on behalf of Creditors. Thereafter, Debtor and Creditors2 jointly invested in various parcels of real estate.
At some point in late 1986 or early 1987, Debtor approached Creditors concerning a possible investment in an apartment complex in Fort Lauderdale, Florida, known as the Bayview Apartments. Debtor proposed that Creditors would invest $20,000.00 relating to the subject property. In exchange, Creditors were to receive a $26,000.00 promissory note from Debtor bearing ten (10%) percent interest, secured by a mortgage on the subject real property, which investment was to *302be repaid within eighteen months. In addition to payment of the $26,000.00 plus interest, Debtor agreed to pay Creditors twenty percent of the profit derived from the anticipated sale of the apartment complex (PI. Comp.Exh. No. 1-12, P. 2). At the time that Debtor proposed this transaction to Creditors, and at all times thereafter until May, 1989, Debtor did not own the subject apartment complex or hold title thereto, but rather, held a Contract for Deed for the property, granted to him by Joseph and Lillian Citta, the actual title holders (Pl.Comp.Exh. 1-S-l). Contemporaneously with the discussions between Debtor and Creditors concerning the real estate investment, Creditors did pay Debtor $20,000.00 (Def.Exh. 2).3
After the $20,000.00 payment by Creditors, and contrary to the terms of his agreement with Creditors, Debtor did not grant a mortgage in favor of Creditors to secure repayment of the $20,000.00 advanced by Creditors. Thereafter, Debtor was unable to repay his indebtedness to Creditors, ultimately precipitating legal action to enforce collection of the debt. Debtor contends that he deferred conveyance of the mortgage, and was unable to repay his indebtedness, due to the failure of the apartment complex investment. Debtor further contends that it was always his intent to grant a mortgage in favor of Creditors after the property had been refurbished, and after title to the property had been conveyed in fee to him. However, as a result of the project’s failure, Debtor could not obtain the funds necessary to pay the first mortgage of approximately $260,000.00 encumbering the apartment complex. Consequently, Debtor was unable to obtain title in fee to the property, and was also unable to grant a mortgage in favor of Creditors. In lieu of the project’s failure, Debtor granted a substitute mortgage to Creditors, encumbering a parcel of real property owned by Debt- or in Kentucky (Def.Exhs. 1 and 3). Debtor testified that the value of the Kentucky property against which Creditors’ mortgage was granted equals $40,000.00, thereby providing ample collateral for repayment of the debt due Creditors. On cross-examination, Debt- or did acknowledge that the tax bill for the Kentucky real property, reflecting an assessed value of $19,000.00, actually encompassed three parcels, and that Creditors were granted a mortgage against only one of the three parcels, thereby discrediting Debt- or’s testimony that the single parcel of Kentucky property against which a mortgage was granted in favor of Creditors had a value of $40,000.00.
For a debt to be excepted from discharge under Section 523(a)(2)(A), a creditor has the burden of proving each element of Section 523(a)(2)(A) 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 bankruptcy court to determine that a particular debt is non-dischargeable because of a debtor’s false representation, a creditor must prove the following elements:
[t]he debtor made a false representation with the purpose and intention of deceiving the creditor; the creditor relied on such representation; his reliance was reasonably founded; and the creditor sustained a loss as a result of the representation.
In re Hunter, 780 F.2d 1577, 1579 (11th Cir.1986); In re Mullin, 88 B.R. 454 (Bankr.S.D.Fla.1988). Creditors have failed to meet their burden of proof.
In an attempt to prove its case, Creditor introduced many documents. However, only Debtor’s November 1, 1986 correspondence to Raymond L. Schreiber (PI. comp, exh. 1-23) could be construed as a misrepresentation by Debtor. In that letter, Debtor represented to Creditor, Raymond Schreiber, that he had “acquired the property and done extensive refurbishing”, and also that “[y]our share of the property would be $20,000.00 which we would secure by a purchase money market on the property.” Assuming arguen-do that this letter establishes that Debtor did make a false representation, Creditors did *303not establish that the false representation was made with an intent to deceive Creditors, or that Creditors relied upon Debtor’s statements. The evidence of Debtor’s intent indicates that, at all times during the course of the transaction, Debtor acted in good faith. He attempted to live up to his obligations due Creditors by making the required interest/instalment payments due on the $20,-000.00 loan (Pl.Comp.Exhs. 1-5, 1-6, 1-7, 1-8, 1-9). More significantly, when Debtor realized that he would be unable to acquire the Bayview Apartment complex, he provided Creditors with substitute collateral for the loan (Def.Exh. 3). The failure or inability of Debtor to grant a mortgage against the Bay-view Apartment complex is not an actionable misrepresentation under Section 523(a)(2)(A). As stated in Matter of Bercier, 934 F.2d 689, 692 (5th Cir.1991):
“false representation” or “false pretense”, within the meaning of the statutory exception to discharge, must encompass statements that falsely purport to depict current or past facts; A promise related to future action, which does not purport to depict current or past facts, is not sufficient to trigger the exception.
In addition, there is no evidence that Creditors relied upon the representations of Debt- or with regard to either his purported ownership of the apartment complex, or his intent to grant a mortgage in favor of Creditors. Creditor, Jane Sehreiber, admitted that she had no direct contact with Debtor in conjunction with the consummation of the transaction at issue. Rather, her late husband acted on her behalf in dealing with Debtor. Furthermore, although the other witnesses called on behalf of Creditors testified as to the circumstances surrounding the subject transaction, none provided testimony that Creditors relied upon the representations of Debtor in advancing the $20,000.00 at issue. Also, there exists insufficient evidence to enable this Court to infer that Debtor made representations to Creditors with an intent to deceive.
Creditors also claim that the $20,-000.00 debt is nondischargeable under Section 523(a)(4), because Debtor perpetrated a fraud upon them while acting in a fiduciary capacity as their real estate broker. Debtor may have owed Creditors a fiduciary duty as a co-venturer, but not as a real estate broker, as in the instant transaction, Debtor clearly was not acting as a broker. Malkus v. Gaines, 476 So.2d 220 (3rd DCA 1985). However, sub judice there was no evidence that Debtor committed a fraud upon Creditors, as there was no proof that Creditors relied upon the Debtor’s false representation. Accordingly, Creditors’ exception to discharge under Section 523(a)(4) likewise fails.
A separate judgment will be entered determining the $20,000.00 obligation owed by Ronald E. Selby to the Schreibers to be discharged.
DONE and ORDERED.
JUDGMENT
In Accordance with this Court’s Memorandum Decision, it is hereby
DECREED, ORDERED and ADJUDGED that Judgment is granted in favor of Defendant RONALD E. SELBY against Plaintiffs THOMAS L. SCHREIBER, as Personal Representative of the Estate of RAYMOND L. SCHREIBER, Deceased, and JANE L. SCHREIBER, determining the $20,000.00 obligation owed by the Defendant to the Plaintiffs to be discharged.
DONE and ORDERED.
. Although Property Finders, Inc. ostensibly is the corporate entity which transacted business with the Creditors, and which was a participant in the transaction at issue, the parties do not distinguish the activity of the corporate entity from the Debtor. Accordingly, for purposes of this opinion, the Court treats Property Finders, Inc. as the alter ego of the Debtor.
. Creditors Raymond L. Schreiber and Jane L. Schreiber initiated this adversary proceeding on August 18, 1993. Raymond L. Schreiber subsequently died on August 29, 1993, and Thomas L. Schreiber, as his personal representative, was substituted as a party plaintiff.
. Actually, the $20,000.00 investment received by the Debtor was made in the name of Raymond Leo Schreiber and Jane Louise Schreiber, as Co-Trustees VDT June 14, 1971. At the conclusion of Creditors' case, the Debtor moved for dismissal based upon a lack of standing by Creditors to institute this adversary proceeding. In light of the Court’s ruling on the merits (as if the Creditors did have standing to institute this action rather than trust), the Debtor’s motion for dismissal based upon Creditors’ lack of standing becomes moot. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491809/ | ORDER
GEORGE C. PAINE, II, Chief Judge.
This matter is before the court on Boult, Cummings, Conners & Berry’s (“BCCB”) objection to the defendants’ Motion to Compel BCCB to Produce Subpoenaed Documents. BCCB’s objection raises the issue of whether an attorney can assert a retaining hen on subpoenaed documents that relate to a confirmed plan of reorganization in bankruptcy. Upon consideration of the relevant authorities, the court sustains BCCB’s objection and concludes that an attorney’s retaining hen is enforceable even though it may impact or even hinder a plan of bankruptcy reorganization. The following constitutes findings of fact and conclusions of law pursuant to Fed. R.Bankr.P. 7052.
FACTS
The relevant facts are not in dispute. The plaintiff, Mt. Pleasant Health Care Acqui-rors, Inc. (“Mt. Pleasant”), originally brought this adversary proceeding asking the court to direct the defendants, Hidden Acre Associates (“the Debtor”), The Fellowship for the Humanities (“FFH”), and other individuals related to these entities to perform certain tasks necessary to execute a plan of reorganization proposed by Mt. Pleasant.
On August 18, 1992, this court entered an order confirming Mt. Pleasant’s reorganization plan. Under the plan, Mt. Pleasant purchased all of the assets of the Debtor, consisting of a nursing home and the assets of FFH, a wholly-owned subsidiary of the Debtor. The plan further provided that defendants Gary T. Freeman and James S. Self, Jr., the general partners of the Debtor, would agree to assist Mt. Pleasant in the transfer of ownership and operation of both the Debtor and FFH. On March 9, 1993, in response to Mt. Pleasant’s “Motion for Order Directing Debtor and Other Necessary Parties to Assist in Implementation of Plan,” this court ruled that any person or entity that failed to cooperate or assist in the plan’s implementation would receive no payment under the plan.
*844Pursuant to the terms of the plan and this court’s subsequent order to assist, Mt. Pleasant directed the officers and directors of FFH to deliver copies of all corporate records of FFH to Mt. Pleasant. In compliance, defendant Self and defendants Srouji and Kennedy, president and secretary of FFH respectively, issued a Subpoena to BCCB on June 29, 1993. The Subpoena demanded the production of the bylaws and the minute book of FFH and any record or document indicating the qualifications for members of the Board of Directors of FFH. On July 2nd, BCCB filed an Objection to Subpoena and refused to produce the requested documents.
In response, on July 27th, defendants Srouji and Kennedy filed the Motion to Compel currently before this court, requesting an order that BCCB produce for inspection and review the documents subpoenaed. In objecting to the defendants’ Subpoena and Motion to Compel, BCCB claimed to hold an attorney’s retaining hen on the requested documents. Originally, the firm of Dearborn & Ewing was counsel for FFH. As FFH’s counsel, Dearborn & Ewing prepared and possessed the bylaws, the minute book, and the other legal papers requested for production. BCCB became the assignee of Dear-born & Ewing’s account receivable from FFH. Currently, the FFH account has an outstanding fee owed to BCCB in the amount of $7,390.08 for services rendered to FFH. BCCB, therefore, asserted a retaining hen in the amount of $7,389.08 on the requested records of FFH.
DISCUSSION
Tennessee law clearly provides for a retaining hen on a chent’s papers. In McDonald v. Charleston, C. & C.R. Co., 24 S.W. 252, 255-56 (Tenn.1893), the Tennessee Supreme Court held:
The law is that an attorney, in the absence of any contract to that effect, has a general or retaining hen for a general balance due him arising out of his professional employment upon all papers of his chent which come into his possession in the course of his professional employment. This hen is one in which there is no right of sale. The attorney simply can detain the papers from his chent, and the hen is valuable to the extent the papers are necessary and indispensable to the chent, or, as stated in some of the cases, to the extent the chent can be worried thereby. It is a hen which cannot be actively enforced, and amounts simply to a mere right to retain the papers until a settlement and payment is made.
See also 3 Tenn.Jur. Attorney and Client § 21 (1982).
Dearborn & Ewing originally prepared and possessed the requested records for their chent, FFH. BCCB properly asserted the retaining hen as assignor of Dearborn & Ewing’s possessory rights to these records and right to payment of the account receivable from FFH.
In a bankruptcy context, the court in In re San Juan Gold, Inc., 96 F.2d 60, 60 (2nd Cir.1938), enforced an attorney’s retaining hen even though failure to secure the retained documents would impede the debt- or’s plan of reorganization. In San Juan, access to the debtor’s books and records was necessary to properly carry out the debtor’s reorganization. Id. The court, nevertheless, held that the attorney’s retaining hen on these records should not be disregarded. Id. The court ordered the papers “delivered up upon condition that the fee be paid or security given for such sum as may be found to be due.” Id.
The holding of the Tennessee Supreme Court in McDonald, 24 S.W. at 256, further indicates that an attorney’s retaining hen will be lost not only if the records are physically surrendered in response to a subpoena, but also if the court permits inspection of the records pursuant to a discovery motion. As the court stated, the attorney’s retaining hen is valuable only to the extent that it prevents the chent from accessing “necessary and indispensable” papers. Id. The chent must be “worried” by the hen for it to have any value to the attorney. Id.
Consequently, if the defendants in the present case were ahowed to inspect and review the requested documents whenever they desired, the hen would cease to have any value. The attorney would be compelled *845to let the client inspect the records and would be left to the task of merely storing the documents, thus having no recourse to collect his unpaid fee. See also Bulk Oil Transports, Inc. v. Robins Dry Dock & Repair Co., 277 F. 25, 30-31 (2nd Cir.1921); Brauer v. Hotel Assocs., Inc., 40 N.J. 415, 192 A.2d 831 (1963). For the foregoing reasons, the court denies Selfs Motion to Compel BCCB to Produce the Subpoenaed Documents absent a provision to pay BCCB the $7,389.08 currently due as an account receivable from FFH.
The court hands down this decision, however, with the following limitation on its holding. Neither FFH nor the individual defendants seeking the records were the Debtor. Rather, this was a dispute among non-debtors who were involved in and impacted by the Debtor’s reorganization. Had this involved the Debtor seeking its own records, the court would have faced a different issue and a potentially different result.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491810/ | MEMORANDUM DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGEMENT
GEORGE C. PAINE, II, Chief Judge.
I. INTRODUCTION
Pepper/Holt Joint Venture, the plaintiff, has initiated this adversary proceeding against Roderick Group, Inc. and its wholly owned subsidiary, Hodevco, Inc., the debtor, to resolve a dispute regarding each party’s interest in a certain promissory note that is the debtor’s sole asset. Before the court is the plaintiffs motion for summary judgement. For the reasons stated in this memorandum, the court finds that the motion should be denied.
The following constitute findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052.
II. FINDINGS OF FACT
The following relevant facts are not in dispute. On March 1, 1987, Pepper/Holt Joint Venture entered into a contract with Hospital Affiliates Development Corporation (“HADC”) for the construction of the Edward Medical Mall in Naperville, Illinois. Pepper/Holt was the general contractor, and HADC was the developer of the construction project.
Following completion of the project, HADC failed to pay Pepper/Holt a total of $133,919.59 that HADC received from the owner of the property for construction services performed by Pepper/Holt. This violated the construction contract between Pepper/Holt and HADC, and on February 13, *8571990, Pepper/Holt filed a demand for arbitration against HADC.
Beginning in December, 1989, HADC entered into a series of transactions in which it sold all of its assets, including its name, to HADC of Indiana. Following the sale, HADC changed its name to Hodevco, Inc., the debtor. In return for the sale of all of its assets to HADC of Indiana, the debtor received a promissory note in the amount of $150,000 from HADC of Indiana. Under the note, the debtor was to receive twelve quarterly payments of $12,500 principal plus ac- • crued interest beginning on March 31, 1992 and ending on December 31, 1995.
On January 1, 1990, in connection with its sale of assets, the debtor pledged the $150,-000 promissory note from HADC of Indiana to its parent, Affiliates Group, Inc. (“AGI”), in exchange for an $872,503 loan from AGI. The debtor executed both a Demand Note evidencing the $872,503 loan from AGI and a Security Agreement assigning AGI a security interest in the promissory note as collateral on the loan. AGI later changed its name to Roderick Group, Inc. (“RGI”), one of the defendants.
Following arbitration, Pepper/Holt sued the debtor in Illinois state court. On July 9, 1991, the Illinois court entered a judgement against the debtor for $133,919.59 plus costs. On September 26, 1991, the First Circuit Court of Davidson County, Tennessee entered an order making the Illinois court’s judgement a judgement of the Tennessee court.
On March 25,1992, Pepper/Holt attempted to collect on this judgement by garnishing the $150,000 promissory note. At the time of the garnishment and at all times prior to bankruptcy, the debtor was in possession of the note and was its designated payee. Moreover, the first $12,500 quarterly principal payment plus accrued interest was set to come due on March 31, 1992.
Notice of the garnishment was sent to HADC of Indiana as maker and payor under the note. HADC of Indiana honored the garnishment by paying over to the First Circuit Court of Davidson County, Tennessee, the quarterly payments under the note as they came due. HADC of Indiana made three payments to the circuit court of $12,500 plus interest being the March 31, June 30, and September 30, 1992 quarterly payments. These payments were all apparently received by Pepper/Holt.
On October 23, 1992, Hodevco filed Chapter 7. All post-petition note payments have been paid to the Chapter 7 trustee.
On December 31, 1992, Pepper/Holt initiated this adversary proceeding against RGI and the debtor seeking the following relief: (1) declare that the garnished portion of the promissory note is not property of the bankruptcy estate and is not subject to a priority claim of RGI, (2) set aside RGI’s security interest in the note as a fraudulent transfer from the debtor to RGI, and (3) subordinate RGI’s security interest in the note to that of Pepper/Holt. On April 7, 1993, Pepper/Holt, as plaintiff, moved for summary judgment on only one issue related to the first prayer for relief set out above.
III. CONCLUSIONS OF LAW
A. Summary Judgement Standard
Bankruptcy Rule 7056 states that Federal Rule of Civil Procedure 56, governing summary judgments, applies in adversary proceedings. Rule 56 provides:
The [summary] judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.
Fed.R.Civ.P. 56(e) (West 1993).
Rule 56(c) sets forth a two-pronged test. The first question is whether there is a genuine dispute regarding a fact that is material to the case. The second question is, if there is no factual dispute, whether the moving party is entitled to a judgment under the law.
The court finds no dispute regarding the material facts of this case as set forth above. However, the court concludes that summary *858judgement on the issue raised in the plaintiffs motion is inappropriate.
B. Discussion
The sole issue raised in the plaintiffs motion for summary judgment is whether Pepper/Holt’s pre-petition garnishment of the promissory note precluded the note’s post-petition payment stream from becoming property of the bankruptcy estate. Pepper/Holt contends that the pre-petition garnishment divested the debtor of all legal rights to receive payments under the note. Consequently, under 11 U.S.C. § 541(a)(1), the note’s post-petition payment stream did not become property of the estate.
The court disagrees with Pepper/Holt’s argument on summary judgement and finds that the entire post-petition payment stream under the note is property of the bankruptcy estate. Accordingly, the plaintiffs motion for summary judgement is denied.
Under § 541(a)(1), “all legal or equitable interests of the debtor in property as of the commencement of the case” become property of the bankruptcy estate. While § 541(a) defines what interests of a debtor may become property of the bankruptcy estate, state law determines what legal or equitable interests a debtor possessed at the time of filing. E.g., In re Terwilliger’s Catering Plus, Inc., 911 F.2d 1168, 1172 (6th Cir.1990); In re Farmers Markets, Inc., 792 F.2d 1400, 1402 (9th Cir.1986).
Tennessee law recognizes several legal interests which the debtor retained in the promissory note. The facts show that prior to filing the debtor was in possession of a promissory note from HADC of Indiana and was its designated payee. This note can be classified as an “instrument” under Tenn. Code Ann. § 47-9-105(1)® because it was a “writing which evidences a right to the payment of money ... and is of the type which is in ordinary course of business transferred by delivery with any necessary endorsement or assignment.” Further, under Tenn.Code Ann. § 47-1-201(20), “a person who is in possession of ... an instrument ..., issued or endorsed to him or to his order or to bearer or in blank,” is a “holder” of that instrument. Since the debtor was in possession of an instrument, i.e. the note, and was its designated payee, the debtor was the “holder” of the note.
A holder of a note has the right to transfer or negotiate the note and the right to enforce payments on the note against its maker. Tenn.Code Ann. § 47-3-301. The debtor thus retained the legal right to enforce payment of the note against HADC, its maker. This right is a legal interest recognized by Tennessee law. Assuming the debt- or retained this legal interest as holder upon filing bankruptcy, this interest became property of the estate under § 541(a)(1).
Nothing occurred prior to the debt- or’s bankruptcy to divest the debtor of his legal interest as holder of the note. The debtor filed bankruptcy on October 23, 1992. Prior to this, around January of 1990, the debtor pledged the promissory note as collateral on a loan from its parent, RGI. The debtor retained possession of the note and did not endorse it over to RGI. RGI’s security interest in the note, therefore, did not divest the debtor of its legal interest as holder and payee of the note.
On March 25, 1992, also prior to bankruptcy, Pepper/Holt attempted to garnish the promissory note to collect the $133,919.59 judgement received in state court. Similarly, this garnishment did not divest the debtor of its legal interest in the note because Pepper/Holt failed to properly garnish the note under Tennessee law.
For a judgement to be properly attached to an instrument by garnishment, the gar-nishor must follow the formalities of Tenn. Code Ann. § 29-7-105 which states:
“The garnishee shall not be made liable upon a debt due by negotiable or assignable paper, unless such paper is delivered, or the garnishee [is] completely exonerated or indemnified from all liability thereon, after he may have satisfied the judgement or decree.”
This statute was originally codified in May of 1858 as § 3495 of the Code of Tennessee and has remained unchanged since then. Since its codification, two early cases, Matheny v. Hughes, 57 Tenn. (10 Heisk.) 401 (1873) and Pickier v. Rainey, 51 Tenn. (4 Heisk.) 335 *859(1871), explained how to effect the attachment of a note by garnishment. In construing § 3495 of the Tennessee Code, these cases held that a judgement can attach to a note by garnishment only if the garnishor: (1) becomes the holder of the note by court order or otherwise or (2) agrees to indemnify the garnishee against future liability under the note to the holder. Matheny, 57 Tenn. (10 Heisk.) at 403-4; Pickler, 51 Tenn. (4 Heisk.) at 341. See also Sentinel Fire Ins. Co. v. Nall, 166 Tenn. 647, 64 S.W.2d 505, 506 (1933); Kimbrough v. Hornsby, 113 Tenn. 605, 84 S.W. 613, 615 (1905); Thompson’s Shannon’s Code of Tennessee, § 5255, ann. 2 (1896). Failure to follow these formalities will result in the discharge of the garnishment against the note. Hughes v. Powers, 99 Tenn. 480, 42 S.W. 1, 2 (1897).
The rationale behind the requirements of Tenn.Code Ann. § 29-7-105 is clear. Since under Tenn.Code Ann. § 47-3-301 the holder may enforce payment of a note against the maker, payment to anyone other than the holder will subject the maker to double liability. The garnishment of a note to collect on a judgement is no defense to the maker’s legal obligation to pay the holder of the note. However, if the garnish- or becomes either the holder of the note or agrees to indemnify the garnishee, the garnishee can pay the garnishor and is protected against double liability. If these formalities are not followed, the garnishment will not attach the judgement to the note. In summary, one of the purposes of Tenn.Code Ann. § 29-7-105 is to make Tennessee’s garnishment laws conform with the rights of a holder of a note set forth in Tenn.Code Ann. § 47-3-301. See Matheny, 57 Tenn. (10 Heisk.) at 404-5; Kimbrough, 84 S.W. at 615; Thompson’s Shannon’s Code of Tennessee, § 5255, ann. 2 (1896).
In its attempt to garnish the note, Pepper/Holt served notice of the garnishment on HADC of Indiana, the garnishee. HADC honored the garnishment by paying three quarterly payments of principal and interest to the circuit court, later collected by Pepper/Holt. Pepper/Holt, however, never became the holder of the note, nor did they agree to indemnify HADC against double liability to the debtor. At the time of Pepper/Holt’s garnishment and at all times prior to filing bankruptcy, the debtor remained holder and payee of the note.
Consequently, Pepper/Holt’s attempted garnishment failed to attach the judgement to the note. Pepper/Holt’s actions never disturbed the debtor’^ legal right to receive payments under the note as holder and payee. Since this right is a legal interest recognized by Tennessee law, the debtor’s right to receive payments under the note became property of the bankruptcy estate upon the debtor’s filing under § 541(a)(1). Accordingly, the Chapter 7 trustee has the right to collect and retain the post-petition payment stream made under the note by HADC of Indiana. For the foregoing reasons, Pepper/Holt is not entitled to judgment as a matter of law on the issue raised in its motion for summary judgement.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491811/ | MEMORANDUM OF DECISION ON APPLICATION TO EMPLOY COUNSEL
BRETT J. DORIAN, Bankruptcy Judge.
Debtors James G. and Patricia G. Francis (“the debtors”) filed a chapter 11 petition in propria persona on July 21, 1993. On December 15, 1993, the debtors filed an application to employ the law firm of Kimble, Mac-Michael & Upton (“the firm”) as legal counsel. The firm presently represents as bankruptcy counsel the debtors’ wholly owned corporation, James G. Francis Contractor, Inc., (“the corporation”) in a chapter 7 proceeding also pending in this court as case number 189-01769-B-7K. The corporation’s case was originally filed as a chapter 11 on April 21, 1989, but was subsequently converted to a chapter 7 on April 14, 1992.
The debtors’ application recites that they be permitted to employ the firm not only for its skill and experience in representation of chapter 11 debtors but also because the firm has gained through its representation of the corporation in the corporation’s bankruptcy proceeding specific knowledge that relates to the debtors in this case, factors which would permit efficient and economical handling of this matter.
The debtors assert that there is nothing improper in the firm’s representation of both debtors, especially in view of the fact that the chapter 7 trustee in the corporate case is represented by his own attorney. Also, it is anticipated that efforts will be undertaken to re-convert the corporate case to a chapter 11 and to deal with debts identical in both cases in a uniform fashion. The debtors also note that they do not intend to seek removal of the trustee if the corporate case is reconverted.
The declaration of the firm filed in support of the debtors’ application discloses its ongoing representation of the corporation and the fact that a former associate of the firm who made at least one appearance on behalf of the corporation is now a staff attorney in the local office of the United States Trustee. The firm also notes that it will represent the debtors in compliance with the Rules of Professional Conduct of the California State Bar regarding conflicts and confidentiality and would seek appropriate waivers or withdraw should an actual conflict arise.
The chapter 7 trustee (“the trustee”)1 in the corporate case and the United States Trustee (“the UST”) have objected to the employment application.
The trustee asserts that the firm’s concurrent representation of the debtors in both eases presents substantial inherent and actual conflicts of interests which, in the trustee’s view, threaten his ability to administer the estate and to recover assets. He states that the affairs of the two debtors are complex and intertwined and involve substantial amounts of jointly owned real and personal property. He further asserts a “belief’ that there may be conflicts between the two debt*931ors with respect to numerous items of property. The matters noted by the trustee involve, essentially, alleged acts on the part of Mr. Francis of improper dealings with corporate assets and of receiving funds arising from the use of purported corporate property-
The court files with regard to both bankruptcy proceedings reveal that as yet the trustee has filed no litigation with respect to these assertions despite the passage of many months since his appointment in July 1993. The trustee’s objections were not accompanied by a declaration; and his purported factual allegations, with the exception of procedural events reflected by the case file in the corporate bankruptcy, are wholly without any competent evidentiary basis.
The thrust of the trustee’s objection is that allowing the firm to represent the individual debtors as well as the corporate debtor would allow the same attorneys to represent parties with adverse interests.
The objections of the UST essentially parallel those of the trustee that dual representation will create a conflict. The UST states that after conversion of the corporate case to a chapter 7, Mr. Francis continued to act on behalf of the corporation, including accessing bank accounts and signing contracts, and that Mr. Francis is liable to the corporate estate for damage incurred as a result of his conduct.
These, however, are allegations at this point, not proven facts. While there is a suggestion that the corporate estate has sustained some damage, the matter remains one of pure speculation. It could well turn out that Mr. Francis’ conduct benefitted the bankruptcy estate or was at least intended to do so. A three-page declaration under penalty of perjury filed in support of the UST’s objection purports to set forth numerous facts as to the conduct of Mr. Francis; but it is clear that the declarant, a bankruptcy analyst employed by the UST, could not competently testify as to a single one of such facts. The declaration is replete with hearsay, speculation and questionable conclusions of law. Only upon a full hearing as to Mr. Francis’ conduct (should the trustee ever decide to pursue the matter) will the facts of that conduct, the propriety of that conduct, the effect of that conduct on the bankruptcy estate of the corporation, and the personal liability, if any, of Mr. Francis be established.
In reviewing an application for employment, it must initially be noted that the court does not dictate a debtor’s choice of counsel. That choice is generally exercised before the ease is ever filed. If an attorney undertakes representation in violation of a state’s rules governing attorney conduct, discipline with respect to that conduct is a matter for the state body charged with attorney oversight. Only when an attorney’s conduct violates or otherwise comes within the purview of federal law, federal rules, or local rules of the court, or demonstrably prejudices the judicial process will this court inquire into and rule upon the attorney’s conduct.
The court’s involvement does arise when the debtor seeks to have bankruptcy counsel employed as counsel to represent the debtor with respect to a debtor in possession’s exercise of the powers of a trustee. However, when the debtor obtains authorization to permit debtor’s counsel to perform those additional duties, such counsel is assuming an expanded scope of duties but is not taking on the representation of a new or different client. The attorney is still representing the debtor, but is now additionally representing the debtor in the debtor’s exercise of a trustee’s powers with regard to estate property. In no manner does the attorney abandon, nor can the attorney compromise, the existing attorney/client relationship.
Conceptually, a debtor in possession could retain other counsel to perform services related to the powers of a trustee, but 11 U.S.C. § 1107(b)2 specifically authorizes the debtor’s attorney to represent the debtor in possession; and the dictates of common sense, efficiency and economy make such authorization appropriate. The noted section *932in effect waives at least some of the restrictive language of § 327(a), most arguably the requirement of disinterestedness; if it did not do so, there would be virtually no reason whatsoever for the existence of § 1107(b).
Section 327(e) of the Bankruptcy Code clearly recognizes that a distinction can exist between the interests of the debtor and the interests of the bankruptcy estate. In the case of a corporate debtor, simplistic views of the attorney/client relationship are inadequate to analyze questions of conflict and ethics. The UST argues that the corporation has a claim against Mr. Francis (an allegation yet to be proven) and that the firm’s representation of both Mr. Francis and the corporation results in the firm representing adverse interests.
The reality is, however, that there is a total unity of interest between Mr. Francis, as sole owner of the corporation, and the corporation, as the corporation will always hold and seek to promote interests identical to those of the majority or sole shareholder. A bankruptcy trustee does not control the corporation; the trustee controls an estate made up of the assets of the corporation. A trustee has the power to administer and utilize those assets, but the trustee does not exercise any of the structural powers of the corporation such as electing directors or corporate officers. Those powers remain with the shareholders and the directors. There is, therefore, a clear distinction between the corporation as an entity and the estate which a trustee administers. Adverse interests and conflict can exist only when control of the corporate assets is separated from the corporate structure.
The noted difference is readily apparent in chapter 7 bankruptcy cases where it is clear that different counsel will represent the debt- or and the trustee. Section 327(e) prohibits a trustee from retaining as general counsel an attorney who represents the debtor; such employment is authorized only for a specified purpose and then only if the attorney does not hold or represent any interest adverse to the matter. The section does not, however restrain a debtor-in-possession (as opposed to a trustee) from employing the debtor’s attorney as general counsel.3
In this case, while the bankruptcy estate in the corporate case (as now controlled by a trustee who is represented by separate counsel) may have adverse claims against Mr. Francis, the corporation, as distinct from the bankruptcy estate, does not, as the corporation, still subject to Mr. Francis’ control, cannot realistically or by any exercise of common sense hold an interest adverse to any interest of Mr. Francis individually [see In re Sidco, Inc., 162 B.R. 299 (Bkrtcy.E.D.Cal.1993)].4
This is not a case where a showing has been made upon which the court can find that counsel holds an interest adverse to the estate or is not disinterested, nor can the court find that any actual or potential conflict exists with regard to the instant case or counsel’s client in the corporate case.
If the alleged misconduct of Mr. Francis is ultimately established, there may well be adverse interests as between the trustee and the debtors and between the trustee and the corporate debtor, but the firm does not now and never has represented the trustee. Even if the alleged misconduct was presently established, there is no indication, and the court could not find, that the firm would upon any insightful analysis have even a potential conflict, much less an actual one.5
*933The court finds that the firm is eligible under applicable law to be employed to represent the debtors in the exercise of their powers as debtors in possession. Accordingly, the debtors are entitled to have their application for employment of counsel approved. A separate order so providing will issue.
. The standing of the trustee to object in this proceeding is somewhat murky. He at best represents the corporate estate with respect to a potential claim against Mr. Francis; but such a claim has been neither scheduled, filed nor allowed in this case, nor has any litigation even been commenced with respect to such a claim. Further, the bar date for the filing of claims has passed. However, no motion to strike the trustee's objection has been filed.
. Unless otherwise noted, all subsequent reference to code sections are to Title 11, United States Code — the Bankruptcy Code.
. § 327(e) would appear to make it clear that while § 1107(a) imposes all the duties of a trustee on a debtor-in-possession, it does not impose all of the restrictions placed on a trustee on a debtor in possession. Otherwise a debtor in possession would never be permitted to employ bankruptcy counsel to represent the debtor as debtor in possession. Some courts are quick to find, however, in comparing the roles of a trustee and debtor in possession when necessary to reach a desired result, that three-dimensional symmetry has been imposed by the Bankruptcy Code. See, e.g., In re Softwaire Centre Intern., Inc., 994 F.2d 682 (9th Cir.1993).
. A different analysis would obviously apply if management did not hold a majority of the voting stock of the corporation.
. The anomalies inherent in the debtor in possession concept unfortunately give rise to conflicting views. The debtor in that role is clearly a fiduciary with respect to the assets comprising the estate. The creditors are deemed to have an *933interest in those assets. At the same time, the debtor's goal, should it be within reach, is to preserve to the debtor the maximum enjoyment and control of the assets and to surrender as little as possible to creditors as a result of the chapter 11 process. Given that reality, the concept of "flduciaiy” as it applies to a debtor in possession cannot be viewed as fully identical to the term's traditional legal definition, and the proper role of an attorney representing a debtor with the powers of a trustee must be analyzed from that perspective. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491812/ | ORDER FOR DISGORGEMENT OF FEES
LEWIS M. KILLIAN, Jr., Bankruptcy Judge.
THIS MATTER is before the court sua sponte pursuant to F.R.B.P. Rule 2017(a) for determination as to whether the fees paid by the debtor in this case to his attorney for services rendered or to be rendered is excessive. The hearing was conducted on March 31, 1994 on notice to the debtor’s attorney Arthur G. Haller, following which Mr. Haller was directed to file with the court his time records reflecting services rendered in connection with this case. Having reviewed the time records submitted by Mr. Haller, the entire ease file, and having considered the testimony of the debtor, I find that the fee charged by Mr. Haller in this case is excessive and Mr. Haller will be directed to refund to the debtor the sum of $950.00.
This case was commenced on October 28, 1993 by the filing of a petition for relief under Chapter 13 of this Bankruptcy Code. Prior to the filing of the case, the debtor paid his retained attorney, Mr. Haller, the sum of $1,687.00 from which the filing fee of $150.00 to the Bankruptcy Court was paid. The petition for relief was accompanied by the schedules and statement of affairs as required by 11 U.S.C. § 521(1). Thereafter, no other papers were filed in this case by the debtor until March 1, 1994, when the debtor filed a Motion for Voluntary Dismissal following a motion by the trustee to dismiss the case and the filing of a motion for relief from stay by the holder of a mortgage on the debtor’s homestead. The debtor never filed a Chapter 13 plan and since the filing of the petition, made no payments to the Chapter 13 trustee or to either of the holders of mortgages on his homestead. Based on the debtor’s motion, this case was dismissed on March 7,1994, with a retention of jurisdiction to determine the reasonableness of the fees received by Mr. Haller in connection with this case.
The time summaries filed by Mr. Haller reflect that following the initial preparation of the petition and related documents, virtually no further activity was pursued by Mr. Haller or his office relative to a Chapter 13 plan until February 3, 1994, over 2% months after a plan was required to have been filed pursuant to F.R.B.P. Rule 3015(b). With the exception of his attendance at the § 341 meeting of creditors on December 9, 1993, the only activities recorded in Mr. Haller’s time records between October 27, 1993, the day prior to the petition date, and February 12, 1994 consisted of reviewing documents received from the court and from creditors. On February 12, 1994, Mr. Haller spent one hour reviewing and revising a Chapter 13 *949plan drafted by his paralegal, which plan was never filed and was at that time three months late. After that date, the balance of Mr. Haller’s activities were related to dismissal of the case. With regard to Mr. Hal-ler’s paralegal/legal assistant time, those records likewise reveal absolutely no activities towards the pursuit of a Chapter 13 plan until February 3, 1994 on which date 1.0 hours was logged drafting a preliminary Chapter 13 plan. On December 9, 1993, the paralegal logged 1.0 hours for preparing the file and pleadings for § 341 meeting and contacting client to remind him of the meeting. Given the fact that the only items that Mr. Haller’s office has filed for the debtor in this case were the original petition and schedules and the motion to dismiss and that no other parties filed any pleadings prior to the meeting of creditors, I find it difficult to imagine how a paralegal could have spent an hour preparing the file and pleadings for the § 341 meeting. In reviewing the time records of Mr. Haller, I note of the absence of any entries reflecting any effort by Mr. Hal-ler either by telephone or through correspondence to pursue with the debtor the preparation of a Chapter 13 plan.
At the hearing on this matter, Mr. Haller told the court that the petition had been filed to save the debtor’s homestead from foreclosure but that the debtor had marital and employment problems which prevented him from successfully reorganizing. The debtor testified that Mr. Haller had explained to him the need to make payments to the trustee and to creditors and to propose a plan. However, these matters are not reflected anywhere in Mr. Haller’s time records.
The court is authorized pursuant to 11 U.S.C. § 329 to examine the compensation paid to an attorney representing a debtor in a case and if the court determines that the compensation exceeds reasonable value of such services to order the return of any such payment to the extent excessive to the entity that made such payment. In this case, I find that Mr. Haller ^and his office are entitled to compensation for only those services which were rendered in connection with the initial preparation and filing of the petition for relief. For Mr. Haller, that time totals 2.5 hours up and including attendance at the § 341 meeting of creditors in Gainesville. While Mr. Haller charges an hourly rate of $150.00 an hour, I find that given the inadequate quality of services provided in connection with this case, the hourly rate should be reduced to $125.00 per hour. With respect to the time logged by the paralegal, I find that five hours at $50.00 an hour is reasonable. Thus, the total attorney’s fees which I find to be reasonable is $513.00. An additional $24.00 is allowed for costs for a total allowance of $537.00. The remaining balance of $950.00 shall be disgorged and remitted to the debtor. Accordingly it is hereby
ORDERED AND ADJUDGED that the debtor’s attorney, Arthur G. Haller be and he is hereby ordered and directed to remit disgorged attorney’s fees received in the amount of $950.00 and remit same to the debtor, Robert Glen Bushoven within fifteen (15) days from the date of entry of this order and to certify same to this court.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491813/ | RULING ON MOTIONS FOR SUMMARY JUDGMENT
ROBERT L. KRECHEVSKY, Chief Judge.
I.
ISSUE
The matters before the court are motions for summary judgment brought by two defendants in an adversary proceeding commenced by Pepsi-Cola Newburgh Bottling Co., Inc. (Newburgh) as a Fed.R.Bankr.P. 7022 interpleader action. Newburgh seeks to have the court determine the rights to the proceeds of a noncompetition agreement and a consulting agreement in which Newburgh is a party-payor. The defendants in this action are Aaron P. Silver, the debtor, Anthony S. Novak, the trustee of the debtor’s chapter 7 estate, Paul Silver (Paul) and Elaine E. Silver (Elaine), both creditors who allegedly hold prepetition security interests in one or both of the agreements, and Bristol Savings Bank (the Bank), claiming an interest in the proceeds of the agreements as a result of two prepetition garnishments of Newburgh.
The debtor filed a motion for summary judgment contending that the Bank has no cognizable claim to any proceeds from the agreements because at the time the Bank served its garnishment process on New-burgh, no debt was then due and owing the debtor. Paul filed a like motion denying the validity of the Bank’s garnishment and also contending that the debtor’s prepetition assignment to him of benefits under the consulting and noncompetition agreements was properly perfected and is not avoidable by the trustee. The Bank has filed responsive papers to both motions contending that there are genuine issues to be tried as to material facts. The trustee has not responded to Paul’s motion.
II.
BACKGROUND
The debtor and his brothers, Paul and Stephen, were the principals of Elco Beverage Company (Elco), a Connecticut corporation engaged in the soft-drink business. On January 23, 1990, Newburgh purchased substantially all of Elco’s assets for approximately $14,000,000. Pursuant to the asset purchase, Newburgh, on January 23, 1990, entered into separate five-year consulting agreements with each of the three Silver brothers under which they were each paid $100,000 a year in return for being available for consulting services to Newburgh up to sixty hours each year.1 Newburgh, on the same date, also entered into separate non-competition agreements with the Silvers under which they each were to receive $1,250,-000 payable in five annual installments of $250,000 in return for promises not to compete with Newburgh.2 Both agreements *17with the debtor contained death-benefit clauses by which payments were to continue to the Silvers’ estates in the event of their death before the end of the five-year period. The agreements provided that Newburgh would be liable for the immediate payment of “the entire unpaid balance of the Installment Payments” if Newburgh defaulted (a) in the payment of any installment in either agreement for 10 days, (b) in a lease payment due the “Silver Realty Partnership,” and (e) in the payment of any amount due the other two Silver brothers under their agreements. An event of default was also a sale of New-burgh’s assets, a transfer of more than 50% of Newburgh’s capital stock, or Newburgh’s liquidation, merger or consolidation. There are no explicit default provisions concerning the debtor’s obligations under either agreement. The agreements contained a choice of law provision specifying that New York law apply.
Newburgh apparently made the required payments due January 23rd of 1990, 1991, and 1992. On April 20, 1992, the Bank served two garnishments upon Newburgh to secure claims for judgments sought in state-court actions against the debtor. Notwithstanding these garnishments, the debtor, on September 29, 1992, executed a Collateral Assignment of Contract Rights to the extent of $150,000 of payments under both agreements to Paul as security for a loan, and, sometime later, pursuant to a state-court judgment, assigned his remaining interest in payments under the noncompetition agreement to his former wife Elaine.
On January 22, 1993, one day before the payment anniversary date, the debtor filed his Chapter 7 petition. Newburgh filed its interpleader action on March 23, 1993. On July 8, 1993, Newburgh, pursuant to a consented-to court order, transferred $350,000, representing the debtor’s 1993 combined annual payments, to the trustee to be held in escrow pending a determination of the parties’ rights to the funds.
The Bank claims that its garnishments, served on or about April 20, 1992 and each exceeding $600,000 in amount, of all remaining payments under the agreements gives it rights superior to the other claimants.
The debtor claims that the remaining payments under the consulting agreement are not property of the estate and that he is entitled to the payments thereunder, subject to Paul’s security interest, as postpetition compensation for personal services.
The trustee claims that the payments under both the agreements are property of the estate and that the debtor’s prepetition assignments to Paul and Elaine are avoidable.
III.
DISCUSSION
A.
Funds in the hands of a third party are subject to garnishment under Conn.Gen.Stat. § 52-3293 only if the third party’s obligation to pay those funds is not contingent. Dick Warner Cargo Handling Corp. v. Aetna Business Credit, Inc., 700 F.2d 858, 862 (2d Cir.1983) (“Connecticut cases require that for a debt to be subject to garnishment, the debt must be due and not contingent.”). Funds paid pursuant to a contract, therefore, are garnishable only “if the garnishee has an existing obligation to pay the debtor either in the present or the future. An obligation to pay the debtor in the future is ‘existing’ if the garnishee’s liability to pay the obligation is certain.” F & W Welding Serv., Inc. v. ADL Contracting Corp., 217 Conn. 507, 515-16, 587 A.2d 92 (1991) (citing Ransom v. Bidwell, 89 Conn. 137, 141, 93 A. 134 (1915)).
*18The movants contend that since New-burgh’s obligation to make payments under the agreements was conditioned upon the debtor’s continued performance under the consulting agreement and forbearance under the noncompetition agreement, as a matter of law there was, on April 20, 1992, no noncon-tingent debt due the debtor under either agreement, and the garnishments were not effective. In reply, the Bank argues that summary judgment is inappropriate at this juncture because genuine issues of fact exist concerning whether Newburgh’s obligation to pay the debtor under the agreements was conditioned upon the debtor’s continued performance under the terms of those agreements or if, in fact, the debtor’s right to compensation was unconditional. The Bank contends that “the principal purpose of the consulting and non-competition agreements is to defer payments for Newburgh, the buyer, and to defer income, for tax purposes, to the debtor.” Bank’s Brief at 13-14. The Bank argues that the agreements between Newburgh and the debtor may be disguised allocations of the purchase price and not personal service agreements, and that New-burgh’s obligation to make payments under those agreements was not intended to be conditioned upon the performance and forbearance of the debtor.
In support of its position, the Bank points to the deposition testimony of C. Thomas Tenney, Jr., Newburgh’s president and signatory to the agreements with the debtor. The Bank directs attention to Mr. Tenney’s response to the question: “With respect to the consulting agreement, if during 1994, which is the year coming up, Aaron Silver does not consult with you whatsoever, will you be required to pay him?” Mr. Tenney replied: “I made a commitment to somebody, I’m required to pay him. I signed that document, in my mind, I owe him the money.” Tenney Deposition at 92.
B.
Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment “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), incorporated by Fed.R.Bankr.P. 7056. A dispute concerning a material fact is considered genuine “if the evidence is such that a reasonable jury could return a verdict for the non-moving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). Material facts have been denominated as those facts that might affect the outcome of the suit under governing law. Id. The moving party has the burden of proving that no material facts are in dispute, and in considering such a motion, the court “ ‘must resolve all ambiguities and draw all reasonable inferences in favor’ of the nonmoving party....” Mikinberg v. Baltic S.S. Co., 988 F.2d 327, 330 (2d Cir.1993) (quoting Heyman v. Commerce and Indus. Ins. Co., 524 F.2d 1317, 1320 (2d Cir.1975)).
The court finds, taking into account the provisions of the agreements and submitted discovery material, that the Bank has raised as a material issue of fact the true nature of the agreements between Newburgh and the debtor. The use of consulting or non-competition agreements as a method of manipulating tax and other consequences of a sale is not an uncommon phenomenon. See, e.g., In re Moreno, 892 F.2d 417 (5th Cir.1990) (reversing finding of bankruptcy and district courts that debtor intended to hinder, defraud, or delay creditors by accepting consideration for purchase of controlling stock in corporation in the form of a consulting agreement); Balthrope v. Comm’r, 356 F.2d 28 (5th Cir.1966) (declining to find consulting agreement in connection with asset sale to be sham for tax purposes); Pupecki v. James Madison Corp., 376 Mass. 212, 382 N.E.2d 1030 (1978) (finding that complaint which alleges the diversion of consideration from sale of corporation to controlling shareholder under guise of employment and noncompetition agreements sufficiently pleads illegality or fraud to render summary judgement improper); cf. also In re Marshall, 33 B.R. 42 (Bankr.D.Conn.1983) (sustaining creditor’s objection to compromise concerning debtor’s claimed exemptions and ordering trial to determine if debtor’s “employment contract is a *19disguised allocation of a purchase price and not a personal services contract”).
iy.
CONCLUSION
For the above-mentioned reasons, both motions for summary judgment against the Bank are denied.
Because the trustee failed to submit a memorandum in opposition to Paul’s motion for summary judgment against the trustee, summary judgment is granted as to the trustee’s claim against Paul’s security interest in the agreements. See Local R.Civ.P. 9(a)(1) (“Failure to submit a memorandum in opposition to a motion may be deemed sufficient cause to grant the motion, except where the pleadings provide sufficient grounds to deny the motion.”), incorporated by Local R.Bankr.P. 1(b).4
. The consulting agreement required the Silvers to be
available during regular business hours to render such executive type consulting services ... provided that Consultant shall not be required to provide services in excess of sixty hours per year. The failure of [Newburgh] to use the services of Consultant shall not negate its obligation to pay the compensation hereunder.
In return for their consulting services each Silver was to be paid
over a period of five years at the rate of $100,-000.00 per annum, payable in advance on the date hereof and on the same day of each following calendar year during the term hereof ... or, if [Silver] is not living to the beneficiary or beneficiaries designated in his will by Consultant or if none to his estate, in accordance with the same schedule of payment.
Consulting Agreement ¶2,3.
. Under the noncompetition agreement each Silver
agrees that for a period of five years from and after the date hereof he will not ... be employed by or associated with or carry on, any business which is engaged in ... any ... wholesale business which is similar to the business now being conducted by the Seller within [the defined territory]....
As consideration for this promise not to compete, Newburgh was
to pay to Silver, or if he is not living to his estate, $1,250,000.00, payable in five annual installments in advance, each in the amount of $250,000 ... with the first payment being made on the date hereof and the remaining *17installments on the same day of each succeeding calendar year commencing with the anniversary of the date hereof.
Non-Competition Agreement ¶ 1,3.
. Section 52-329 provides:
[W]hen a debt other than earnings ... is due from any person to such defendant, ... the plaintiff may insert in his writ, ... a direction to the officer to leave a true and attested copy thereof and of the accompanying complaint, at least twelve days before the return day, with such ... debtor of the defendant ...; and from the time of leaving such copy ... any debt due from [the] garnishee to the defendant ..., not exempt from execution, shall be secured in the hands of such garnishee to pay such judgment as the plaintiff may recover.
Conn.Gen.Stat. § 52-329.
. Filed as exhibits to an affidavit by counsel for Paul are copies of a $150,000 promissory note, a Collateral Assignment of Contract Rights, and a filed UCC-1 financing statement. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491814/ | MEMORANDUM OPINION
LETITIA Z. CLARK, Bankruptcy Judge.
The following are the Findings of Fact and Conclusions of Law on the Debtor’s objection to the proof of claim filed by the United States of America, on behalf of the Internal Revenue Service (“IRS”). To the extent any of the Findings of Fact herein are construed to be Conclusions of Law, they are hereby adopted as such. To the extent any of the Conclusions of Law herein are construed to be Findings of Fact, they are hereby adopted as such.
Findings of Fact
1. The Debtors filed their voluntary Chapter 13 petition on August 5, 1991.
2. IRS filed its original proof of claim on November 7, 1991 for $20,966.52 in taxes, penalties, and interest for tax year 1990.
3. The bar date to file a proof of claim in this case pursuant to Rule 3002 Fed. R.Bankr.P. was February 4, 1992.
4. On February 6, 1992, two days after the bar date, IRS filed an amended proof of claim for $73,781.79 for taxes, penalties, and interest for tax years 1982 through 1986 and 1990.
5. The amended proof of claim reflects adjustments to the Debtors’ taxes made as a result of adjustments to the tax returns of two limited partnerships in which the Debtors invested.
6. The Debtors included unliquidated tax debts to IRS for 1982,1983, and 1990 in their schedules. The amounts estimated by the Debtors were $16,850.00, $9,500.00, and $20,-000.00, respectively.
7. The Debtors object to the amended proof of claim filed by IRS on the basis that it was not timely. IRS asserts that its amended claim is allowable as an amendment to the timely filed proof of claim. IRS also asserts that its claim is allowed under Section 502 of the Bankruptcy Code even though *89it is filed late because it does not fall -within the eight grounds for disallowance enumerated in that section.
Conclusions of Law
1. The general rule in Fifth Circuit law regarding amendment of timely filed proofs of claim is that amendment is freely allowed where the purpose of the amendment is to cure a defect in the claim as originally filed, to describe a claim with greater particularity, or to plead a new theory of recovery on the facts set forth in the original claim. In re Commonwealth Corp., 617 F.2d 415 (5th Cir.1980).
2. However, an amendment to a proof of claim after the bar date must be carefully scrutinized in order to ensure that the amendment does not amount to an attempt to file a new claim after the time for filing claims has expired. Commonwealth, 617 F.2d, at 420.
3. Claims deadlines have as their purpose enabling debtors and creditors to know, reasonably promptly, what parties are making claims against the estate and in what general amounts. In re Kolstad, 928 F.2d 171 (5th Cir.1991).
4. Courts have applied variations of two factors in determining whether amendments to IRS bankruptcy proofs of claim should be allowed: (1) whether IRS is attempting to stray beyond the bounds of the original proof of claim and effectively file a new claim that could not have been foreseen from the earlier claim or events such as an ongoing or recently commenced audit; and (2) the degree and incidence of prejudice, if any, caused by IRS’ delay. Kolstad, 928 F.2d, at 175, n. 7., citing In re Miss Glamour Coat Co., 80-2 U.S.T.C. ¶9737 (S.D.N.Y.1980).
5. This court has previously held, in In re Richmond, 92 B.R. 713 (Bankr.S.D.Tex.1988), that if both a timely claim and a late claim are “of the same generic origin”, then notice to the Debtor of the timely claim reflects the creditor’s intent to hold the Debtor liable for the late-filed claim. In that case a claim for 1977 income taxes was held to be adequate notice to sustain an amendment addressing income taxes for subsequent years.
6. The instant case is distinguished from Richmond, in that, inter alia, the tax year for which the IRS filed its original, timely proof of claim, 1990, is for the tax year immediately preceding the petition date and substantially later than the tax years included in the late proof of claim. This case is also distinguished from Kolstad, in that in the instant case the amended proof of claim reflects new claims tardily asserted by IRS, rather than an adjustment to the amount of the claim. The IRS claims for 1982-1986 in the instant case address deductions based on limited partnerships. There was no showing that the IRS claim for 1990 taxes addressed these partnerships. Indeed the IRS in its trial statement (Docket No. 75) indicates on page two that the deduction claims regarding these partnerships ceased after tax year 1986.
7. In addition, the policy reasons elaborated in Kolstad, toward advancing the Chapter 11 goal of encouraging voting and negotiation among the creditors, are not present to the same degree in a Chapter 13 ease. A Chapter 13 debtor may provide for treatment of certain creditors outside the plan (see 11 U.S.C. § 1322(b)(2)) and the plan filed by these Debtors does so. In addition, at the time of the proposed amendment to claim by IRS in the instant case, the plan had already been confirmed, and the Debtors had been making payments to the Trustee pursuant to that plan.
8. The court concludes that the amended proof of claim is not of the same generic origin as the timely original proof of claim filed by IRS. The Debtors did not have sufficient notice in the original proof of claim that IRS intended to hold them liable for taxes based on certain disallowed partnership interests for tax years 1982 through 1986.
9. IRS’ second argument, that the amended claim is allowed even though not timely filed, is without merit. Section 502 provides in part:
(a) A claim or interest, proof of which is filed under section 501 of this title, is deemed allowed unless a party in interest, *90including a creditor of a general partner in a partnership that is a debtor in a case under chapter 7 of this title, objects.
(b) Except as provided in subsections (e)(2), (f), (g), (h) and (i) of this section, if such objection to a claim is made, the 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 ... [the enumerated exceptions are inapplicable].
10. Section 501 does not contain a provision defining when a proof of claim is filed under that section. The legislative history reflects that Congress anticipated that the Bankruptcy Rules would allow governmental units a reasonable time to file proofs of claim in bankruptcy cases. 124 Cong.Rec. H11093 (daily ed. Sept. 28, 1978); S17410 (daily ed. Oct. 6, 1978).
11. The Bankruptcy Rules contain the provisions anticipated by Congress. Rule 3002(c) Fed.R.Bankr.P. provides that a proof of claim shall be filed within 90 days after the first date set for the meeting of creditors. Rule 9006 expressly limits the extension of time to file a claim under Rule 3002(c) to the limits expressed in that rule.
12. The applicable provision of Rule 3002(c) states that “on motion of the United States ... before the expiration of such period and for cause shown, the court may extend the time for filing of a claim by the United States ...” Rule 3002(c)(2) Fed. R.Bankr.P. No such motion was filed and thus the court may not extend the time for filing a proof of claim. IRS had a remedy available, and did not pursue that remedy.
13. IRS has asserted that its amended proof of claim was not timely filed due to a clerical error. (IRS Trial Statement, Docket No. 75, at 3). The answer to this argument is found in the Fifth Circuit’s opinion in In re Robintech, Inc., 863 F.2d 393 (5th Cir.1989). Exceptions cannot be made every time a creditor claims hardship. Frequent players in the bankruptcy arena know this, and are aware that deadlines are important and should not be heard to complain of unfairness except under the most egregious circumstances. Robintech, 863 F.2d, at 398.
Based on the foregoing, a separate judgment will be entered disallowing the amended claim of IRS.
JUDGMENT
Based on the separate Memorandum Opinion signed this same day, it is
ORDERED that the amendment to the claim of the United States of America, by and through the Internal Revenue Service, is disallowed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491815/ | ORDER FOR WITHDRAWAL OF DECISION AND DISMISSAL . OF APPEAL
On November 10, 1993, the Panel filed its decision affirming the trial court. The published opinion is reported as In re Specialty Plywood, Inc., 160 B.R. 627 (9th Cir. BAP 1993). A notice of appeal to the Ninth Circuit Court of Appeals was filed on November 19, 1993. Subsequently, the parties reached a settlement. The panel has reviewed the Appellant’s Report on Remand and Motion For Order To Approve Settlement and Vacate Opinion, together with a copy of the trial judge’s Order Approving Settlement and Vacating Decision Previously Published, which was entered on March 28, 1994.
When a controversy is settled during the pendency of an appeal, it is generally recognized that the lower courts should vacate their decisions. See, Continental Cas. Co. v. Fibreboard Corp., 4 F.3d 777, 779-80 (9th *154Cir.1993); and In re Tucson Industrial Partners, 990 F.2d 1099 (9th Cir.1993). As the appeal to the Ninth Circuit has been dismissed based on settlement and the settlement agreement has been approved by the bankruptcy trial judge, the Appellant’s motion is hereby ORDERED GRANTED and the Panel’s opinion decision is hereby ORDERED WITHDRAWN.
FURTHER, the appeal is ORDERED DISMISSED. A certified copy of this order sent to the Bankruptcy Court shall constitute the mandate of the Panel. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491816/ | ORDER FOR DISGORGEMENT OF FEES
LEWIS M. KILLIAN, Jr., Bankruptcy Judge.
THIS MATTER is before the court sua sponte pursuant to F.R.P.B. Rule 2017(a) for determination as to whether the fees paid by the debtor in this case to his attorney for services rendered was excessive. A hearing was conducted on March 31, 1994 on notice to the debtor’s attorney, Arthur G. Haller, following which Mr. Haller was directed to file with the court his time records reflecting services rendered in connection with this case. Having reviewed the time records submitted by Mr. Haller, the entire case file, and having considered the testimony of the debt- or, I find that the fees received by Mr. Haller in connection with this ease are excessive and Mr. Haller will be directed to refund to the debtor the sum $750.00.
This case was commenced on November 10, 1993 by the filing of a petition for relief under Chapter 13 of the Bankruptcy Code. Prior to the filing of this case, the debtor paid his retained attorney, Mr. Haller, the sum of $1,525.00 plus a filing fee of $150.00 for the Bankruptcy Court. The petition for relief was accompanied by the schedules and statement of affairs as required by 11 U.S.C. § 521(1). Thereafter, the only document filed in this case containing the signature of the debtor or his counsel prior to March 1, 1994, was a stipulation for adequate protection with the holder of the mortgage on the debtor’s homestead prepared by the creditor’s counsel and filed with the court on December 13,1993. Thereafter, nothing was filed by the debtor until a Chapter 13 plan was filed March 1, 1994, following the filing of a motion to dismiss by the Chapter 13 trustee. On April 11,1994, the debtor filed a request for voluntary dismissal of this case.
At the hearing on this matter, Mr. Haller advised the court that'the petition had been *178filed to save the substantial equity in the debtor’s homestead from a foreclosure sale but that the debtor had marital and employment problems which prevented him from proposing and making payments under a plan. The debtor testified that Mr. Haller had assisted him and that as a result of the time spent under Chapter 13, he had been able to obtain a contract to sell the home and thus salvage his equity. However, the debt- or further testified that he did not recall any discussions with Mr. Haller regarding the necessity for filing a Chapter 18 plan.
Mr. Haller’s time summaries reflect that following the initial preparation of the petition of related documents, there was no activity related to a preparation of a Chapter 13 plan until February 4, 1994, on which date Mr. Haller’s paralegal drafted a preliminary plan. The only substantive activity by Mr. Haller as reflected in the time sheets after the petition was filed relate to the review of the stipulation for adequate protection and discussions relating to a relief from stay motion regarding the debtor’s automobile. In February Mr. Haller spent an hour and a half reviewing and revising the proposed Chapter 13 plan and meeting with his client, however by that time, the plan was some two months late in being filed and a motion to dismiss had already been filed by the trustee. Finally in March, Mr. Haller performed some services for the debtor relating to contracting for the sale of his residence. Much of the time logged by Mr. Haller consists of nothing more than reviewing pleadings, many of them standard forms used by the bankruptcy court, with no action being taken with relation to any of those pleadings. Mr. Haller’s paralegal logged 8.05 hours at $50.00 per hour, with 2.35 of those hours consisting of either copying documents, mailing documents, or faxing documents.
The $1,525.00 received by Mr. Haller in connection with this case is clearly excessive in relation to the services provided and the benefit to the debtor or estate. With the exception of filing the petition and schedules and obtaining the benefit of the automatic stay, Mr. Haller did virtually nothing to advance the reorganization of this debtor’s affairs. While he logged a total of 8.8 hours in his time records, the majority of that time served absolutely no useful purpose. While normally review of documents, pleadings, and correspondence is compensable for attorneys, when that is all which is being done by an attorney who has already received substantial fees and has an obligation to advance his client’s cause it takes on an aspect of merely padding time records. With respect to the hours logged by the paralegal for copying, mailing, and faxing, these are services that normally are and should be performed by secretarial or clerical help and should not be compensated at the rate of $50.00 per hour.
In view of the lack of action on Mr. Haller’s part towards effectuating a successful Chapter 13 plan in this case, I find that the $1,525.00 he received in advance of the filing of the petition is clearly excessive. In this district, as in most districts that I am aware of, $1,500.00 is the upper end of fees charged and received in successful, routine Chapter 13 cases, with the majority of attorneys charging less than that. While this case would appear to be a very routine and uncomplicated case, it was hardly successful since no effort was made to file a Chapter 13 plan until almost three (3) months after it was filed. The services rendered by Mr. Haller in connection with this case are more akin to those rendered to a debtor in a routine Chapter 7 case, and he should receive no more in fees than would reasonable in that type of case. Accordingly, I find that all fees received in excess of $750.00 plus $25.00 in costs constitute excessive fees and shall be disgorged and returned to the debtor.
It is therefore, ORDERED AND ADJUDGED that the debtor’s counsel, Arthur G. Haller, be and he is ordered to remit the sum of $750.00 to the debtor, Ernell Cook, Sr. within fifteen (15) days from the date of entry of this order and to certify compliance herewith with the court.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491817/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 case in which the issue of whether or not the Plaintiff in Adversary Proceeding No. 92-273, International Paper Company (International Paper), and the Plaintiff in Adversary Proceeding No. 92-273, Adams Farms, et al. (Adams Farms), are in fact creditors thus have standing to prosecute these adversary proceedings. The *182issue arose in an awkward procedural posture and for this reason a brief recitation of the procedural background and the relevant facts as they appear from same should be helpful.
On April 3, 1992, International Paper filed a Complaint which sought a determination pursuant to § 727(c) first that Jack Sidney James (Debtor) is not entitled to a general bankruptcy discharge or in the alternative a determination pursuant to § 523(c) that the liability of the Debtor to International Paper should be excepted from the overall protection of the general bankruptcy discharge. International Paper in ¶ 1 of its Complaint, alleged that “International Paper is a New York corporation and was listed as a creditor on Schedule A-3 of the Debtors Schedules filed in connection with the Debtor’s bankruptcy case originally filed under Chapter 11 of the Bankruptcy Code.” It should be noted that there is no allegation in the Complaint that International Paper is in fact a creditor of the Debtor. On October 22, 1992, the Debtor filed an Answer and in response to the allegation set forth in ¶ 1 of the Complaint stated “denies knowledge or information sufficient to form a belief as to the thrust of the allegations therein, except admits that International Paper was listed in the Debtor’s Schedule or Liabilities as asserting a disputed, contingent, and unliqui-dated claim.” Thus, the issue of standing of International Paper was technically put in issue, albeit not very well articulated. In addition, on October 10, 1990 International Paper filed a proof of claim in the amount of zero. Is claim was challenged by the Debtor prior to conversion of the Debtor’s Chapter 11 case to the Chapter 7 case. Notwithstanding, the issue of standing was never resolved. A final evidentiary hearing was scheduled in due course of the claims asserted against the Debtor by both Plaintiffs. Although the scheduling Order failed to specify as to the issues to be tried, it is without dispute that the parties agreed to try first the claims relating to the Debtor’s right to a general discharge based on § 727(b) of the Bankruptcy Code and agreed to defer action on the claim of non-dischargeability based on § 523 of the Bankruptcy Code pending resolution of the claims based on § 727(b).
The Complaint filed by Adams Farms was filed on April 3, 1992. In this adversary proceeding Adams Farms also challenged the Debtor’s right, pursuant to § 727(e), to the overall protection of the bankruptcy discharge. Adams Farms also sought a determination pursuant to § 523(c) that the dis-chargeability of the debt allegedly owed by the Debtor to Adams Farms should be declared to be non-disehargeable. Adams Farms in its Complaint stated in ¶ 14 that “the Plaintiffs were listed as creditors on Schedule A-3 of the Debtor’s Schedules filed in connection with the Debtor’s bankruptcy case originally filed under Chapter 11 of the Bankruptcy Code.” Again, just like in the Complaint of International Paper, there is no allegation in this one that the Plaintiffs were in fact creditors of the Debtor. In his Answer, the Debtor stated, in response to ¶ 14 that the allegation is “denied, except admits that plaintiffs were scheduled as holding disputed, contingent, and unliquidated claims against the Debtor.” Adams Farms also filed a proof of claim on October 10, 1990 in the amount of $239,357.94 which claim was also challenged by the Debtor but, just like the objection of the Debtor to the claim of International Paper, was never heard and disposed by this Court by either allowing or disallowing same.
To further complicate this matter, it also should be pointed out that on November 14, 1990 International Paper filed a Motion to Withdraw the Reference of the contested matter involving the Debtor’s objection to the claim of International Paper which Motion is still pending in the District Court and remains unresolved as of this date.
It should be evident from the foregoing that ordinarily the issue of standing was a threshold issue which should have been resolved before scheduling the trial of the objections to the Debtor’s discharge filed both by International Paper and Adams Farms. Unfortunately, this is not what happened. Nevertheless, it is the Debtor’s contention raised the first time in the post-trial brief filed by Debtor’s counsel, that it was the burden of the Plaintiffs to establish that they are creditors, that they have failed to estab*183lish with competent proof that they are in fact creditors therefore both complaints challenging the Debtor’s right to a general discharge should be dismissed with prejudice for lack of standing. In light of the fact that this is a crucial threshold issue, on December 28, 1992 this Court entered an Order which deferred disposition of these adversary proceedings concerning the claims based on § 727(b) pending determination as to the proper method to resolve the issue of standing.
In response to the Debtor’s contention outlined above, both Plaintiffs concede that there was no direct evidence at the trial to establish they are creditors. In support of their right to pursue this adversary proceeding, both Plaintiffs rely first on the definitions by the Code of the terms “creditor” and “claim.” § 101(10) defines “creditor” as an
“entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor.”
§ 101(5) in turn defines “claim” as a
“right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.”
According to the Plaintiffs, based on the plain reading of these definitions they are creditors and the fact that their claim is challenged and it was scheduled as disputed is of no consequence, since the clear reading of the definitions just cited means that they are creditors holding a claim against the Debtor, a claim within the meaning of that term as defined by § 101(5). Citing Pennsylvania Department of Public Welfare, et al. v. Davenport, 495 U.S. 552, 110 S.Ct. 2126, 109 L.Ed.2d 588 (1990).
This Court is in full agreement with the proposition that the Code did, in fact, significantly expand the scope of the terms “claims” and “creditors.” Thus, it is clear that the fact that a proof of claim is challenged and the claim is disputed would not detract from the status of an entity as a creditor until the claim is ultimately disallowed. It is true International Paper filed a proof of claim, albeit in zero amount which proof of claim is, of course, facially defective. It is equally true that Adams Farms stated an amount in its proof of claim, the bottom line is that neither International Paper nor Adams Farms requested this Court to take judicial notice of these claims. From this it follows that they are not part of the record and, therefore, could not furnish proof necessary to establish that these Plaintiffs are in fact creditors, thus have standing. The reliance of the Plaintiff on the eases of In re Chandler, 138 F. 637 (7th Cir.1905) and In re Ruhlman, et al., 279 F. 250 (2nd Cir.1922) furnishes no support for the proposition that they have standing. Both Chandler and Ruhlman were decided long before the adoption of the Code. Under the predecessor Section of § 727, § 14(b) of the Bankruptcy Act of 1898, provided that an objection to discharge of a bankrupt may be made by a party in interest. Based on this definition, the Seventh Circuit in Chandler held that before a creditor has a right to challenge the bankrupt’s right to a discharge, it must be alleged that the creditor has provable debt which is affected by the discharge. In Ruhl-man, the Second Circuit held that the objection to discharge may be filed by anyone who has a pecuniary interest. The Code revised the pertinent Section, § 727(c), by providing that only the Trustee, a creditor or a U.S. Trustee may do so, the holding of Ruhlman is clearly inapposite and no longer applicable.
In the alternative, it is the contention of the Plaintiffs that based on F.R.B.P. 3003(b)(1) they have standing. This Rule provides that a Schedule of Liability filed by a Debtor pursuant to § 521(1) shall constitute prima facie evidence of the validity and amount of claim scheduled. Since both Plaintiffs were scheduled by the Debtor as creditors, this is sufficient proof, so claim the Plaintiffs, that they are creditors therefore have standing to prosecute their respective claims pursuant to § 727(c) of the Bankruptcy Code. In support of this proposition, the Plaintiffs cite the case of Haley v. Pope, 206 F. 266 (9th Cir.1913). In Haley, just like the other two cases, was decided under pre-Code law and, therefore, its holding that a scheduled party renders a creditor a prima facie party of interest thus entitled to oppose the *184granting of a discharge is not persuasive. More to the point is the case of In re Vahlsing, 829 F.2d 666 (6th Cir.1987) decided under the Code by the Fifth Circuit in 1987. In this case the Fifth Circuit, speaking through Circuit Judge E. Grady Jolly, held that an individual lacks standing to continue to pursue an adversary proceeding opposing a debtor’s discharge notwithstanding that the Debtor had initially listed her as a creditor on the petition. While it is true that in Vahlsing the objecting party’s claim was fully adjudicated and determined by another Court that she has no valid claim against the Debtor, this is distinction without difference and while the statement is true it is also important to note that the Fifth Circuit concluded that the fact that one was scheduled by the Debtor does not establish standing to pursue a claim pursuant to § 727(c). The difficulty with the Plaintiffs reliance on F.R.B.P. 3003(b)(1) should be evident when one reads the entire subelause of this Rule which further provides that there is no prima facie validity of a claim if the creditors are scheduled as holders of disputed, contingent or unliquidated claims.
It is unfortunate indeed that this Court is constrained to resolve this controversy solely on the issue of standing after the claims of both Plaintiffs have been fully tried, but on this record this Court is satisfied that it had no choice but to dismiss both claims based on § 727 of the Code based on the Plaintiffs’ failure to plead and prove that they are indeed creditors thus have standing to object to the Debtor’s discharge pursuant to § 727(c) of the Code.
The disposition of this adversary proceeding shall not be construed as a finding determining the status of these Plaintiffs as creditors qualified to prosecute their respective claims of non-dischargeability under § 523(c).
A separate final judgment will be entered in according with the foregoing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491818/ | ORDER OF REMAND
STEVEN H. FRIEDMAN, Bankruptcy Judge.
This matter came on for hearing before this Court December 9, 1993, on Barnett Bank’s Motion to Remand this action to the Circuit Court of the Fifth Judicial Circuit in and for Marion County, Florida (the “Circuit Court”). Having considered the motion, the argument of counsel and for the reasons set forth below, the Court remands this action to the Circuit Court.
On April 30, 1993, the debtor, S & K Air Power of Florida, Inc., filed a Chapter 11 petition. On June 10, 1993, the case was converted from Chapter 11 to Chapter 7 and Robert Furr was appointed as Trustee. The Trustee removed this action from the Circuit Court to this Court on October 15, 1993. Finally, on November 18, 1993, Barnett moved for this Court to remand this action back to the Circuit Court.
Barnett contends that the Trustee removed this action to the wrong court and that the removal was untimely. Barnett also requests that if the Court finds that the removal was proper, that the Court abstain from hearing this action. The Trustee asserts that Barnett’s Motion to Remand is untimely and that any procedural deficiency in the removal have been waived. Barnett disputes that its motion was untimely.
Barnett correctly points out that state court actions must be removed to the District Court for the district in which the case is pending. In re National Developers, Inc., 803 F.2d 616 (11th Cir.1986); In re Trafficwatch, 138 B.R. 841 (Bankr.E.D.Tex.1992). Pursuant to the reasoning in those cases, and the language of 28 U.S.C. § 1452, the Trustee should have removed this action to the District Court for the Middle District of Florida and then moved for a change of venue to the Southern District of Florida.
The court in Trafficwatch determined that Section 1452 was a venue provision, which may be waived if a party fails to timely object to the improper removal. Traf-ficwatch, 138 B.R. at 844. However, the Eleventh Circuit, in National Developers, apparently read the same language as a juris*195diction provision and determined that the court to which the state court action was improperly removed lacked jurisdiction over the removed action. National Developers, 803 F.2d at 620. This Court is bound by the decisions of the Eleventh Circuit. Unlike venue, jurisdiction may not be waived.
Further, pursuant to Federal Rule of Bankruptcy Proceeding 9027, a party may remove a case only within—
the longest of (A) 90 days after the order for relief in the case under the Code, (B) 30 days after entry of an order terminating a stay, if the claim or cause of action in a civil ease has been stayed under § 362 of the Code, or (C) 30 days after a trustee qualifies in a chapter 11 reorganization case but not later than 180 days after the order for relief.
Only subsection (A) is applicable to the facts in this case. The Trustee removed this action more than 90 days after the order for relief was entered. Thus, the removal was untimely.
Because this action was untimely removed and was removed to the wrong district, this Court is without jurisdiction to hear this action. Therefore, this action must be remanded to the Circuit Court. Accordingly, it is
ORDERED AND ADJUDGED that Barnett’s motion is granted and this matter is remanded to the Circuit Court of the Fifth Judicial Circuit in and for Marion County, Florida. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491819/ | MEMORANDUM GRANTING PLAINTIFF’S MOTION FOR SUMMARY JUDGEMENT
GEORGE C. PAINE, II, Chief Judge.
I. INTRODUCTION
The Chapter 7 trustee, as plaintiff, has initiated this adversary proceeding to retain all of the net proceeds from the sale of the debtor’s property located at 5154 Murfrees-boro Road. Before the court is the trustee’s motion for summary judgement seeking an order granting a judgement in her favor as a matter of law. For the reasons stated in this memorandum, the court finds that the trustee’s motion should be granted.
II. FINDINGS OF FACT
The following relevant facts are not in dispute. On February 1, 1987, H. Truman Gee (the debtor), Elizabeth P. Gee (the debt- or’s wife), and Wise Moving Company, Inc. (the debtor’s business) entered into a Sales Agreement with Phillip E. Daniel (the defendant) and Daniel Moving & Storage, Inc. (Daniel’s business). Under the agreement, the debtor and his wife agreed to transfer to Daniel a one-half interest in certain real property at 5154 Murfreesboro Road, being the location of Wise Moving Company. In exchange, Daniel agreed to make a cash payment of $22,300 and assume certain liabilities of Wise Moving Company.
The debtor did not execute or deliver a deed of conveyance granting Daniel the one-half interest in the property. Further, no instrument evidencing such conveyance was recorded in the Register’s Office for Rutherford County, Tennessee, where the property was located. Nevertheless, subsequent to the agreement, Daniel took exclusive control over the property and paid the liabilities of Wise Moving Company assumed under the agreement.
On October 19,1987, the debtor sued Daniel in Rutherford County Chancery Court to compel Daniel to consent to the sale of the property to a prospective buyer, Donelson *316Associates. On November 12, Daniel removed the case to federal district court. On December 21, Daniel filed a counter complaint seeking to require the debtor and his wife to deliver a deed to the one-half interest in the property as agreed to in the Sales Agreement.
On May 9, 1989, the debtor and his wife divorced. On September 11, 1989, the debt- or’s wife quitclaimed her entire interest in the subject property to the debtor pursuant to their divorce decree.
On September 22, 1989, Daniel filed an Abstract of Counter Complaint with the Register of Deeds of Rutherford County. On October 2, Daniel also locally filed a Notice of Lien Lis Pendens. Through these filing, Daniel attempted to give notice of the relief he sought in the federal court counter complaint described above. On October 4, the debtor filed Chapter 11 bankruptcy.
The debtor initiated a complaint against Daniel on August 6, 1990 to obtain approval from the court to sell the property and distribute the proceeds. On October 15, 1990, the property was sold pursuant to an agreed order between the debtor and Daniel. The sale generated net proceeds of $138,221.11, which were placed in escrow. The final issue for resolution of this complaint was to determine how the sale proceeds should be distributed. On December 19, the court rendered a telephonic decision construing the Sales Agreement and ordering that its terms be enforced. As such, the court ordered that Daniel be paid $94,042.04 and the debtor the remaining $44,179.07.
On January 3, 1991, the case was converted to a Chapter 7, and J. Michael Combs was appointed trustee. On January 25, the debt- or filed a motion to alter or amend the court’s December 19th judgement. In an agreed order on March 8, the trustee and Daniel agreed that $87,000 would be released out of escrow to Daniel. The remainder of funds in escrow were to be paid over to the trustee. However, on March 21, the court ordered that all sale proceeds held in escrow be paid to the trustee until the claims of the trustee to these proceeds was resolved.
On May 13, 1992, the trustee filed a complaint against Daniel claiming that the trustee was entitled to retain all of the net sale proceeds. In April of 1993, Susan R. Limor was appointed trustee upon Combs’ withdrawal. On August 23, 1993, Limor, as trustee, moved for summary judgment on all issues raised in the May 13 complaint.
III. CONCLUSIONS OF LAW
A, Summary Judgement Standard
Bankruptcy Rule 7056 states that Federal Rule of Civil Procedure 56, governing summary judgments, applies in adversary proceedings. Rule 56 provides:
The [summary] judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.
Fed.R.Civ.P. 56(c) (West 1993).
Rule 56(c) sets forth a two-pronged test. The first question is whether there is a genuine dispute regarding a fact that is material to the case. The second question is, if there is no factual dispute, whether the moving party is entitled to a judgment under the law.
The court finds no dispute regarding the material facts of this case as set forth above. Further, the court finds that the trustee is entitled to a judgement as a matter of law regarding the issues raised in the trustee’s complaint.
B. Arguments
The trustee, as plaintiff, contends that pri- or to filing bankruptcy, the debtor never conveyed a one-half interest in the 5154 Mur-freesboro Road property as he agreed to do in the Sales Agreement. Consequently, the debtor retained full ownership of the property at the time of his bankruptcy filing. The property thus became property of the bankruptcy estate upon the debtor’s filing. Alternatively, the trustee argues that, if a conveyance did occur, the trustee has rights superi- or to those of Daniel pursuant to the avoidance powers of 11 U.S.C. § 544. The trust*317ee, therefore, is entitled to retain all of the net sale proceeds generated from the sale of the property.
Daniel, as defendant, contends that the debtor transferred a one-half interest in the property to him prior to the debtor’s bankruptcy filing. Daniel argues that the Sales Agreement, the local filing of the Abstract of Counter Complaint and'the Notice of Lien Lis Pendens, and his possession of the property effectively transferred this interest to him. Since this transfer took place pre-petition, Daniel’s one-half interest did not become property of the bankruptcy estate. As such, Daniel claims that he should be paid the sale proceeds payable to him pursuant to this court’s December 19, 1990 judgement and the March 8, 1991 agreed order.
C. Discussion
The first issue entitled to summary judgment is whether the execution of the Sales Agreement, the local filing of the Abstract of Counter Complaint and the Notice of Lien Lis Pendens, and Daniel’s possession of the property constituted a conveyance under Tennessee law. The court finds that a conveyance under Tennessee law did not occur between the parties.
In Tennessee, as in other states, land conveyances generally occur in a two step process: execution of a land sale contract followed by execution and delivery of a deed. In a land sale contract, a seller agrees in writing to convey specified real property to a buyer at a specified price. Statute of Frauds, Tenn.Code Ann. 29-2-101(a) (Supp.1993). The actual conveyance of an ownership interest in the property, however, generally occurs by execution and delivery of a deed that satisfies the various formalities required by state statute. 9 Tenn.Jur.Deeds 7 (1993). First, being a “contract for the sale of lands,” a deed must be in writing under Tennessee’s Statute of Frauds. Tenn.Code Ann. 29-2-101(a) (Supp.1993); 9 Tenn.Juris.Deeds 7 (1993). Second, a deed must contain words showing the seller’s intention to transfer an estate in fee to the buyer. 9 Tenn.Juris.Deeds 7 (1993); see Tenn.Code Ann. 66-5-103(1).
In the present case, no written instrument indicating the debtor’s intention to convey the property to Daniel was ever executed. The only written document signed by both the debtor and his wife and Daniel was the February 1, 1987 Sales Agreement. In pertinent part, this agreement states,
“Said property is presently owned by the seller’s principal stockholders, Truman Gee and his wife, Beth Gee. Seller shall execute the required deeds at closing.” Paragraph 1(c).
“At the time of closing, Seller shall transfer to Buyer ... all of the assets enumerated in paragraph 1 [which included the real property at 5154 Murfreesboro Road]. On the demand of the Buyer, Seller shall execute and deliver any other documents necessary to give full effect to the terms of this agreement.” Paragraph 2.
This clearly expresses an agreement to execute and deliver a deed at some time in the future that would convey an interest in the property. It is, however, not an expression of the debtor’s present and actual intent to convey an interest in this property to Daniel. The Sales Agreement is thus in the nature of a land sale contract rather than a deed.
Likewise, the Abstract of Counter Complaint and the Notice of Lien Lis Pen-dens, although filed locally, were not deeds of conveyance. These documents were not expressions of the debtor’s intent to convey property. They were rather Daniel’s attempt to give notice of his claim to a one-half interest in the property.
Finally, in his affidavit dated May 13,1993, Daniel admitted that the debtor never executed or delivered a deed to the property as promised under the Sales Agreement. Accordingly, the court finds that no conveyance of the property by way of a written deed ever occurred.
Another method by which real property can be conveyed in Tennessee is by operation of law. When a seller promises to convey land to a buyer, but later breaches that promise, a court can order the seller to convey the land to the buyer by specific performance.
*318Tennessee courts have ordered conveyance of land by specific performance in two situations. The first is where the seller breaches an enforceable land sale contract. 22 TerniJrac.Specific Performance 11 (1992). On December 21, 1987, prior to the debtor’s bankruptcy, Daniel filed a counter complaint against the debtor and his wife in federal district court. Daniel sought a court order of specific performance ordering the debtor and his wife to convey a one-half interest in the property to Daniel as agreed to in the Sales Agreement. However, before the court could issue such an order, the debtor filed bankruptcy. Had the court ordered the debtor to convey Daniel a one-half interest in the property prior to bankruptcy, this court would have been faced with a different set of issues. Since the debtor filed bankruptcy prior to any such court order, the debtor’s legal interest in the property was never disturbed by operation of law.
The second situation in which Tennessee courts have ordered a land conveyance by specific performance is where the seller is estopped from claiming that a land sale contract is unenforceable under the Statute of Frauds. Baliles v. Cities Service Co., 578 S.W.2d 621, 624 (Tenn.1979). These cases involve circumstances in which a buyer takes possession of real property pursuant to some agreement that later is found to violate the Statute of Frauds. In the agreement, the seller promises to execute and deliver a deed conveying the property to the buyer. In reliance on the agreement, the buyer takes possession of the property and improves it in some way. The seller then seeks to evict the buyer from the property on the grounds that the agreement violates the Statute of Frauds and is thus unenforceable. Id. Applying the doctrine of equitable estoppel, Tennessee courts have held that the Statute of Frauds provisions should be mitigated under such circumstances and that the court should enforce the agreement by specific performance. Id.
The doctrine of equitable estoppel is not applicable in this case because the Sales Agreement was in every respect a valid and enforceable contract, as this court concluded in its December 19, 1990 judgement. Furthermore, as shown above, since the debtor filed bankruptcy prior to any court order under the doctrine of equitable estoppel, the debtor’s legal interest in the property remained undisturbed.
After examining the various methods by which real property can be conveyed in Tennessee, the court concludes that the combination of factors cited by Daniel do not constitute the conveyance of an interest in real property. There is quite simply no precedent in Tennessee law under which a conveyance could have occurred under such circum-. stances.
D. Conclusion
For the foregoing reasons, the court concludes that as of the date of his bankruptcy filing, none of the debtor’s ownership interest in the 5154 Murfreesboro Road property was ever conveyed to Daniel. At all times prior to their divorce, debtor and his wife were full owners of the property. After the debtor’s wife quitclaimed her one-half interest to the debtor pursuant to their divorce, the debtor retained a full, 100%, undivided ownership interest in the property. This ownership constituted a “legal interest” in all of the property under 11 U.S.C. § 541(a)(1). Consequently, 100% of the Mur-freesboro Road property became property of the bankruptcy estate upon filing. All net proceeds generated from the sale of the property also should be property of the bankruptcy estate.
Accordingly, the court concludes that the trustee may retain all of the net sale proceeds generated by the sale of the property. Such proceeds are currently held by the trustee pursuant to the March 21, 1991 Order, which paid all proceeds held in escrow to the trustee pending resolution of this complaint.
IV. OTHER ISSUES
The trustee raised several other issues in the motion for summary judgement: (1) if a conveyance did occur, can the trustee avoid this transfer as a unrecorded conveyance under 11 U.S.C. § 544, (2) whether the doctrines of res judicata, collateral estoppel, or laches bars the trustee’s actions in the pres*319ent complaint, and (3) whether the trustee can recover rents from Daniel’s occupancy of the property. The first issue need not be addressed because the court has held that no conveyance occurred. Daniel’s attorney conceded the second issue in the May 18, 1993 hearing on the Trustee’s summary judgement motion and thus should be resolved favorably to the trustee. The third issue, dealing with rents, was never raised in the original complaint. The May 13, 1992 coin-plaint asserted only a claim to the net sale proceeds, not a claim to rents. As such, the court finds that disposition of this issue by summary judgement would be inappropriate at this time.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491820/ | ORDER ON DEBTOR’S AMENDED OBJECTION TO AMENDED PROOF OF CLAIM
MARK B. McFEELEY, Chief Judge.
This matter came before this Court on Debtor’s Amended Objection to the Amended Proof of Claim of the New Mexico Department of Taxation and Revenue (the “Department”) and the Response thereto by the Department. The Debtor seeks a declaration from this Court that the ben of the Department is void ab initio because the notice of ben identified the Debtor as “Larry E. Hill” instead of his correct name, Larry M. Hib.1
The Department asserts that this matter is improperly before this Court because it was not brought as an adversary proceeding and therefore must be dismissed. The Department also asserts that the objection is without merit and the ben is vabd.
DISCUSSION
First, the Court must determine whether to consider this objection or dismiss the objection and require the Debtor to file a complaint under Bankruptcy Rule 7001, with its formabties and notice requirements. The Rule provides in relevant part the following:
An adversary proceeding is governed by the rules of this Part VII. It is a proceeding ... (2) to determine the vabdity, priority, or extent of a ben or other interest in property, ... (9) to obtain a declaratory judgment relating to any .of the foregoing,
The Debtor’s objection, which seeks a declaration that a ben is void ab initio, essentially asks this Court to determine the vabdity of the ben. As such, this matter should have been brought as a adversary proceeding governed by Part VII of the Rules. Therefore, this Court must dismiss the objection. See, Matter of Beard, 112 B.R. 951, 954-56 (Bankr.N.D.Ind.1990) (stating that when adversary proceeding is required to resolve the dispute, potential defendant has the right to expect that the proper procedures will be foHowed); Matter of Lipply, 56 B.R. 68, 69 (Bankr.N.D.Ind.1985) (debtor asserted defect in perfection of creditor’s ben, should have been brought as an adversary proceeding).
The Court notes that under NMSA § 7-1-38, the notice of tax ben must among other things “identify the taxpayer whose habihty for taxes is sought to be enforced, ...” A copy of the notice must be sent to the taxpayer at “the last address shown on his registration certificate or other record of the department.” NMSA § 7-1-9. The Debtor argues that the Department did not fulfib the requirements of NMSA § 7-1-38 because it did not properly identify the taxpayer. The Department argues that the information on the notice was sufficient to alert the debtor of the ben and that the debtor had actual notice of the ben because it was mailed to the correct address.
The object of the notice of tax ben is to give constructive notice to mortgagees, pledgees, purchasers, and other potential creditors. See, In the Matter of Hugues J. de la Vergne, II, Ducote, Trustee v. United States, 156 B.R. 773, 777 (Bankr.E.D.La.1993) (in proceeding to avoid tax ben under *446§ 545 because debtor-taxpayer’s name misspelled, court applied following test: “whether there was substantial compliance sufficient to give constructive notice and to alert one of the government’s claims.”). But perfection is not required for sufficient constructive notice. See, Brightwell v. United States, 805 F.Supp. 1464 (S.D.Ind.1992) (notice of federal tax lien substantially complied with requirements for constructive notice even though middle initial of taxpayer was incorrect and extra space inserted in taxpayer’s last name); United States v. Feinstein, 717 F.Supp. 1552 (D.Fla.1989) (slight misspelling of “Tarragon” as “Taragon” did not invalidate federal tax lien); Du-Mar Marine Service, Inc. v. State Bank & Trust Company of Golden Meadow, LA., 697 F.Supp. 929, 935 (E.D.La.1988) (notices of tax lien filed in the name of “Lamant Marie Service Number 2, Inc.” instead of “LaMart Marine Service No. 2, Inc.” were sufficient to alert one searching the public records because the taxpayer’s identification number and address were correct). However, each decision rests on its specific facts. Haye v. United States, 461 F.Supp. 1168 (C.D.Cal.1978) (holding that erroneous federal tax lien which listed under “Manual de J. Castello” instead of “Manuel de J. Castillo” did not provide sufficient constructive notice of the hen); United States v. Jane B. Corporation, 167 F.Supp. 352, 355 (D.Mass.1958) (minor error on subject of tax hen did not render the filing of notice ineffective, and any prudent person searching the record would have discovered the actual notice filed); Richter’s Loan Co. v. United States, 235 F.2d 753 (5th Cir.1956) (hen held valid despite misspelling of name, “Freidlan-der” instead of true name “Friedlander”); Continental Investments v. United States, 142 F.Supp. 542, 544 (W.D.Tenn.1953) (tax hen in name of “W.B. Clark, Sr.” was not constructive notice that hen was against “W.R. Clark, Sr.”). Cases involving Article 9 financing statements also focus on whether potential creditors would have been misled as a result of the incorrect name of the debtor on financing statements. “The purpose of the filing system is to give notice to creditors and other interested parties that a security interest exists in property of the debtor. Perfect accuracy, however, is not required as long as the financing statement contains sufficient information to ‘put any searcher on inquiry.’ ” Matter of Glasco, Inc., 642 F.2d 793, 795 (5th Cir.1981) (citation omitted) (court noted that the decisions concerning errors in the debtor’s name on financing statements turn on the particular facts of each case and whether potential creditors would have been misled). If this case proceeds under Rule 7001, the Court will similarly focus its inquiry.
IT IS ORDERED that the Debtor’s Amended Objection to the Amended Proof of Claim of the Department is dismissed.
. At the hearing on this motion, the Debtor testified that all of the information on the face of the notice was correct except for his middle initial. The notice correctly stated his business name as Hill Building Company and its location as 834 Griegos NW, Albuquerque, NM with a CRS ID number 01-164397-008. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491821/ | ORDER ON MOTION FOR CONTEMPT AND MOTION TO STRIKE PLAINTIFFS’ MOTION FOR CONTEMPT
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 7 case and the matter under consideration is a Motion for Contempt filed on February 9, 1994 by Paul A. Bilzerian (Bilzerian), in proper person. Bilzerian in his Motion seeks a citation of civil contempt and imposition of sanctions against Lawrence L. Scott (Scott). On February 12,1994 Scott filed a response to Bilze-rian’s Motion coupled with a Motion to Strike and also sought imposition of sanctions and costs. At the duly scheduled hearing on Bilzerian’s Motion and the Motion to Strike, the following facts, which are basically without dispute, have been established and they are as follows:
On September 19, 1993, Bilzerian caused a Subpoena Duces Tecum to be served on Scott requiring him to produce certain documents and appear at a deposition scheduled for 10:00 a.m. on November 12, 1993. Scott failed to appear at the scheduled time and failed to produce any documents. On November 12, 1993 Scott contacted one of the Plaintiffs, Terry L. Steffen, Bilzerian’s wife, and requested that the deposition be rescheduled. According to Scott there was an agreement to reschedule the deposition and Scott agreed to appear at Merit Reporting Service, 505 N. Morgan Street, Tampa, Florida, and respond to the Subpoena Duces Te-cum on December 17, 1993 at 9:00 a.m. at Merit Reporting Service, 505 N. Morgan Street, Tampa, Florida. According to Scott’s Response he appeared on that date and tendered all requested and required documents. It appears that neither Bilzerian nor his wife appeared at the deposition. The deposition of Scott was rescheduled pursuant to Order entered by this Court for January 31,1994 at 9:30 a.m. at Merit Reporting Service at the address indicated earlier but Scott, through facsimile transmission, informed Bilzerian that he had already produced and delivered all documents, as requested, on December *45417, 1993 at 9:00 a.m., the date agreed upon for the rescheduled deposition, and, therefore, he will not reappear on January 31, 1994 at 9:30 a.m. as ordered by this Court on January 12, 1994. The record reveals that Scott did not file a Motion to Quash Subpoena neither did he file a Motion For Protective order and clearly disregarded and violated this Court’s Order entered January 12, 1994. These are the facts based on which Bilzerian contends that he is entitled to the relief sought in his Motion.
The procedure which governs subpoenas and subpoenas duces tecum is established by Fed.R.Civ.P. 45 which Rule is adopted by F.R.B.P. 9016. This Rule provides, in sub-clause (e) that the “failure by any person without adequate excuse to obey a subpoena served upon that person may be deemed a contempt of the court from which the subpoena issued.” In addition, F.R.B.P. 7037, which adopted Fed.R.Civ.P. 37, provides for the imposition of sanctions against a party who has failed to obey an order providing or permitting discovery. Fed.R.Civ.P. 37(b)(2)(D).
F.R.B.P. 9020 deals with contempt proceedings. This Rule requires a contempt committed in a case or in a proceeding shall be determined only after a hearing, on notice, and notice shall be in writing and shall state essential facts constituting the contempt charged and describe the contempt as criminal or civil and shall state the time and place of hearing, allowing a reasonable time for the preparation of the defense.
The difficulty with the contempt aspect of Bilzerian’s Motion is apparent from the record in that the Motion was not processed in compliance with Rule 9020 since the telephonic notice of the hearing on the Motion failed to contain any information required by F.R.B.P. 9020.
This leaves for consideration whether or not sanctions could be imposed on Scott not for violating the subpoena but for failure to comply with a discovery order. The answer to this question must be clearly in the affirmative for the simple reason that Scott was ordered by this Court on January 12,1994 to produce all documents responsive to the subpoena on or before January 31, 1994. All of the documents requested to be produced was the correspondence between Scott and George Evangelou, Director of Credit Services of World Carpets. The justification of Scott for failure to produce this documentation was on the basis that it would violate the attorney/client privilege. Even a cursory reading of the correspondence dated July 6, 1992, July 24, 1992 and July 31, 1992 leaves no doubt that none of the material included could possibly be protected by attorney/client privilege. These are not communications between Scott and a client in this case, but between Scott and a third party. The claim to invoke the privilege is clearly specious and frivolous. While it is true that Scott finally did appear at the deposition on February 4,1994, he did violate the Order of this Court which in turn necessitated Bilzeri-an to file the present Motion under consideration. Ordinarily it would be appropriate under these facts to impose monetary sanctions to compensate for Bilzerian’s costs and expenses caused by Scott’s failure to comply with the discovery rules. While Bilzerian would be entitled to reimbursement for the costs incurred in conjunction with the first deposition scheduled for November 12, 1993, it is difficult to consider any other sanctions in light of the fact that Bilzerian is a pro se litigant and thus is not entitled to compensation for attorneys fees simply because he is not represented by counsel. Based on the foregoing, this Court is satisfied that while Bilzerian’s Motion for Contempt must be denied as proeedurally improper, it is appropriate to impose sanctions to the costs incurred for the Court Reporter in conjunction with the November 12, 1993 deposition pursuant to F.R.B.P. 7037.
This leaves for consideration the Motion to Strike Motion for Contempt filed by Scott which, inter alia, also requests the imposition of sanctions against Bilzerian and to enjoin Bilzerian or his wife from further attempts to harass and intimidate him. This Court is satisfied that there is no basis in this Motion in law or in fact and for this reason the Motion should be denied.
Accordingly, it is
*455ORDERED, ADJUDGED AND DECREED that the Motion for Contempt filed by Paul Bilzerian be, and the same is hereby, denied. It is further
ORDERED, ADJUDGED AND DECREED that the Motion for Sanctions filed by Paul Bilzerian be, and the same is hereby, granted and upon submission of proper invoices, Lawrence L. Scott shall be ordered, by separate order, to pay the same to Paul A. Bilzerian. It is further
ORDERED, ADJUDGED AND DECREED that the Motion to Strike and Motion for Contempt filed by Lawrence L. Scott be, and the same is hereby, denied.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491823/ | ORDER SUSTAINING DEBTORS’ AMENDED OBJECTION TO CLAIM OF IRS
STEVEN H. FRIEDMAN, Bankruptcy Judge.
This matter came on for an evidentiary hearing before the Court January 3, 1994, on the Debtors’ Amended Objection to Claim of the Internal Revenue Service (the “IRS”). Having considered the objection, the response thereto, the demeanor and candor of the witnesses and for the reasons set forth below, the Court sustains the Debtors’ objection to the IRS’s claim.
The Chapter 13 Debtors, Robert and Susan Bell (the “Debtors”), filed a petition for bankruptcy on April 28,1992. On October 6, 1992, the IRS filed a proof of claim in the amount of $102,513.30. The IRS’s claim arises from an assessment for unpaid taxes for the 1985 tax year. The Debtors dispute the IRS’s claim because the IRS allegedly failed to properly notify the Debtors of the alleged deficiency. By failing to properly notify the Debtors of the deficiency, the Debtors contend they did not have the opportunity to contest the alleged deficiency.
At the time that the Debtors filed their 1985 tax return, they lived at 6337 Las Flores Drive, Boca Raton, Florida (the “old address”). They continued to live at that address until June or July 1987, when they moved to 8213 Thames Blvd., Unit 8, Boca Raton (the “new address”). Despite the move in 1987, the Debtors listed their old address on their 1987 tax return, which was received by the IRS on September 2, 1988. On November 30, 1988, the IRS sent an Address Information Request to the Post Office. The Post Office returned the request on December 6, 1988, and wrote in the space for the Debtors’ new address, “moved not forwardable”. On April 15, 1989, the Debtors mailed an Application for Automatic Extension of Time to File U.S. Individual Income Tax Return which listed the Debtors new address. On May 15,1989, the IRS sent to the Debtors old address by certified mail a Notice of Deficiency (the “Notice”). The Debtors allegedly never received the Notice.
Section 6212(b)(1) of the Internal Revenue Code requires that a notice of deficiency be mailed to the taxpayer’s last known address. If the IRS does not comply -with this requirement, the notice of deficiency and any later assessment are invalid unless the taxpayers actually received the notice within the 90 day period in which to contest the notice of deficiency. United States v. Zolla, 724 F.2d 808, 810 (9th Cir.1984).
It is well established that the IRS is entitled to consider as a taxpayer’s last known address the address on the taxpayer’s most recent return unless the IRS has been given clear and concise notification of a different address. Id. However, if the IRS is notified that the taxpayer has changed its address, the IRS must exercise reasonable diligence in ascertaining the correct address. See, Martin v. Commissioner, T.C.Memo 1992-714; Powell v. Commissioner, 958 F.2d 53, 55 (4th Cir.1992); Mulder v. Commissioner, 855 F.2d 208, 211 (5th Cir.1988); Wallin v. Commissioner, 744 F.2d 674 (9th Cir.1984).
There is no dispute that the IRS sent the Notice to the address listed on the Debtors’ most recent return. The parties dispute whether the IRS was notified that the Debtors changed their address and whether the *480IRS exercised reasonable diligence in ascertaining the correct address. The Debtors contend that the IRS was notified that the Debtors changed their address when the Address Information Request was returned by the Post Office. The IRS asserts that because the Debtors did not notify the IRS of their change of address, the Notice was sufficient when it was mailed to the address listed on the 1987 return.
When the Address Information Request showing that the Debtors had moved was returned to the IRS, the IRS was notified that the Debtors no longer lived at the old address. At that point, the IRS was required to attempt to ascertain the Debtors’ correct address. Candy Atchison, a Statutory Notice Coordinator for the IRS, testified that after the IRS received notice that the Debtors no longer lived at the old address it checked its own computer records for a more current address and went through a checklist of items to determine whether there was a more current address on file. Ms. Atchison testified on cross examination that it did not cheek with FPL or Southern Bell for a more current address.
The Fifth Circuit, in Mulder, recognized the Tax Court’s willingness to impose a greater burden when the IRS knew or should have known the taxpayer had moved. Mulder, 855 F.2d at 212. The Court in Mulder cited to eases that determined that, among other places, the IRS should have made inquiries with the department of motor vehicles or the taxpayer’s representatives identified on his tax form. See, Fernandez v. Commissioner, T.C.Memo 1987-557 (1987); King v. Commissioner, 88 T.C. 1042 (1987). No case has required the IRS to make inquiries of the local utility company or local phone company to determine a taxpayer’s current address.
There was no evidence presented in this case that showed that the IRS made inquiries with the Department of Motor Vehicles or with the accountant that prepared the 1985 tax return. There also was no evidence that had the IRS inquired in either of these two places it would have found the Debtors’ new address. If the IRS had made these inquiries it would have been sufficiently diligent in its attempt to ascertain the Debtors’ correct address. However, because the IRS’s attempt to locate the Debtors, after it was known by the IRS that the Debtors had moved, was only through internal computer checks, the Court finds that the IRS was not reasonably diligent in its attempt to ascertain the correct address of the Debtors. Accordingly, it is
ORDERED AND ADJUDGED that the Debtors’ Amended Objection to Claim of the IRS is sustained and the IRS’s claim shall be disallowed in its entirety.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491824/ | ORDER ON CONTEMPT AND F.R.B.P. 9011
BURTON PERLMAN, Chief Judge.
This adversary proceeding deals with a controversy between the debtor plaintiffs and defendants who are lessors of premises occupied by plaintiff Transicoil. The present decision deals with a question of contempt of court on the part of defendants and counsel for defendants which the court has raised.
This court has jurisdiction of this matter pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this Dis-triet. This matter is before the court pursuant to the Federal Rules of Bankruptcy Pro-eedure.
Consideration of the contempt question requires that we review the history of this adversary proceeding. Plaintiff Transicoil, Inc. is a wholly-owned subsidiary of plaintiff Eagle-Picher Industries, Inc. (“EPI”), and both plaintiffs are Chapter 11 debtors in this court. Transicoil occupies a plant at Valley Forge, Pennsylvania, under lease from defendant Blue Dove Development Associates (“Blue Dove”), and has done so since prior to the bankruptcy filing January 7,1991. (Blue Dove is a limited partnership in which defendant K-Jem is the general partner.) In their complaint filed June 18, 1993, plaintiffs seek relief having to do with the performance of obligations of the parties under the lease agreement between them, and interpretation of that lease. On September 7, 1993, we entered a temporary restraining order (Doc. 22) enjoining eviction by defendants, but ordering that Transicoil make missed rental payments totaling $225,000.00 into an escrow fund, and thereafter pay rent of $75,000.00 per month. In the same matter, we dealt with a motion for abstention by defendants and denied it. We required that the rent that plaintiffs were going to be paying, be paid into escrow “until, at least, the time that there is a closing on the permanent financing.” In the course of this hearing, defendants orally, and for the first time, asserted that venue in this court was improper because of 28 U.S.C. § 1409(d).
After the temporary restraining order was entered September 7,1993, on September 10, 1993 defendants moved that rent thereafter be paid directly to them and not into escrow, because permanent financing had now been arranged. At a hearing held on this motion on September 22, 1993, the court directed that payments be made in the manner requested in the motion, but reserved decision as to whether any escrow was still needed. By order entered November 23, 1993, we held that an escrow in the amount of $100,-000.00 was to be maintained.
*628On October 6, 1993, defendants moved to punish plaintiffs for contempt. The basis alleged for the motion was that plaintiffs had failed to make the escrow payments and further that the rent payment of $75,000.00 due October 1, 1993, had not been paid. Because the payment into escrow had not been made for the reason that the parties could not agree on escrow language, which reason was known to defendants and their counsel, and because the October 1,1993 rent payment was made within the grace period permitted by the lease, we denied the motion for contempt by order entered November 23, 1993.
Also on October 5,1993, defendants filed a motion to dismiss the complaint for lack of venue under 28 U.S.C. § 1409(d). Let us remember that this issue had been presented orally on August 18, 1993, and at that time defendants presented a memorandum on the subject. On October 25, 1993, plaintiffs filed a memorandum in opposition. On November 16, 1993, this court entered an order denying the motion (Doe. 42), and holding that venue was properly in this court.
Meanwhile, on October 13, 1993, after the temporary restraining order against defendants was entered on September 7, 1993, after defendants moved for payment of rent directly to it on September 9, 1993, and that relief was granted them on September 22, 1993, after defendants had moved here for contempt on October 5, 1993, for failure to pay into escrow or pay October, 1993 rent, and while the question of propriety of venue under 28 U.S.C. § 1409(d) was pending in this court, defendants commenced an action against Transicoil in the U.S. District Court for the Eastern District of Pennsylvania. The complaint in that suit was signed by Pace Reich, the attorney who has represented defendants here through all of the events described above. In that action, those defendants, Blue Dove and K-Jem, through counsel allege:
20.Defendant has refused to pay to Plaintiff the Interim Base Rent of Seventh-Five Thousand Dollars ($75,000) per month, due under the lease on June 1, 1993, July 1, 1993, August 1, 1993 and September 1, 1993.
21. Plaintiff obtained a permanent mortgage on September 7, 1993 and in a letter dated September 8, 1993, in accordance with Article 2, section 2.01(a) of the lease, definitively calculated the monthly Base Rent at Seventh-Six Thousand Seven Hundred Eighty-Eight Dollars and Thirty-Two Cents ($76,788.32) and notified Defendant, however, Defendant has refused to pay the Base Rent since June, 1993 although Defendant paid $75,000 to Plaintiff on October 6,1993. A true and correct copy of the September 8, 1993 letter is attached hereto and included herein by reference as Exhibit “C”.
22. On or about September 10, 1993 Plaintiff filed with the Bankruptcy Court a Motion for an Order Directing Payment of Rental. Plaintiff was forced into such filing with the Bankruptcy Court because Defendant had improperly filed an action in the Bankruptcy Court in Cincinnati, Ohio despite the Venue provisions of 28 U.S.C. § 1409(d) which provide venue over any such action solely in the District Court for the Eastern District of Pennsylvania. Despite denial of venue, the Bankruptcy Court had not yet decided the venue issue.
Additionally, the complaint in the Pennsylvania District Court asserts that jurisdiction is based on 28 U.S.C. § 1334(b), and venue is proper under 28 U.S.C. § 1409(e).
On November 16, 1993, this court denied the motion of defendants to dismiss for improper venue, holding that 28 U.S.C. § 1409(d) did not apply to make venue improper here.
On November 1, 1993, the present plaintiffs moved to enjoin the conduct of the Pennsylvania action by defendants, and that motion was granted November 17,1993 (Doc. 44), following a hearing held that day. At the hearing on that motion, we expressed the view that the filing of the suit in Pennsylvania was an effort to do an end run around this court while this court had the venue issue under submission. We directed the parties to furnish us with memoranda on the question of whether the filing of the Pennsylvania suit amounted to contempt of this court.
*629In approaching the question at hand, we examine the assertion of venue in the Pennsylvania action while this court had under submission an attack on venue in the instant proceeding. Here, defendants asserted that this court was without venue because of the provision of 28 U.S.C. § 1409(d). The language of the statute there is:
§ 1409. Venue of proceedings arising under Title 11 or arising in or related to cases under under Title 11
******
(d) A trustee may commence a proceeding arising under title 11 or arising in or related to a case under title 11 based on a claim arising after the commencement of such case from the operation of the business of the debtor only in the district court for the district where a State or Federal court sits in which, under applicable non-bankruptcy venue provisions, an action on such claim may have been brought.
******
While we had under consideration interpretation of that statutory provision, defendants brought suit in Pennsylvania asserting venue based upon 28 U.S.C. § 1409(e). That provision contains the following language:
(e) A proceeding arising under title 11 or arising in or related to a case under title 11, based on a claim arising after the commencement of such case from the operation of the business of the debtor, may be commenced against the representative of the estate in such case in the district court for the district where the State or Federal court sits in which the party commencing such proceeding may, under applicable nonbankruptcy venue provisions, have brought an action on such claim, or in the district court in which such case is pending.
It may be readily seen that the language of these two subsections is indistinguishable. The only difference is that (d) deals with when a trustee may bring an action while (e) deals with when a nondebtor may bring an action. The language limiting the propriety of venue is identical in both subsections. This court had under submission interpretation of that limiting language at the time when defendants asserted venue in Pennsylvania, and subsequently determined that question adversely to defendants in our decision entered November 16, 1993. Clearly, defendants could not in good faith assert that venue lay in the Pennsylvania court because it was “based on a claim arising after the commencement of such case from the operation of the business of the debtor” when that very language was being interpreted here. The same is true of the other statements in each of the above-quoted paragraphs in the Pennsylvania complaint.
With respect to paragraph 20, this court had ordered that lease payments for June 1, 1993, July 1, 1993, August 1, 1993 and September 1, 1993 be paid into escrow. Transi-coil had not refused to make those payments.
With respect to paragraph 21, Blue Dove and K-Jem had no right to rent at $76,788.32 per month, for this court had fixed rent payments at $75,000.00 per month pending resolution of the lease dispute between the parties which was pending in this court.
With respect to paragraph 22, it was not true that “Defendant [Transicoil] had improperly filed an action in the Bankruptcy Court in Cincinnati, Ohio, despite the venue provisions of 28 U.S.C. § 1409(d).” The propriety of that action was then under consideration by this court and, indeed, it was subsequently determined by this court that Transicoil’s action was proper.
This court holds that the filing of a suit in the Pennsylvania court based on a claim of venue when the justifiability of that claim was a question pending for decision before this court was an act disrespectful of this court as an institution. It was an act subversive of the authority of this court. It was an act in contempt of this court. The other allegations of the Pennsylvania complaint to which we have referred above could not have been made in good faith and they reinforce our conclusion of contempt of court.
While the act of filing the Pennsylvania suit and the allegations made therein are certainly in contempt of this court, should they be punished by this court as a contempt? F.R.B.P. 9020 prescribes the proce*630dure for contempt actions in this court. That rule provides:
(a) CONTEMPT COMMITTED IN PRESENCE OF BANKRUPTCY JUDGE. Contempt committed in the presence of a bankruptcy judge may be determined summarily by a bankruptcy judge. The order of contempt shall recite the facts and shall be signed by the bankruptcy judge and entered of record.
(b) OTHER CONTEMPT. Contempt committed in a case or proceeding pending before a bankruptcy judge, except when determined as provided in subdivision (a) of this rule, may be determined by the bankruptcy judge only after a hearing on notice. The notice shall be in writing, shall state the essential facts constituting the contempt charged and describe the contempt as criminal or civil and shall state the time and place of hearing, allowing a reasonable time for the preparation of the defense. The notice may be given on the court’s own initiative or on application of the United States attorney or by an attorney appointed by the court for that purpose. If the contempt charged involves disrespect to or criticism of a bankruptcy judge, that judge is disqualified from presiding at the hearing except with the consent of the person charged.
(c) SERVICE AND EFFECTIVE DATE OF ORDER; REVIEW. The clerk shall serve forthwith a copy of the order of contempt on the entity named therein. The order shall be effective 10 days after service of the order and shall have the same force and effect as an order of contempt entered by the district court unless, within the 10 day period, the entity named therein serves and files objections prepared in the manner provided in Rule 9033(b). If timely objections are filed, the order shall be reviewed as provided in Rule 9033.
(d) RIGHT TO JURY TRIAL. Nothing in this rule shall be construed to impair the right to jury trial whenever it otherwise exists.
F.R.B.P. 9020 is modeled closely upon F.R.Crim.P. 42. That is, in the Bankruptcy Court, contempt, whether civil or criminal, must conform to the same procedure as applies to a criminal contempt in an Article III court. F.R.B.P. 9020 recognizes only two classifications of contempt: (1) those acts committed in the presence of the court, and (2) other acts of contempt. Only in the first instance may the court deal with the acts of counsel summarily. Otherwise, there is a requirement of notice and actual hearing. The acts of counsel presently under examination cannot be said to have occurred in the presence of the court, and so, to pursue the contempt avenue, notice and hearing are necessary. This court is unwilling to commit any more of that limited resource, time, to this matter, especially where the acts by counsel which have raised the present question are matters which do not depend upon anything oral, but are evidenced entirely by documents. Consequently, we impose no contempt penalty for the plainly contumacious conduct of counsel.
But as well as being contumacious, the acts of counsel offend F.R.B.P. 9011, which in pertinent part provides:
Rule 9011. Signing and Verification of Papers
(a) SIGNATURE. Every petition, pleading, motion and other paper served or filed in a case under the Code on behalf of a party represented by an attorney, except a list, schedule, or statement, or amendments thereto, shall be signed by at least one attorney of record in the attorney’s individual name, whose office address and telephone number shall be stated. * * * The signature of an attorney or a party constitutes a certificate that the attorney or party has read the document; that to the best of the attorney’s or 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 not signed, it shall be stricken unless it is signed promptly after the omission is *631called to the attention of the person whose signature is required. If a document is signed in violation of this rule, the court on motion or on its own initiative, shall impose on the person who signed it, the represented party, or both, an appropriate sanction, which may include an order to pay to the other party or parties the amount of the reasonable expenses incurred because of the filing of the document, including a reasonable attorney’s fee.
:ji * * * * *
In signing the complaint in the Pennsylvania action, which contained the false or misleading statements to which we have referred above, counsel could not possibly in good faith have certified that the allegations in the Pennsylvania complaint were “well grounded in fact” and that they were “not interposed for any improper purpose, such as to harass
While all that we have written above relates to the filing of the Pennsylvania suit, another filing by defendants in this court is a violation of F.R.B.P. 9011. Defendants filed a contempt motion here on October 5, 1993, based on a claim that an ordered payment into escrow had not been made, and a rent payment had not been made. Counsel for defendants then knew that no escrow had been created because he and counsel for plaintiffs could not agree on escrow language and that was the reason for non-payment into escrow. The ground of complaint stated in that motion that October rent had not been paid when that payment was not due was also false. The filing of such a groundless motion is precisely the kind of conduct barred by F.R.B.P. 9011.
In view of our conclusion that there has been an egregious violation of F.R.B.P. 9011, the following two actions pursuant to that Rule are hereby ORDERED:
1. Pace Reich, attorney, signed the complaint in the Pennsylvania action and has been appearing here on behalf of defendants. He was admitted to practice in this court pro hac vice pursuant to oral motion of August 13, 1991. Such admission is hereby vacated and revoked.
2. Defendants and Pace Reich shall pay the attorneys’ fees and costs to debtors for the work in connection with the motion for preliminary injunction filed November 1, 1993 against continuation of the Pennsylvania suit. Plaintiffs shall promptly file an application therefor with the court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491825/ | ORDER DENYING MOTION FOR SUMMARY JUDGMENT
MICKEY DAN WILSON, Chief Judge.
• On June 22, 1993, plaintiffs David Gerald Bishop and Nancy Cecile Bishop (“Mr. Bishop;” “Mrs. Bishop;” “debtors”) filed their complaint commencing this adversary proceeding against the United States of America ex rel. Internal Revenue Service (“USA”). The document was titled “Complaint to Determine Dischargeability of Federal Income Tax.” The body of the complaint made no mention whatever of dischargeability or of any circumstances bearing thereon. The text alleges the filing of a tax lien; specifies that “this Adversary Proceeding is being brought pursuant to 11 U.S.C.A. Section 505(a)(1),” complaint p. 1 ¶ 2, a statute which deals with tax liability, and makes no mention of 11 U.S.C.* § 523(a)(1), (7) the statute which deals with dischargeability; asserts that “the assessment of tax liability and filing of the tax lien by [USA] were erroneous,” complaint unnumbered p. 2 ¶ 3, and that “the [debtors] are not indebted to [USA],” id. ¶ 4; and prays “for a determination that [debtors] are not indebted to [USA, and for] release of the tax lien ...,” id.
On July 27, 1993, USA filed its “Answer,” which among other things declares that USA “lacks information and knowledge as to the statute under which the [debtors] are proceeding,” answer p. 2 ¶ 2, and points out that 11 U.S.C. § 505 has nothing to do with dis-chargeability.
On October 6, 1993, this Court issued its “Scheduling Order,” which required amendments to pleadings and dispositive motions to be filed by December 17, 1993, and which set this matter for trial on January 10, 1994.
On December 16, 1993, debtors filed an amended complaint. This document is entitled “Amended Complaint to Determine Dis-chargeability of Federal Income Tax.” It “reallege[s] and incorporate^] by reference” all of the allegations and assertions of the original complaint, am. complaint p. 1 ¶ 1. To these it adds allegations that debtors bought a home in 1985 for $68,000 and sold it in 1987 for $80,000 less sale expenses of $400; that USA “erroneously imputed the sum of $80,513.00 as additional income to the [debtors] for the tax year 1987,” unnumbered p. 2 ¶ 5, and that this “resulted in an erroneous tax deficiency assessment to the [debtors] for the tax year 1987,” id. ¶ 6. The amended complaint prays “for a determination that *734[debtors] are not indebted to the [USA, and for] release of the tax lien ...id.
Next day, on December 17, 1993, USA filed its “... Motion for Summary Judgment” and a “Memorandum in Support ...” thereof. It is apparent from the text of these documents that they were drawn and filed in ignorance of debtors’ “Amended Complaint ...” In a footnote to the “Memorandum in Support ...,” USA states that “there are no outstanding assessed 1987 tax liabilities for [Mrs.] Bishop,” and that “the motion for summary judgment relates only to [Mr.] Bishop,” and accordingly USA “ask[s] that [Mrs.] Bishop be dismissed from this adversary proceeding,” memo p. 1 n. 2. As to Mr. Bishop, USA states that “answers to [USA’s] Interrogatories stated that [debtors] seek a determination as to the dischargeability of their 1987 federal income tax liability as well as a determination as to the amount of the federal income taxes due for 1987,” memo p. 2. No such interrogatories or answers thereto have been filed with the Court, nor are any copies thereof appended to any filed documents.
According to USA, Mr. Bishop did not file a tax return for 1987, so that, pursuant to 26 U.S.C. § 6020(b), USA filed one for him. USA does not say that these assertions are undisputed facts. USA does offer as a “fact ... not in dispute” its own “Form 4340, Certificate of Assessments and Payments” which notes “Return Filed By Service” and estimates Mr. Bishop’s tax liability at $50,-188.53, memo p. 2 and see memo Exhibit A. USA seeks summary judgment that this tax debt is not dischargeable, on the ground that “[t]he failure of [Mr.] Bishop to file a tax return renders the 1987 federal income taxes nondischargeable, even though a tax return was filed on his behalf ...,” memo p. 3. USA seeks summary judgment that the tax debt owing and excepted from discharge amounts to $50,188.53 “plus accrued but unassessed interest and penalties,” memo p. 4, on the ground that
The Certificate of Assessments and Payments is prima facie evidence of the tax liability ... Once the Certificate of Assessments and Payments is introduced, the taxpayer bears the burden to establish that the information contained in the certificate is incorrect ... [Mr. Bishop has] failed to file a federal income tax return for 1987 and ha[s] not produced any records or offered any other evidence as to what [his] 1987 tax liability should be ...,
id.
On January 3, 1994, debtors filed their “... Brief in Response to [USA’s] Motion for Summary Judgment.” Therein debtors assert that
[they] seek a determination as to the amount, if any, of their federal income taxes due for 1987. Further, [they] seek to have the 1987 Federal income tax liability discharged should it be determined that they owed taxes for the year 1987,
response p. 1. They further assert that they filed their amended complaint “to clarify the relief sought,” response unnumbered p. 2 ¶ 2. They allege that “[w]hile [they] have not been able to locate a copy of their timely filed 1987 federal tax return, said tax return was filed,” id. ¶ 3; and they offer Mr. Bishop’s affidavit to that effect, see response Exhibit A. They also “controvert the balance due as shown on [USA’s] Certificate of Assessments and Payments,” id. ¶4; and they offer their own “newly signed 1987 federal income tax return,” id., and see response Exhibit B. According to debtors, they owe USA only $866 in taxes for 1987, and have already “been credited [by USA with] the sum of $1,497.24, resulting in an overpayment by [debtors] in the sum of $631.24,” response unnumbered p. 3. Debtors ask the Court to find that USA owes them $631.24. They conclude their response by stating that “[USA] is not entitled to Summary Judgment since the existence of the 1987 tax liability of the [debtors] is controverted,” id.
On January 4, 1994, USA answered debtors’ amended complaint. On January 5, 1994, this Court, on request of both parties, continued the trial to February 28, 1994.
The first issue herein is what the issue is herein. Debtors’ amended complaint is supposed to “clarify” their request for determinations of both liability and dischargeability. In fact, both the original and amended complaints ask for one thing only, and that is a *735determination of tax liability. Even debtors’ response to USA’s motion for summary judgment addresses primarily, and in conclusion refers exclusively, to “existence of the 1987 tax liability.” Since both parties elsewhere claim that they are arguing over discharge-ability too, the Court somewhat reluctantly considers the pleadings to be amended by the documents regarding summary judgment, and takes up the issue of discharge-ability as well as the issue of liability.
USA moves for summary judgment as to dischargeability solely because it alleges that debtors filed no 1987 tax return. USA does not say this allegation is an undisputed fact. Debtors themselves say they dispute it. At trial, debtors’ testimony may or may not be believed; but evidence is not to be weighed on summary judgment, In re Curtis, 38 B.R. 364, 367-368 (B.C., N.D.Okl.1983). Accordingly, USA is not entitled to summary judgment on the issue of (non)dis-chargeability.
USA moves for summary judgment as to liability because it asserts that its Certificate “is prima facie evidence of the tax liability” and that debtors “failed to file a federal income tax return for 1987 and have not produced any records or offered any other evidence as to what their 1987 tax liability should be.” It is not yet a “fact” that debtors failed to timely file a 1987 tax return; and debtors do now offer some evidence of what their 1987 tax liability should be. At trial, debtors’ evidence may or may not be believed; but credibility is not to be determined on summary judgment, In re Curtis, supra. Accordingly, USA is not entitled to summary judgment on the issue of liability.
In footnote 2 to its “Memorandum in Support ...,” USA appears to admit that judgment should be granted against it as to Mrs. Bishop. USA’s acknowledgment is noted and appreciated. But a footnote is not a motion, pleading, or other request for relief; and debtors have filed no motion for summary judgment of their own.
Accordingly, USA’s “... Motion for Summary Judgment” must be, and is hereby, denied. The matter will proceed to trial as scheduled,
AND IT IS SO ORDERED, | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491826/ | MEMORANDUM OPINION
ARTHUR B. BRISKMAN, Bankruptcy Judge.
This matter came before the Court on the complaint of the plaintiffs, Alvin and Sandra Ryan, to determine the dischargeability of federal income taxes and the amount of any non-dischargeable tax. Appearing were Irvin Grodsky for the Plaintiffs and Bill Sawyer for the Defendant. After receiving testimony and reviewing all evidence of record, the Court makes the following findings of fact and conclusions of law.
FINDINGS OF FACT
The Debtors filed a Chapter 7 proceeding on December 28, 1992. In 1990, the Debtors requested their employers to withhold federal income tax above their anticipated 1990 income tax liability. Consequently, the Debtors overpaid their 1990 tax liability by $1,319.00.
The Debtors requested the Internal Revenue Service in writing to apply the overpayment to their 1989 federal income tax liabili*758ty. Instead, the Internal Revenue Service applied the 1990 overpayment to taxes owed by the Debtors for the 1986 tax year. According to the Internal Revenue Service the Debtors owed $1,550.87, including penalty and interest, for their 1989 income taxes as of December 28, 1992. The original amount assessed, including penalty and interest, for the 1989 taxes was $1,078.98. The Internal Revenue Service had not previously initiated any administrative or judicial action to collect the 1986 taxes.
The Internal Revenue Service now contends that the Debtors owe approximately $1,550.87, including penalty and interest, for their 1989 income taxes. The Debtors contend that no balance for 1989 income taxes is owed.
CONCLUSIONS OF LAW
If a payment of taxes is voluntary, the taxpayer may direct how the payment is to be applied by the Internal Revenue Service. See Matter of A & B Heating & Air Conditioning, 823 F.2d 462 (11th Cir.1987). The Eleventh Circuit stated the rule as follows:
As a general rule, when a taxpayer directs the manner in which a payment is to be allocated among various taxes due, the Internal Revenue Service must comply with the taxpayer’s request, (citation omitted). When, however, a payment is involuntary, the Government is free to allocate the payment as it chooses, (citation omitted). The definition of involuntary payment is set forth in Amos v. Commissioner, 47 T.C. 65, 69 (1966): “an involuntary payment of federal taxes means any payment received by agents of the United States as a result of distraint or levy or from a legal proceeding in which the Government is seeking to collect its delinquent taxes or file a claim therefore.”
Under the above rule, the Debtors’ overpayment to the Internal Revenue Service in 1990 was voluntary. The Debtors deliberately overpaid their income taxes in 1990 and directed the Internal Revenue Service to allocate the overpayment to their 1989 taxes. At the time of the Debtors’ request, the Internal Revenue Service had not taken any action to collect the delinquent taxes. Therefore, based on the Eleventh Circuit rule, the Internal Revenue Service was required to follow the Debtors’ directions and erred in not so doing.
Thus, in effect, the Internal Revenue Service “seized” the Debtors’ 1990 voluntary tax payment when it applied the $1,319.00 payment to taxes owed for the 1986 tax year. The Internal Revenue Service notified the Debtors of its actions approximately one year before the Debtors filed for Chapter 7 relief. Under § 542(a) of the Bankruptcy Code, property seized by the Internal Revenue Service to satisfy a tax lien is subject to a turnover order. See United States v. Whiting Pools, Inc., 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983). “Nothing in the Bankruptcy Code or its legislative history indicates that Congress intended a special exception for the tax collector in the form of an exclusion from the estate of property seized to satisfy a tax hen”. Id. at 209, 103 S.Ct. at 2315-16. Having previously determined that the Debtors’ payment in 1990 was voluntary, the Court now directs the Internal Revenue Service to turn over the $1,319.00 to the bankruptcy estate to be distributed accordingly.
The Debtors’ 1989 tax liability in the original amount assessed ($1,078.98) is a nondis-chargeable debt to the Internal Revenue Service and the Internal Revenue Service remains entitled to all rights enjoyed by other creditors, as well as the specific privileges accorded tax collectors. Id. at 212, 103 S.Ct. at 2317. Under § 507 of the Bankruptcy Code, the Debtors’ obligations for federal income taxes for calendar years 1986, 1987 and 1988 are dischargeable.
JUDGMENT
The complaint of the Plaintiffs, Alvin and Sandra Ryan to determine the dischargeability of federal income taxes and the amount of any non-dischargeable tax against The United States of America, having been tried before the court and after receiving testimony and reviewing all evidence of record, and in conformity with and pursuant to the Memo*759randum Opinion entered contemporaneously herewith, it is
ORDERED, ADJUDGED, and DECREED that the relief sought in the complaint of the Plaintiffs, Alvin and Sandra Ryan is GRANTED in part and DENIED in part; and it is further
ORDERED, ADJUDGED, and DECREED that pursuant to 11 U.S.C. § 507, the 1986,1987, and 1988 taxes are discharge-able; and it is further
ORDERED, ADJUDGED, and DECREED that pursuant to 11 U.S.C. § 507, the 1989 taxes are nondischargeable; and it is further
ORDERED, ADJUDGED and DECREED that the 1990 overpayment to the Internal Revenue Service was voluntary and the overpayment should either be applied against Alvin and Sandra Ryan’s 1989 tax liability as property of the bankruptcy estate herein or should be refunded to Theodore L. Hall, Trustee; and it is further
ORDERED, ADJUDGED and DECREED that should the Internal Revenue Service elect to credit the overpayment to the 1989 tax liability rather than issue a refund, that any remaining proceeds shall be refunded to Theodore L. Hall, Trustee. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491827/ | ORDER ON OBJECTION TO CLAIM OF THE UNITED STATES
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a Chapter 13 case and the matter under consideration is an Amended Objection to a Claim filed by the United States of America, through the Internal Revenue Service (IRS). The Objection was filed by Patricia Marie Blanco (Debtor), and is based on the contention that she should be absolved of the tax liabilities claimed by the IRS. The Debtor seeks relief from the tax liabilities under the “innocent spouse” provision afforded by § 6013(e) of the Internal Revenue Code. The relevant facts as they were established at the duly noticed evidentiary hearing are as follows:
The Debtor and her former husband, Michael Ortabello, were married in January 1983. The couple separated in February 1986 and divorced in January 1988.
During 1983 and 1984, the Debtor worked nights for the United States Postal Service. The Debtor’s former husband, Mr. Ortabello, sold insurance for the New York Life Insurance Company, and operated an insurance brokerage business out of the couple’s home, where he maintained an office. Mr. Ortabel-lo maintained all business records for his insurance brokerage business and it is without serious dispute that the Debtor was aware of the business operated by Mr. Orta-bello but did not participate in the business to any extent.
The Debtor and Mr. Ortabello filed joint federal income tax returns for the tax years 1983 and 1984. Those returns were prepared by Randall Reid, an accountant, and were signed by the Debtor and Mr. Ortabel-lo. (Debtor’s Exhs. 2 and 3) Both the Debtor and Mr. Ortabello provided the accountant with the relevant information needed to prepare the returns. Mr. Ortabello reviewed the returns prior to signing them. According to the Debtor, she only reviewed them briefly. The returns were timely filed and requested refunds in the amounts of $3,522.66 and $3,802.82, respectively. In due course, the IRS refunded the claimed amount. The Debtor and Mr. Ortabello used the refunds to purchase a bigger diamond engagement ring for the Debtor, to pay off joint debts, and they also spent $2000 on a vacation in Mexico during the spring of 1984.
In late 1985, the IRS audited the joint income tax return for the tax year 1983. The Debtor was aware of this audit. During the audit, Mr. Ortabello supplied the revenue agent conducting the audit with records the couple had maintained in order to support the returns.
As a result of the audit, the agent made the following adjustments to the 1983 return: (1) added unreported income in the amount of $260.00; (2) disallowed home mortgage interest in the amount of $1,068.00; (3) disallowed Schedule C deductions in the amount of $3,055.00; and (4) made miscellaneous automatic adjustments as a result of the changes set forth in items (1) through (3). The adjustments resulted in an increased tax liability of $962.00. Mr. Ortabello advised the Debtor of the additional liability.
With respect to the unreported income, the Debtor admits that she generated unreported interest income in the amount of $46.00 and ordinary income in the amount of $58.00. Also, the Debtor and Mr. Ortabello do not deny receiving royalty income in the amount of $156.00, but admit that they were not aware of the source of the royalty payment.
The agent disallowed part of the home mortgage interest deductions and part of the Schedule C business deductions claimed on the return because the taxpayers failed to produce adequate receipts to substantiate the deductions in full.
The couple’s 1984 joint income tax return was also audited. Despite notice and knowl*762edge by both the Debtor and Mr. Ortabello, however, neither attended the audit. As a result, the IRS was not provided with receipts to substantiate the deductions, interest, and credit claimed on the 1984 return. Accordingly, the claimed Schedule C deductions, mortgage interest, as well as an investment tax credit due to the installation of solar panels in the couple’s home, were all disallowed in full.
The agent made the following adjustments to the 1984 return: (1) disallowed home mortgage interest in the amount of $3,218; (2) disallowed Schedule C deductions in the amount of $3,674; (3) disallowed an investment tax credit in the amount of $607.56; and (4) made miscellaneous automatic adjustments as a result of the changes in (1) through (3). The adjustments resulted in an increased tax liability of $7,424.00.
On October 28, 1986, statutory notices of deficiency were sent to the couple’s “last known address.” Subsequently, audit assessments were made against the Debtor and Mr. Ortabello in accordance with the audits.
At the evidentiary hearing, Mr. Ortabello testified that all of the credits, deductions, and interest reported on the returns were attributable to expenses actually incurred and paid by the Debtor and him during 1983 and 1984. However, neither the Debtor nor Mr. Ortabello had retained the documentation to substantiate them. The Debtor testified that she was unaware of whether the expenses were actually incurred. A revenue agent testified that all of the deductions, interest, and credits on the returns would have been allowed had the Debtor or Mr. Ortabello provided adequate receipts to substantiate that the expenses were incurred or paid. It is important to note that the Debtor did not offer into evidence her income tax return for the tax year 1985.
On June 25, 1986 the Debtor filed a voluntary Petition for Relief under Chapter 7 of the Bankruptcy Code. That case was closed on March 25, 1987. On December 29, 1992 the Debtor filed a voluntary Petition for Relief under Chapter 13 of the Bankruptcy Code.
The IRS filed a timely Proof of Claim. The IRS claims that the Debtor owes the IRS the amount of $20,190.69 due to unpaid income tax liabilities incurred during the 1983 and 1984 tax years. On August 9,1993, the Debtor filed an Amended Objection to the claim of the IRS. In the Objection, the Debtor contends that she is entitled to relief from the tax liabilities because she qualifies as an “innocent spouse,” pursuant to § 6013(e) of the Internal Revenue Code.
In opposition, the IRS argues that the Debtor cannot be afforded relief under § 6013(e), because she failed to demonstrate: (1) that on each return there was a substantial understatement of tax attributable to grossly erroneous items of one spouse; (2) that the Debtor had no reason to know of such understatements; and (3) that it would be inequitable to hold the Debtor liable for the tax liabilities.
Where a joint return is filed, the parties signing the return become jointly and severally liable for the tax due. 26 U.S.C. § 6013(d)(3). Under limited circumstances, however, § 6013(e) relieves a spouse of joint tax liability if he or she proves the requirements set forth in the statute. Section § 6013(e) provides in pertinent part as follows:
(e) Spouse relieved of liability in certain cases
(1) In general — Under regulations prescribed by the Secretary, if—
(A) a joint return has been made under this section for a taxable year,
(B) on such return there is a substantial understatement of tax attributable to grossly erroneous items of one spouse,
(C) the other spouse establishes that in signing the return he or she did not know and had no reason to know, that there was such substantial understatement, and
(D) taking into account all of the facts and circumstances, it is inequitable to hold the other spouse hable for the deficiency in tax for such taxable year attributable to such substantial understatement,
*763then the other spouse shall be relieved of liability for tax (including interest, penalties, and other amounts) for such taxable year to the extent such liability is attributable to such substantial understatement.
The purpose of the “innocent spouse” provision is to protect one spouse from the overreaching or dishonesty of the other. Purcell v. Commissioner, 826 F.2d 470 (6th Cir.1987). A taxpayer cannot avoid joint and several liability, however, because he fails to review his income tax return before signing it, because the provision protects the innocent and not the ignorant. Erdahl v. Commissioner, 930 F.2d 585 (8th Cir.1991). The taxpayer bears the burden of proving each of the elements by a preponderance of the evidence and must prove all of the elements in § 6013(e). Purcell, supra.
The record is clear that the unreported tax liability for both years is made up of four components: 1) disallowed Schedule C deductions related to Mr. Ortabello’s insurance business; 2) disallowed deductions related to payments of interest on the home mortgage; 3) a disallowed investment credit related to the installation of solar heating; and 4) unreported income based on unspecified royalty income, as well as unreported interest and ordinary income of the Debtor.
There is no question that the Debtor and Mr. Ortabello filed a joint return. The difficulty, however, stems from the fact that § 6013(e) only permits the defense of the innocent spouse, if the party asserting the defense did not know and had no reason to know of the substantial understatement of the tax liability. The Circuit Court of Appeals in this Circuit explained in Stevens v. Commissioner, 872 F.2d 1499 (11th Cir.1989), that a spouse has reason to know of a substantial understatement if a “reasonably prudent taxpayer under the circumstances of the spouse at the time of signing the return could be expected to know that the tax liability stated was erroneous or that further investigation was warranted.” The court in Stevens explained that the focus should be on whether the spouse seeking relief under § 6013(e) had “sufficient knowledge of the facts underlying the claimed deductions such that a reasonably prudent person in the taxpayer’s position would question seriously whether the deductions were phony.”
Courts consider several factors in determining whether the nonculpable spouse had reason to know of the substantial understatement, including: (1) the level of education of the spouse seeking relief under § 6013(e); (2) his or her participation in the business affairs or bookkeeping; (3) unusual or lavish expenditures when compared to pri- or levels of income, standard of living, and spending patterns; and (4) the culpable spouse’s evasiveness and deceit concerning the couple’s finances. See Stevens, supra; Sanders v. United States, 509 F.2d 162 (5th Cir.1975).
In the present instance, the Debtor admitted that unreported interest income in the amount of $46.00 and unreported ordinary income in the amount of $58.00 were attributable to her, and she failed to produce any evidence regarding undocumented unspecified royalty income. Based on these assertions, the Debtor failed to demonstrate that she had no reason to know about the understatement of tax due to the underre-porting of income.
In addition, based on the fact that the Debtor and her former husband made mortgage payments on the marital home for which they claimed a deduction, it is reasonable to infer that the Debtor was fully cognizant of the fact that the mortgage payments included amounts applied to both principal and interest, amounts which she could have easily ascertained from the holder of the mortgage. Accordingly, this Court is satisfied that she was under a duty to confirm the accuracy of the claimed deductions attributable to the mortgage interest payments. Similarly, she had the obligation to obtain the necessary documentation and verify the propriety of the investment credit deduction because she could have easily obtained the amounts invested in the solar panels. In sum, the Debtor’s claim that she did not have the necessary information and could not obtain the necessary documentation to substantiate the claimed deductions or justify the unreported income is unacceptable.
*764This record warrants the finding that the Debtor was not involved in her husband’s insurance business. While she had no basis to know the precise accuracy of the business deductions claimed by her husband, she certainly was aware that they were claimed on the returns and certainly was aware that her husband had no documentation to substantiate the claims of deductions. Moreover, in order to satisfy the claim of “innocent spouse” she had the burden that the understatement had to be attributable to a “grossly erroneously” items by her husband.
Section § 6013(e)(2) defines a “grossly erroneous” item as a claim of deduction, credit, or basis by the other spouse for which there is no basis in fact or law. A deduction has no basis in law if the expense does not qualify as deductible and no substantial legal argument can support the deduction. Douglas v. Commissioner, 86 TC 758, 1986 WL 22118 (1986). Moreover, the mere disallowance of deductions due to lack of adequate substantiation does not trigger innocent spouse relief, absent proof that the deductions or credits did not have substantial legal basis. Examples of grossly erroneous deductions include deductions which are “fraudulent, frivolous, phony, or groundless.” Stevens, supra. In the instant case, a revenue agent testified that the Schedule C deductions would have been allowed had the Debtor or Mr. Ortabello provided adequate substantiation. For this Court to determine that the Schedule C deductions were not based in law, the Debtor would need to show that the business expenses asserted would not have resulted in allowable deductions even if payment was substantiated. The Debtor did not.
The fact that the taxpayers had insufficient records to substantiate the business expenses might imply that the expenses asserted were not actually incurred and therefore not based in fact, however the Debtor testified that she had no knowledge concerning whether or not the expenses were actually incurred. The Debtor failed to demonstrate that the expenses were not actually paid, and therefore this Court is satisfied that the Schedule C deductions claimed on the 1983 and 1984 returns were also based in fact and would have been supported by law if properly documented. Accordingly, this Court is satisfied that the Debtor has failed to establish that there was any substantial understatement of tax attributable to grossly erroneous items of one spouse.
Considering the final requirement of § 6013(e), that it would be inequitable to hold the innocent spouse liable for the deficiency in tax to the extent it is attributable to such substantial understatement, a primary factor courts consider is whether the Debtor benefitted from the substantial understatement. Purcell, supra. The Debtor and Mr. Ortabello received refunds for the tax years 1983 and 1984 in the amounts of $3,522.66 and $3,802.82, respectively; and the tax liabilities asserted by the IRS for 1983 and 1984 are $962.00 and $7,424.00, respectively. Based on the fact that the Debtor and former husband used the refunds in part to pay for a $2000.00 trip, to upgrade the Debtor’s diamond ring, and to pay off joint debts, this Court is satisfied that the Debtor significantly benefitted from the understatement of tax and therefore it would not be inequitable to make the Debtor hable for the taxes.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Objection to Claim of the Debtor is overruled, and the claim of the United States is allowed in full.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491828/ | ORDER OF SHANDA1
A. JAY CRISTOL, Chief Judge.
This case came before the court on March 1, 1994 upon Susan Charney’s Motion for Award of Sanctions against her sister, Judith Herskowitz. At 3:30 p.m. on February 28, 1994, the day before the hearing, Judith Herskowitz filed a Motion for a Continuance setting forth numerous inane reasons why the matter should not be heard. They included the fact that she arbitrarily decided to be gone for a period of time and therefore gave notice that she would be unavailable. While such notices are not unusual and are usually honored by professional counsel, Ms. Herskowitz is well aware that this is litigation with her sister and her family which has been bitterly contested for 17 years and that it was not likely that her opposition would acquiesce in delaying the matter for her convenience. Her motion further asserted that she had a cold. An exhaustive search of the case law, statutory law and rules, does not disclose that grounds for continuance may be based upon the fact that one of the litigants had a cold. While the court is usually understanding and willing to grant continuance for good cause, it must be noted from past history of this case that although Ms. Herskowitz filed this case here, she almost never wishes to go forward with any scheduled matter. Also, she has on occasion, played games with the court regarding efforts to link her by telephone for the conduct of telephone hearings scheduled in that format for her convenience. More important, is the fact that the motion was not filed with the court until 3:30 in the afternoon prior to the scheduled hearing on March 1, 1994 at 9:45 a.m. and, therefore, no opportunity existed to notify and to prevent the other parties from travelling to court and thereby wasting their time. The granting of a continuance under these circumstances would be unfair to the opposing side.
The court now considers the motion of Ms. Herskowitz’s sister, Susan Charney, to enter sanctions against her sister Judy Herskowitz. From the court’s perspective, this case is a tragedy of greater proportions than the issues briefly presented at this *766hearing. The litigation presents a family that has been engaged in internecine warfare for approximately 17 years. Not only are two sisters, Susan and Judy involved, sadly the sons of Ms. Herskowitz have been dragged into this battle of the galaxy. Instead of proceeding with their lives, these nice young men, in support of their mother, are locked in never-ending vendetta with their blood relatives. The court is unaware of precisely how many other family members are in one camp or the other. It is clear to the court that Ms. Herskowitz not only does not act in good faith but is not capable of acting appropriately in her own best interest. She has been urged on numerous occasions to obtain counsel but persists in her quest to master the legal process and overwhelm her sister. She goes on and on with the waste and destruction of family relationships and family treasure. While the court has had less contact with the sister, Susan, and is unable to positively attribute the same amount of bad faith to Ms. Charney, the court notes that it usually takes “two to tango”. It appearing that Ms. Herskowitz has probably done something wrong which would qualify her for sanctions under the motion of her sister, Ms. Charney. The court ORDERS as follows:
1. The motion of Judith Herskowitz for continuance is denied.
2. The motion of Susan Charney for sanctions against Ms. Herskowitz is granted. The sanction ordered by this court is that Ms. Herskowitz shall obtain and mail to Ms. Charney, at least five days before Susan’s next birthday, a birthday card which contains the words “Happy Birthday Sister” and the signature of Ms. Herskowitz. The card shall not contain any negative, inflammatory or unkind remarks but may contain an overture to family reconciliation and settlement.
DONE and ORDERED.
. Shanda is Yiddish for shame. Paul Hoffman & Matt Freedman Dictionary Shmictionary! A Yiddish and Yinglish Dictionary 141 (1983). In view of the recent article in the Yale Law Journal which suggests that Yiddish is supplanting Latin as the spice of American legal argot, (103 Yale Law Journal 463, Nov. 1993, “Lawsuit, Shmaw-suit", Kozinski & Volokh), it was deemed appropriate to use this word. First, because it has not made the Yale Law Journal catalog and thus we are breaking new ground and second, because it is entirely descriptive of this tragic case. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491829/ | ORDER GRANTING MOTION FOR CONTEMPT
A. JAY CRISTOL, Chief Judge.
THIS MATTER having come before the Court on October 14, 1993 for final hearing on the Motion for Contempt brought by *987Plaintiff, SLK ASSOCIATES, INC., d/b/a BROMLEY’S, against Defendants, MIAMI MONEY STORE, INC., GEORGE KOVACS and JAY WEINBERG, seeking an Order of contempt against Defendants for wilful and intentional violation of this Court’s Temporary Restraining Order (the “T.R.O.”) issued January 26,1993, and the Court having taken testimony on four (4) separate occasions, having reviewed the evidence, received Post Trial Memoranda, heard argument of counsel, and being further advised in the premises, the Court hereby finds as follows:
BACKGROUND
On January 26, 1993, SLK filed a Verified Adversary Complaint together with a Verified Emergency Motion for Ex-Parte Temporary Restraining Order. The substance of the Complaint and Motion was that SLK allegedly pledged items of jewelry as collateral to MIAMI MONEY STORE in exchange for capital. The complaint alleged that these pledges were structured as buy-sell arrangements wherein:
(a) SLK would pledge jewelry to MIAMI MONEY STORE;
(b) MIAMI MONEY STORE’S purchase invoice would reflect a purchase price at substantially less value than the value of the jewelry;
(c) MIAMI MONEY STORE would purportedly hold the jewelry for a period of time with SLK having the exclusive right to repurchase same; and
(d) The repurchase price would be substantially greater than the sales price.
SLK asserts that the difference between the sale price and the repurchase price constituted usury under Fla.Stat. 687.02.
The Complaint further alleged that MIAMI MONEY STORE was holding pledged jewelry of SLK with a fair market value in excess of $1,200,000.00. The Complaint identified certain items of jewelry such as “two (2) unique necklaces worth approximately $200,000.00 each, unique diamond earrings, unique Rolex watches, unique precious stones, unique unset diamonds and other unique fine jewelry”.
According to the Complaint, the jewelry was being held in at least two (2) safety deposit boxes located at Universal National Bank.
Plaintiff also alleged that MIAMI MONEY STORE had certain designated records which substantiated the loan transactions and proved the usury. Plaintiff alleged that these records were essential to prove its case.
The primary and most important record was alleged to be a single sheet of paper which was kept in the office of the MIAMI MONEY STORE on top of a “Rolex” pad on the desk of GEORGE KOVACS.
The rationale for the T.R.O. was clear. Plaintiff feared that upon normal service of process, the Defendants, who it was alleged were already engaged in violating the usury law, would destroy this document and impede Plaintiffs ability to prove its case.
Through the T.R.O., it was contemplated that the U.S. Marshal would seize this document which would be immediately photocopied and returned. Then, with minimal inconvenience to all parties, the crucial piece of documentary evidence would either prove Plaintiffs case or exonerate Defendants. It should be noted that this is a civil matter, not a criminal investigation or prosecution. Yet the response of Defendants was a refusal to cooperate and immediate communication with one of the most highly regarded practitioners of criminal law in the United States.
Defendants GEORGE KOVACS (“KO-VACS”) and JAY WEINBERG (“WEINBERG”) were joined as principals'of MIAMI MONEY STORE and allegedly participated in these transactions as well as allegedly having possession of certain records and jewelry.
The Complaint and Motion were signed and verified by ALAN H. STEIN (“STEIN”), Plaintiffs President.
Based on the Verified Documents, the Court entered a Temporary Restraining Order, ex-parte pursuant to Rule 7065.
The Temporary Restraining Order contained Findings of Fact and Conclusions of Law mirroring the allegation's of the Complaint and Motion including:
*988(a) A Temporary Restraining Order is mandated by the facts of this case because Defendants will cause immediate and irreparable injury, loss, or damage to the Debtor, the Debtor’s estate and the Debt- or’s unsecured creditors by transferring property of the Debtor’s estate, preventing the Debtor from marshalling its assets for the benefit of the estate, and destroying records which will prove allegations entitling the Debtor to recover substantial damages from the Defendants....
(b) Debtor has no adequate remedy at law.
(c) The granting of an injunction will cause no harm or inconvenience to the Defendants.
The Court, then granted relief, including:
A. The Defendants, their officers, agents, servants, employees, attorneys, and those persons in active concert with them, are prohibited from selling, hypothecating, pledging, encumbering, transferring, removing, concealing, assigning, or otherwise disposing of the jewelry pledged by the Debtor;
B. The Defendants are required to relinquish the records and jewelry to the Court, United States Marshal, the Trustee or the undersigned to be held in trust pending full and final resolution of this matter;
C. The Defendants are required to relinquish to the Court, the United States Marshal, the Trustee or the undersigned the safety deposit box keys for the safety deposit boxes at Universal National Bank where Defendants keep Debtor’s collateral;
D. The United States Marshal shall serve a copy of the Temporary Restraining Order on Defendants at the Store located at 56 N.E. 1st Street, Miami, Florida, and Universal National Bank at 117 N.E. 1st Avenue, Miami, Florida;
E. The United States Marshal shall seize all records held by Defendants related to the transactions between Defendants and the Debtor, and instructing the Marshal to turn all such records over to the Trustee or undersigned counsel;
F. The United States Marshal shall be given access to the safety deposit boxes at Universal National Bank, and shall seize all items of jewelry contained therein, and to hold same pending adjudication of Debtor’s allegations herein; or in the alternative to seal said safety deposit boxes and prohibit any person from obtaining access to same pending final adjudication of Debtor’s allegations herein;
G.The Defendants shall file with the Court, the United States Marshal, the United States Trustee, and the undersigned counsel within 24 hours of service of the Temporary Restraining Order, an inventory, under oath, of all items of jewelry held as collateral by the Defendants for the loans made to the Debtor;
This relief was granted without the posting of a bond as it appeared that no harm would result from the T.R.O. and at worst a minor inconvenience might occur, without possibility of any monetary loss to Defendants and with ability to modify the Order as necessary to allow continued and uninterrupted operation of Defendants business.
But for a major and material discrepancy between the testimony of STEPHEN KAVKY (“KAVKY”) of BROMLEY’S and Defendant KOVACS relating to the events that occurred prior to the U.S. Marshal entering the premises of MIAMI MONEY STORE, the events relating to the execution of the Temporary Restraining Order are basically not in dispute.
KAVKY testified that he entered MIAMI MONEY STORE prior to the Marshal. After entering, he was shown the critical piece of paper identifying 25 outstanding “pledge” transactions and interest that was due on each of them. His testimony indicates that this particular document was actually placed in his hand. KAVKY further asserted that he inquired of KOVACS the whereabouts of 25 invoices reflecting these outstanding transactions, which invoices were kept in a separate binder. KAVKY then testified that KOVACS acknowledged the existence of the invoices but informed him that they were removed from the premises. According to KAVKY, when the U.S. Marshal entered the premises, KOVACS took the piece of paper from his hand and put it in his pocket. KO-VACS testified that none of the above took place. Neither party has produced evidence of these invoices.
*989Neither KAVKY nor KOVACS are particularly credible witnesses. On this dispute, however, the Court believes KAVKY on the issue of the existence of a piece of paper on top of the Rolex pad and that KOVACS put same in his pocket. If KOVACS had wished to establish that he had nothing in his pocket, he could have easily demonstrated this at that time.
FACTS NOT IN DISPUTE
The following facts are not in dispute. On or about 3:00 p.m. on January 26,1993 representatives of the U.S. Marshal’s Office, various individuals from the law firm representing the Plaintiff and KAVKY entered the premises of MIAMI MONEY STORE. The Temporary Restraining Order was served upon KOVACS and the MIAMI MONEY STORE. Shortly thereafter, WEINBERG, the President of the MIAMI MONEY STORE appeared at the store and was delivered a copy of the Temporary Restraining Order. Either KOVACS or WEINBERG then asked the U.S. Marshal if they could consult legal counsel. The Marshal acknowledged this was not an order to be executed with force. Defendants immediately contacted counsel. After receiving a fax copy of the Temporary Restraining Order, counsel advised the Defendants that, based upon the Findings of Fact and Conclusions of Law recited in the Temporary Restraining Order:
(a) Compliance may violate 5th Amendment rights;
(b) Bankruptcy counsel was necessary; and
(c) Defendants should not interfere with any search the Marshal may wish to conduct.
At this point the Plaintiff voluntarily gave up almost all of the potential benefits of the Temporary Restraining Order. Plaintiffs counsel was there. The Marshal was there. Allegedly the critical piece of paper was in KOVACS’ pocket. MR. KOVACS had just been instructed by his lawyer that he should “not interfere with any search the Marshal may wish to conduct.” The Court was a telephone call away. Instead of asking the Marshal to search KOVACS’ pocket or calling the Court to request the Court order such search, Plaintiff and its counsel stood around for a few hours and ultimately left with their primary mission not accomplished.
In any event, as a result of the conversation and instructions of counsel, Defendants did not comply immediately with the Temporary Restraining Order. Instead, KOVACS offered to seal the premises and return to the premises after Defendants had an opportunity to consult with bankruptcy counsel. Subsequent opening of the safe deposit boxes did not locate any of the jewelry alleged to be therein.
DISCUSSION
Early in this case, by Order dated March 12, 1993, the Court set out the elements Plaintiff must prove to prevail and the standard of proof those elements must meet. To prevail on its Motion for Contempt, Plaintiff must prove by clear and convincing evidence:
(1) That • there was a violation of the Court’s Order. CFTC v. Wellington Precious Metals, Inc., 950 F.2d 1525 (11th Cir.1992);
(2) That the court Order was valid and lawful as well as clear, definite and unambiguous. Jordan v. Wilson, 851 F.2d 1290 (11th Cir.1988); and
(3) That those matters subject to the Order actually exist. U.S. v. Rizzo, 539 F.2d 458 (5th Cir.1976).
1. Violation of Court Order
Defendants argue that they adequately complied with the Court’s Temporary Restraining Order by filing the following day the affidavit required under Paragraph “G” of the Temporary Restraining Order and, by delivering to the Court two days later some of the transactional documents in their possession relating to SLK, along with the keys to the safety deposit boxes referred to in the Complaint.
Determining whether there was a violation of the Court’s Order first requires an understanding of the Bankruptcy Court’s injunc-tive power under Bankruptcy Rule 7065 which is essentially a codification of Federal Rule of Civil Procedure § 65. Pursuant to Rule 7065(b), “A temporary restraining order *990may be granted without written or oral notice to the adverse party or that party’s attorney only if (1) it clearly appears from specific facts shown by affidavit or by verified complaint that immediate and irreparable injury, loss, or damage will result to the applicant before the adverse party or that party’s attorney can be heard in opposition....”
Rule 7065 allows courts to issue ex parte restraining orders to prevent the adverse party from confounding the objective of the Order. In fulfillment of those ends it is imperative for a party that has been served the order to comply in a manner which reflects the immediate nature of the Order.
In the instant ease, notice was not required because it was feared that such notice would cause Defendants to take the very actions which Plaintiff sought to prevent by the filing of its motion in the first place; that is, that the Defendants, with notice, would transfer and hide the jewelry, and destroy the records of usurious loan transactions, all causing immediate and irreparable injury, loss, or damage to the Debtor, Debtor’s estate, and Debt- or’s unsecured creditors.
The Court finds that the protection promised by Rule 7065 was undermined by Defendants’ lack of compliance and delayed compliance with the Court’s Order. When the Marshal entered the Defendants’ business premises at approximately 3:00 p.m. on January 26, 1993, he identified himself to KO-VACS and stated the purpose of his visit. Furthermore, the Marshal explained the Temporary Restraining Order to both KO-VACS and WEINBERG and had them read relevant parts. When asked if they would comply, KOVACS stated that he wanted to consult with his counsel before he would comply with the Court Order. This is not compliance, nor did Defendants comply at that time and place. The Marshal waited approximately two hours without any cooperation from Defendants. Accordingly, the U.S. Marshal concluded, and noted on his Return of Process, that Defendants’ inaction was a refusal to comply with the Temporary Restraining Order. The Marshal left the premises with only four pieces of paper. None of the records, keys or collateral mentioned in the Order were turned over. It was only during the following two days that the Defendants embarked on a campaign of piecemeal compliance. Defendants’ after-the-fact compliance with the Court’s order is wholly inadequate and defeated the purpose of the T.R.O.
Defendants’ inaction on January 26 is further exacerbated by the fact that Defendants were indeed in a position to immediately comply with the Order. KOVACS admitted that at the time of service of the Temporary Restraining Order he had in his possession invoices issued by the MIAMI MONEY STORE or by a dissolved company named “G.K. MANAGEMENT,” dated from 1990 to the present, related to the transactions between the Plaintiff and these Defendants. In addition, KOVACS admitted possession of records pertinent to the MIAMI MONEY STORE’S transactions with Plaintiff at the time the U.S. Marshal served the Order.1 Nevertheless, these records were not relinquished to the Marshal upon service of the Order. Furthermore, KOVACS concedes that Defendants refused to turn over the keys to the safety deposit boxes when requested to do so by the Marshal. WEINBERG substantiates Defendants’ failure to comply with the Court’s Temporary Restraining Order by admitting during pre-trial discovery that Defendants did not comply with the Marshal’s request to turn over all records reflecting Plaintiffs transactions with the MIAMI MONEY STORE.
Defendants’ actions after obtaining counsel are also suspect. At trial Defendants claimed that they turned over all documents relating to deals between Plaintiff and MIAMI MONEY STORE. Plaintiff, however, was able to produce 27 additional receipts which represented prior transactions between the MIAMI MONEY STORE and SLK.2 Defendants never produced their *991copies of these receipts even though the transactions clearly took place.
2. Court Order Valid and LawfullClear and Unambiguous
Defendants argue that their failure to properly comply with the order was excused due to the ambiguous and indefinite nature of the document. Specifically, Defendants claim that their untimely compliance was due to the Temporary Restraining Order’s failure to designate time parameters for the performance of the directed acts.
It is well settled law that an order of the court must be complied with promptly. Maness v. Meyers, 419 U.S. 449, 95 S.Ct. 584, 42 L.Ed.2d 574 (1975); Carlucci v. Piper, 775 F.2d 1440, 1448 (11th Cir.1985). Furthermore, the Marshal entered the premises with various members of Plaintiffs counsel. The Order was explained to and read by Defendants. Even a cursory reading would have placed Defendants on notice of the urgent and immediate nature of the Order. Clearly, a reasonable person in Defendants situation would have come to the undeniable conclusion that the Temporary Restraining Order required immediate compliance.
Drawing from clear legislative intent underlying Rule 7065 it is clear that, in the context of this ex parte Temporary Restraining Order, “promptly” should be interpreted to mean immediately.
Defendants contend that the Temporary Restraining Order was not valid and lawful since it was issued solely upon the two pleadings verified by ALAN STEIN. Defendants argue that although STEIN was President of SLK, he had no first hand knowledge of the allegations which he swore to as being true and correct. As such, any order emanating from STEIN’s pleadings cannot itself be considered valid or lawful.
The Court is not persuaded by this argument. No evidence or testimony has been presented to contradict STEIN’s sworn affidavit. On the contrary, STEIN’s affidavit sufficiently represents personal knowledge of the underlying transactions and the collater-alizing of the jewelry.
It is further alleged by the Defendants that the Order authorized the Marshal to seize “all records held by Defendants related to the transactions between Defendants and the Debtor.”
Bankruptcy Rule 7065(d) clearly states, “Every order granting an injunction and every restraining order ... is binding only upon the parties to the action, their officers, agents, servants, employees, and attorneys, and upon those persons in active concert or participation with them who receive actual notice of the order by personal service or otherwise.” (emphasis provided) GEORGE KOVACS is not only a named Defendant to this action but was also 100% owner and operator of G.K. MANAGEMENT, INC. As such, G.K. MANAGEMENT’S records fall within the “active concert or participation” requirement of Rule 7065 and clearly should have been relinquished to the Marshal.
Defendants’ attack on the validity and definiteness of the Temporary Restraining Order are unfounded. The Order was adequately drafted in compliance with Rule 7065.3 No less than four (4) pages were dedicated to establishing the Court’s finding of facts regarding the underlying motion. Furthermore, the Order specifically and repeatedly explained how the threat of immediate injury, loss or damage to the Debtor justified the ex parte restraining order. In addition, the Order reasonably described the items to be seized. Paragraphs “B” and “E” both require the Defendants to relinquish all records relating to transactions between Debtor and Defendants. Paragraph “C” requires the Defendants to relinquish the safety deposit box keys.
3. Existence of Items Subject to Order
This Court finds that Defendants violated a clear and valid Court Order. The *992only remaining question is whether Plaintiff proved by clear and convincing evidence that the items subject to the Order actually exist.
There is no question that safety deposit box keys and some records regarding transactions between the parties exist. Proof of the existence of the safety deposit box keys came when the Defendants eventually turned them over two days after they were originally to be relinquished. In addition, Plaintiff has demonstrated and Defendants acknowledge that over the course of several years, MIAMI MONEY STORE and SLK/BROM-LEY’S executed numerous trades of jewelry. While each trade was evidenced by an invoice, it appears that after a period of time invoices were discarded. Defendants acknowledge that they have not turned over any copies (or originals) of the 27 trade invoices Plaintiff was able to produce. The existence of these items alone, along with Defendants’ failure to produce them, would be sufficient to hold Defendants in contempt. It is interesting to note that none of the alleged jewelry has been found.
More important is the existence of the sheet of “Rolex” paper. The court specifically notes the testimony of KAVKY regarding the “Rolex” business record which, according to KAVKY’s testimony, contained a listing of some alleged twenty-five (25) outstanding loan transactions between the Plaintiff and the MIAMI MONEY STORE along with interest calculations relative to each transaction. KAVKY testified that upon entering the MIAMI MONEY STORE minutes before the Marshal, he was initially able to take possession of the “Rolex” business record but that KOVACS took back and pocketed the record from KAVKY when the Marshal entered the premises. The top sheet of the “Rolex” pad has not been produced to this date.
The Court notes the deposition testimony of KOVACS, made part of the evidentiary record before the Court, wherein KOVACS testified that the MIAMI MONEY STORE did in fact keep a “Rolex” pad on the front of KOVACS’ desk and that this pad was utilized to note, on a daily basis, the gross profits of the MIAMI MONEY STORE. KOVACS further testified that the MIAMI MONEY STORE has in fact made profits from the Plaintiff and that these profits had been duly noted on the “Rolex” pad. As such, this pad would clearly be an item subject to the Order. Yet, at trial, Defendants offered a flat denial as to the existence of the top sheet of the “Rolex” pad at the time the Marshal was on the premises of the MIAMI MONEY STORE. The Court finds KOVACS’ testimony regarding the non-existence of the sheet of “Rolex” paper unbelievable. The Court finds that Plaintiff, through KOVACS’ and KAVKY’s testimony, has proven by clear and convincing evidence that the “Rolex” sheet did in fact exist, although the Court is not willing to find what constituted the contents of this writing.
Whatever information the “Rolex” business record might have contained is now forever lost. The Defendants have not produced it. Whether damning or exculpatory, Defendants have secreted it or destroyed it in direct violation and contempt of this Court’s Order. Regardless, KOVACS’ refusal to turn the “Rolex” business record over to the U.S. Marshal is the most significant ground for the Court’s finding of contempt against Defendants.
CONCLUSION
The Court has the inherent authority to punish and sanction those who deliberately, willfully and contumaciously disregard the judicial process. Citronelle-Mobile Gathering, Inc. v. Watkins, 943 F.2d 1297 (11th Cir.1991); Carlucci v. Piper Aircraft Corp., 775 F.2d 1440, 1446 (11th Cir.1985). Bankruptcy Courts have inherent civil contempt power to enforce compliance with their lawful judicial orders, and no specific statute is required to invest court with civil contempt power. Orders holding non-compliant parties in civil contempt both coerce the contem-nor into compliance with a court’s Order and compensate a complainant for losses sustained as a result of the eontemnor’s disobedience. Martin v. Guillot, 875 F.2d 839 (11th Cir.1989).
The Court finds that Defendants’ wilful conduct clearly violated both the letter and spirit of this court’s Temporary Restraining Order. Production of the pocketed record would have decided this case one way of the other at once. Behavior of this sort shall not *993be tolerated lest we allow the obstruction and frustration of judicial authority. As such, the Court finds Defendants, MIAMI MONEY STORE, INC., GEORGE KOYACS and JAY WEINBERG in contempt. Accordingly, it is
ORDERED that:
1. Debtor’s Motion for Contempt and Sanctions for Violation of the Temporary Restraining Order, as to Miami Money Store, George Kovaes, its agent and Jay Weinberg, as the Chief Executive of the Money Store and boss and superior of Kovaes, is GRANTED.
2. A final evidentiary hearing to establish the damages the Debtor has suffered as a result of the violation and appropriate sanctions is scheduled for May 16, 1994 calendar call at 9:30 a.m., at 51 S.W. 1st Avenue, Federal Building, Courtroom 1410, Miami, Florida. One hour has been allocated, thirty minutes for each side.
DONE and ORDERED.
. Transcript of Testimony of George Kovacs at Continued Hearing, dated March 25, 1993, page 54, line 25, and page 56, lines 1-3, 20-23; see also, published deposition testimony of Kovacs, Deposition Transcript pages 51 and 54; and February 24, 1993 hearing transcript pages 42-43.
. These 27 receipts should not be confused with the 25 invoices reflecting outstanding loans between SLK and MIAMI MONEY STORE. Neither party was able to produce invoices or receipts pertaining to the 25 alleged transactions.
. Bankruptcy Rule 7065(d) and Federal Rule of Civil Procedure 65(d) state: "Every order granting an injunction and every restraining order shall set forth the reasons for its issuance; shall be specific in terms; shall describe in reasonable detail, and not by reference to the complaint or other document, the act or acts sought to be restrained; and is binding only upon the parties to the action, their officers, agents, servants, employees, and attorneys, and upon those persons in active concert or participation with them who receive actual notice of the order by personal service or otherwise.” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491830/ | OPINION
DAVID W. HOUSTON, III, Bankruptcy Judge.
On consideration before the court is a motion for summary judgment filed by the plaintiff, A.G. Edwards and Sons, Inc.; response to said motion having been filed by the debtor, James H. Sams; and the court having considered same, hereby finds as follows, to-wit:
I.
This court has jurisdiction of the subject matter of and the parties to this adversary proceeding pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. This is a core proceeding as defined in 28 U.S.C. § 157(B)(2)(A), (B), (I) and (0).
II.
Summary judgment should only be granted when there are no genuine issues of material fact and one party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The moving party must present its basis for the motion; the non-moving party then has a duty to present enough evidence to indicate the existence of a factual dispute. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
It is not the function of the court to weigh the evidence and determine its credibility, but to deeide whether there is a genuine issue for trial.
The court must, however, determine if the factual issues are material. “Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202, 211 (1986).
III.
On or about October 12, 1982, a brokerage account was opened at A.G. Edwards and Sons, Inc., (hereinafter Edwards), by the debtor, James H. Sams, (hereinafter Sams), through his execution of an option account agreement. Except for non-spurious federal securities claims, the agreement provided that any controversy would be decided through arbitration.
On or about July 3, 1984, Lindsey Sams, the debtor’s wife, opened a similar account with Edwards. Following Mrs. Sams’ death in 1987, the executor of her estate, First Columbus National Bank, filed an arbitration complaint with the National Association of Securities Dealers, alleging that Edwards and its representative, S. Gray Jackson, Jr., had traded Mrs. Sams’ account in an unauthorized manner and had invested in highly speculative securities which were not suitable for her needs.
As a part of its defense to the arbitration complaint, Edwards asserted a third party claim against Dr. Sams, asserting that he had defrauded Edwards by authorizing the trans*75actions that had occurred in Mrs. Sams’ account, while representing to Edwards that she was aware of and had authorized each of the transactions.
Dr. Sams filed a complaint against Edwards in the United States District Court for the Northern District of Mississippi on March 1, 1989, seeking a declaratory judgment that he should not be forced to participate in the arbitration proceeding since it was initiated by a third party complaint. Edwards answered Sams’ complaint asserting that its third party complaint was within the scope of the arbitration clause. The district court determined that the third party claim was within the scope of the arbitration clause, and commented that Edwards’ claim against Sams was basically a state law fraud cause of action.
The arbitration proceeding consumed a total of four days. Sams was represented by counsel and participated in the arbitration proceedings during three of the four days. Sams was subject to direct and cross examination, and his attorney examined other witnesses. Sams and his attorney voluntarily elected not to be present for closing arguments that were held on the fourth day.
The decision of the National Association of Securities Dealers, (NASD), referred to as an award and rendered in September, 1991, included the following conclusions:
(a) That Sams was represented by counsel;
(b) that Sams had waived any contest of jurisdiction and was bound by the determination of the arbitration panel on all issues submitted;
(c) that A.G. Edwards and its representative, S. Gray Jackson, Jr., were jointly and severally liable to the Estate of Lindsey Sams for the sum of $185,609.61, inclusive of interest; and
(d) that the third party respondent, Dr. Sams, was hable to Edwards for the sum of $92,805.00.
The NASD award was confirmed in the United States District Court for the Western District of Tennessee.
Sams filed a voluntary petition for reorganization under Chapter 11 on January 28, 1993. Edwards timely filed this adversary proceeding, alleging that its judgment against Sams was a nondischargeable debt as contemplated by 11 U.S.C. § 523(a)(2)(A) and § 523(a)(6).
IV.
In its motion for summary judgment, Edwards contends that Sams is precluded by the doctrine of collateral estoppel from relit-igating the issues of fraud, as well as, willful and malicious conduct.
This court, on previous occasions, has had opportunities to determine the collateral es-toppel effect of prior judgments in subsequent bankruptcy nondischargeability actions. In State Farm Fire and Casualty Co. v. Dunn (In re Dunn), 95 B.R. 414 (Bankr. N.D.Miss.1988), State Farm, as the insurer, had become subrogated to the rights of a mortgagee/bank when the debtor’s home was destroyed by fire. The debtor was subsequently convicted by a jury of first degree arson which, under the Mississippi statute, necessitated a finding that the accused “willfully and maliciously” set fire to the dwelling. After the debtor filed bankruptcy, State Farm filed a complaint to deny dischargeability, claiming that the debt was the product of a willful and malicious injury to property. State Farm then filed a motion for summary judgment alleging that the arson conviction collaterally estopped the debtor from relit-igating the issue of his willful and malicious conduct. This court sustained the motion for summary judgment recognizing that the arson conviction was conclusive as to the issue of the debtor’s conduct.
The matter of Berry v. McLemore (In re McLemore), 94 B.R. 903 (Bankr.N.D.Miss. 1988), was another nondischargeabihty cause of action. While employed as a police officer, the debtor, McLemore, stopped Berry for a traffic offense. A fist fight ensued which ended when McLemore drew his service revolver and shot Berry. Berry filed suit in the United States District Court and was awarded actual and punitive damages. When McLemore filed for relief under Chapter 7 of the Bankruptcy Code, Berry sought to have the judgment adjudicated as nondis-*76chargeable pursuant to 11 U.S.C. § 523(a)(6). This court refused to apply the doctrine of collateral estoppel, as requested by Berry, because an examination of the jury trial record faded to reveal whether the jury had applied a “willful and malicious” standard or a “reckless disregard” standard in awarding punitive damages. The jury had been instructed that either standard could apply. After then conducting an independent analysis of the testimony elicited at the district court trial, the court found the debtor’s conduct to have been willful, but not malicious as defined in Seven Elves, Inc. v. Eskenazi, 704 F.2d 241, 245 (5th Cir.1983). The debt evidenced by the judgment was discharged.
In In re Dunn and In re McLemore, several precedents, discussing the applicability of collateral estoppel in a bankruptcy dis-chargeability action, were cited by the court. In addressing the present matter, these authorities should be mentioned again.
In Brown v. Felsen, 442 U.S. 127, 139 n. 10, 99 S.Ct. 2205, 2213 n. 10, 60 L.Ed.2d 767 (1979) the Supreme Court addressed the issue of the applicability of collateral estoppel in a bankruptcy dischargeability action as follows:
If, in the course of adjudicating a state law question, a state court should determine factual issues using standards identical to those of [§ 523 of the present Bankruptcy Code] then collateral estoppel, in the absence of countervailing statutory policy, would bar relitigation of those issues in bankruptcy court.
Id.
In In re Shuler, 722 F.2d 1253 (5th Cir. 1984), the Fifth Circuit stated that collateral estoppel may be invoked in a dischargeability action. The court enunciated the following test for applying the doctrine of collateral estoppel in the Fifth Circuit: (i) the issue to be precluded must be identical to that involved in the prior action, (ii) the issue must have been actually litigated in the prior action, and (iii) the issue determination in the prior action must have been necessary to the resulting judgment. Id. at 1256 n. 2. See also White v. World Finance of Meridian, Inc., 653 F.2d 147, 151 (5th Cir.1981).
The aforementioned authorities were also cited with approval by this court in In re Horowitz, 103 B.R. 786 (Bankr.N.D.Miss. 1989), and In re Jordan, 151 B.R. 373 (Bankr.N.D.Miss.1992).
The court must first decide whether or not collateral estoppel effect can be given to arbitration proceedings. The court looks to Universal American Barge Corp. v. J-Chem, Inc., 946 F.2d 1131 (5th Cir.1991), where the Fifth Circuit stated, ... “The application of collateral estoppel from arbi-tral findings is a matter within the broad discretion of the district court, (citations omitted), and a district court’s discretion in deciding whether to give arbitral findings preclusive effect also keeps the risk of prejudice at an acceptable level, at least when the arbitral pleadings state issues clearly, and the arbitrators set out and explain their findings in a detailed written memorandum.” Universal, id. at 1137 (emphasis added). “A district court in exercising its discretion must carefully consider whether procedural differences between arbitration and the district court proceeding might prejudice the party challenging the use of offensive collateral estoppel.” Id.
The court, after looking at the NASD award in this matter, observes that the arbitration panelists did not explain their findings in detail in their written decision. The award states that Edwards asserted a third party claim against Sams for indemnity and contribution. It then concludes without elaboration that Sams was liable to Edwards for the sum of $92,805.00. The award does not specify the grounds on which this conclusion is based.
Edwards contends that the award against Sams was clearly based on a state law fraud claim, but the language in the arbitration award does not support this contention, nor does it necessarily negate the contention. This court cannot point to anything that precisely identifies why the arbitrators decided as they did.
The transcript of the arbitration proceedings did not identify with any reasonable degree of certainty the procedural standards that were applied to govern the admissibility *77of evidence, so that a comparison could be made to those standards that would be utilized by this court or another judicial forum of competent jurisdiction. The court noted several instances, coincidentally, where evidence, otherwise inadmissible under the Federal Rules of Evidence, was apparently considered.
The court is, therefore, of the opinion that since it has broad discretion in whether or not to give arbitral findings preclusive effect, that collateral estoppel should not apply in this situation.
Edwards also argues that collateral estoppel effect should be given to the decision of the United States District Court, in the declaratory judgment action brought by Sams, where the court stated that Edwards’ claim against Sams was basically a state law fraud cause of action. The court is of the opinion that the only collateral estoppel effect that can be given this ruling is that Sams was bound to arbitrate the claim filed against him through Edwards’ third party complaint. Edwards’ effort to “bootstrap” the categorization of the claim by the district court with the decision rendered by the arbitration panel into preclusive collateral estoppel effect on the issue of fraud is almost as ridiculous as asking this court to give collateral estoppel effect to the arbitration award on the issue of willful and malicious injury, which was raised for the first time in Edwards’ nondischarge-ability complaint.
The motion for summary judgment filed by Edwards is not well taken and will be overruled by a separate order of this court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491716/ | USCA11 Case: 20-12407 Date Filed: 11/22/2022 Page: 1 of 24
[PUBLISH]
In the
United States Court of Appeals
For the Eleventh Circuit
____________________
No. 20-12407
____________________
MARIO DEL VALLE,
ENRIQUE FALLA,
ANGELO POU,
Plaintiffs-Appellants,
CAROLINA FERNANDEZ, et al.,
Plaintiffs,
versus
TRIVAGO GMBH,
a German Limited Liability Company,
BOOKING.COM B.V.,
a Dutch Limited Liability Company,
GRUPO HOTELERO CARIBE,
CORPORACION DE COMERCIO Y TURISMO
USCA11 Case: 20-12407 Date Filed: 11/22/2022 Page: 2 of 24
2 Opinion of the Court 20-12407
INTERNACIONAL CUBANACAN S.A.,
GRUPO DE TURISMO GAVIOTA S.A.,
RAUL DOE 1-5,
MARIELA ROE 1-5,
EXPEDIA, INC., et al.,
Defendants-Appellees.
____________________
Appeal from the United States District Court
for the Southern District of Florida
D.C. Docket No. 1:19-cv-22619-RNS
____________________
Before JORDAN and NEWSOM, Circuit Judges, and BURKE, * District
Judge.
JORDAN, Circuit Judge:
On April 17, 2019, the Trump administration announced
that it would not suspend the Cuban Liberty and Democratic Soli-
darity Act (known as the “Helms-Burton Act”) for the first time
since its enactment in 1996. Shortly after this announcement, the
cause of action created by Title III of the Helms-Burton Act became
*The Honorable Liles Burke, U.S. District Judge for the Northern District of
Alabama, sitting by designation.
USCA11 Case: 20-12407 Date Filed: 11/22/2022 Page: 3 of 24
20-12407 Opinion of the Court 3
fully effective in U.S. courts. As explained in more detail below,
Title III generally provides a private cause of action for United
States nationals against persons who knowingly traffic in property
expropriated by the Cuban government after the start of the Cuban
revolution.
In this appeal we confront questions of personal jurisdiction
and Article III standing in an action brought under Title III. We
conclude that, based on the uncontroverted allegations in the plain-
tiffs’ complaint, the district court has specific jurisdiction over the
defendants pursuant to Fla. Stat. § 48.193(1)(a)(2) and that the ex-
ercise of jurisdiction does not violate the Due Process Clause of the
Fourteenth Amendment. We also conclude that the plaintiffs have
standing to assert their Title III claims.
I
In January of 1959, Fidel Castro and the 26th of July Move-
ment ousted dictator Fulgencio Batista and seized control of the
Cuban government. During the years that followed, the Cuban
government nationalized all manner of property held by foreigners
and Cuban nationals alike.
Congress enacted the Helms-Burton Act, 22 U.S.C. §§ 6021
et seq., in 1996. The goal was to deter trafficking of confiscated
properties by providing “United States nationals who were the vic-
tims of th[o]se confiscations . . . with a judicial remedy in the courts
of the United States.” § 6081(11).
USCA11 Case: 20-12407 Date Filed: 11/22/2022 Page: 4 of 24
4 Opinion of the Court 20-12407
Title III of the Helms-Burton Act establishes a private right
of action for “any United States national who owns the claim to
[confiscated property]” against “any person that . . . traffics in [such]
property.” § 6082(a)(1)(A). Until 2019, Title III was suspended by
successive Presidential decrees. See § 6085 (allowing the President
to suspend the effective date of Title III if suspension is “necessary
to the national interests of the United States”).
Under Title III, a person “traffics” in confiscated property if
that person knowingly and intentionally
(i) sells, transfers, distributes, dispenses, brokers,
manages, or otherwise disposes of confiscated prop-
erty, or purchases, leases, receives, possesses, obtains
control of, manages, uses, or otherwise acquires or
holds an interest in confiscated property,
(ii) engages in a commercial activity using or other-
wise benefiting from confiscated property, or
(iii) causes, directs, participates in, or profits from,
trafficking (as described in clause (i) or (ii)) by another
person, or otherwise engages in trafficking (as de-
scribed in clause (i) or (ii)) through another person,
without the authorization of any United States na-
tional who holds a claim to the property.
§ 6023(13).
The plaintiffs in this case—Mario del Valle, Enrique Falla,
and Angela Pou—filed suit in the Southern District of Florida under
USCA11 Case: 20-12407 Date Filed: 11/22/2022 Page: 5 of 24
20-12407 Opinion of the Court 5
Title III against several entities that own and operate travel web-
sites, including Booking.com BV and Booking Holdings, Inc. (the
Booking Entities), and Expedia Group, Inc., Hotels.com L.P., Ho-
tels.com GP, and Orbitz, LLC (the Expedia Entities). The plaintiffs
alleged that they are U.S. nationals and living heirs to separate
beach-front properties nationalized by the Cuban government af-
ter the 1959 revolution. After seizing the properties, the Cuban
government built the Starfish Cuatro Palmas and the Memories Ji-
bacoa Resort (the Resorts) on the confiscated land. Until recently,
visitors could reserve lodging at the Resorts through third-party
travel booking websites. According to the complaint, the Booking
Entities and Expedia Entities trafficked in those properties on their
travel booking websites.
The Booking Entities and Expedia Entities moved to dismiss
the complaint for lack of personal jurisdiction, lack of subject-mat-
ter jurisdiction, and failure to state a claim. Notably, they did not
submit any affidavits or other exhibits rebutting the jurisdictional
allegations in the complaint. The personal jurisdiction challenge,
therefore, was facial and not factual.
The district court dismissed the plaintiffs’ Title III claims
without leave to amend, ruling that it lacked personal jurisdiction
over the defendants under the relevant provisions of Florida’s long-
arm statute. See Fla. Stat. §§ 48.193(1)(a)(1), 48.193(1)(a)(2),
48.193(2). The district court did not reach the defendants’ other
grounds for dismissal.
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6 Opinion of the Court 20-12407
Following a review of the record, and with the benefit of
oral argument, we reverse. The plaintiffs alleged that the Booking
Entities and Expedia Entities operate fully interactive travel web-
sites that are accessible in Florida, and that Florida residents have
used those websites to book accommodations at the Resorts.
These allegations, which were not controverted below, establish
personal jurisdiction. We also conclude that the plaintiffs have Ar-
ticle III standing for their Title III claims. 1
II
We exercise plenary review as to the district court’s dismis-
sal for lack of personal jurisdiction. See Oldfield v. Pueblo De Bahia
Lora, S.A., 558 F.3d 1210, 1217 (11th Cir. 1996). We accept the fac-
tual allegations in the complaint as true to the extent that they are
uncontroverted and construe all reasonable inferences in the plain-
tiffs’ favor. See Fraser v. Smith, 594 F.3d 842, 846 (11th Cir. 2009).
A
Even in cases arising under federal law, “[f]ederal courts or-
dinarily follow state law in determining the bounds of their juris-
diction over persons.” Daimler AG v. Baumann, 571 U.S. 117, 125
(2014) (citing Fed. R. Civ. P. 4(k)(1)(A)). Under this paradigm, a
federal court generally undertakes a two-step analysis to determine
1 Because personal jurisdiction and standing are distinct from the merits, see
Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 305 F.3d 120, 125
(2d Cir. 2002), we express no view on the plaintiffs’ Title III claims.
USCA11 Case: 20-12407 Date Filed: 11/22/2022 Page: 7 of 24
20-12407 Opinion of the Court 7
whether there is personal jurisdiction over a nonresident defend-
ant. See Sculptchair, Inc. v. Century Arts, Ltd., 94 F.3d 623, 626
(11th Cir. 1996). First, the court must determine whether the plain-
tiff has alleged sufficient facts to subject the defendant to the forum
state’s long-arm statute. See id. Second, if the court determines
that the forum state’s long-arm statute has been satisfied, it must
then decide whether the exercise of jurisdiction comports with the
Due Process Clause of the Fourteenth Amendment. See id.
The operative complaint here set out the following allega-
tions in support of the exercise of personal jurisdiction over the
Booking Entities and Expedia Entities:
The websites of the Booking Entities and Expedia
Entities “are fully-interactive websites that have
robust internet e-business capabilities. They have
worldwide reach and are fully accessible in Flor-
ida.”
Florida residents could—and did—use the web-
sites of the Booking Entities and Expedia Entities
to book accommodations at the Resorts.
The Booking Entities and Expedia Entities pro-
mote their websites and the ability to book lodg-
ings at the Resorts on their websites through ban-
ner ads directed at Florida residents, follow-up
emails sent to Florida residents who have
searched for the Resorts or other geographically
proximate hotels, and search engine optimization
USCA11 Case: 20-12407 Date Filed: 11/22/2022 Page: 8 of 24
8 Opinion of the Court 20-12407
(SEO) efforts intended to maximize performance
on search engine results pages.
In addition to the direct benefit of “receiving
commissions or other fees for the booking” of the
Resorts, the Booking Entities and Expedia Enti-
ties “also derive an indirect benefit” by “receiving
advertising revenues driven by or related to” the
web traffic generated through their offering of
the ability to book lodging at the Resorts.
“A substantial part” of the Booking Entities’ and
Expedia Entities’ “business and revenue derives
from their Florida offices.”
D.E. 50 at ¶¶ 13, 15, 16, 39, 49-51, 58-59.
B
With respect to the first step of the personal jurisdiction
analysis, we begin (and end) with § 48.193(1)(a)(2) of Florida’s long-
arm statute. A specific jurisdiction provision, it provides that a non-
resident defendant is subject to personal jurisdiction for any cause
of action “arising from” a “tortious act” committed in Florida. 2
We have consistently held that, under Florida law, a non-
resident defendant commits a tortious act in Florida by performing
an act outside the state that causes injury within Florida. See Pos-
ner v. Essex Ins. Co., 178 F.3d 1209, 1216 (11th Cir. 1999);
2 Given that there is specific personal jurisdiction under § 48.193(1)(a)(2), we
need not address whether jurisdiction also exists under § 48.193(1)(a)(1) or
§ 48.193(2).
USCA11 Case: 20-12407 Date Filed: 11/22/2022 Page: 9 of 24
20-12407 Opinion of the Court 9
Licciardello v. Lovelady, 544 F.3d 1280, 1283-84 (11th Cir. 2008);
Louis Vuitton Malletier, S.A. v. Mosseri, 736 F.3d 1339, 1353 (11th
Cir. 2013). See also Internet Solutions Corp. v. Marshall, 39 So.3d
1201, 1216 (Fla. 2010) (holding that a nonresident defendant com-
mits the tortious act of defamation in Florida for purposes of Flor-
ida’s long-arm statute when its website containing defamatory
statements is accessed in Florida). A nonresident defendant need
not be physically present in Florida to commit a tortious act there.
See Tufts v. Hay, 977 F.3d 1204, 1211 (11th Cir. 2020); Wendt v.
Horowitz, 822 So.2d 1252, 1260 (Fla. 2002).
In Louis Vuitton, we held that a nonresident defendant com-
mitted a tortious act in Florida under § 48.193(1)(a)(2) when he sold
trademark-infringing goods to Florida residents through his web-
site. See 736 F.3d at 1354. The district court here distinguished
Louis Vuitton because “it involved a trademark infringement claim
in which the infringement occurred through the website. In other
words, the use of the website constituted the claim itself.” D.E. 71
at 5. The district court explained that the tort at the heart of the
Helms-Burton Act claims against the Booking Entities and Expedia
Entities is “traffick[ing] in . . . confiscated property, which occurred
in Cuba.” Id. We respectfully disagree, and conclude that Louis
Vuitton is a closer fit than the district court thought.
Louis Vuitton did not rely solely on the website’s accessibil-
ity in Florida as the basis for the exercise of specific personal juris-
diction, but also on the allegation that the defendant “caused injury
in Florida . . . because [his] trademark infringing goods . . . were
USCA11 Case: 20-12407 Date Filed: 11/22/2022 Page: 10 of 24
10 Opinion of the Court 20-12407
sold to Florida customers through that website.” Louis Vuitton,
736 F.3d at 1354. In other words, allegations regarding the sale of
infringing goods to Florida residents through the accessible website
sufficed to establish specific personal jurisdiction under §
48.193(1)(a)(2). See id. (“In sum, Mosseri’s tortious acts on behalf
of JEM Marketing caused injury in Florida and thus occurred there
because Mosseri’s trademark infringing goods were not only acces-
sible on the website, but were sold to Florida residents through the
website.”).
Under Title III, a person traffics in confiscated property
when he or she knowingly and intentionally engages in a commer-
cial activity using or otherwise benefiting from the confiscated
property. See 22 U.S.C. § 6023(13). As the plaintiffs alleged in their
complaint, the trafficking underlying the Helms-Burton Act claims
against the Booking Entities and Expedia Entities involves Florida
residents using their commercial websites to book lodging at the
Resorts that now stand on the confiscated properties. The com-
plaint alleged that the Booking Entities and Expedia Entities de-
rived a benefit from the unauthorized use of the confiscated prop-
erties (i.e., the trafficking) because they (a) “received commissions
or other fees for the booking” of lodging at the Resorts via their
websites, and (b) “also derive[d] an indirect benefit” by “receiving
advertising revenues driven by or related to” the web traffic gener-
ated through their offering of the Resorts on their websites. Put
another way, the plaintiffs alleged that the Booking Entities and
Expedia Entities trafficked in the confiscated properties by
USCA11 Case: 20-12407 Date Filed: 11/22/2022 Page: 11 of 24
20-12407 Opinion of the Court 11
specifically targeting and “selling” reservations at the Resorts to
Florida residents through their websites. As a result, Louis Vuitton
is factually and legally analogous and supports a finding of specific
personal jurisdiction under § 48.193(1)(a)(2).
The Florida Supreme Court’s decision in Internet Solutions
supports our conclusion. That case held that a nonresident defend-
ant commits a tortious act in Florida under § 48.193(1)(a)(2) when
he “post[s] [allegedly defamatory] statements on a website, pro-
vided that the website posts containing the statements are accessi-
ble in Florida and accessed in Florida.” 39 So. 3d at 1215 (emphasis
added). Once defamatory material is “accessed by a third party in
Florida, the material has been ‘published’ in Florida and the poster
has communicated the material ‘into’ Florida, thereby committing
the tortious act of defamation within Florida.” Id.
The same principle applies here. The Booking Entities and
Expedia Entities allegedly trafficked in the confiscated properties
by profiting from web traffic generated by Florida residents’ inter-
est in the Resorts and from reservations made by Florida residents
at the Resorts through their commercial websites—commercial ac-
tivities using or otherwise benefiting from the confiscated proper-
ties. At the very least, some of the alleged trafficking took place
when Florida residents accessed the websites and made reserva-
tions at one or more of the Resorts through those websites. It is
the Florida residents’ booking of accommodations at the Resorts
through the websites—the material communicated “into” Flor-
ida—that gives rise to the plaintiffs’ trafficking claims under Title
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12 Opinion of the Court 20-12407
III and provides for specific personal jurisdiction under §
48.193(1)(a)(2). See Internet Solutions Corp., 39 So.3d at 1215. See
also Wendt, 822 So.2d at 1260 (“‘[C]ommitting a tortious act in
Florida’ . . . can occur through the nonresident defendant’s tele-
phonic, electronic, or written communications into Florida.”);
Rennaissance Health Pub., LLC v. Resveratol Partners, LLC, 982
So. 2d 739, 742 (Fla. 4th DCA 2008) (“An interactive website which
allows a defendant to enter into contracts to sell products to Florida
residents, and which ‘involve[s] the knowing and repeated trans-
mission of computer files over the internet,’ may support a finding
of personal jurisdiction.”).
C
As explained above, the complaint’s allegations satisfied the
requirements for specific jurisdiction pursuant to § 48.193(1)(a)(2).
Because the Booking Entities and Expedia Entities did not rebut
those allegations, we next consider whether the exercise of per-
sonal jurisdiction comports with the Constitution. See United
Technologies Corp. v. Mazer, 556 F.3d 1260, 1274 (11th Cir. 2009).
The Due Process Clause of the Fourteenth Amendment pro-
tects a party from being subject to the binding judgment of a forum
with which it has established no meaningful “contacts, ties, or rela-
tions.” International Shoe Co. v. Washington, 326 U.S. 310, 319
(1945). A tribunal’s authority depends on the defendant having
such contacts with the forum that “‘the maintenance of the suit’ is
‘reasonable, in the context of our federal system of government,’
and ‘does not offend traditional notions of fair play and substantial
USCA11 Case: 20-12407 Date Filed: 11/22/2022 Page: 13 of 24
20-12407 Opinion of the Court 13
justice.’” Ford Motor Co. v. Montana Eighth Judicial District
Court, 141 S. Ct. 1017, 1024 (2021) (quoting International Shoe, 326
U.S. at 316-17). “The law of specific jurisdiction . . . seeks to ensure
that States with ‘little legitimate interest’ in a suit do not encroach
on States more affected by the controversy.” Ford Motor Co., 141
S. Ct. at 1025. 3
At bottom, due process prohibits the exercise of personal ju-
risdiction over a nonresident defendant unless its contacts with the
state are such that it has fair warning that it may be subject to suit
there. See id.; Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472–
3 Because the parties have litigated the personal jurisdiction issue under the
Fourteenth Amendment, we do not address the Fifth Amendment’s Due Pro-
cess Clause or Federal Rule of Civil Procedure 4(k)(2)(A)-(B), which provides
that, where a claim “arises under federal law” and the defendant is not subject
to jurisdiction in the courts of general jurisdiction of any state, a federal court
may exercise personal jurisdiction if it “is consistent with the United States
Constitution and laws.” Compare Bristol Myers Squibb Co. v. Superior Court,
137 S. Ct. 1773, 1783-84 (2017) (“[S]ince our decision concerns the due process
limits on the exercise of specific jurisdiction by a State, we leave open the ques-
tion whether the Fifth Amendment imposes the same restrictions on the exer-
cise of personal jurisdiction by a federal court.”), with Oldfield v. Pueblo Bahia
Lora, S.A., 558 F.3d 1200, 1219 n.25 (11th Cir. 2009) (“As the language and
policy of the Due Process Clauses of the Fifth and Fourteenth Amendments
are virtually identical, decisions interpreting the Fourteenth Amendment’s
Due Process Clause guide us in determining what due process requires in the
Fifth Amendment jurisdictional context.”). In any event, we recently held in
a Helms-Burton Act case that courts should analyze personal jurisdiction un-
der the Fifth Amendment using the same basic principles that apply under the
Fourteenth Amendment. See Herederos de Roberto Gomez Cabrera, LLC v.
Teck Res. Ltd., 43 F.4th 1303, 1308 (11th Cir. 2022).
USCA11 Case: 20-12407 Date Filed: 11/22/2022 Page: 14 of 24
14 Opinion of the Court 20-12407
77 (1985). In specific jurisdiction cases like this one, we examine
whether (1) the plaintiff’s claims “arise out of or relate to” one of
the defendant’s contacts with the forum state; (2) the nonresident
defendant “purposefully availed” itself of the privilege of conduct-
ing activities within the forum state; and (3) the exercise of personal
jurisdiction is in accordance with traditional notions of “fair play
and substantial justice.” See Louis Vuitton, 736 F.3d at 1355. The
plaintiffs bear the burden of establishing the first two requirements.
See id. If they carry that burden, the Booking Entities and Expedia
Entities must then make a “‘compelling case’ that the exercise of
jurisdiction would violate traditional notions of fair play and sub-
stantial justice.” Id. (quoting Diamond Crystal Brands, Inc. v. Food
Movers Int’l, Inc., 593 F.3d 1249, 1267 (11th Cir. 2010)).
The first prong—which addresses the concept of related-
ness—focuses on the “causal relationship between the defendant,
the forum, and the litigation.” Fraser, 594 F.3d at 850 (internal quo-
tation marks omitted). Importantly, the Supreme Court recently
rejected the contention that specific jurisdiction may attach only
when the defendant’s forum conduct directly gave rise to the plain-
tiff’s claims. See Ford Motor Co., 141 S. Ct. at 1026-27 (“[W]e have
never framed the specific jurisdiction inquiry as always requiring
proof of causation—i.e., proof that the plaintiff’s claim came about
because of the defendant’s in-state conduct.”).
This prong is readily met here. Though direct causation is
not required, the plaintiffs’ Helms-Burton Act claims arise at least
in part directly out of the contacts of the Booking Entities and the
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20-12407 Opinion of the Court 15
Expedia Entities with Florida—the promotion targeted at and di-
rected to Florida residents, the accessing of their websites by Flor-
ida residents, and the use of those websites by some Florida resi-
dents to book accommodations at the Resorts. To borrow the lan-
guage of Louis Vuitton, the ties of the Booking Entities and Expe-
dia Entities “to Florida . . . involve the advertising [and] selling” of
accommodations at the Resorts to Florida residents. 736 F.3d at
1356.
As to the second prong—which concerns purposeful avail-
ment—there are two applicable tests: the effects test and the mini-
mum contacts test. See Calder v. Jones, 465 U.S. 783, 790 (1984);
Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 776 (1984). We
discuss both below.
Under the effects test, a nonresident defendant’s single tor-
tious act can establish purposeful availment without regard to
whether the defendant had any other contacts with the forum
state. See Lovelady, 544 F.3d at 1285. The test is met when the
tort was intentional, aimed at the forum state, and caused harm
that the defendant should have anticipated would be suffered in the
forum state. See id. at 1285–86, 1287–88. In Lovelady, for example,
we held that the defendant’s use of the Florida plaintiff’s trade-
marked name and picture on a website accessible in Florida satis-
fied the effects test for personal jurisdiction because it entailed “the
commission of an intentional tort aimed at a specific individual in
the forum whose effects were suffered in the forum.” Id. at 1288.
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16 Opinion of the Court 20-12407
The minimum contacts test assesses the nonresident defend-
ant’s contacts with the forum state and asks whether those contacts
(1) are related to the plaintiff’s cause of action; (2) involve some act
by which the defendant purposefully availed himself of the privi-
leges of doing business within the forum; and (3) are such that the
defendant should reasonably anticipate being haled into court in
the forum. See Louis Vuitton, 736 F.3d at 1357. In performing the
minimum contacts analysis, we identify all contacts between the
nonresident defendant and the forum state and ask whether, indi-
vidually or collectively, those contacts satisfy the relevant criteria.
See id. As noted earlier, the nonresident’s contact with the forum
need not give rise to the plaintiff’s claim. See Ford Motor Co., 141
S. Ct. at 1026-27.
We held in Louis Vuitton, 736 F.3d at 1357-58, that a non-
resident defendant was subject to jurisdiction in Florida in accord-
ance with due process under both the effects test and the minimum
contacts test. As explained earlier, the defendant in that case had
“purposefully solicited business from Florida residents through the
use of at least one, fully interactive website” and had sold allegedly
infringing goods to Florida residents through that website. See id.
Given the allegations in the plaintiffs’ complaint, we simi-
larly conclude here that both the effects test and the minimum con-
tacts test are satisfied. As a result, we do not have to choose one
test over the other with respect to purposeful availment.
First, the Florida contacts of the Booking Entities and Expe-
dia entities are sufficiently related to the plaintiffs’ claims.
USCA11 Case: 20-12407 Date Filed: 11/22/2022 Page: 17 of 24
20-12407 Opinion of the Court 17
Although direct causation between the nonresident’s forum con-
tacts and the plaintiff’s cause of action is not required, see Ford Mo-
tor Co., 141 S. Ct. at 1026-27, the relevant claims here—alleged traf-
ficking in confiscated properties under Title III of the Helms-Bur-
ton Act—are based in part on those contacts (i.e., the booking of
accommodations at the Resorts by Florida residents on the defend-
ants’ interactive commercial websites). What is more, the effects
of the intentional conduct of the Booking Entities and Expedia En-
tities were felt in Florida, where all three plaintiffs reside.
Second, the Booking Entities and Expedia Entities purpose-
fully availed themselves of Florida in such a way that they could
reasonably foresee being haled into court there. As in Louis Vuit-
ton, 736 F.3d at 1357-58, this is not a case of a nonresident defend-
ant merely operating an interactive website that is accessible in
Florida. As alleged by the plaintiffs, the Booking Entities and Ex-
pedia Entities promoted their websites and the ability to book lodg-
ing at the Resorts on their websites through banner ads directed at
Florida residents, follow-up direct emails sent to Florida residents
who searched for the Resorts or other geographically proximate
hotels, and SEO efforts intended to maximize performance on
search engine results pages to purposefully solicit business from
Florida residents. And, as a result of those efforts, they secured a
direct financial benefit from bookings made by Florida residents at
the Resorts and indirect commercial gain from the web traffic gen-
erated from Florida residents by virtue of listing the Resorts on
their websites.
USCA11 Case: 20-12407 Date Filed: 11/22/2022 Page: 18 of 24
18 Opinion of the Court 20-12407
These contacts, taken collectively, establish that the Book-
ing Entities and Expedia Entities purposefully availed themselves
of the privileges of doing business in Florida and could reasonably
foresee being sued there. We note, as well, that according to the
complaint a substantial part of the business and revenue of the
Booking Entities and Expedia Entities derives from their Florida of-
fices. See id. at 1358 (“[P]urposeful availment for due process was
shown here because, in addition to his fully interactive website . . .
accessible in Florida, Mosseri had other contacts with Florida—
through selling and distributing infringing goods through his web-
site to Florida consumers and the cause of action here derives di-
rectly from those contacts.”) (emphasis deleted). See also Curry v.
Revolution Laboratories, LLC, 949 F.3d 385, 399-401 (7th Cir. 2020)
(defendant’s operation of interactive commercial website accessi-
ble in Illinois, plus sales of infringing products to and communica-
tions with Illinois residents, established minimum contacts for pur-
poses of due process); Thomas A. Dickerson et al., Personal Juris-
diction and the Marketing of Goods and Services on the Internet,
41 Hofstra L. Rev. 31, 49 (2012) (“[T]he highest level of travel web-
site interactivity, involving the purchase of travel services on the
website together with other business contacts with the forum,
would provide a sufficient [constitutional] basis for jurisdiction.”).
That leaves the “fair play and substantial justice” prong,
which considers (1) “the burden on the defendant”; (2) “the forum’s
interest in adjudicating the dispute”; (3) “the plaintiff’s interest in
obtaining convenient and effective relief”; and (4) “the judicial
USCA11 Case: 20-12407 Date Filed: 11/22/2022 Page: 19 of 24
20-12407 Opinion of the Court 19
system’s interest in resolving the dispute.” World-Wide
Volkswagen Corp. v. Woodson, 444 U.S. 286, 292 (1980). The
Booking Entities and Expedia Entities, which have the burden on
this prong, have not argued that they would be burdened by having
to litigate the case in Florida, much less offered any evidence to
that effect. The other factors, moreover, support the exercise of
personal jurisdiction. Florida has a strong interest in adjudicating
this dispute given that Florida residents allegedly used the websites
of the Booking Entities and Expedia Entities to make reservations
at the Resorts. And the plaintiffs, as Florida residents, have an in-
terest in litigating this case in their chosen home forum. Florida
has “significant interests at stake,” including “‘providing [its] resi-
dents with a convenient forum for redressing injuries inflicted by
out-of-state actors[.]’” Ford Motor Co., 141 S. Ct. at 1030 (quoting
Burger King, 471 U.S. at 473).
IV
The Booking Entities and Expedia Entities also assert that
we lack subject-matter jurisdiction over this case because the plain-
tiffs do not have Article III standing to bring their Title III claims.
In essence, they argue that the plaintiffs cannot allege injury-in-fact;
even if the Booking Entities and Expedia Entities never trafficked
in the properties, the properties would still have been confiscated
by the Cuban government and the plaintiffs’ positions would be
unchanged. They further argue that any injury is not traceable to
them because they did not confiscate the plaintiffs’ properties and
do not operate the hotels. As we explain in more detail in Garcia-
USCA11 Case: 20-12407 Date Filed: 11/22/2022 Page: 20 of 24
20 Opinion of the Court 20-12407
Bengochea v. Carnival Corp., Nos. 20-12960 & 20-14251, ___ F.4th
___ (11th Cir. 2022), this lack-of-standing theory fails.
A plaintiff has Article III standing if he suffered an injury in
fact that can be fairly traced to the defendant’s conduct and that
can be redressed with a favorable decision. See Lujan v. Defs. of
Wildlife, 504 U.S. 555, 560–61 (1992). Like the plaintiff in Garcia-
Bengochea, the plaintiffs in this case must allege sufficient facts to
plausibly state these three elements. See Thole v. U.S. Bank N.A.,
140 S. Ct. 1615, 1621 (2020).
Our review of standing is plenary. See, e.g., Sierra v. City of
Hallandale Beach, 996 F.3d 1110, 1112 (11th Cir. 2021). And when
addressing standing, we must assume that the plaintiffs would be
successful on the merits of their Title III claims. See Warth v.
Seldin, 422 U.S. 490, 502 (1975); Culverhouse v. Paulson & Co. Inc.,
813 F.3d 991, 994 (11th Cir. 2016).
As we note in Garcia-Bengochea, all the courts that have
tackled this question have concluded that similarly-situated plain-
tiffs have Article III standing to bring a claim under Title III. See,
e.g., Glen v. Am. Airlines, Inc., 7 F.4th 331, 334–36 (5th Cir. 2021);
Glen v. Trip Advisor LLC, 529 F.Supp.3d 316, 326–28 (D. Del.
2021), aff’d, 2022 WL 3538221, at *2 (3d Cir. August 18, 2022); de
Fernandez v. Crowley Holdings, Inc., No. 21-CV-20443, 2022 WL
860373, at *3–*4 (S.D. Fla. Mar. 23, 2022); Exxon Mobil Corp. v.
Corporación CIMEX S.A., 534 F.Supp.3d 1, 30–32 (D.D.C. 2021);
Sucesores de Don Carlos Nuñez y Doña Pura Galvez, Inc. v. So-
ciété Générale, S.A., 577 F.Supp.3d 295, 307–10 (S.D.N.Y. Dec. 22,
USCA11 Case: 20-12407 Date Filed: 11/22/2022 Page: 21 of 24
20-12407 Opinion of the Court 21
2021); Moreira v. Société Générale, S.A., 573 F.Supp.3d 921, 925–
29 (S.D.N.Y. Nov. 24, 2021); N. Am. Sugar Indus. Inc. v. Xinjiang
Goldwind Sci. & Tech. Co., No. 20-CV-22471 (DPG), 2021 WL
3741647, at *3–*6 (S.D. Fla. Aug. 24, 2021); Havana Docks Corp. v.
Norwegian Cruise Line Holdings, Ltd., 484 F.Supp.3d 1215, 1226–
31 (S.D. Fla. 2020); Havana Docks Corp. v. MSC Cruises SA Co.,
484 F. Supp. 3d 1177, 1190–95 (S.D. Fla. 2020); Havana Docks Corp.
v. Carnival Corp., No. 19-CV-21724 (BB), 2020 WL 5517590, at *6–
*11 (S.D. Fla. Sept. 14, 2020). We agree with this unanimous per-
spective.
The Fifth Circuit’s decision in Glen, 7 F.4th at 334–36, is an
especially apt comparator for the plaintiffs here. Like our plaintiffs,
Mr. Glen alleged that his family owned beachfront properties in
Varadero that were confiscated by the Castro regime. See id. at
333. Mr. Glen filed suit against American Airlines, alleging that it
engaged in trafficking by operating a website through which trav-
elers reserved lodging at hotels built on his family’s former proper-
ties. See id. at 334. On appeal, the Fifth Circuit held that Mr. Glen
had Article III standing to bring his Title III claim because he ade-
quately alleged a concrete injury that bore a close relationship to a
harm with “common law roots” (unjust enrichment) that was
traceable to American Airlines. See id. at 334–36. As to traceability,
the Fifth Circuit found a “direct ‘causal link between [Mr. Glen’s]
injury from the Cuban Government’s expropriation of [his fam-
ily’s] property and [the] subsequent trafficker’s unjust enrichment
USCA11 Case: 20-12407 Date Filed: 11/22/2022 Page: 22 of 24
22 Opinion of the Court 20-12407
from . . . use of that confiscated property.’” Id. at 336 (quoting Ha-
vana Docks Corp., 484 F. Supp. 3d at 1227).
Like Mr. Glen, the plaintiffs here have alleged that they were
harmed when the websites operated by the Booking Entities and
Expedia Entities were used to book lodging at hotels built on their
families’ confiscated properties. See Glen, 7 F.4th at 333. The
plaintiffs characterize the alleged trafficking as “exploit[ing] and
benefit[ing] from [their] properties without paying the rightful
owners any compensation what[so]ever”—an injury tantamount
to unjust enrichment. See D.E. 50 at 3. Like the Fifth Circuit in
Glen, we hold that the plaintiffs have adequately alleged that they
suffered a concrete injury because the Booking Entities and Expe-
dia Entities were unjustly enriched by the use of their confiscated
properties. See Glen, 7 F.4th at 334.
Regarding traceability, Mr. Glen and our plaintiffs remain in
the same proverbial boat. See id. at 335–36. Like Mr. Glen, the
plaintiffs’ alleged injuries are traceable to the Booking Entities and
Expedia Entities because they were unjustly enriched through busi-
ness arrangements they made with the hotels built on the plaintiffs’
confiscated properties. See id. at 336. The Booking Entities and
Expedia Entities have not received authorization from the plaintiffs
to engage in those arrangements, nor have they compensated the
plaintiffs for the benefits they’ve reaped. As a result, the Booking
Entities and Expedia Entities caused a new injury separate from the
Cuban government’s initial wrongful confiscation of the plaintiffs’
properties. And that harm is certainly traceable to the Booking
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20-12407 Opinion of the Court 23
Entities and Expedia Entities themselves. See Havana Docks, 484
F. Supp. 3d at 1230.
The Booking Entities and Expedia Entities fare no better on
redressability, the final prong of the standing analysis. See Lujan,
504 U.S. at 561 (holding that a plaintiff must show that it is “likely
as opposed to merely speculative, that the injury will be redressed
by a favorable decision”) (internal quotations omitted). The plain-
tiffs have alleged that the Booking Entities and Expedia Entities
caused them a financial injury by trafficking in their properties
without their permission and without compensation. That, it goes
without saying, is an injury which the award of damages under Ti-
tle III will redress. See, e.g., Trip Advisor, 529 F.Supp.3d at 328
(“Glen’s alleged injury can be redressed by a favorable judgment.
A favorable judgment would entitle Glen to money damages as
specified in the Helms-Burton Act . . ., compensation that would
redress the harm [he] allegedly suffered from Defendants’ eco-
nomic exploitation of the Subject Properties.”)
In sum, we conclude that the plaintiffs have sufficiently al-
leged each of the requirements of Article III standing.
V
Based on the uncontroverted allegations in the complaint,
the district court has specific personal jurisdiction over the Booking
Entities and Expedia Entities pursuant to Fla. Stat. § 48.193(1)(a)(2),
and the exercise of such jurisdiction does not violate the Due Pro-
cess Clause of the Fourteenth Amendment. The plaintiffs also have
USCA11 Case: 20-12407 Date Filed: 11/22/2022 Page: 24 of 24
24 Opinion of the Court 20-12407
plausibly alleged Article III standing. We therefore reverse the dis-
trict court’s dismissal of the plaintiffs’ complaint and remand for
further proceedings.
REVERSED AND REMANDED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491831/ | MEMORANDUM OPINION
GEORGE L. PROCTOR, Bankruptcy Judge.
THIS ADVERSARY PROCEEDING is before the Court on Complaint seeking a determination of the dischargeability of certain federal income tax obligations. The answer alleges that 11 U.S.C. § 523(a)(1)(C) excepts the liabilities from discharge. The defendant has moved for summary judgment.
The plaintiff responded to the Motion and the Court held a hearing on March 9, 1994. The Court finds that there is no issue of material fact and will grant defendant’s Motion for Summary Judgment.
I. FACTS
The Court finds these facts: (1) on March 11, 1992, prior to the debtor filing this petition, the defendant commenced an action in the Jacksonville Division of the United States District Court, in the case Harvey Macks v. Frances Y. Clinton and United States, et al., Case No. 91-1069-CIV-J-20. This action sought to have the District Court find
(1) that the debtor is indebted to the United States in the sum of $254,696.94, • plus interest and statutory additions as provided by law,
(2) that ... transfers of the certain real property were fraudulent and should be declared null, void and of no effect as to the rights of the United States.
On September 11, 1992, the debtor filed a petition pursuant to Chapter 7 of the Bankruptcy Code. On December 28,1992, he was granted a discharge.
On September 10, 1993, a trial in the district court case was held on the fraudulent conveyance issue. Thereafter, on September 24, 1993, the debtor moved to reopen his bankruptcy case, and on October 4, 1993, the Court entered an order reopening the case. On October 18, 1993, the plaintiff filed this complaint to determine the dischargeability of his tax liabilities.
On November 18, 1993, the District Court entered its Opinion and Judgment, holding that the transfers by the debtor were fraudulent and are null and void. The Opinion and Judgment are attached to defendant’s Motion for Summary Judgment as Exhibit A.1
II. CONCLUSIONS OF LAW
A. Standard of Review of Motion for Summary Judgment
Rule 56 of the Federal Rules of Civil Procedure (incorporated by Rule 7056, Federal Rules of Bankruptcy Procedure) provides that summary judgment “shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a *256judgment as a matter of law.” This standard has been interpreted by the Supreme Court to mean: “Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). The facts in dispute must be critical to the outcome of the case and the dispute must be “genuine,” such that the evidence could support a verdict in favor of the non-moving party. Id. at 248, 106 S.Ct. at 2510; see also Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
The function of a motion for summary judgment is to focus the analysis of the matters at issue to determine if any genuine dispute as to any material fact exists and, if there is no dispute, to conserve judicial time and energy by avoiding unnecessary trial and providing speedy and efficient summary disposition. Bland v. Norfolk & Southern R. Co., 406 F.2d 863 (4th Cir.1969). Summary judgment is properly regarded not as a disfavored procedural shortcut but, rather, as an integral part of the federal rules as a whole, which are designed to secure a just, speedy, and inexpensive determination of every action. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
The party moving for summary judgment has the burden of demonstrating that no genuine issue as to any material fact exists, and that it is entitled to judgment as a matter of law. Celotex Corp., supra, 477 U.S. at 323, 106 S.Ct. at 2552; Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970); Gulfstream, Land and Development v. Commissioner, 71 T.C. 587, 596, 1979 WL 3690 (1979). Further, the facts relied upon by the moving party must be viewed in the light most favorable to the non-moving party so that any doubt as to the existence of a genuine issue of material fact will be resolved in favor of denying the motion. Adickes v. S.H. Kress & Co., supra; United States v. Diebold Inc., 369 U.S. 654, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962).
In opposing a Motion for Summary Judgment, the other party may not simply rest upon mere allegations or denials of the pleadings; after the moving party has met its burden of coming forward with proof of the absence of any genuine issue of material fact, the other party must make a sufficient showing to establish the existence of an essential element to that party’s case, and on which that party will bear the burden of proof at trial. Celotex Corp., supra, at 324, 106 S.Ct. at 2553.
Nevertheless, the motion must be granted if the Court is satisfied that no real factual controversy is present, so that the remedy can serve “its salutary purpose in avoiding a useless, expensive and time consuming trial where there is no genuine, material fact issue to be tried.” Lyons v. Board of Education, 523 F.2d 340 (8th Cir.1975).
The standard for ruling on summary judgment motions “mirrors the standard for a directed verdict under Federal Rule of Civil Procedure 50(a), which is that the trial judge must direct a verdict if, under the governing law, there can be but one reasonable conclusion as to the verdict.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). This Court, after applying this law and considering the facts in the pleadings and the attached exhibit, conclude that there is no genuine issue of material fact in this proceeding and that the United States is entitled to judgment as a matter of law.
B. Statutory Analysis of the Instant Adversary Proceeding
In this proceeding, the plaintiff seeks a determination that certain of his federal tax obligations are dischargeable. It is axiomatic that a discharge granted by a bankruptcy court “... discharges the debtor from all debts that arose before the date of the Order for relief....” 11 U.S.C. § 727(b). However, the exception language that appears in the first clause of § 727(b) controls the instant facts. Specifically, the preamble to the above-cited passages states: “[ejxcept as provided in section 523,.... ” The terms of § 523 may operate to deny a complete discharge to the debtor.
*257Section 523(a)(1)(C) provides, in pertinent part, that:
A discharge under § 727, ... of this title does not discharge an individual debtor from any debt—
(1) for a tax or customs duty—
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(c) with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax.
This standard has been interpreted to mean that, if the debtor fraudulently transfers property prior to the filing of his bankruptcy petition, § 523(a)(1)(C) operates to deny that debtor a discharge of the debt in controversy.2 This Court agrees with the conclusion reached in In re Jones, 116 B.R. 810 (Bankr. D.Kan.1990), wherein the court held, as a preliminary matter that “the modifying phrase ‘in any manner’ [was] sufficiently broad to include willful attempts to evade taxes by concealing assets to protect them from execution or attachment as [the] debt- or[ ] did.” The Jones court went on to hold that “the government’s claim for taxes ... nondischargeable because of debtors’ efforts to evade the taxes by placing title to their ... property in the names of others.” Id. at 815. That is, the debtor’s fraudulently conveyed their property to protect them from execution or attachment. Such action, as is clearly the case here, falls squarely within the ambit of § 523(a)(1)(C).3 Accord In re Haimes, 146 B.R. 298 (Bankr.S.D.Fla.1992) (reversing a bankruptcy court grant of a discharge in the face of evidence of fraudulent conveyances); In re Sumpter, 136 B.R. 690 (Bankr.E.D.Mich.1991); In re Fridrich, 156 B.R. 41 (Bankr.D.Neb.1993) (holding that exception from discharge for taxes that debt- or attempts in any manner to evade or defeat included attempts by debtor to evade IRS payment or collection efforts).
C. Application of the Facts to Law
Here, the United States District Court for the Middle District of Florida has determined fully and finally that the plaintiff/debtor fraudulently conveyed certain of his real property fraudulently to defeat the collection of his tax liability. Under the principle of res judicata, this determination is binding on the parties and the Court.
The doctrine of res judicata insures the finality of decisions, conserves judicial resources, and protects litigants from multiple lawsuits. McClain v. Apodaca, 793 F.2d 1031, 1032-1033 (9th Cir.1986). The Supreme Court has stated that res judicata consists of two preclusion concepts: issue preclusion and claim preclusion. Migra v. Warren City School Dist. Bd. of Education, 465 U.S. 75, 77 n. 1, 104 S.Ct. 892, 894 n. 1, 79 L.Ed.2d 56 (1984). Under the claim preclusion doctrine (or res judicata), a final judgment on the merits bars further claims by parties or their privies based on the same cause of action. In Commissioner v. Sunnen, 333 U.S. 591, 68 S.Ct. 715, 92 L.Ed. 898 (1948), the Supreme Court explained this doctrine as follows (333 U.S. at 597, 68 S.Ct. at 719):
The rule provides that when a court of competent jurisdiction has entered a final judgment on the merits of a cause of action, the parties to the suit and their privies are thereafter bound “not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose.” [Citation omitted.] The judgment puts an end to the cause of action, which cannot again be brought into litigation between the parties upon any ground whatever, absent fraud or some other factor invalidating the judgment.
Thus, once a final judgment has been entered by a court of competent jurisdiction, such judgment is res judicata and acts as an abso*258lute bar to subsequent litigation. It is conclusive not only as to all matters which were decided, but also as to all matters which might have been decided.
Where, as here, a court of competent jurisdiction has ruled and the ruling has become final, the finality of this determination must be protected. The plaintiff is precluded from relitigating the fraudulent conveyance issue as the issue has been fully and finally decided by the District Court. The plaintiffs fraudulent conduct having been determined and the Court having concluded that § 523(a)(1)(C) is sufficiently broad to encompass this matter, the defendant’s Motion for Summary Judgment will be granted. A separate judgment will issue.
JUDGMENT
Upon the Memorandum Opinion separately entered, it is ORDERED:
1. The motion for summary judgment of the United States of America is granted.
2. Pursuant to 11 U.S.C. § 523(A)(1)(C) the tax debt of plaintiff, Kenneth R. Macks, for the years 1978,1979,1981,1982,1983 and 1984 is not discharged.
. At the hearing, the plaintiff presented his affidavit of the value of the property at the time of the fraudulent conveyance. The defendant represented that it had not then received the affidavit. After providing the defendant an opportunity to review the affidavit at the hearing, the Court finds that it does not dispute material facts.
. The Court finds the case cited by the plaintiff in support of his position, In re Gathwright, 102 B.R. 211 (Bankr.D.Or.1989) unpersuasive. The clear statutory language, "in any manner,” is sufficiently broad to encompass the fraudulent conveyances by the plaintiff in this matter.
. The District Court decision at issue here has become final by operation of law. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491832/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
GEORGE L. PROCTOR, Bankruptcy Judge.
This ease came before the Court upon the Motion to Dismiss filed by the United States of America Internal Revenue Service (“IRS”). On January 25, 1994, the Court held a hearing on the motion and upon the argument of counsel and post-hearing submissions, the Court enters these findings of fact and conclusions of law.
Findings of Fact
This case was filed on March 23, 1985. This Court confirmed debtors’ chapter 11 plan on July 16,1986. Section 3.4 of debtors’ confirmed plan states in relevant part:
the Class 7 Claim of the Internal Revenue Service * * * shall be paid in full by deferred cash payments over a period of not exceeding six years after the date of assessment of such claims, having a value, as of the Effective Date, equal to the allowed amount of such Claim together with interest as required by law. Such payments will be made in equal annual installments on or before each of the first through sixth anniversary dates of the assessment of such Claim.
The IRS has an allowed claim in the amount of $573,083.00 for 1985 income taxes and $365.75 for interest on 1984 income taxes. Debtors have not distributed any funds to the IRS.
In May, 1990, debtors filed an adversary proceeding to determine whether the assessments in the amount of $2,826,115.17 and $1,015,033.71 made by the IRS for tax years 1984 and 1985 were void under 11 U.S.C. §§ 524(a) and § 1141(d). The Court made findings of fact and conclusions of law and entered its judgment April 7,1992. 138 B.R. 1004. The Court held that the assessments for tax years 1984 and 1985 were made in violation of the discharge injunction contained in 11 U.S.C. §§ 524 and 1141(d)(1) but allowed the assessments to stand because no harm had resulted from the assessments. In addition, the Court enjoined the IRS from commencing or continuing any action to assess or collect income taxes for 1984 and 1985. The Court specifically declined to decide the validity of the assessments.
Both the debtors and the IRS appealed this judgment which was affirmed by the United States District Court for the Middle District of Florida on August 19, 1993. Again both parties appealed. The United States Court of Appeals for the Eleventh Circuit has not yet ruled on the appeal.
While the adversary judgment was on appeal to the District Court, the IRS filed a motion to clarify or modify the judgment. After a hearing on the motion, the Court conditionally denied the motion and directed the IRS to make an election stating its position whether a motion to dismiss would violate the injunction contained in the judgment. The IRS filed its election stating that a motion to dismiss would not violate the judgment. The IRS filed its motion to dismiss after the appeal to the Eleventh Circuit was filed.
Conclusions of Law
It is without dispute that debtors have not paid the IRS. What is disputed is whether this Court has jurisdiction over the motion to dismiss. Because the appeal in the adversary proceeding is pending before the Eleventh Circuit, debtors contend that this Court is without jurisdiction to rule on a motion to dismiss. Conversely, the IRS argues that an appeal in an adversary proceed*260ing does not divest the court of jurisdiction in the main bankruptcy case. Although the IRS is correct that the dismissal of the main ease does not automatically divest the court of jurisdiction over the related adversary proceeding, in this case the Court is without jurisdiction to rule on the motion to dismiss.
Generally, a notice of appeal divests the district court of jurisdiction over those aspects of the case which are involved in the appeal. Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58, 103 S.Ct. 400, 402, 74 L.Ed.2d 225 (1982); United States v. Hitchmon, 587 F.2d 1357 (5th Cir.1979); Showtime v. Covered Bridge Condominium Ass’n, 895 F.2d 711 (11th Cir.1990). The district court is left with the limited authority to correct clerical mistakes or to aid in the execution of a judgment that has not been superseded. Showtime, 895 F.2d 711, 713 (11th Cir.1990) (quoting Matter of Thorp, 655 F.2d 997 (9th Cir.1981)). This is not an absolute rule, rather it is a discretionary rule designed to avoid the confusion and waste of time which would arise if two courts were considering the same issues simultaneously. U.S. v. Hitchmon, 602 F.2d 689 (5th Cir. 1979); In the Matter of Thorp, 655 F.2d 997 (9th Cir.1981); In re Bencher, 122 B.R. 506 (Bankr.W.D.Mich.1990). In addition to avoiding the confusion and waste of time that would arise if two courts were considering the same issue simultaneously, a court must exercise its discretion to avoid interfering with or replacing the appellate process. Thorp, 655 F.2d 997 (9th Cir.1981); In re Urban Development Ltd., Inc., 42 B.R. 741 (Bankr.M.D.Fla.1984).
An adversary proceeding may have its own jurisdictional base which allows a court to retain jurisdiction after the main ease has been dismissed. In re Morris, 950 F.2d 1531 (11th Cir.1992). However, this does not mean the appeal of a judgment in an adversary proceeding is not capable of causing confusion, waste of time or interfering with the appellate process in relation to a motion in the main case. Urban Development Ltd., Inc., 42 B.R. 741. Thus, to determine whether exercising jurisdiction in the main case in regard to a motion to dismiss would interfere with the appeal of the adversary judgment, the Court must analyze both the issues on appeal and the issues presented by the motion to dismiss.
In this case, the IRS seeks an order dismissing the case for debtors’ failure to pay the IRS under its plan. The issue on appeal, in the adversary proceeding, is the effect of the discharge injunction on the assessment made by the IRS while the motion to dismiss requires the Court to determine whether debtors have or have not materially defaulted under their plan. Because dismissing the case would mean there is no discharge to enforce by way of the discharge injunction, the issue of the effect of these provisions is mooted if the case is dismissed. Consequently, if the Court were to rule on the motion it would interfere with the jurisdiction of the Court of Appeals and the appellate process. Thus until the Eleventh Circuit has ruled, this Court is without jurisdiction to rule on the motion to dismiss.
Conclusion
In a bankruptcy ease as in other types of cases, a pending appeal will not always divest the court of jurisdiction. However, in this ease a ruling on the motion to dismiss will moot the appeal in the related adversary proceeding. Until the Eleventh Circuit has ruled on that appeal this Court is without jurisdiction to rule on the motion to dismiss. The Court will enter a separate order consistent with these findings of fact and conclusions of law.
ORDER FINDING COURT DOES NOT HAVE JURISDICTION TO RULE ON MOTION TO DISMISS CASE
■ Upon findings of fact and conclusions of law separately entered, it is
ORDERED:
1. The Court is without jurisdiction to rule on the motion to dismiss filed by the United States of America, Internal Revenue Service.
2. Upon the ruling of the Eleventh Circuit in the related adversary proceeding Norris Grain Company v. United States of America, Adv. Case No. 90-111 and an ap*261propriate motion by the debtor or the Internal Revenue Service the Court will consider the motion to dismiss. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491833/ | DECISION AND ORDER REGARDING JURY DEMAND
LEIF M. CLARK, Bankruptcy Judge.
CAME ON for consideration the foregoing matter. The court agrees with defen*447dants that the fraudulent conveyance, preference, and post-petition transfer actions asserted by the trustee are essentially core in nature, and that the defendants, under Granfinanciera, N.A. v. Nordberg, 492 U.S. 33, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989), are entitled to a jury trial on that cause of action.1
The court does not agree that it lacks “jurisdiction” to conduct a jury trial with regard thereto. The conduct of a jury trial is not a jurisdictional issue. Indeed, it is not in any real sense any issue at all, as the mere conduct of a trial with the assistance of a jury as fact finder is not, of itself, an impermissible exercise of Article III powers by a non-Article III court. The exercise of 'plenary jurisdiction over the adjudication of essentially private rights may indeed be such an impermissible exercise, as the Supreme Court held in Northern Pipeline Constr. Co. v. Marathon Pipe Line, Co., 458 U.S. 50, 102 S.Ct. 2858, 75 L.Ed.2d 598 (1982). But the adjudication of avoidance actions arising under the Bankruptcy Code is a far cry from Marathon, and does not come even vaguely close to violating the strictures of Article III. And merely adding a jury as the primary factfinding tool utilized by the court certainly cannot, of itself, transform such an action into an impermissible exercise of Article III powers.2 The avoidance causes of action (Counts I through V of the Complaint) shall be placed on a jury docket and tried to judgment accordingly. A supplemental Order Relative to Pretrial, setting out special deadlines for the preparation of jury issues, jury instructions, and proposed voir dire questions, and for the presentation of motions required to be heard outside the hearing of the jury, shall be issued by the court at a later date.
With regard to Count VI, the civil conspiracy matter, the court agrees with the defendants that this is a non-core matter, and that the parties are entitled to a jury on that issue. The defendants have not consented to this court’s entry of a final judgment thereon. The defendants allege that this court cannot conduct a jury trial in a non-core proceeding where a party does not consent to the bankruptcy court’s entering final orders thereon, and suggests that the court should therefore “transfer” the matter for trial to the district court. This court disagrees with both the contention and the recommendation.
The defendant’s argument that this court cannot conduct a jury trial in a non-core, related proceeding is premised on cases such as In re Cinematronics, Inc., 916 F.2d 1444 (9th Cir.1990), which in turn conclude that the Seventh Amendment itself must bar such trials. Section 157(c)(1) provides that, if the parties in a non-core proceeding do not consent to the bankruptcy court’s entry of judgment, the bankruptcy court must submit findings and conclusions to the district court, which enters the judgment. Parties may obtain a de novo review of any issue set out in the bankruptcy judge’s findings and conclusions, upon timely and specific objection filed with the district court. If the matter is tried in the bankruptcy court to a jury, and the findings and conclusions are incorporated the verdict of the jury, then this de novo review could run afoul of the Seventh *448Amendment’s bar on retrying any issue once tried to the jury. See 28 U.S.C. § 157(c)(1);3 U.S. Const., Amend. VII.4 Thus, goes the logic, bankruptcy judges cannot conduct jury trials in related proceedings. In re Cinematronics, 916 F.2d at 1451, see also Beard v. Braunstein, 914 F.2d 434, 443 (3d Cir.1990).
Actually, this logic is somewhat flawed. The Seventh Amendment’s bar on reexamination of facts tried by a jury prohibits the de novo review by the district court. The Seventh Amendment is silent regarding the conduct of the jury trial by the bankruptcy court. It will be the task of the district court to construe the review provisions of section 157(c)(1) consistent with the Constitution, at such time as review is sought by a party after trial. This court cannot decide that issue for the district court (and would not presume to do so); all that this court can do is to try the matters referred to it under the general order of reference, and to accord to the parties their constitutional rights, including their right to a jury trial if such a right is indicated. The parties will not face the potential for a violation of their constitutional rights until such time as this court’s work is completed and a party first seeks a de novo review before the district court. Until that time, the issue is not ripe for adjudication.
For what it’s worth, this court believes that a construction of 28 U.S.C. § 157(e)(1) that salvages the constitutionality of that statute is available to the district court as and when the issue arises. The provisions for de novo review contained in that section are not plenary in nature, but rather are delimited to those issues which the aggrieved party expressly raises by motion, after the conclusion of the trial on the merits and the rendition of a verdict. In the case of a verdict rendered by a jury, the aggrieved party’s request for de novo review would be focused either on the jury’s failure to make findings consistent with the facts or its failure to properly apply the law to the facts.5 And such a request is precisely the same as the relief that would be sought by way of a motion for new trial or motion for judgment notwithstanding the verdict. See Fed.R.Civ.P. 50, 59. Both of these latter remedies, currently available in any jury trial, in any court, were also remedies at law recognized in 1791 when the Seventh Amendment was adopted. Their exercise does not violate the Seventh Amendment when they are sought in a matter tried to a jury in district court. If the breadth of review under the statute is construed to be coterminous with these rules, then the review permitted by section 157(c)(1) should also not violate the Seventh Amendment.6
Having suggested a way for the district court to avoid having to hold the de novo review provisions of section 157(c)(1) *449unconstitutional, the court reiterates that it is still not for this court to make that decision. This matter has been referred to this court under the district court’s general order of reference, and reference is a “one-way street.” See 28 U.S.C. § 157(a). The statute does not confer on this court the power either to decline to consider any matter referred, or to presume to refer a matter back to the district court. Section 157(d) gives to the district court the authority to withdraw the reference, either on its own motion or on timely motion of a party. 28 U.S.C. § 157(d). Only the district court can decide whether this non-core matter must indeed be withdrawn for the reasons urged by the defendants here. This court lacks the authority to rule dispositively on the issue, and cannot even refuse to try the matter assigned to it by the general order of reference. The contention that this court cannot try the civil conspiracy matter in the face of a valid jury demand is therefore one which this court cannot decide. The defendants will have to make their arguments, in another court, at such time as they become ripe for adjudication.
The parties are, of course, free to file a motion with the district court seeking withdrawal of the reference of all or any portion of this matter, but, until such time as the district court actually rules on such a motion, this court must continue to handle the matter.7 If the parties fail to obtain a timely, dispositive ruling, the court will try the matter to a jury, at the conclusion of which the court will then submit appropriate findings of fact and conclusions of law (consisting of the jury’s answers to the issues presented, and the jury instructions accompanying those jury issues) to the district court for its review and requesting the entry of judgment thereon.
So ORDERED.
. The defendants have not filed a proof of claim or otherwise submitted themselves to the equity jurisdiction of this court in this case. See Langenkamp v. Culp, 498 U.S. 42, 111 S.Ct. 330, 112 L.Ed.2d 343 (1990).
. Magistrate judges routinely use juries in both civil and criminal matters, even though they do not enjoy the protections of lifetime tenure and immunity from reduction in salary. Of course there is an express statute which authorizes the use of juries in such circumstances, but Marathon teaches that Article III itself prohibits Congress from assigning to non-Article III tribunals the attributes of an Article III court. If the conduct of a jury trial were, of itself, such an attribute, we would have to seriously reconsider the constitutionality of 28 U.S.C. § 636.
Two district courts in Texas have expressly concluded that the conduct of a jury trial is not such an attribute, in the context of jury trials in bankruptcy. M & E Contractors v. Kugler-Morris General Contractors, 67 B.R. 260 (N.D.Tex.1986); R.H. Smith v. Lynco Electric Co. (In re El Paso Refinery, L.P.), 165 B.R. 826 (W.D.Tex.1994). The Fifth Circuit has not yet addressed the question. Other circuits have, but their logic and analysis are questionable. See In re Grabill Corp., 967 F.2d 1152, 1159-61 (7th Cir.1992) (Posner, J., dissenting); Id., 976 F.2d 1126, 1129-30 (7th Cir.1992), on rehearing en banc (Easterbrook, J., dissenting).
. A bankruptcy judge may hear a proceeding that is not a core proceeding but that is otherwise related to a case under title 11. In such proceeding, the bankruptcy judge shall submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district court after considering the bankruptcy judge’s proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected.
28 U.S.C. § 157(c)(1).
. In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial shall be preserved, and no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law.
U.S. Const., Amend. VII.
. Any other de novo determination (i.e., one focused on some error alleged to have been committed by the bankruptcy judge) would of course not violate the Seventh Amendment and so is irrelevant for our purposes here.
.It is worth noting here that the standard for review here is considerably circumscribed from the standard that was in place for the review of findings of magistrate judges when the Supreme Court visited this issue in 1980. United States v. Raddatz, 447 U.S. 667, 100 S.Ct. 2406, 65 L.Ed.2d 424 (1980). Then, district courts could exercise de novo determinations, which was construed to be plenary in nature, extending even to a completely new trial in the district court. Were that the language employed in 28 U.S.C. § 157(c)(1), we could scarcely avoid concluding that the statute was unconstitutional. That is not the language employed, however, and in this constitutionally sensitive area we must pay close attention to the words used by Congress. Because section 157(c)(1) limits review only to those issues expressly identified by the parties, the district court is not free to simply retry the entire case. District judges concerned with preserving the constitutionality of the statute are likely to avoid exercising plenary review anyway, even if they thought they could do so.
. The mere filing of a motion to withdraw the reference does not stay the proceedings pending in this court. Fed.R.BankrP. 5011(c). Until such time as the district court actually rules on such a motion, the general order of reference controls; this court in the meantime is obligated to manage its docket. Absent a stay, this matter must be scheduled for trial, just as must any other matter pending on this court's docket— even if that means scheduling it for jury trial. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491834/ | OPINION AND ORDER DENYING AMENDED APPLICATION FOR ORDER AUTHORIZING EMPLOYMENT OF CONRAD J. MORGEN-STERN & ASSOCIATES, INC. AS FINANCIAL ADVISOR
WALTER J. KRASNIEWSKI, Bankruptcy Judge.
This matter is before the Court on the Genlime Group, L.P.’s (the “Debtor”) amended and restated application for order authorizing employment of Conrad J. Morgenstern & Associates, Inc. (“CMA”) as financial ad-visor and the United States Trustee’s (“UST”) objections thereto (the “Objection”). Upon consideration of the evidence adduced at the hearing on this matter, the Court finds that the Debtor’s amended application is not well taken and should be denied with prejudice.
FACTS
The Debtor filed an application to employ CMA on December 1, 1993.
This Court’s order dated December 6,1993 stated that the application could not be approved by the Court because of certain deficiencies contained in the application.
Thereafter, on January 12, 1994, the Debt- or filed the instant amended and restated application for order authorizing employment of CMA.
The Debtor is engaged in owning, operating and managing a limestone mining and processing facility located in Genoa, Ohio.
The Debtor financed both its purchase of the business in Genoa, Ohio and its operation of the business through loans (the “Loans”) from Glen Fed Financial Corp. (“Glenfed”). The maturity date of the Loans was November 7, 1993.
After Glenfed purportedly refused to refinance the Loans, the Debtor’s chief financial officer Rick Banks (“Banks”) testified that he was unsuccessful in his attempts to obtain replacement financing. Subsequently, the Debtor hired CMA to seek replacement financing in September of 1993.
The Debtor and CMA failed to obtain alternative financing for the Loans and the Debtor filed a petition under chapter 11 of title 11 on November 15, 1993.
The Debtor’s application states that CMA was paid a $15,000.00 prepetition retainer by the Debtor which was “fully earned upon receipt”. According to Banks, the Debtor’s only witness at the hearing on this matter, the retainer was paid to CMA pursuant to a prepetition oral agreement between CMA and the Debtor.
The Debtor seeks to pay CMA a postpetition monthly retainer of $3,000.00 per month for professional services.
The Debtor further proposes to pay CMA 1% of any replacement financing obtained by the Debtor. The Debtor proposes that this fee should be paid to CMA irregardless of *451whether CMA is successful in obtaining replacement financing for the Debtor.
Included within CMA’s proposed duties are: “[a]ssistance in the development, negotiation, and promulgation of a plan of reorganization”, “[a]ssistanee in the preparation of documents necessary for confirmation of a plan of reorganization in this chapter 11 case, including debt agreements and financial information contained in the disclosure statement”, and “[performance of such other functions as requested by Debtor or its counsel to aid Debtor in its business and reorganization, including, but not limited to, advice on strategies for reorganization and assistance in claims analysis”.
DISCUSSION
Compliance with Bankruptcy Rule 2014
Bankruptcy Rule 2014 requires an applicant to set forth the applicant’s “connections with the debtor, creditors, any other party in interest, their respective attorneys and accountants, the United States trustee or any person employed in the office of the United States trustee”. See Fed.R.Bankr.P. 2014. Further Rule 2014 requires an applicant to provide a verified statement indicating the professional’s connections with creditors and other interested parties.
In describing the requirements of Rule 2014 the court in In re Marine Outlet, Inc. stated that:
[t]here is no duty placed on the United States Trustee or on creditors to search the record for the existence, vel non, of a conflict of interest of a professional sought to be employed. On the contrary, there is a definite affirmative duty placed on a professional to disclose his or her connection with parties whose interest is or may be antagonistic or opposite to the interest of the general estate[.]
In re Marine Outlet, Inc., 135 B.R. 154, 156 (Bankr.M.D.Fla.1991) (citation omitted).
The Debtor’s application does not satisfy the requirements of Rule 2014 because it fails to disclose the relationship between CMA and Benesch, Friedlander, Coplan & Aronoff (“BFCA”), the Debtor’s attorney. Despite Banks’ testimony that the Debtor was referred to BFCA by CMA, the application does not mention any connection between CMA and BFCA. See Objection at p. 3-4, para. 7.
Additionally, the application fails to disclose the relationship, if any, between CMA and creditors of the Debtor as noted by the UST at the hearing on this matter. See Objection at p. 1-2, para. 2. The Amended and Restated Affidavit of Conrad J. Morgen-stern (the “Affidavit”) filed with the Debtor’s amended application to employ CMA states that:
[a]s a result of my extensive experience in bankruptcy proceedings both as a former United States Trustee and an attorney in private practice, [CMA] has in the past acted as consultant and will likely in the future act as a consultant to parties who may be creditors of the Debtor, either directly or indirectly as adviser to a committee, in matters completely unrelated to this case and not in matters adverse to Debtor, nor in any capacity which confidential knowledge of a creditor has been acquired which would bear on Debtor’s employment of [CMA] in this case.
The Court concludes that the Affidavit fails to comply with Rule 2014 because it fails to minimally describe the creditors of the Debt- or with which CMA has relationships and the nature of such relationships. Despite the Affidavit’s assurances that any relationships between CMA and creditors are “not in matters adverse to Debtor”, creditors are entitled to determine for themselves whether such relationships are adverse to the interests of the estate.
Potential Duplication of Effort
Although assertions contained within the Debtor’s amended application indicate, that there will be no duplication of effort between CMA and other professionals, the Debtor has not persuaded the Court that CMA’s proposed duties do not encompass duties of counsel for the Debtor. BFCA has already been retained to serve as counsel for the Debtor. As previously noted, included within CMA’s proposed duties are: “[assistance in the development, negotiation, and promulgation of a plan of reorganization”, “[assistance in the preparation of documents neees-*452sary for confirmation of a plan of reorganization in this chapter 11 case, including debt agreements and financial information contained in the disclosure statement”, and “[performance of such other functions as requested by Debtor or its counsel to aid Debtor in its business and reorganization, including, but not limited to, advice on strategies for reorganization and assistance in claims analysis”. These terms of employment apparently duplicate the duties of BFCA as the Debtor’s counsel. See In re Liberal Market, Inc., 24 B.R. 653, 664-65 (Bankr.S.D.Ohio 1982) (citations omitted) (stating that “[a] debtor’s estate should not bear the burden of a duplication of services”); see also In re Roger J. Au & Son, Inc., 114 B.R. 482 (Bankr.N.D. Ohio 1990) (services performed by debtor’s counsel in adversary for which special counsel had been appointed were non-compensable); c.f Cle-Ware Industries, Inc. v. Sokolsky (In re Cle-Ware Industries, Inc.), 493 F.2d 863, 871 (6th Cir. 1974) cert. denied 419 U.S. 829, 95 S.Ct. 50, 42 L.Ed.2d 53 (1974) (noting that the Sixth Circuit disapproves of the practice of appointing separate counsel as attorney for the debtor-in-possession and compensating another attorney at the expense of the estate). The Potential Adverse Interest of CMA
Moreover, CMA possesses a potential adverse interest to the extent of the $15,-000.00 prepetition retainer received from the Debtor which was purportedly earned on receipt by CMA. See Objection at p. 4, para. 8. As this Court noted in In re 419 Co., the “[applicant has the burden ‘to come forward with facts pertinent to eligibility and to make full, candid and complete disclosure’ ”. In re 419 Co., 133 B.R. 867, 869 (Bankr.N.D.Ohio 1991) (quoting In re Peoples Sav. Corp., 114 B.R. 151, 154 (Bankr.N.D.Ill.1990)). The evidence provided by the Debtor has failed to persuade the Court that the prepetition-re-tainer paid to CMA was, in fact, earned on receipt by CMA. Significantly, Banks’ testimony at the hearing provided little insight as to the terms of CMA’s prepetition retainer.
Section 327 “covers both ‘actual and potential conflicts of interest’ in order to avoid ‘even the appearance of conflict’ ”. In re 419 Co., 133 B.R. at 869 (quoting In re Glenn Elec. Sales Corp., 99 B.R. 596 (D.N.J.1988). As in In re 419 Co., the Court notes, without addressing the merits of any potential preference action, that CMA’s prepetition relationship with the Debtor could give rise to a preference action against CMA. In re 419 Co., 133 B.R. at 867.
The Necessity for Retaining CMA
Furthermore, as the UST noted at the hearing on this matter, the Debtor has not come forward with evidence demonstrating the necessity for retaining CMA. See In re Kingsway Purchasing, Inc., 69 B.R. 713 (Bankr.E.D.Mich.1987) (denying creditors’ committee’s application for employment of a secretary where application provided insufficient information to allow court to determine whether retention of a secretary was necessary); In re Offutt, 45 B.R. 80 (Bankr.W.D.Ky.1984) (denying application to employ attorney for trustee where application failed to provide specific facts demonstrating the necessity for employing attorney). The arguments of the Debtor and Banks’ testimony at the hearing have not persuaded the Court that the Debtor will be unable to obtain refinancing through the Debtor’s own efforts or through the efforts of BFCA. Indeed, only meager evidence was provided as to the extent of the Debtor’s efforts in seeking a refinancing source for the Loans prior to consulting CMA.
The Reasonableness of the Proposed Terms of Retaining CMA
The Debtor has also failed to provide sufficient probative evidence as to the reasonableness of CMA’s proposed fee. See Objection at p. 3, para. 6. The Debtor provided scant evidence at the hearing on this matter as to the extent of CMA’s experience in soliciting commercial financing. Moreover, the evidence adduced at the hearing failed to provide the Court with a sufficient basis to weigh the propriety of the 1% fee which the Debtor proposes to pay to CMA irregardless of whether CMA obtains a lender to refinance the Loans.
The Proposed Monthly Postpetition Retainer Payments
Lastly, the Court cannot approve the proposed disbursement to CMA of a postpetition *453retainer of $3,000 per month. See In re Cal-Inland, Inc., 124 B.R. 551 (Bankr.D.Minn.1991) (disapproving debtor’s request to use postpetition revenues to make additional retainer payments to professional where debtor failed to demonstrate that ease was unusually large or of sufficient complexity to impose an undue hardship on professional); see also Objection at p. 2-3.
Section 331 provides for disbursements to professionals “[a]fter notice and a hearing”. See 11 U.S.C. § 331. Assuming arguendo that disbursements to professionals prior to notice and a hearing are authorized under the Bankruptcy Code, the Debtor has not met its burden of proving that this represents the type of “rare” case where disbursements to professionals should be allowed pri- or to notice and a hearing. In re Knudsen, 84 B.R. 668 (9th Cir. BAP 1988). As the court made clear in In re ICS Cybernetics, Inc., postpetition payments to professionals prior to notice and a hearing are not justified where “[tjhere are no factual allegations in [the applications submitted by the professionals] address[ing] the specific criteria of Knudsen other than conelusory statements concerning having to wait six months to be paid and protecting the [d]ebtor from large but uncertain periodic payments of fees and disbursements”. In re ICS Cybernetics, Inc., 97 B.R. 736, 738 (Bankr.N.D.N.Y.1989).
Dismissal with Prejudice
The Court recognizes that denying a debtor’s application to employ a professional chosen by the debtor is a serious matter. Nonetheless, in certain circumstances a court must deny a debtor’s application to retain a professional “in order to preserve the integrity of the bankruptcy system [and] avoid[] any appearance of impropriety”. In re 419 Co., 133 B.R. at 870.
Furthermore, the Court cannot condone the Debtor’s continual failure to come forward with facts pertinent to its application to employ CMA. The Court’s order dated December 6,1993 granted the Debtor an opportunity to amend the application to employ CMA. The Debtor was granted a hearing on its amended application to employ CMA on February 10, 1994. The Objection, which was served upon the Debtor prior to the hearing, noted the UST’s concerns with the Debtor’s application to retain CMA. At the hearing, the Debtor was provided with the opportunity to present evidence and address the objections of the UST to the Debtor’s application to employ CMA. Again, the Debtor failed to provide a sufficient factual basis to support approval of its application to retain CMA. Consequently, the Court concludes that denial of the Debtor’s application to employ CMA with prejudice is warranted.
In light of the foregoing, it is therefore
ORDERED that the Debtor’s application to employ Conrad J. Morgenstern & Associates is denied with prejudice. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491835/ | MEMORANDUM OF OPINION AND ORDER
RANDOLPH BAXTER, Bankruptcy Judge.
In this proceeding, the liquidating trustee Saul Eisen (Trustee) filed his Complaint To Recover Voidable Preference. Defendant Harold Freeman Company (Freeman) filed its Motion To Dismiss for failure to state a claim upon which relief could be granted. Upon a hearing of the motion, the following constitutes the Court’s findings of fact and conclusions of law:
The operative facts are generally not in dispute. Royal Acquisition Corporation (The Debtor) sought relief by filing its voluntary petition under Chapter 11 of the Bankruptcy Code [11 U.S.C. 101 et seq.] on January 13, 1992. Saul Eisen was appointed as liquidation trustee on March 16, 1992. The Trustee’s Complaint was filed on March 4, 1994.
The issue for determination is whether the term “trustee”, as provided in § 546(a) of the Code, is to be used synonymously with the term Debtor/Debtor-in-possession in construing the two-year limitation period of § 546(a). In support of its dismissal motion, Freeman argues that the terms should be construed synonymously, effectively placing the Trustee’s Complaint beyond the two-year limitation period. The Trustee argues that the terms should not be so construed, which results in the Trustee’s Complaint being filed within the limitation period.
Addressing limitations on avoiding powers, § 546 of the Code provides:
546(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.
[11 U.S.C. 546(a) ]
Significantly, the avoidance statutes enumerated under § 546(a) are clear references to avoiding powers exercisable principally by a case trustee. Additionally, under *458subsection (a)(2), the Congress deliberately speaks of the “appointment” of a trustee under five specific trustee appointment statutes. This language certainly and correctly omits any reference to a debtor, as debtors nor debtors-in-possession are appointed. Rather, they are created by operation of law upon petition filing. Had Congress intended otherwise, it easily could have inserted § 1107, rather than § 1104, into § 646(a)(1) to indicate that the tolling commences with the creation of a Chapter 11 debtor-in-possession. Apparently, it elected not to do so. Where no trustee is appointed in a case, however, some courts have allowed a debtor-in-possession to exercise certain trustee avoiding powers where there was a benefit to the debtor’s estate and where such action was taken within the limitation period of § 546(a). Construction Management Svcs. v. Manufacturers Hanover Trust Co., 13 F.3d 81 (3d Cir.1994); Zilkha Energy Co. v. Leighton, 920 F.2d 1520 (10th Cir.1990); In re Hupp Industries, 165 B.R. 836 (Bankr.N.D.Ohio 1994). Such construction is proper and is not inconsistent with the ruling herein.
In the instant matter, however, a trustee was appointed. Where a trustee is duly appointed in a Chapter 11 case, the avoidance limitation period of § 546(a) begins to run from the date of trustee appointment and not the petition filing date. In this regard, the language of § 546(a) could not be clearer.
Accordingly, the Defendant’s motion to dismiss is hereby denied.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491836/ | *604ORDER APPROVING SETTLEMENT AGREEMENT AND VACATING DECISION PREVIOUSLY PUBLISHED
JOHN J. WILSON, Bankruptcy Judge.
Upon considering the Motion of MAX ROUSE & SONS, INC. (“ROUSE”), for an order from this court decertifying and vacating its Memorandum of Decision dated March 5,1992, which decision was entered on March 11, 1992 and published as In re Specialty Plywood, Inc., 137 B.R. 960 (Bankr.C.D.Cal.1992) [“the Bankruptcy Court Decision”] as well as approving the terms of the Settlement Agreement entered into between ROUSE, the Debtor, Debtor’s counsel and approved by counsel for administrative claimant HIGH EQUITY PARTNERS, and good cause appearing, the court enters the following Order:
IT IS HEREBY ORDERED, ADJUDGED AND DECREED that the motion is granted; and
IT IS FURTHER ORDERED that the Settlement Agreement entered into between ROUSE, the Debtor, Debtor’s counsel and approved by counsel for administrative claimant HIGH EQUITY PARTNERS (Exhibit “2” to the Motion) is approved in its entirety; and
IT IS FURTHER ORDERED that Notice of the instant motion is deemed adequate and that all administrative creditors of this estate are bound by the proposed distributions set forth in the Settlement Agreement; and
IT IS FURTHER ORDERED that the Bankruptcy Court Decision be and hereby is vacated; and
IT IS FURTHER ORDERED that the Bankruptcy Court Decision is hereby decerti-fied and not be regarded as precedent and not be cited to or by a bankruptcy appellate panel, the United States Court of Appeals, or any district or bankruptcy court in the United States, either in briefs, oral argument, opinions, memoranda, or orders, except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491840/ | SUMMARY ORDER: OFFICIAL RETIREES’ COMMITTEE FEE AND EXPENSE APPLICATION
ALFRED C. HAGAN, Bankruptcy Judge.
The Official Retirees’ Committee has filed an application for allowance of administrative expenses pursuant to section 503(b)(4), a first application for interim allowance of compensation and reimbursement of expenses by counsel for the Retirees’ Committee, and a second application for interim allowance of compensation and reimbursement of expenses by counsel for the Retirees’ Committee.
To these applications, the Unsecured Creditor’s Committee has responded with an objection wherein that Committee requests
[t]his Court to enter an order deferring the hearing on the Retirees’ Committee counsels’ interim applications for compensation and reimbursement of expenses; in the alternative, to deny the allowance of any such fees or reimbursement of expenses until such time as a chapter 11 plan is confirmed or until all fee applications can be heard; and to permit compensation to Altshuler, Berzon, Nussbaum, Berzon & Rubin for only one attorney where duplica-tive services and interoffice conferences are indicated in the applications.
The Coeur d’Alene Tribe has also filed an objection, contending attorney’s fees should be allowed only in accordance with applicable maximum local hourly rates. The United States of America, by and through its Attorney General, contends the applications are premature.
At the hearing, the concerns of creditors and interested parties centered on the need for an orderly method for fee applications in the future and for a holdback provisions. Counsel for the debtors are in agreement with these concepts and intend to establish a fee budget from which periodic applications can be paid or apportioned, and will submit a proposed order for consideration. A 25% holdback appears to be appropriate.
In this particular case, and due to the appointment of specialized counsel from outside of the District of Idaho, application of local hourly rates is not appropriate. I agree with the position of the Official Retirees’ Committee that to impose local fee limitations would not be a benefit to the retirees, nor to the other interested parties. The applications can be approved with the hold-back provisions.
Accordingly, it is
ORDERED:
1. The application for expense reimbursement of the Official Retirees’ Committee is approved;
2. The first application for interim compensation of the Official Retirees’ Committee is approved with a 25% holdback; and
3. The second application for interim compensation of the Official Retirees’ Committee is approved with a 25% holdback. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491841/ | MEMORANDUM OPINION AND ORDER
JULIE A. ROBINSON, Bankruptcy Judge.
This matter comes before the Court pursuant to the objections to confirmation of the debtors’ Amended Chapter 12 Plan filed by *955Montezuma Credit Union (“Montezuma”), Farm Credit Bank (“FCB”) and the Chapter 12 Trustee. Also before the Court are FCB’s motion to dismiss the debtors’ bankruptcy case, the motion by FCB for relief from stay as to the Litson property, the motion of Marie Litson to lift stay, the motion of FCB for relief from stay or for adequate protection, the motion of Montezuma/Great Plains Federal Credit Union for relief from stay, debtor’s complaint to avoid the liens of Montezuma, and Montezuma’s motion for summary judgment. A hearing was held on April 4, 1994. Clement Anton Joe Zerr and Pauline Marie Zerr (“debtors”) appeared in person and by and through their attorney, Philip Turner. The Chapter 12 Trustee, Eric Rajala, appeared pro se. Montezuma appeared by and through its attorney, Eric Bruce. FCB appeared by and through its attorney, Calvin J. Karlin. After hearing the evidence, the Court ruled from the bench and is issuing this written Memorandum Opinion and Order consistent with that ruling.
JURISDICTION
The Court has jurisdiction over this proceeding. 28 U.S.C. § 1334. This is a core proceeding. 28 U.S.C. § 157(b)(2)(B), (G), (K) and (L).
FINDINGS OF FACT
The debtors, Clement Anton Joe Zerr and Pauline Marie Zerr, are family farmers who filed a Chapter 12 petition on September 15, 1992. The debtors did not file any schedules until October 29, 1992. The schedules were patently deficient, not itemizing assets or values nor providing any information about budget, income and expenses. The Court ordered the debtors to refile their schedules within thirty days of December 4,1992. The debtors missed this deadline, filing their first amended schedules on January 7, 1993. On February 8, 1993, Judge John T. Flannagan issued a Show Cause Order requiring the debtors to resubmit schedules and statement of affairs because the original schedules were the “worst prepared forms that the court had ever seen”. The original schedules contained almost no information, listing zeros instead of actual figures for income, expenses and value of assets. Judge Flannagan went on to note that the first amended schedules “now ranks as the worst the court has ever seen.” The first amended were “garbled, incomplete, unmarked, unpaginated and generally confusing.” Finally, on February 26, 1993, some five months after the petition was filed, the debtors filed second amended schedules that contained some information with which the creditors and trustee could evaluate the debtors’ financial affairs.1
Meanwhile, the debtors did not file a plan within 90 days following the order for relief as set forth in 11 U.S.C. § 1221. In December, 1992, they obtained a 30 day extension to file a plan by January 13, 1993. Before that date, they obtained an extension to file a plan by January 23. The debtors missed this deadline, filing their Chapter 12 plan on January 25, 1993. On March 3, 1993, the plan came on for confirmation, and confirmation was denied. The Court granted the debtors 15 days to file an amended plan. Once again the debtors missed the deadline, filing their Amended Plan on March 19, 1993. At that point, the confirmation hearing was continued again and again while the debtors and objecting creditors conducted discovery. The discovery process was considerably delayed by the debtors’ motions to extend time for discovery, motion to extend time to respond to summary judgment motion, and motion to continue pretrial hearing. The debtors had also objected to a request for production and moved to quash a 2004 exam back in the fall of 1992.
Finally, on April 4, 1994, some eighteen months after the debtors filed their Chapter 12 petition and some fourteen months after they filed their Amended Chapter 12 Plan (“plan”), the confirmation hearing was held. *956FCB objected to confirmation on grounds that the plan failed to provide for it to retain its lien and failed to pay it the present value of its allowed secured claim. The trustee objected to confirmation on the ground that the plan proposed to give the unsecured creditors a security interest in real estate and to pay them for five years with a balloon of the balance due in the fifth year, while the better course would be to liquidate the nonexempt property and pay the unsecured creditors. Montezuma objected that the plan failed to treat their claim as secured.2 The trustee, Montezuma and FCB also objected to confirmation on the ground that the plan was not feasible. In addition, FCB moved to dismiss the case.
FCB has an allowed claim of $727,822.18, which is secured in the amount of $668,000 and unsecured in the amount of $59,822.18. The debtors’ plan proposes to pay FCB’s secured claim over 30 years at an 8% interest rate.
Montezuma filed a proof of claim for $258,-015.40, which it contends is secured in whole or part by: machinery and equipment; now and hereafter acquired accounts receivable; cattle and livestock now and hereafter acquired; vehicles; furniture and fixtures; farm products; feeding liens and other items. The debtors dispute the amount they owe Montezuma and contend that the credit union’s security interest is unperfected and their lien avoidable; so the debtors’ plan proposes to treat Montezuma as unsecured.
The debtors propose to pay the unsecured creditors, including Montezuma and the unsecured portion of FCB’s claim, 100% over a period of five years, based on a ten year amortization at 6% interest. The debtors calculate that after five years of payment on $362,235.22 of unsecured debt, they will owe the unsecured creditors a balance of $168,-952.37, which they will pay by selling or refinancing the “Litson property”.
Pending determination of the nature and extent of Montezuma’s claim, on December 4, 1992, Judge Flannagan ordered the debtors to segregate all proceeds derived from the sale of items that Montezuma claimed a security interest in. Debtor Clement A.J. Zerr testified at the confirmation hearing that he understood that he was not to spend money he received from cattle sales because Montezuma claimed a security interest in cattle. Zerr further acknowledged that his 1992 tax return reflected income from cattle or livestock sales in the amount of $75,900, but that there was only about $65,000 in proceeds on deposit in their cash collateral account. Zerr could not account for the other $10,000, but surmised that they had sold some cattle in which Montezuma had no interest. He further testified that he had sold no cattle since 1992 and had no other cash collateral to account for. Based on the debtor’s demean- or while testifying and his unfamiliarity with his financial affairs, the Court finds that the debtor did not willfully violate the terms of the Court’s Order on Motion of Montezuma Credit Union Segregating Cash Collateral.
Zerr testified that prior to filing this bankruptcy the debtors had grown crops and operated a feeder cattle business. Zerr further testified that although the plan indicated the debtors would no longer be in the feeder cattle business, they might reenter the business if they could obtain some financing. Zerr testified that they otherwise intended to devote themselves full time to growing wheat, milo and other crops.
At the close of the evidence, the Court denied confirmation, denied any requests for additional time to file another amended plan, and granted the motion to dismiss.
CONCLUSIONS OF LAW
PLAN FAILS TO COMPLY WITH 1225(a)(5)
The debtors proposed to pay FCB its allowed secured claim of $668,000 over a term of 30 years, with a discount or interest rate of 8%. FCB did not accept the debtors’ plan and objected that the plan failed to provide that FCB would retain its lien; and further that the plan failed to pay the allowed amount of its secured claim, in proposing a 30 year term with an 8% interest rate.
*957In the aftermath of In re Hardzog, 901 F.2d 858 (10th Cir.1990), the Chapter 12 debtor must propose to pay the secured creditor no less than the full amount of its allowed claim plus interest at the “market rate,” that being the current market rate of interest for “similar loans” in the region. In Hardzog, the Tenth Circuit rejected the Eighth Circuit’s approach in United States v. Doud, 869 F.2d 1144 (8th Cir.1989), of computing the market rate by adding a 2% risk factor to the rate of a risk-free loan. Instead, the Tenth Circuit opted for an approach that is “predicated upon the theory that the lender is making a new loan to the debtor,” and that all the creditor is entitled to is the same rate the creditor would receive in making a similar loan in the region. In re Hardzog, 901 F.2d at 860.
Hardzog provides no guidance on what constitutes a “similar loan.” The debtors contend that a similar loan would be a restructured loan, which FCB enters into with troubled borrowers outside of bankruptcy.3 FCB contends that a similar loan is a new loan, with an interest rate based in part on the borrowers’ history and circumstances.
In In re Stratford Assocs. Ltd. Partnership, 145 B.R. 689 (Bank.D.Kan.1992), Judge John K. Pearson held that a “similar loan” in the context of a Chapter 11 reorganization, would be a workout loan outside of bankruptcy, such that the appropriate interest rate would be within the range of interest rates charged on workout loans in the region.
This Court, however, thinks that at least with respect to a Chapter 12 reorganization, the new loan rate is a more appropriate measure of the market rate in the region. Certainly Hardzog indicates that market rate is based on the assumption that the parties are entering into a new loan, albeit a coerced loan. See In re Hardzog, 901 F.2d at 860 (“Chapter 12 is predicated upon the theory that the lender is making á new loan to the debtor”).
While FCB’s witness acknowledged that there is a market for restructured farmland loans, and that FCB has written such loans at lower than new loan rates, imposing a workout or restructured loan interest rate would unduly prejudice the creditor. A lender may be well advised to restructure a loan with a troubled borrower outside of the bankruptcy arena in order to avoid the attendant delay and regiment of bankruptcy or the delay and potential loss that would be suffered in a foreclosure. However, once the borrower files a Chapter 12 bankruptcy, and the lender is subjected to the automatic stay, the bifurcation of its claim, and other impairments, the lender should not be coerced into making the loan it would make to avoid all of that. The Chapter 12 secured creditor is without a number of the protections or advantages available in a Chapter 11 case, such as the absolute priority rule, the § 1111(b) election and the ability to propose a plan or appoint a trustee who can propose a plan. A workout or restructure interest rate may be an appropriate rate in a Chapter 11 setting, where the creditor can propose its own plan, elect away the bifurcation of its claim or expect to receive more on the unsecured portion of its claim if the owners want to continue in the business. But in the context of a Chapter 12 where the creditor is without this array of options it is unduly prejudicial to impose a workout rate on the creditor.
FCB presented evidence that it has written a substantial number of the farmland loans in the county where the debtors live and farm, and in the regional six county area. FCB’s witness testified that FCB has 73% of the real estate debt and 66.4% of the loans in the region. Thus, FCB’s interest rate on *958new loans secured by real estate can be considered the market rate in the region.
FCB’s witness testified that none of the banks are offering 30 year fixed rate loans in the area, and that while FCB offers farmland loans with terms ranging from 21 to 30 years, 8% is not the market rate for such loans. Thus, despite its objection to the debtors’ proposal to pay FCB over a 30 year term, FCB acknowledged that it is writing 30 year loans secured by farm land. In fact, the term of the debtors’ loan was 30 years. FCB failed to demonstrate any compelling reason why these debtors ought not to be able to reamortize their debt with a 30 year loan.
FCB’s witness further testified that if FCB wrote a new 30 year loan to these debtors, it would charge them an interest rate of 11.1% which it computed by adding a risk factor of 1.2% to the 9.85% rate it currently charges “low risk” customers on new loans secured by real estate. FCB based the 1.2% risk factor on the “Five C’s”: the debtors’ credit history, their character, the conditions of the loan, their capacity to repay, and their capital and collateral. FCB characterized the debtors’ character and credit history as “not superb;” and considered the conditions of the loan weak, based on the debtors’ troubled operations, their declining earnings and history of default. In short, FCB assessed a risk factor at least in part based on the fact that these debtors have been in default, continue to be in default and are now in bankruptcy proposing a plan that FCB perceives as unfeasible.
The premise of a coerced loan approach is to place the lender in substantially the same position as if it had been able to end the lending relationship and foreclose on the collateral. See General Motors Acceptance Corp. v. Jones, 999 F.2d 63, 68 (3d Cir.1993). The Court cannot ignore that a coerced loan does not place the lender in exactly the same position, for the lender must make a 100% loan to a borrower who is by definition in default or at risk, something the lender may decline to do at any interest rate, given the choice. However, the Court cannot ignore the fact that there is a silver lining in the Chapter 12 cloud. First, the debtor is not allowed to proceed without an independent determination by the Court that the plan is feasible. Second, the debtor is required to act responsibly, to monitor its own progress and report periodically to the trustee who in turn monitors the debtor’s progress. Third, the debtor has sought and obtained a comprehensive means of reorganization, which is typically more successful than a piecemeal approach.
Any attempt to quantify the risks of a coerced 100% loan, versus the benefits of a Chapter 12 would be a problematic and torturous exercise. Moreover, the Court cannot lose sight of the premise that paying the secured creditor the market rate for new loans is an equitable method to restore the transactional relationship between the debtor and creditor while placing the creditor in substantially the same position as it would be had it foreclosed and commenced a transactional relationship with a new borrower. Thus, any adjustment to the new loan rate for risk or benefit would be entirely inappropriate.
Therefore, the debtor’s plan is not confirmable under § 1225(a)(5) as FCB’s allowed secured claim must include interest at the rate of 9.85%, FCB’s current interest rate for low risk borrowers.4
PLAN IS NOT FEASIBLE
Section 1225(a)(6) requires the court to find that the debtors will be able to make all payments under the plan and comply with the plan. The Court’s task was complicated in this case by the debtors’ failure to timely make VanVleet disclosures. Literally on the eve of the confirmation hearing, the debtors provided the parties with the assumptions underlying their plan and their projected income and expenses for the life of the plan. At the confirmation hearing, the debtors *959amended at least one assumption that had a significant effect on their projected income from crops.5
Most of the debtors’ projected income ■will come from sales of wheat, milo and barley. The debtors have glowingly optimistic projections about their future production. Their plan is based on assumptions that they will have gross income from crop sales well in excess of $100,000 each year; yet their 1992 tax return showed gross crop income of $37,861 and their 1993 return showed gross crop income of $42,723. The debtors offered no explanation as to why their income will increase so dramatically. Although they explained that they would devote themselves full time to crops and no longer feed cattle, they did not satisfactorily demonstrate how their acreage would yield the projected production. In fact, their assumptions in that regard were inconsistent. In one exhibit they projected their wheat production would be 36 bushels per acre; in another exhibit they projected they could produce 30 bushels of wheat per acre. Furthermore, their assumptions included projections for 1993 income, which when compared to the actual figures for 1993, illustrate how far off the mark their other projections might be. While the debtors projected gross crop income of $101,878, their 1993 tax return shows they had gross crop income of $42,723, less than half the figure they projected.
The debtors also projected that their income would include $10,000 from rental of 1000 acres of pasture available to them now that they were no longer feeding cattle. Yet the debtors failed to demonstrate or discuss the feasibility or likelihood of finding a lessee.
Even while maintaining that they would increase production, the debtors assumed that their fuel, fertilizer, labor, repair and maintenance expenses would either remain stable or decrease. They assumed that their gasoline and fuel expense would be about $16,000 a year, based on a five year “average” of actual fuel expense that failed to account for the $20,000 they owe a fuel vendor but have never paid. They also based their projected fertilizer expense on a five year average, which seems inconsistent with planting more acreage or otherwise increasing production.
Again, a comparison of their projections with actual expenses in the last two years is enlightening. The debtors’ plan is based on an assumption that their farm expenses will be about $56,000 a year. But in 1992, their farm expenses were $62,547; and in 1993 their farm expenses were $94,007 (they had projected $56,688 in 1993).
Two other feasibility problems are worth noting, having been raised in the trustee’s objection to confirmation. The debtors, perhaps realizing how slim their cushion, if any, are proposing to pay the unsecured creditors outside of the plan after the third year, to avoid having to pay a trustee fee on those distributions. This provision in their plan violates § 1225(b)(1)(B). The debtors also propose to convert the unsecured creditors into secured creditors, a novel proposition, with a security interest in the “Litson property”, which the debtors will then liquidate in the fifth year to pay off the unsecured creditors. Yet, the debtors have failed to show that this provision is feasible, in light of the status of the Litson property. The debtors are buying the Litson real estate on a contract for deed, and have failed to pay Marie Litson their annual payments due April 1992, 1993 and 1994. FOB, the mortgagee on the Litson property, has filed a foreclosure action against Litson.6
In short, the debtors have failed to demonstrate they will be able to make payments into their' plan, as their plan is based on unreasonable assumptions, overstated income and understated expenses. And, although the debtors have about $90,000 on hand to immediately pay to the trustee on confirmation, that is insufficient, particularly since $65,000 of their funds is possibly cash collat*960eral belonging to Montezuma and not available to pay the other creditors.7 The debtors have also failed to demonstrate that they will be able to pay the unsecured creditors as proposed, as they have failed to demonstrate that they will be able to sell or refinance the “Litson property” to pay the balance due the unsecured creditors in the fifth year of the plan. For the above reasons, the Court denies confirmation of the debtors’ Amended Plan for failure to comply with 11 U.S.C. § 1225(a)(5) and (a)(6).
MOTION TO DISMISS
Chapter 12 was designed to provide an expedient, streamlined process to reorganize the family farmer. To that end, 11 U.S.C. § 1221 requires that the debtor file a plan within 90 days. Although there are undoubtedly cases in which the diligent debt- or cannot file a plan in 90 days because of circumstances outside of the debtor’s control, the general rule ought to be adhered to in most cases. The burden this places on the debtor is not untenable given the corresponding burdens the creditor bears in a Chapter 12 proceeding.
In this case, the creditors have been subjected to continuances and delay, while the debtors have failed to comply with deadlines to file schedules, to file a plan and to conduct discovery on claims issues. Now, 18 months later, there is no confirmed plan, the Court having denied confirmation of both plans the debtors have proposed. A dismissal is warranted when the debtors have failed to propose a confirmable plan after some period of delay, particularly when the court has denied confirmation on the basis of lack of feasibility. See In re Ames, 973 F.2d 849 (10th Cir.1992), cert. denied Ames v. Sun-dance State Bank, — U.S. -, 113 S.Ct. 1261, 122 L.Ed.2d 658 (1993).
In the last 18 months, the creditors have been prejudiced as a result of the delay and as a result of the debtors’ conduct. The secured creditors have received no payments, while their pending state court foreclosure actions have been held in abeyance. The unsecured and trade creditors have received nothing. The debtors have failed to pay real estate taxes on the property. And, at least $10,000 is missing from the cash collateral bank account for which the debtors cannot account.8
For all of these reasons, the Court finds that the debtors can be held almost entirely accountable for the delay in this case and that the debtors’ conduct has resulted in substantial prejudice to the creditors. The motion of FCB to dismiss this case is granted. In light of this Court’s ruling on FCB’s motion to dismiss, it is unnecessary to rule on the other matters pending before the Court.
IT IS THEREFORE ORDERED BY THE COURT that confirmation of debtors’ Amended Plan shall be DENIED for failure to comply with 11 U.S.C. § 1225(a)(5) and (a)(6).
IT IS FURTHER ORDERED BY THE COURT that FCB’s Motion to Dismiss the debtors’ Chapter 12 bankruptcy case shall be GRANTED pursuant to 11 U.S.C. § 1208(c)(1) and (e)(5).
This Memorandum shall constitute findings of fact and conclusions of law under Rule 7052 of the Federal Rules of Bankruptcy Procedure and Rule 52(a) of the Federal Rules of Civil Procedure. A judgment based *961on this ruling will be entered on a separate document as required by Rule 9021 of the Federal Rules of Bankruptcy Procedure and Rule 58 of the Federal Rules of Civil Procedure.
IT IS SO ORDERED.
. However, the debtors failed to comply with Judge Flannagan's requirement that Chapter 12 debtors make disclosures as set forth in In re VanVleet, Case No. 92-40461-12 (Bankr.D.Kan. Oct. 20, 1992), regarding among other things: the costs related to each income source; assumptions used for income and expense projection; expected amounts and timing from each income source; separate itemization of government payments and non-farm income; and payment projected for each creditor, the trustee and timing pf each. In fact, the debtors did not provide this information to the creditors and trustee until the eve of the confirmation hearing.
. For reasons that will become apparent in this opinion, the Court declines to rule on the issue of the nature and extent of Montezuma's claim, which is the subject of a complaint for lien avoidance filed by the debtors.
. The debtors' figure of 8% is based on alternative theories. They argue that 8% is a restructure rate, but they presented no evidence as to the current rate or range of rates that FCB charges on restructured loans. FCB's witness testified that while FCB has written restructured loans in the region, in the last two years it has not written such a loan with an interest rate as low as 8%. In the alternative, the debtors argue that FCB is subject to the limitations on interest imposed by 12 U.S.C. § 85, which relates to National Banks. However, FCB is not governed by Chapter 2 of Title 12, as it is not a national banking association within the meaning of that chapter. FCB is governed by 12 U.S.C. §§ 2001 et seq., relating to the Farm Credit System, which provides for the board of directors of the Farm Credit Bank to periodically determine the terms and conditions and rate or rates of interest or discount for loans and discounts made by a Farm Credit Bank. See 12 U.S.C. § 2016.
. Hardzog indicates that there may be special circumstances in which the "current market rate of interest used for similar loans in the region” is not appropriate. In re Hardzog, 901 F.2d 858, 860 (10th Cir.1990). At least one bankruptcy court has construed that to mean that the contract rate should prevail when it is lower than the market rate. See In re Mellema, 124 B.R. 103 (Bankr.D.Colo.1991). Neither the debtors nor FCB argued that the contract rate should be considered in this case.
. In Exhibit AAC, the debtors had forgotten to reduce their projected crop income by the tenant share due their son, Leroy Zerr. Apparently realizing their error, debtors’ counsel advised the Court and parties that Leroy Zerr would forego his share of the crops.
. FCB has a pending motion for relief from stay to continue the foreclosure action against Litson and to add the debtors as party defendants. Marie Litson also has a motion for relief from stay pending.
. Clement A.J. Zerr acknowledged that they could not afford to pay Montezuma as a secured creditor.
. After the Court heard evidence that the debtors knew the cattle were claimed by Montezuma and knew that they were not supposed to spend the proceeds of any cattle, the Court announced from the bench that one ground for dismissal was violation of the Court's Order on Motion, of Montezuma Credit Union Segregating Cash Collateral. After the evidence was completed, debtors’ counsel stated that the $75,900 reflected on the debtors' 1992 tax return was not necessarily from the sale of cattle, but may have been other items. Counsel proceeded to argue that the monies in the cash collateral account were from 1993 cattle sale and that there was no missing money. Aside from the fact that statements of counsel are not evidence the Court notes that Mr. Zerr testified that he had not sold any cattle since 1992, and he seemed to be under the impression that the monies in the cash collateral account were the same sales reflected on the 1992 tax return. Notably, the debtors' 1993 tax return does not reflect any sales of cattle or livestock in 1993. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491843/ | ORDER
TOM R. CORNISH, Bankruptcy Judge.
On May 10, 1994, this Court conducted a trial on the Complaint in the above-referenced adversary proceeding in McAlester, Oklahoma. Counsel appearing in person were Belva Brooks Barber on behalf of Red Oak Branch of Farmers State Bank of Quinton, and the Debtors appeared pro se.
After a review of the evidence, the arguments of counsel and the applicable law, the Court does hereby enter the following findings and conclusions in conformity with Rule 7052, Fed.R.Bankr.P., in this core proceeding:
FINDINGS OF FACT
1. On January 9, 1991, Debtors became associated with the Plaintiff when they contacted the bank requesting a loan. The Debtors prepared a credit application. The *979credit application had a category entitled “Outstanding Debts.” The Debtors’ credit application had eight lines to list outstanding debts. The instructions specifically stated to “use a separate sheet if necessary.” The Debtors only listed three debts on the credit application which were not in default.
2. The Plaintiff conducted a credit cheek with the McAlester Credit Bureau. In addition, the Plaintiff contacted the First Bank of Owasso, which was listed on the Debtors’ credit application. The Plaintiff’s representative, James Jordan, testified that he called the Loan Officer at the First Bank of Owasso and was told that Mr. White was a good customer and they hated to lose him.
After the initial application process, the Debtors were loaned money to purchase vehicles for resale. These loans were renewed and extended. On April 23, 1991, the notes were rolled into one. The Debtors were loaned additional money, under separate notes, on July 12, 1991 and September 26, 1991 for the purchase of specific vehicles. All of the loans were made relying on the initial credit application made on January 9, 1991. The Debtors defaulted on the notes and on April 16, 1993, the Latimer County District Court entered judgment for Red Oak Branch of Farmers State Bank of Quinton on the April 23, 1991 note, as well as notes dated July 12, 1991 and September 26, 1991.
CONCLUSIONS OF LAW
A. The Plaintiff asserts a cause of action based on 11 U.S.C. § 523(a)(2)(B) asking this Court to determine the debt nondis-ehargeable. In order to prove a ease under § 523, the Plaintiff must show that (1) the debtor made a materially false representation; (2) that such representation was made knowingly with the intent to defraud; and (3) Plaintiff reasonably relied on a false representation. In re Lowther, 32 B.R. 638 (Bankr.W.D.Okla.1983) (citations omitted); In re Carter, 101 B.R. 702 (Bankr.E.D.Okla. 1989). All of the elements must be shown by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1990). In the instant case, there is no dispute that the Defendants used a financial statement to obtain a loan from Red Oak Branch of Farmers State Bank of Quinton.
B. The Eastern District of Oklahoma in In re Carter, 101 B.R. 702 (Bankr. E.D.Okla.1989) defined the term materially false financial statement by stating:
A materially false financial statement is one in which there is an “omission, concealment or understatement as to any of the debtor’s material liabilities.” In re Harmer, 61 B.R. 1, 5 (Bankr.D.Utah 1984)
In addition, the statement must paint an untruthful picture of the debtor’s financial condition in such a light which would normally affect the decision on the part of the creditor to grant credit. Id. at 704 (citing In re Harms, 53 B.R. 134, 140 (Bankr.D.Minn.1985)).
In the instant case, the Vice President of Red Oak testified that he is the Loan Officer who dealt with the Whites. He further testified that the Whites’ credit check was not inconsistent with the Debtors’ application. Later, the bank discovered that Debtors had not disclosed debts to Fidelity Federal, Talihina Bank, and Poteau State Bank. Poteau State Bank had even instituted foreclosure proceedings four days prior to the preparation of the credit application by the Debtors; however, the Debtors were not served with summons until the day after they had prepared the credit application. Mr. White testified that he did not list these debts because he thought that they would be discovered through the credit bureau. Mr. Jordan testified that had the debts been disclosed, those institutions would have been contacted and as a consequence, the money would not have been loaned to the Debtors. Thus, the Court concludes that a materially false financial statement was present due to the omissions of the loans in default to the three financial institutions.
C. The primary purpose of the intent to deceive requirement is to assure that only the debtor who dishonestly obtains money, property, credit, or services be punished with a denial of discharge and the honest debtor be protected. Carter at 704. The intent to deceive may be exhibited by the Debtors’ reckless indifference to the existing facts. In re Barron, 126 B.R. 255, 260 (Bankr.E.D.Tex.1991).
*980This Court finds that the Debtors had the intent to deceive Red Oak Branch of Farmers State Bank of Quinton. The Debtors only listed three debts on their credit application when there were eight lines to list all other outstanding obligations. More importantly, the only debts not listed by the Debtors were those ones which were in default or where the Debtors had made erratic payments. Thus, the intent element is present.
D. Lastly, the creditor must prove that it relied on the false credit application and that the reliance was reasonable. Evidence demonstrating that the loan would not have been made had the lender received accurate information is sufficient to establish reliance for nondischargeability purposes. In re Hall, 109 B.R. 149 (Bankr.W.D.Pa. 1990). The creditor’s reliance upon a materially false statement will be found to be reasonable for the purpose of determining whether a debt is nondischargeable, if it is demonstrated by the creditor that the credit would not have been extended if the false representation or omission would have been known. In re Barron, at 259 (citing In re Carr, 49 B.R. 208, 210 (Bankr.W.D.Ky.1985)). Courts have held that even partial reliance on a materially false financial statement is sufficient to deny a debtor a discharge on that particular debt. Id.; In re Hall at 154; In re Wing, 96 B.R. 369, 373 (Bankr.N.D.Fla. 1989); In re Nance, 70 B.R. 318, 323 (Bankr. W.D.Tex.1987).
The Vice President of Red Oak Branch testified that had he known that the other debts existed, he would not have loaned the Debtors the money. Further, he testified that had these debts been listed, he would have contacted the financial institutions to check on the Debtors’ credit history. Again, this would have led to the Bank not extending the Debtors credit. Thus, the Plaintiff has satisfied all the elements to have its debt determined nondischargeable under § 523.
IT IS THEREFORE ORDERED that the debt owed to Red Oak Branch of Farmers State Bank of Quinton by the Debtors is nondischargeable. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491844/ | OPINION
DAVID W. HOUSTON, III, Bankruptcy Judge.
On consideration before the court is the complaint filed by the plaintiffs, Freeland & Freeland, attorneys at law, against the defendants, Wendell Blount, Saul Fesman, Paul Bousquet, Queen City Home Health Care Company, American Mobility, Inc., and Mississippi Durable Medical Equipment, Inc.; answers and affirmative defenses having been filed on behalf of said defendants; a cross-claim having been filed by Queen City Home Health Care Company, American Mobility Inc., Saul Fesman, and Paul Bousquet against the cross-defendants, Wendell Blount and Mississippi Durable Medical Equipment, Inc.; answer having been filed by the said cross-defendants; all issues having been joined; and the court having heard and considered same hereby finds as follows, to-wit:
I.
JURISDICTION
The court has jurisdiction of the parties to and the subject matter of these consolidated adversary proceedings pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. Although, for the most part, these adversary proceedings are non-core proceedings, all parties to the proceedings, pursuant to 28 U.S.C. § 157(c)(2), have consented to this court’s hearing and determining all of the issues, as well as, entering appropriate final orders and judgments, subject to appellate review pursuant to 28 U.S.C. § 158.
II.
DISCLAIMER
This court previously heard and decided in this bankruptcy case a non-dischargeability adversary proceeding, no. 91-2241, filed by the plaintiffs herein, Freeland & Freeland, against the debtor, Wendell Glenn Blount. Although the factual circumstances of that proceeding and the instant proceedings are similar, Blount elected not to appear and defend the plaintiffs’ complaint. None of the other defendants herein were parties to the proceeding. None of the other defendants herein were parties to the proceeding. Not surprisingly, the proof received and considered by the court in the previous proceeding was dramatically different from that received *135and considered in the instant proceedings. Therefore, the court does not consider itself bound by any of the findings or determinations of the previous proceeding insofar as they might affect the relative legal positions of the parties hereto.
III.
IDENTITY OF THE PARTIES
The plaintiffs, Freeland & Freeland, are members of a law firm formerly known as Freeland, Freeland, & Wilson. For purposes of this opinion, the plaintiffs will be referred to simply as Freeland & Freeland.
The defendants Saul Fesman, Paul Bous-quet, Queen City Home Health Care Company, and American Mobility, Inc., will be referred to respectively as Fesman, Bousquet, Queen City, and American Mobility, or sometimes collectively as the Queen City group.
The defendants Wendell Blount and Mississippi Durable Medical Equipment, Inc., will be referred to respectively as Blount and Mississippi Durable.
IV.
BASIS OF THE COMPLAINT AND CROSS-COMPLAINT
The plaintiffs have filed their complaint alleging that settlement proceeds generated from several lawsuits were wrongfully paid by the defendants, Queen City, American Mobility, Fesman, and Bousquet, to the defendants, Blount and Mississippi Durable, in disregard of an alleged charging hen existing in favor of the plaintiffs, as well as, an assignment of said proceeds from Blount to the plaintiffs. The complaint alleges fraud, fraudulent concealment, and tortious interference with the plaintiffs’ contract rights.
The cross-complaint filed by the defendants, Queen City, American Mobility, Fes-man, and Bousquet, seeks recovery and/or indemnity from Blount and Mississippi Durable for any amounts which they, the cross-claimants, may be held hable as a result of the plaintiffs’ complaint. In addition, they ask that said amounts be determined to be nondischargeable debts in Blount’s bankruptcy case, based on allegations of fraud and conversion.
V.
FACTUAL DISCUSSION
On August 28, 1989, Blount employed the plaintiffs to file suit against Industrial Design Associates in the Circuit Court of Calhoun County, Mississippi. The case, which was styled Mississippi Durable v. Industrial Design Associates, was removed to the United States District Court for the Northern District of Mississippi, referred to hereinafter as the District Court, and assigned case no. 89-130-D-D. The case was subsequently referred to this court and assigned adversary proceeding no. 92-1148. It was consohdated for trial and heard with adversary proceeding no. 91-2239, a non-dischargeability cause of action filed by Industrial Design Associates against Blount.
On January 15, 1990, Blount employed the plaintiffs to file three additional lawsuits in the District Court which were styled as follows: Mississippi Durable v. Queen City, No. WC90-4-BD; Mississippi Durable v. American Mobility, No. WC90-5-BD; and Medical Concepts, Inc. v. American Mobility, No. WC90-3-BD.
Blount also employed the plaintiffs for representation in a lawsuit filed by Queen City against Blount and Mississippi Durable in the United States District Court for the Southern District of Ohio. This suit was based on the same set of facts as the Queen City/American Mobility causes of action filed in the Northern District of Mississippi, so it was transferred to the Northern District and consolidated with the other pending proceedings. Three of the four cases were referred to this court and assigned adversary proceeding nos. 92-1025, 92-1172, and 92-1Í73, as set out in the above caption.
At one point in time, Medical Concepts, Inc., referred to hereinafter as Medical Concepts, was owned and/or controlled by Blount. In December, 1989, Blount entered into a transaction to convey his ownership in Medical Concepts, as well as, Mississippi Durable to a Texas corporation known as Wes-pac Medical Products, Inc., hereinafter re*136ferred to as Wespac. For reasons unknown to the court, this transaction unraveled to the extent that Mississippi Durable was recon-veyed to Blount while Medical Concepts was retained by Wespac. Mississippi Durable manufactured lift chairs, a health related product, and Medical Concepts manufactured scooters, utilized primarily by persons with ambulatory difficulties. Although Blount did not control Medical Concepts throughout the District Court litigation, the plaintiffs continued to represent Medical Concepts, which was then owned by Wespac, as well as, Blount and Mississippi Durable.
Because payment arrangements apparently became unsatisfactory, the plaintiffs informed Blount that they could no longer represent him or his companies unless the fees and expenses then owing were paid. As a result, in October, 1990, Blount orally assigned the plaintiffs an undetermined amount of the proceeds that he anticipated receiving from the settlement of the lawsuits against Queen City and American Mobility. As a condition of this assignment, the plaintiffs agreed to continue representing Blount and his companies in the lawsuits against Queen City and American Mobility, as well as, in several other on-going matters, such as the Henderson/Autocomp matter, the Alka-nox/Comquest matter, and significantly the lawsuit filed by Mississippi Durable against Industrial Design Associates.
The existence of the verbal assignment was verified by Dennis Goldman, Jr., general manager of Med-Products, U.S.A., Inc., who testified that he had heard Blount discuss the assignment of the settlement proceeds to the plaintiffs. The precise terms of the assignment, however, were unknown. Blount could have said that the plaintiffs would be paid for their legal services from the settlement proceeds, or he could have said that he specifically assigned all of the proceeds of the settlement to the plaintiffs. Goldman testified that, regardless of the assignment, he understood that Blount controlled the settlement negotiations since he had the ultimate authority to approve the settlement terms.
Following the assignment, the plaintiffs initiated settlement negotiations with Bous-quet, the attorney representing Queen City and American Mobility. As a part of these negotiations, on November 12, 1990, Bous-quet faxed a letter to the plaintiffs which stated the following:
For purposes of settlement negotiation only.
1. Queen City/AMI to pay MDME/MC $120,000
2. MDME/MC to receive approximately 77 scooters. MDME to assume all responsibilities of AMI for any of MC’s Eagle scooters which AMI sold to third parties ...
3. Blount and MDME to indemnify Queen City for any liabilities it incurs to Gaffney (Ortho-Kinetics) in the pending litigations involving patents on the seat lift chairs.
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(See plaintiffs’ exhibit 6.)
On November 14, 1990, the plaintiffs responded, presumptuously without the consent of their clients, in a faxed letter to Bousquet which stated that, “I have been authorized to accept the offer of settlement which you sent me via facsimile on November 12 on behalf of Mississippi Durable Medical Equipment (MDME), Medical Concepts (MC) and Wendell Blount.” ... (See plaintiffs’ exhibit 7.) This letter essentially restated the provisions set forth in Bousquet’s earlier letter; it was faxed to Blount and to Ronald Brown, an attorney in Texas who represented Wespac.
The plaintiffs adamantly contend that the combined effect of these two letters amounted to a binding settlement of the lawsuits. The plaintiffs assert that their position is further substantiated by the fact that the settlement terms expressed in these two letters were practically identical to the settlement terms that were incorporated in the final settlement documents which were filed in the District Court. The plaintiffs argument, however, is seriously flawed for two reasons:
1. There was an obvious dispute between Blount and Mississippi Durable, on one side, and Medical Concepts, on the other side, as to who would receive the 77 scooters. (Al*137though the parties have not commented on this point, Bosquet’s fax does not distinguish as to who is to receive the $120,000, Mississippi Durable or Medical Concepts.)
2. If Medical Concepts, which Blount no longer owned, were to receive the 77 scooters, and if the plaintiffs were to receive the $120,000 cash proceeds, Blount and/or Mississippi Durable would receive nothing. As such, Blount, the client, was unalterably opposed to the manner in which the consummation of this settlement would affect him and Mississippi Durable.
For these reasons, this court cannot conclude that a settlement had been reached.
The plaintiffs strenuously urged Blount to accept the settlement, but he was unwilling to do so. As an attempted inducement, the plaintiffs, who continued to represent Medical Concepts, proposed that the settlement be consummated with Queen City and American Mobility, but that the issue concerning the 77 scooters be reserved for a later resolution between Blount and Medical Concepts.
When the negotiations between the plaintiffs and Blount appeared to be reaching an impasse, T.H. Freeland, III, one of the plaintiffs’ partners, wrote the following letter to Blount discussing the possibility of accepting only $60,000 from the settlement proceeds, having his firm discontinue representation in the unrelated matters, but completing the settlement with Queen City and American Mobility:
December 18, 1990
Mr. Wendell Blount
Mississippi Durable Medical Equipment
P.O. Box 1118
Calhoun City, Mississippi 38916
Dear Wendell:
I have your FAX and understand that you wish to terminate our employment as your attorneys in all cases in which we now represent you. I have advised Ron Brown, counsel for Medical Concepts of your action. Since Medical Concepts wishes to go forward with the settlement of its claim I intend to advise counsel for Queen City of that fact. In view of our discharge I must also advise Queen City’s counsel of that fact and that we no longer represent you and that the settlement is off. I have not yet done this because of a call from Dennis Goldman, who has just informed me that you are willing to “settle” these various cases provided you get $60,000.00 and one half the scooters. Since I am no longer representing you I cannot and will not negotiate with Wespac/Medical Concepts regarding the scooters, nor can I proceed with settlement of the Queen City cases without specific authorization from you. Since you have reneged on your agreement to pay us $120,000.00 settlement on the fees we are owed by your corporation and you personally and are offering us only $60,000.00,1 am no longer willing to represent you in the IDA or the Pride cases. If you wish to go forward with the settlement of the Queen City cases, deal with Wespac yourself, and have MDME pay us $60,-000.00 on what we are owed (we are now owed approximately $130,000.00), please advise me of that fact immediately and authorize me to complete the settlement of the Queen City cases, (emphasis supplied)
If I do not hear from you by noon tomorrow, I will assume you are not interested in the proposition set forth above and will advise Queen City’s counsel the settlement is off.
Very truly yours,
T.H. Freeland, III
(See defendants’ exhibit 32.)
Blount, however, discharged the plaintiffs from representation on December 18, 1990, and advised that he did not accept the terms of the settlement and that as far as he was concerned the settlement was off. (See defendants’ exhibit 31.) Blount then commenced settlement negotiations with Bous-quet on his own behalf.
Shortly thereafter, the plaintiffs filed a motion to withdraw as counsel for Blount and Mississippi Durable in the lawsuits against Queen City and American Mobility. However, on January 8, 1991, the plaintiffs, again concerned about their fees and expenses, filed a motion to intervene in the District Court lawsuits and attached to the motion a proposed intervenor’s complaint.
*138In the interim, Blount on behalf of Mississippi Durable reached a settlement with Queen City and American Mobility. Although the terms of the agreement were distinctly similar to the terms of the settlement agreement that had been negotiated by the plaintiffs, Blount and/or Mississippi Durable was to receive the $120,000 cash proceeds. On January 18, 1991, Blount, Mississippi Durable, American Mobility, and Queen City filed a stipulation of dismissal of claims and counterclaims with prejudice and an agreement of settlement in the District Court. Blount testified unequivocally that he would not have settled the lawsuits against Queen City and American Mobility had he not received the $120,000 cash proceeds. The stipulation of dismissal stated that it was without prejudice to the plaintiffs’ motion to intervene and it was subject to the plaintiffs’ rights in the lawsuit.
On January 17, 1991, the date that Blount executed the stipulation of dismissal, he was given a check by Bousquet, dated January 16, 1991, in the sum of $120,000, payable to Mississippi Durable, and drawn on the account of Queen City. Blount testified that after the stipulation was filed with the District Court, he utilized the proceeds from the check to pay other bills that he owed and did not pay the plaintiffs anything.
Bousquet candidly testified that he was aware of the plaintiffs’ claims for attorneys fees and expenses as a result of the motion to intervene and the proposed intervenor’s complaint prior to releasing the $120,000 check payable to Mississippi Durable. As such, whether there was an earlier verbal notice from the plaintiffs to Bousquet is of no consequence. Notice was given to Bousquet before the disbursement, and, therefore, is imputed to Queen City and American Mobility. Queen City and American Mobility decided to finalize the settlement with Blount and Mississippi Durable despite the asserted claims of the plaintiffs. Their decision, as will be discussed hereinbelow, was not well reasoned.
The Medical Concepts lawsuit against American Mobility was settled by the plaintiffs in May, 1991.
The court would observe that the verbal assignment occurred between Blount and the plaintiffs while the settlement check was paid by Queen City to Mississippi Durable. Because of Blount’s ownership and control of Mississippi Durable, the court places little significance on the identity of these entities.
At the trial, Blount’s testimony appeared to be extremely “friendly” to the plaintiffs, who earlier received a nondischargeable judgment against Blount, as noted herein-above, in the sum of $120,000. This attitude can be easily explained because if the plaintiffs are successful in recovering anything from the Queen City group, Blount’s liability to the plaintiffs will be reduced commensurately.
VI.
CONCLUSIONS OF LAW REGARDING EFFECTIVENESS OF ASSIGNMENT AND SETTLEMENT
From the above recitation of facts, the court makes the following conclusions, to-wit:
A. The purported assignment of the settlement proceeds of the lawsuits against Queen City and American Mobility from Blount and/or Mississippi Durable to the plaintiffs is not effective as a matter of law for the following reasons:
1. There was no testimony that the oral assignment was irrevocable. It appears that even the plaintiffs realized that the assignment could be revoked inasmuch as T.H. Freeland, III, indicated that he was willing to negotiate the terms of the law firm’s claims for fees and expenses, at a time when the relationship between the plaintiffs’ and Blount was beginning to deteriorate.
2. The testimony was unequivocal that the assignment was conditioned on the plaintiffs’ continuing to represent Blount, Mississippi Durable, and Blount’s other companies, in a series of on-going legal matters. The plaintiffs did not continue to perform these services. The court judicially notices, as a result of adversary no. 91-2289 and adversary no 92-1148, which were litigated in this court, that the plaintiffs withdrew from the lawsuit filed by Mississippi Durable against *139Industrial Design Associates. Soon thereafter, a judgment was rendered against Blount in the District Court in favor of Industrial Design Associates on its counterclaim. Because the plaintiffs did not fully perform, the assignment fails for a lack of consideration. (Parenthetically, the court notes that there was no proof developed concerning this particular issue during the trial of the nondis-ehargeability adversary proceeding initiated by the plaintiffs against Blount, no. 91-2241.)
The plaintiffs cannot avail themselves of the defense that they were prevented from performing by Blount. Their actions, in attempting to force the settlement on Blount and Mississippi Durable for their own benefit, justified their termination.
B. The court is of the opinion that no binding settlement agreement had been reached before the plaintiffs were terminated on December 18, 1990. The correspondence between the plaintiffs and Bousquet did not constitute a final settlement. The details had to be resolved. The correspondence was only a settlement outline, and could not have been finalized because of the disputed issue concerning the scooters. Clearly, Blount had the right on behalf of himself and Mississippi Durable to approve the terms of any settlement. When he realized that he was likely to receive nothing, he repudiated the proposal negotiated by the plaintiffs.
The settlement agreement subsequently negotiated by Blount was materially different from that negotiated by the plaintiffs because the recipient of the proceeds became Mississippi Durable, not the plaintiffs. This was a totally different agreement even though the cash consideration paid by Queen City and American Mobility was the same.
Therefore, the court must conclude that there was no enforceable assignment of the settlement proceeds to the plaintiffs, nor was there an enforceable settlement agreement negotiated by the plaintiffs.
VII.
CONCLUSION OF LAW REGARDING ATTORNEYS’ CHARGING LIEN
The most difficult issue to resolve in this proceeding is whether the plaintiffs had a lien, of some description, against the settlement proceeds, securing their charges for legal services performed relative to the settlement. In this context, the court observes the existence of the following factors:
A. The plaintiffs had obviously been discharged by Blount prior to the finalization of the settlement agreement. Blount was simply not going to approve a settlement which provided him nothing. As such, the court finds that the settlement agreement negotiated by the plaintiffs was not capable of being consummated when Blount discharged the plaintiffs.
B. The plaintiffs did perform valuable legal services for Blount and Mississippi Durable in prosecuting their claims against Queen City and American Mobility. However, any interest in the settlement proceeds, ultimately realized because of these lawsuits, would be limited to the amount of work actually performed on these lawsuits, not to other unrelated matters. As such, the plaintiffs’ claims would not encompass legal services provided in the representation of Blount in such matters as the Industrial Design Associates lawsuit, the Henderson/Autocomp matter, the Alkanox/Comquest matter, etc.
C. Although the check had been tendered to Mississippi Durable by Queen City prior to the settlement documents being filed with the District Court, there was an agreed judgment subsequently filed and entered of record.
D. Since the plaintiffs were paid approximately $10,000 by Medical Concepts for its representation in the consolidated lawsuits, this sum perhaps should be offset against the amount of the plaintiffs’ claims to the settlement proceeds. This issue, however, will be addressed more fully hereinbelow.
E. Clearly, Queen City and American Mobility knew of the plaintiffs’ motion to intervene and the proposed intervenor’s complaint before tendering the $120,000 check to Mississippi Durable. They simply took the risk of ignoring the plaintiffs’ claims to settle the litigation with Blount and Mississippi Durable. The court recognizes that there was no order allowing the plaintiffs’ intervention *140in the District Court causes of action until after the payment was made. However, insofar as the issue of notice is concerned to Queen City and American Mobility, this factor has little significance.
F. The court is aware that the plaintiffs’ agreement to provide legal services for Blount and Mississippi Durable was not a contingent fee contract, and additionally, is aware that the plaintiffs never had actual possession of the settlement proceeds.
The court has found several cases which are instructive in resolving this extremely close question. See Stewart v. Flowers, 44 Miss. 513 (Miss.1871); Mosely v. Jamison, 71 Miss. 456, 14 So. 529 (Miss.1894); Halsell v. Turner, 84 Miss. 432, 36 So. 531 (Miss.1904); Chattanooga Sewer Pipe Works v. Dumler, 153 Miss. 276, 120 So. 450 (Miss.1929); Abernethy v. Savage, 163 Miss. 789, 141 So. 329 (Miss.1932); Webster v. Sweat, 65 F.2d 109 (5th Cir.1933); Collins v. Schneider, 187 Miss. 1, 192 So. 20 (Miss.1939); Pollard v. Joseph, 210 Miss. 828, 50 So.2d 546 (Miss.1951); Indianola Tractor Co., Inc. v. Tankesly, 337 So.2d 705 (Miss.1976); and Brothers in Christ, Inc. v. American Fidelity Fire Insurance, 680 F.Supp. 815 (S.D.Miss.1987).
Collins v. Schneider, supra, which cites several earlier decisions, provides the following insight:
In this state there is no statute fixing or regulating the lien of an attorney, or the enforcement thereof. In the case of Stewart v. Flowers, 44 Miss. 513, 7 Am.Rep. 707, it was held by this Court that an attorney’s lien on judgments and decrees obtained by them for fees on account of services rendered, belongs to the family of implied common law liens, and is firmly engrafted on the common law. The lien of attorneys on judgments and decrees obtained by them for fees, is based mainly on possession of such judgments or decrees, but partially also on the merit and value of their services. It exists upon the money, papers and writings of the client in the attorney’s hands, which is denominated a retaining lien. Such lien exists upon judgments and decrees, and the proceeds thereof, and is called a charging lien. (Emphasis supplied)
In the case of Halsell v. Turner, 84 Miss. 432, 36 So. 531 this Court said: “The rule in this state has always been that an attorney has a lien on the funds of his client for the services rendered in the proceeding by which the money was collected. Dunn v. Vannerson, 7 How. 579; Pope v. Armstrong, 3 Smedes & M. [214], 221; Cage v. Wilkinson, Id. [3 Smedes & M.] 223; Stewart v. Flowers, 44 Miss. [513], 518, 7 Am.Rep. 707. This lien applies so long as the attorney has the funds in his possession, and is paramount to any other claim.” The Court held the above rule just as applicable to implied contracts for the reasonable value of the services of the attorney as to express contracts therefor. It concluded the opinion in these words; “The attorney has a prime lien granted by law and growing out of the relation of the parties.”
In the case at bar the court below held that there was an implied contract between the Walls and Collins only that the latter should be paid the reasonable fair value of his services, which he adjudged to be $600. The value of the services as fixed by the lower court is approved by us.
We think, however, that Collins had a paramount lien on the money decree which he had obtained, and on the proceeds thereof in the hands of the judgment debt- or when the bill herein was filed, ready to be paid over by it, but which was not paid to Collins because the bank, Waldrup and Schneider refused to execute a release to the debtor, so that Collins could collect his fees for the collection, and the proceeds of that judgment are now under the control of the Court. The money decree had not passed from the possession of the attorney who procured it in the sense that the judgment, still in force and unsatisfied, is in the possession of the attorney whose services procured it to be rendered. (Emphasis supplied)
192 So. at 22-23.
The decision noted the distinction between a retaining lien and a charging hen, the latter of which is asserted herein. Notably, the court concluded that the hen of attorneys on *141judgments and decrees obtained by them was based on the value of the attorneys’ services.
Most significantly, however, was the language that the charging lien attached to the proceeds in the hands of the judgment debt- or. To the court this is a sensible result. It prevents a client from taking unfair advantage of his attorneys by discharging them after the lion’s share of the work has been performed, settling the case pro se, and then taking the proceeds with no regard for the attorneys’ efforts.
The foregoing factual scenario occurred in the case of United States v. Transocean Air Lines, Inc., 356 F.2d 702 (5th Cir.1966). Transocean hired counsel to represent it in certain litigation on a contingency fee basis. The court applying Florida law held that “a contract for the payment of attorneys’ fees out of the judgment recovered operates as an equitable assignment of the fund pro tanto and creates a hen.” Id. at p. 705. “Any settlement without the knowledge or notice to counsel and the payment of their fees is a fraud on them, whether so intended or not.” Id. Transocean had employed its first attorney to represent it and had agreed to compensate him from any judgment collected in the proceeding. A second attorney hired by Transocean negotiated the final settlement and the parties entered into a stipulation which recited that Transocean would be paid $75,000, and the ease would be dismissed with prejudice. Transocean and its second attorney failed to acknowledge the first attorney’s contingency fee agreement. The court did not permit the first attorney’s fee contract to be ignored when his efforts contributed appreciably to the ultimate settlement.
This court does not draw any distinction between the contingency fee contract in Transocean, and the obligation to pay the plaintiffs herein for the fees and expenses that they earned or incurred while representing Blount and Mississippi Durable in the lawsuits against Queen City and American Mobility. Of particular importance is the fact that Queen City and American Mobility were placed on notice in a timely fashion by the plaintiffs that their fees were unpaid.
Another decision, which did not allow the attorney’s charging lien to be impressed, is Brothers in Christ v. American Fidelity Fire Insurance, 680 F.Supp. 815 (S.D.Miss.1987). There the court recognized that actual possession of the settlement proceeds was not necessary, but that possession could be constructive. Id. at p. 818. The court denied the charging hen principally because no judgment or decree in favor of the client of any description had ever been rendered.
Finally, a ease which also did not require the attorneys, seeking to impose a charging hen, to have actual possession of the settlement proceeds is Indianola Tractor Co., Inc. v. Tankesly, 337 So.2d 705 (Miss.1976). The court directed the payment of attorney’s fees to the law firm whose efforts had enabled the settlement to be realized, the proceeds of which were still in the possession of the judgment debtors. Like the plaintiffs herein, the attorneys had filed a motion to intervene, asserting their competing claim to the settlement proceeds.
Because of the foregoing authorities, this court is of the opinion that the plaintiffs had legitimate claims in the settlement proceeds to the extent of the services that they rendered in generating said proceeds. The claims cannot extend to legal services rendered by the plaintiffs for Blount and/or Mississippi Durable in any of the other proceedings. The plaintiffs properly notified the defendants through the motion to intervene and the proposed intervenor’s complaint of their interest. The defendants ignored this notice, paid the settlement proceeds entirely to Blount and/or Mississippi Durable, and now must face the consequences of Blount’s failure to pay an appropriate amount which was due the plaintiffs. The payment by Queen City before the settlement and stipulation of dismissal were finalized in the District Court is no “escape hatch” or defense to the plaintiffs’ cause of action.
VIII.
CONCLUSION REGARDING INDIVIDUAL LIABILITY
The plaintiffs have sought the imposition of individual liability and damages *142against both Fesman and Bousquet. Other than the fact that Fesman owned the controlling interests in Queen City and American Mobility, there was absolutely no evidence introduced at the trial that revealed any wrong doing on Fesman’s part in any way whatsoever.
■ Bousquet, as the attorney representing Queen City and American Mobility, appeared to be only carrying out the directives of his clients. As to Bousquet, there also was no evidence of any fraud, conspiracy, or dishonesty. He did, however, act under a misapprehension of the law. Queen City and American Mobility may well have a cause of action against Bousquet if his legal advice to them was in error; however, this matter is not before this court. Although the court would not have ignored the plaintiffs’ notice, to extend individual liability against Bous-quet under the quantum of proof presented would be inequitable and contrary to law. As noted earlier, the court perceives that the clients, Queen City and American Mobility, made the decision to ignore the plaintiffs’ claims in an effort to resolve the matters with Blount and Mississippi Durable. They are the parties that must remain liable for the plaintiffs’ claims.
IX.
PUNITIVE DAMAGES
The court is of the opinion that the conduct of the defendants, Queen City and American Mobility, is not so egregious or wanton as to warrant an award of punitive damages or additional attorneys’ fees. Therefore, the plaintiffs’ claims for punitive damages and additional attorneys’ fees are not well taken and will be disallowed.
X.
ASSESSMENT OF DAMAGES
The precise amount of attorneys’ fees and expenses incurred by the plaintiffs in representing Blount and Mississippi Durable in the lawsuits against Queen City and American Mobility have not been presented to the court with a reasonable degree of certainty. From all indications, it appears that the fees also include services rendered in connection with the lawsuit filed by Medical Concepts against American Mobility. If this is the case, as mentioned earlier, the payment by Medical Concepts must be deducted from the total amount alleged to be due. The court will require the plaintiffs to reconstruct their fees so that an appropriate judgment can be rendered. The defendants will be afforded an opportunity to comment on the reasonableness of the fees before this matter is finalized. The court will thereafter award a judgment against Queen City and American Mobility for the amount that remains to be paid in connection with the legal services rendered by the plaintiffs that contributed to the settlement of the causes of action against Queen City and American Mobility.
As noted earlier, the plaintiffs obtained a nondischargeable judgment against Blount in the sum of $120,000 in adversary proceeding no. 91-2241. Should the plaintiffs collect against the judgment to be rendered herein against Queen City and Ameri-can Mobility, the nondischargeable judgment against Blount shall be reduced commensurately. Accordingly, Queen City and Ameri-can Mobility will be awarded a nondischargeable judgment against Blount for any amounts which are recovered by the plaintiffs against them. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491845/ | OPINION AND ORDER ON DEBTORS’ REMAINING OBJECTION TO THE CLAIM OF THE IRS
BARBARA J. SELLERS, Bankruptcy Judge.
This matter is before the Court on the objection of debtors Jon and Patricia Ford to the proof of claim filed by The United States of America, Internal Revenue Service (“IRS”). Specifically, the debtors maintain that IRS has not applied income tax refunds *174due debtors for 1986 and 1987 to reduce their tax liabilities. The IRS maintains that with respect to taxable years 1986 and 1987, such refunds are barred by the provisions of 26 U.S.C. § 6511.
Section 6511 of 26 U.S.C. imposes two limitations on refund claims. First, under 26 U.S.C. § 6511(a), a claim for a refund must be filed by the taxpayer within the later of three (3) years of the time the return relating to that refund is filed or two years after the tax is paid.
These debtors filed their returns for tax years 1986 and 1987 in 1992. At that time they claimed refunds for both years. Because a tax return which claims a refund is treated as a claim for refund for purposes of § 6511(a), regardless of when the return is filed, the debtor’s claims for refunds were timely. See Mills v. United States, 805 F.Supp. 448, 450 (E.D.Tex.1992). In essence the returns and the claims for refund were filed at the same time.
However, the second requirement, imposed by 26 U.S.C. § 6511(b)(2)(A), limits the amount of such refund to taxes paid within three years of the time the claim for refund is made. Therefore, to be payable, the refunds sought by the debtors must relate to taxes paid within three years before 1992, the date their claim for refund was filed. Beal v. United States, 535 F.Supp. 404, 406 (C.D.Ill.1981).
Without extensions, the debtors’ taxes for calendar year 1986 would be deemed paid by April 15, 1987 and their 1987 taxes would be deemed paid by April 15, 1988, the dates those respective tax returns were due. 26 U.S.C. § 6513(b)(2). There is no evidence of any extensions of the return due dates which would affect these dates. Therefore, the refunds first claimed in 1992 when the tax returns were filed, are not being claimed for taxes paid within three years preceding the claims for refund. This means that even though the debtors’ claims for refund or offset are timely under § 6511(a), there are no amounts susceptible to refund or offset against other unpaid taxes under § 6511(b).
The debtors have also asserted that § 108 of the Bankruptcy Code extends the period imposed by 26 U.S.C. § 6511(b)(2)(A). Before any such extension would apply, however, the debtors’ rights to refunds must not have expired prior to their bankruptcy filing. Because their last rights to refund or offset for 1986 and 1987 taxes expired on April 15, 1991 and their bankruptcy was not filed until July 11,1991, all such rights had expired pre-petition. Accordingly § 108 of the Bankruptcy Code does not extend any time periods for the debtors to assert claims for refund or offset.
Finally, equitable recoupment, although argued by the debtors, does not apply. That doctrine is used where the IRS has taken inconsistent positions with regard to the same taxes. See U.S. v. Dalm, 494 U.S. 596, 110 S.Ct. 1361, 108 L.Ed.2d 548 (1990). There has been no such inconsistent position advanced here.
Based on the foregoing, the Court overrules the debtors’ objection to the proof of claim of the IRS as it relates to offsets of refunds claimed for tax years 1986 and 1987 against other outstanding liabilities.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491846/ | MEMORANDUM OPINION AND ORDER ON OBJECTION TO CLAIM OF BENCH CRAFT FURNITURE
RICHARD S. SCHMIDT, Bankruptcy Judge.
On this day came on for consideration the Debtor’s First Amended Objection to the Claim of Bench Craft Furniture, filed by the Debtor, Dawn Husain (the “Debtor”). The Court, having heard the evidence and arguments of counsel, and having reviewed the pleadings and briefs on file herein, finds that the objection should be overruled.
FACTS
Bench Craft Furniture (“Bench Craft”) is a trade creditor of the Debtor. Bench Craft sued the Debtor pre-petition in state court, on a sworn account. Debtor was represented by counsel, who answered on her behalf with a general denial. Bench Craft subsequently obtained summary judgment against the Debtor on September 23, 1991, in the amount of $10,708.48, plus attorneys fees in the amount of $3,570.00, post-judgment interest at the rate of 10% per annum, and court costs in an unspecified amount. Bench Craft did not file an abstract of judgment. Debtor filed for relief under Chapter 11 of Title 11 on February 21, 1992. Bench Craft filed a Proof of Claim in the amount of $14,998.02, to which Debtor objected.
DISCUSSION
The issue before the Court is whether the Bankruptcy Court should alter or amend a claim based on a final, non-appealable state court judgment. Debtor argues that the judgment may be attacked as a fraudulent judgment because Bench Craft failed properly to credit Debtor’s account for certain items. Debtor asserts that the evidence presented to the state court judge was false and, therefore, the judgment was obtained through fraud on the court. Debtor further argues that because the bankruptcy was filed *593less than six months after the judgment was entered, the state law doctrine of an equitable bill of review is available to her.
Under Texas law, “[a] bill of review is an independent equitable action brought by a party to a former action seeking to set aside a judgment, which is no longer appeal-able or subject to motion for new trial.” Baker v. Goldsmith, 582 S.W.2d 404, 406 (Tex.1979). A litigant seeking to invoke a bill of review “must allege and prove: (1) a meritorious defense to the cause of action alleged to support the judgment, (2) which he was prevented from making by fraud, accident or wrongful act of the opposite party, (3) unmixed with any fault or negligence of his own.” Alexander v. Hagedorn, 148 Tex. 565, 226 S.W.2d 996, 998 (1950). (see also Beck v. Beck, 771 S.W.2d 141 (Tex.1989), “It has long been the rule that a party seeking to invoke a bill of review to set aside a final judgment must prove three elements: (1) a meritorious defense to the cause of action alleged to support the judgment; (2) an excuse justifying the failure to make that defense which is based on the fraud, accident or wrongful act of the opposing party; and (3) an excuse unmixed with the fault or negligence of the petitioner.” [footnote omitted]). To be a successful bill of review litigant, the Debtor would have to prove that there was no fault or negligence on her part in failing to assert her alleged meritorious defenses. Jarrett v. Northcutt, 592 S.W.2d 930 (Tex.1979).
Here, Debtor’s claim of fraud is based on Bench Craft’s alleged failure to advise the trial court of certain credits and its alleged miscalculation of the amount due. While these allegations are certainly meritorious defenses to a suit on a sworn account, the Debtor failed to raise them through her own fault or negligence, not because of any fraud or wrongful act of Bench Craft. The Texas Supreme Court has held that even perjury is not grounds for setting aside a judgment in a bill of review action. Kelly v. Wright, 144 Tex. 114, 188 S.W.2d 983, 985 (1945). The type of fraud necessary to set aside a judgment in a bill of review action is extrinsic fraud. Tice v. City of Pasadena, 767 S.W.2d 700 (Tex.1989). “Extrinsic fraud” is defined as “fraud which denied a party the opportunity to fully litigate upon the trial all the rights or defenses he was entitled to assert.” id. at 702. “Intrinsic fraud”, on the other hand, “relates to the merits of the issues which were presented and presumably were or should have been settled in the former action.” id. For example, negligent failure to file an answer prevents a party from bill of review relief. Lemons v. EMW Mfg. Co., 747 S.W.2d 372 (Tex.1988).
Debtor herein could have responded to Bench Craft’s motion for summary judgment with controverting affidavits and avoided the summary judgment or assured that the judgment contained the amounts which Debtor alleges were correct. Tex.R.Civ.P. 166a(c). No evidence was presented to prove that Debtor’s failure to respond was caused by any extrinsic fraud by Bench Craft. Debtor, for whatever reason, or perhaps due to negligence, faded to respond and summary judgment was rendered against her. Accordingly, under State law, the Debtor is not entitled to relief from the judgment.
Debtor did not request relief from the judgment under Rule 9024, Federal Rules of Bankruptcy Procedure, which makes Rule 60, F.R.Civ.P. applicable. The Court, sua sponte, has reviewed Rule 60(b) and finds that the facts of this case also do not justify relief under federal law.
This Court does, however, have the authority to review a final state court judgment under the proper set of facts. Browning v. Navarro, 887 F.2d 553 (5th Cir.1989). In Browning v. Navarro the Fifth Circuit Court of Appeals held as follows:
Bankruptcy courts are not prohibited by the anti-injunction act from entertaining a motion to vacate a fraudulent state court judgment. 11 U.S.C. § 105 is “an authorization, as required under 28 U.S.C. § 2283, to stay the action of a state court.”
Section 105, moreover, authorizes a bankruptcy court to void a state court judgment on the ground that it is fraudulent. It empowers a bankruptcy court to “fashion such orders as are necessary to further the purposes of the substantive *594provisions of the Bankruptcy Code.” Section 105, however, does not “authorize bankruptcy courts to create substantive rights that are otherwise unavailable under applicable law or constitute a roving commission to do equity.”
887 F.2d at 559 (citations omitted) (emphasis added).
The Court finds that in this ease the Debtor has failed to prove that she is entitled to relief from the judgment rendered against her under either state law or federal law.
Finally, the Debtor argues that the attorneys fees awarded by the state court judge should be reduced or disallowed entirely, citing In re Fulton, 148 B.R. 838 (Bankr.S.D.Tex.1992). While Fulton supports the proposition that a bankruptcy court may alter or amend a final state court judgment, it is not on point because it involves the § 502(b)(6) cap on lease damages. The case before the Court does not involve a lease. Moreover, here the attorneys fees were incurred and awarded pre-petition and this court is not prepared to, and can find no authority for, extending Fulton to the facts of this ease. The four conditions for a judgment to bar a subsequent action have been met in this case: (1) the parties are identical; (2) the prior judgment was rendered by a court of competent jurisdiction; (3) there was a final judgment on the merits; and (4) the same causes of action are involved. Browning v. Navarro, supra, at 558. The Debtor could have appealed the judgment, or filed her bankruptcy petition before the judgment was entered or, as discussed above, she could have filed a controverting affidavit to challenge the amount of attorney’s fees requested by Bench Craft. She did none of the above and the state court judgment is now res judicata. The Fifth Circuit Court of Appeals in Browning v. Navarro, supra at 558, cited the United States Supreme Court’s holding that res judicata:
constitutes an absolute bar to a subsequent action. It is a finality as to the claim or demand in controversy, concluding parties and those in privity with them, not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose.
Cromwell v. County of Sac, 94 U.S. 351, 352, 24 L.Ed. 195, 197 (1877).
CONCLUSION
The facts in this case do not merit review of or relief from the state court judgment. The principle of comity suggests that a judgment obtained under ordinary circumstances, without any extrinsic fraud, nearly six months before the bankruptcy was filed, should not be vacated or amended by the bankruptcy court.
It is therefore ORDERED that the Debt- or’s First Amended Objection to the Claim of Bench Craft Furniture is hereby OVERRULED and Bench Craft’s claim is allowed as an unsecured claim in the amount of $14,-998.02. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491847/ | MEMORANDUM OF DECISION
JIM D. PAPPAS, Chief Judge.
Debtor Gary W. Faneher has filed for Chapter 7 relief. Debtor, in the past, has been employed as a bar and restaurant manager, although he is not currently employed in that profession. In his amended schedules he lists stock in a corporation known as MCGB, Inc. with a value of $9,000. Debtor claims $1,000.00 of the value of the stock attributable to a Karaoke machine as exempt pursuant to Idaho Code § 11-605(3) as a “tool of trade.” In particular, Debtor believes the Karaoke machine,1 which is owned by the corporation, is necessary for his future employment as a bar and restaurant manager, his chosen profession. Trustee has objected to the claimed exemption on the ground that the Karaoke machine cannot be exempt as a “tool of trade,” contending it is not necessary in Debtor’s trade or business.
Idaho has “opted-out” of the federal bankruptcy exemptions, and its residents are limited to the exemptions allowed under state law. 11 U.S.C. § 522(b); Idaho Code § 11-609; In re Millsap, 91 I.B.C.R. 5, 6. Idaho Code § 11-605(3) provides:
An individual is entitled to exemption, not exceeding one thousand dollars ($1,000) in aggregate value, of implements, professional books, and tools of the trade; ...
While there are no useful decisions from the state courts of Idaho in interpreting the “tools of trade” exemption statute, this Court has had several opportunities to construe the statute. Several rules of construction emerge from a review of the case law. First of all, Idaho’s “tools of trade” exemp.tion statutes are to be liberally construed in favor of the debtor. In re Moon, 98 I.B.C.R. 26, 28. Next, the item claimed as exempt must be actually utilized by the debtor in earning a living. In re Liebe, 92 I.B.C.R. 145, 146-147. Finally, in order to qualify as an implement of tool of trade, the item in question must be necessary to debtor to continue his trade or profession. In re Ackerman, 91 I.B.C.R. 26, 27-28; In re Moon, 89 I.B.C.R. at 30.
Even liberally construing the exemption statutes in favor of Debtor, the Court cannot agree that the Karaoke machine is properly exempt as a “tool of trade.” In short, Debtor has failed to adequately demonstrate that this music machine satisfies the “necessity” requirement developed in the Court’s earlier decisions. In Moon the Court held that the item claimed exempt by the debtor must be “necessary to enable him to pursue and make a living at his trade.” Id. at 28. In In re Johnson, 87 I.B.C.R. 222, 223, it was held that a tool of trade “exemption would be granted to a debtor for the *714purpose of protecting and continuing the debtor’s trade.” Obviously, this standard adopted by the Court mandates a fact specific inquiry in each case. However, a fixed strict rule is simply not feasible in the context of determining what is a “necessary” tool of trade.
Employing these standards, the Court finds the Karaoke machine may not be exempted as a “tool of trade.” Debtor may still pursue his profession without the use of the Karaoke machine as it is not essential in protecting and continuing Debtor’s living as a bar or restaurant manager. There is no evidence in the record that the typical bar or restaurant manager needs a Karaoke machine to carry out his or her responsibilities, or that a person is expected to own such a device in order to obtain work in the field.
The Court would liken a Karaoke machine to bar stools, tables or glasses, (or perhaps more, appropriately, to pool tables, dart boards or video games) all of which would more likely be supplied by the establishment rather than the manager. While the Court appreciates the fact that a person seeking employment in the bar and restaurant field might stand a better chance of being employed if he or she came equipped with a Karaoke machine, owning a machine is not necessary for Debtor to seek and obtain such employment.
Accordingly, it is HEREBY ORDERED That Trustee’s Objection to Claim of Exemption is SUSTAINED and Debtor’s claim of exemption in the Karaoke machine hereby DISALLOWED.
. While the Court admittedly has no personal experience in such matters, it understands a Karaoke machine to be a "sound system with a prerecorded soundtrack of popular music from which the vocal part has been erased so as to allow an individual to sing along with it, often recording his or her performance on tape or video.” The Oxford Dictionary of New Words 172 (Oxford Univ. Press 1991). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491848/ | ORDER GRANTING MOTION TO REALIGN PARTIES
LEIF M. CLARK, Bankruptcy Judge.
CAME ON for consideration the foregoing matter. Plaintiff seeks to realign the parties in this litigation, casting the United States as the party plaintiff. Defendant United States objects.
As a general rule, trial courts enjoy the discretion to realign parties as necessary, according to their actual interests in the litigation. United States v. Fidelity & Guaranty Co. v. Thomas Solvent Co., 955 F.2d 1085, 1089 (6th Cir.1992); Zum Industries, Inc. v. Acton Construction Co., 847 F.2d 234, 236 (5th. Cir.1988). The difficulty of proving the non-existence of facts, or of establishing facts the evidence of which is likely to be more accessible to the defendant are factors which courts have considered in the allocation of proof issues arising in bankruptcy matters. See, e.g., In re Haggerty, 165 F.2d 977, 979 (2d Cir.1948); Federal Provision Co. v. Ershowsky, 94 F.2d 574 (2d Cir.1938).
In the Fifth Circuit, the rule regarding the burden of proof and of going forward with the evidence in nondischargeability actions is clear: “As with all such claims, the party seeking an exception to discharge bears the burden of proof as to nondis-chargeability.” Hartford Casualty Insurance Company, v. Fields (Matter of Fields), 926 F.2d 501 (5th Cir.1991); see also Matter of Benich, 811 F.2d 943, 945 (5th Cir.1987). Thus, even though the debtor has initiated this action, essentially seeking essentially declaratory relief, the nature of the determination is such that the creditor is the party with the true burden of proof and with the obligation to go forward with evidence. As such, it is the creditor who is more properly the plaintiff in dischargeability actions — even though it was the debtor who initiated this action and selected the forum. See In re Domme, Jr., 163 B.R. 363, 366 (D.Kan.1994) (debtor filed complaint under § 523(a)(1), but court held that IRS still had the burden of proof); but see In re Landbank Equity Corp., 973 F.2d 265, 269-71 (4th Cir.1992) (burden of proof in dispute over tax liability should be controlled by applicable federal tax law).
A dischargeability complaint is, in a very real sense, nothing more than a specialized form of declaratory judgment relief.1 The *39issue presented, in all cases, is whether the general discharge conferred by section 727(a) will or will not effectively bar further collection efforts by a given creditor — in other words, whether “discharge in bankruptcy” will be an effective affirmative defense available to the debtor if the debtor is sued elsewhere. Suppose a lawsuit were initiated in a non-bankruptcy forum on a given, potentially non-dischargeable obligation. The debtor in such a suit would plead discharge' in bankruptcy as an affirmative defense. To prove that defense would require nothing more than a presentation of the discharge order. The debtor would have no obligation to further negate all the potential grounds for nondischargeability. Instead, the burden of proving why. the debtor’s affirmative defense is no good would fall on the creditor, and that burden would only be sustained upon a showing that one of the exceptions to discharge applies to the creditor’s claim. In re Danns, 558 F.2d 114, 116 (2d Cir.1977). There is no reason why the result should be any different simply because the question is raised initially by the debtor in this forum, by way of what amounts to a request for declaratory judgment. See generally In re Burgess, 955 F.2d 134, 136 (1st Cir.1992); In re Foreman, 906 F.2d 123, 126 (5th Cir.1990); In re Belfry, 862 F.2d 661, 662 (8th Cir.1988); In re Black, 787 F.2d 503, 505 (10th Cir.1986).2
Section 523(a)(1) excludes from the effect of a discharge, inter alia, any tax with respect to which it is found that the debtor made a fraudulent return or wilfully attempted in any manner to evade or defeat the tax. 11 U.S.C. § 523(a)(1)(C). That is precisely the contention made by the United States in its answer to this complaint. Clearly, it is up to the United States to prove its contention, and not the responsibility of the debtor to disprove it.3 Thus, it is appropriate to realign the parties such that the United States is the party plaintiff and the debtor the party defendant. The realignment will more properly reflect the allocation of the burden of proof and the burden of going forward with the evidence.
The motion is granted. However, to minimize confusion in docketing for the clerk of the court, pleadings shall be captioned as follows: Imel, plaintiff (realigned as defendant) v. United States, Internal Revenue Service, defendant (realigned as plaintiff).
So ORDERED.
. The Federal Rules of Bankruptcy Procedure denominate pleadings under section 523 as "complaint[s] to obtain a determination of the dischargeability of [a] debt.” Fed.R.Bankr.P. 4007(a). Neither the statute nor the rule speaks to who is the proper party to initiate such an action. The complaint to obtain a determination that a given debt is not subject to the general discharge seeks, in effect, a ruling on the efficacy of the debtor’s defense, “discharge in bankruptcy,” before the defense is actually urged, and in that respect closely resembles the sorts of actions available in federal district court under the Declaratory Judgment Act. See 28 U.S.C. § 2201(a). With regard to actions brought under that Act, Wright & Miller comment that
At times, ... there may be an actual dispute about the rights and obligations of the parties, and yet the controversy may not have ripened to a point at which an affirmative remedy is needed.... In [such] situations the declaratory judgment remedy provides a useful solution. It gives a means by which rights and obligations may be adjudicated in cases involving an actual controversy that has not reached the stage at which either party may seek a coercive remedy and in cases in which a party who could sue for coercive relief has not yet done so.... The remedy made available ... is intended to minimize the danger of avoidable loss and the unnecessary accrual of damages and to afford one threatened with liability an *39early adjudication without waiting until his adversary should see fit to begin an action after the damage has accrued. It relieves potential defendants "from the Damoclean threat of impending litigation which a harassing adversary might brandish, while initiating suit at leisure — or never.” [citing cases] It permits actual controversies to be settled before they ripen into violations of law or a breach of contractual duty and it helps avoid multiplicity of actions by affording an adequate, expedient, and inexpensive means for declaring in one action the rights and obligations of the litigants.
C. Wright, A. Miller & M. Kane, 10A Federal Practice and Procedure, § 2751, pp. 568-70 (West 1983). The comments apply with remarkable facility to actions seeking a determination of dis-chargeability in bankruptcy, confirming the essential nature of such actions as declaratory. And declaratory judgments may be obtained by “any interested party.” 28 U.S.C. § 2201; see also Wright & Miller, supra, § 2768, at p. 747. While there are no cases that this court could find that specifically hold that this rule of standing applies as well in dischargeability actions, the similarity of such actions to declaratory judgment actions, coupled with the lack of any indication one way or the other in section 523, easily supports the sensible conclusion that debtors as well as creditors enjoy equal standing to bring dischargeability actions.
. It is worth noting here that the issue of who bears the burden of proof comes up in declaratory judgment actions as well, because any party in interest may initiate such an action, even if the party who does so would not bear the burden of proof were the dispute to mature into actual litigation. See Wright & Miller, supra, at § 2770, p. 761. The case law construing the Declaratory Judgment Act seems generally to place at least the burden of going forward on the party who initiates the action. Once that burden is taken up, however, the party will have ipso facto also have assumed the risk of nonpersuasion. Id., at p. 763, and cases cited therein at note 6. That reality justifies the plaintiff in this case having affirmatively sought a realignment of the parties.
. The court understands that the rule is different in the non-bankruptcy context. See Jones v. C.I.R., 903 F.2d 1301, 1303 (10th Cir.1990); see also Welch v. Helvering, 290 U.S. 111, 115, 54 S.Ct. 8, 9, 78 L.Ed. 212 (1933). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491850/ | MEMORANDUM GRANTING THE DEBTOR’S OBJECTION TO THE INTERNAL REVENUE SERVICE’S PROOF OF CLAIM
GEORGE C. PAINE, II, Chief Judge.
I. INTRODUCTION
The issue before the court is whether a closely held corporation’s monetary advances to its sole shareholder were taxable dividends or non-taxable loans. For the reasons stated *44in this memorandum, the court finds that the advances at issue were non-taxable loans. The following constitute findings of fact and conclusions of law. Fed.R.Bankr.Proc. 7052.
II. PROCEDURAL BACKGROUND:
The debtor filed for Chapter 11 bankruptcy on July 21, 1992. The IRS filed an amended proof of claim seeking income taxes and interest of $1,903,522.60 plus statutory additions for the years 1990 and 1991. On May 28,1993, the debtor filed an objection to the IRS’s proof of claim. Trial was held on the debtor’s objection on May 2, 1994.
III. FINDINGS OF FACT:
During the years 1988 through 1991, the debtor was the sole shareholder of Fischer Educational System, Inc. (“FES”). FES, in turn, owned and operated several separately incorporated technical and vocational schools located in the United States. Examples of these schools were Bliss College, Inc., Denver Automotive and Diesel College, Inc., Draughon College, Inc., Fischer Technical Institute, Inc., and Spencer College, Inc.
Between 1988 and 1991, FES experienced significant growth and expansion. Pursuant to loan covenants with FES’s primary lender, First American National Bank, FES could not pay dividends to the debtor. Nevertheless, the debtor received the following monetary advances from FES during this period:
Year Amount
1988 $2,262,000
1989 $1,158,000
1990 $1,395,875
1991 $ 149,708
Total: $4,965,583
At the time of these advances, the debtor’s net worth as reflected in his personal financial statements fluctuated between a high of $36 million and a low of $17 million.
The debtor used some of these advances to purchase and develop real estate in Oklahoma City, Denver, and Virginia Beach for the construction of additional vocational schools. Once construction was completed, the debtor envisioned either selling the projects or obtaining permanent financing from traditional financial institutions to pay off FES advances.
Other FES advances were used to finance real estate projects owned by the debtor as personal investments. These were the FES office building known as Airport Plaza or Airport Executive Plaza on Murfreesboro Road in Nashville, the Four Corners Boat Dock and Marina at Percy Priest Lake near Nashville, and the Williamson Square Shopping Center project in Franklin, Tennessee.
All advances during this period were evidenced by three promissory notes executed by the debtor and payable to FES. The first note, dated January 1, 1989, was in the principal amount of $2,713,978 and allowed the debtor to borrow up to $3,500,000. The note obligated the debtor to pay the outstanding principal balance to FES on or before January 1, 1990. Interest at 10% per annum was payable twice during the period of the loan on August 31 and on December 31, 1989.
The balance on this note was renewed by a second promissory note dated January 1, 1990 in the principal amount of $3,721,577.59. It allowed the debtor to borrow up to $4,850,-000 and required payment of principal and interest under the same terms as the first note. However, this note contained the additional provision of allowing FES to make demand from the debtor for payment in full of all principal and interest should the debtor fail to make payment within ten days of receiving a written demand from FES.
The balance of the second note was renewed by a third promissory note on December 30, 1990 in the principal amount of $4,907,627.47. It allowed the debtor to borrow up to $5,200,000 from FES. Repayment terms were similar to those of the second note.
FES’s accountant and controller from 1983 to 1993, Ms. Connie Hipp, testified that all advances made to the debtor were contemporaneously recorded in FES’s general ledger as a note receivable from the debtor. Advances were categorized according to project and. recorded on worksheets entitled *45“FES/Note Receivable — J. Fiseher/2270-00.” The number “2270-00” was the general ledger reference to notes receivable from the debtor. The “2270-00” worksheets recorded advances as credits and payments on advances as debits.
Advances were paid to the debtor with corporate checks. The check stubs recording the advances showed “2270-00,” i.e. notes receivable from the debtor, as the “Aect. No.” of the distribution.
In addition to FES’s books, Ms. Hipp maintained a separate schedule of the advances made to the debtor called “Analysis of Stockholder Loans.” This document categorized advances according to project and showed total interest paid on advances from previous years. Ms.. Hipp provided a copy of this schedule and the “2270-00” worksheets to the debtor for his records.
The debtor maintained separate, personal records of these advances in his own handwriting on a document captioned “FES loans.” Occasionally, discrepancies would arise between the debtor’s records and those of FES as to the total balance of FES advances. Ms. Hipp and the debtor resolved such discrepancies by consulting the FES records maintained by Ms. Hipp.
The audited financial statements of FES, prepared by Touche Ross & Co. and Deloitte and Touche, showed FES advances as loans to the debtor. These firms determined the advances were loans after independently examining the books and records of FES.
The debtor paid accrued interest on the principal balance of FES advances on a yearly basis. At the end of each year, Ms. Hipp totalled all advances and computed annual interest due. The debtor paid the interest with taxable salary advances from FES.
The debtor also made periodic principal payments on advances. The “2270-00” worksheets showed numerous debits representing principal payments on FES advances. For example, on the advances made to purchase the “ATI Building” in Virginia Beach, the debtor made monthly principal payments of $1,500.00 from rents collected on the property.
Mr. Kenneth Harb, an executive vice president and director of FES, testified that the debtor treated all FES advances as loans and fully intended to repay them. Prior to 1988, the debtor fully repaid several advances from FES. These advances were repaid primarily out of profits from the growth of FES and the debtor’s other investments during this earlier period.
However, between 1988 and 1991, the debtor was unable to repay all of the substantial advances received during this period. As Mr. Harb testified, this was not because the debtor never intended to repay the advances. On the contrary, the debtor vigorously sought to repay FES advances by attempting to: (1) obtain permanent, “take out” financing on the Oklahoma project to repay approximately $1.3 million of FES advances, (2) sell the Williamson Square Shopping Center to repay advances made for its purchase, (3) sell other profitable business ventures, and (4) obtain a personal, consolidation loan from one or more financial institutions and/or individuals to pay off all advances from FES.
Unfortunately, the economic downturn in the real estate market and corresponding changes in the vocational school industry and the student loan program rendered these options economically impossible. As Mr. Harb stated, FES advances would have been repaid had the debtor’s projects and investments during this period been as successful as those prior to 1988.
IV. CONCLUSIONS OF LAW:
The question facing the court is whether under these facts FES advances to the debt- or between 1988 and 1991 were dividends or loans. Dividends are defined as taxable, gross income under I.R.C. § 61(a)(7). Loans, on the other hand, are not considered gross income under I.R.C. § 61(a) and thus are nontaxable. Not surprisingly, the IRS contended that FES’s advances were taxable dividends, and the debtor argued they were nontaxable loans.
A “dividend” is defined in I.R.C. § 316(a) as “any distribution of property made by a corporation to its shareholders ... out of its earnings and profits.” The Internal Revenue *46Code, however, does not define a “loan,” nor does it expressly distinguish between a “dividend” and a “loan”. Accordingly, the court must rely on the case law applicable in this circuit to determine whether the advances at issue were dividends or loans.
The Sixth Circuit standard for determining whether a closely held corporation’s monetary advances to its sole shareholder should be treated for tax purposes as dividends or loans originated in Berthold v. Commissioner, 404 F.2d 119 (6th Cir.1968). The Bert-hold court held that such advances were nontaxable loans if the parties entered into the transaction with the definite intention that the money advanced be repaid. Id. at 122. The plaintiff, in this case the debtor, has the burden of proof on this issue. Id.
The Berthold court noted that testimony from the taxpayer that corporate advances were intended to be repaid as loans, while a relevant factor, should be viewed with suspicion. Id. Obviously, such claims are in the taxpayer’s best interest. Id. Courts, therefore, should focus on the objective manifestations of the transaction rather than the taxpayer’s self-serving declarations of its nature. Id. To this end, the Berthold court identified several objective criteria for consideration:
(1) whether the corporation making the advances was closely held and controlled;
(2) whether the dividends paid by the corporation were nominal;
(3) whether notes were given for the advances allowing the corporation to enforce payment;
(4) whether security or collateral was required on the loan;
(5) whether there were repayments or efforts to force repayment;
(6) whether there was a set maturity date or time for repayment; and
(7) whether interest was paid or accrued on the corporate records.
Id. at 121. Jaques v. Commissioner, 935 F.2d 104, 107 (6th Cir.1991); Dietrich v. Commissioner, 881 F.2d 336, 340 (6th Cir.1989); Livemois Trust v. Commissioner, 433 F.2d 879, 882 (6th Cir.1970). See also Alterman Foods, Inc. v. United States, 505 F.2d 873, 876-77 n. 6, 7 (5th Cir.1974); Alterman Foods, Inc. v. United States, 222 Ct.Cl. 218, 611 F.2d 866, 869 (Ct.Cl.1979). The Fifth Circuit in Alterman Foods, 505 F.2d at 877 n. 7 (cited favorably by the Sixth Circuit in Jaques, 935 F.2d at 107), emphasized some additional objective factors:
(8) whether a ceiling existed to limit the amount of corporate advances;
(9) whether the shareholder was in a position to repay the advances when made; and
(10) whether there was any indication the shareholder attempted to repay the advances.
Several of the above factors weigh in favor of the IRS. The corporation was closely held and controlled by the debtor as sole shareholder. Loan covenants with First American prevented FES from paying dividends to the debtor. FES took no security or collateral on the advances. The court thus regards the nature of FES advances with some suspicion. See Berthold, 404 F.2d at 122. Nevertheless, after weighing the objective factors in the IRS’s favor against those in the debtor’s favor, the court concludes that FES advances were made with the intention that they be repaid.
First, FES and the debtor executed promissory notes obligating the debtor to repay all FES advances. The three promissory notes executed between 1988 and 1991 were valid and enforceable against the debtor. As a sophisticated business person, the debtor must have known that these notes could have been enforced against him by a receiver or bankruptcy trustee appointed to operate FES.
Second, the debtor made repayments on FES advances. The debtor made periodic principal payments on advances received between 1988 and 1991, as shown in the “2270-00” worksheets.
Third, the three promissory notes each specified maturity dates and times for repayment. Each note matured and was payable in full after one year. At maturity, the notes were renewed for the same period of time and under the same repayment terms.
*47Fourth, the debtor paid annual interest that accrued on all advances under the notes. These amounts were calculated by Ms. Hipp and payments were recorded in FES’s books.
Fifth, each promissory note put a ceiling on advances to the debtor. Moreover, as Ms. Hipp and Mr. Harb testified, around 1991 First American imposed new loan covenants on FES limiting advances to the debtor.
Sixth, the debtor was in a position to repay the advances when made. The debtor’s personal financial statements prepared during the periods at issue showed a substantial net worth. Based on these financial statements, the debtor appeared to have the capacity to repay the advances when made.
Seventh, the evidence strongly indicated that the debtor attempted to repay all advances. The debtor fully repaid FES advances made prior to 1988. Although the debtor could not pay off advances made between 1988 and 1991, he undertook vigorous efforts to do so. He tried to sell or obtain permanent, “take out” financing on several projects to generate capital to repay advances. He also met with several bankers and individual lenders to obtain a consolidation loan to pay off advances.
Finally, other relevant facts exist suggesting that advances were intended as loans. All general ledger entries and internal corporate schedules reflected the advances as notes receivable from the debtor. Disputes over amounts owed by the debtor were resolved by consulting the corporate records. FES’s audited financial statements, based on independent assessments by two accounting firms, all showed FES advances as loans.
For the reasons stated, the court holds that the debtor has met the required burden of proof. The court concludes that FES and the debtor intended that all monies advanced be repaid. The court, therefore, finds that FES’s advances to the debtor were nontaxable loans instead of taxable dividends. Accordingly, the court grants the debtor’s objection to the proof of claim filed by the IRS.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491852/ | MEMORANDUM OPINION AND ORDER GRANTING FIRST TENNESSEE BANK NATIONAL ASSOCIATION’S MOTION FOR SUMMARY JUDGMENT
BERNICE BOUIE DONALD, Bankruptcy Judge.
This core proceeding1 came on for hearing on motion of First Tennessee Bank National Association (“First Tennessee”) seeking summary judgment on its action under 11 U.S.C. § 523(a)(2)(B) against Defendant Lynn Andrew Warner, Jr. (“Defendant”). As basis for its motion, First Tennessee avers that relative to certain loans which defendant obtained from First Tennessee there is no genuine issue of material fact as to the elements of its 11 U.S.C. § 523(a)(2)(B) action. First Tennessee contends that Defendant obtained extensions of credit from First Tennessee by:
(i) use of a statement in writing that was materially false;
(ii) respecting Defendant’s financial condition;
(iii) on which First Tennessee reasonably relied; and
(iv) that Defendant caused to be made or published with intent to deceive.
Further, First Tennessee argues that because no genuine issue of material fact exists, First Tennessee is entitled to judgment as a matter of law.
First Tennessee relies upon its Memorandum of Law (and exhibits); the affidavit of John Gauldin (and exhibits); the transcript of the May 13, 1992 examination of Lynn A. Warner, Jr., M.D., pursuant to F.R.B.P. 2004; Plaintiffs First Set of Requests for Admissions (propounded on Defendant’s counsel September 1, 1993); the entire record in this adversary proceeding; and the entire record in the main case file, all of which the court properly considered. See F.R.B.P. 7056(e).
The Defendant contends that the issue is not ripe for summary judgment because there are material factual issues which require an evidentiary hearing for determination, such as whether First Tennessee reasonably relied on Defendant’s financial statement.
The narrow issue for judicial determination is whether any genuine dispute exists as to any material fact, such that summary judgment would be improper.
*146
Summary of Relevant Facts
In October 1987, Defendant sought a loan from First Tennessee for Investors Business Network, Inc. (“I.B.N.”). First Tennessee and Defendant had a prior business relationship wherein Defendant borrowed and repaid other loans. First Tennessee allegedly made the loan based on Defendant’s personal guarantee that the loan would be repaid, and based upon financial information showing Defendant to be an “extremely safe credit risk.” Defendant provided First Tennessee with a December 1986 financial statement which showed Defendant with a net worth of $1,596,400. First Tennessee was making a loan of $50,000. (See Affidavit of John Gaul-din). Subsequent to the October 1987 loan, Defendant obtained three other loans on behalf of or in connection with I.B.N.
Over a four-year period, Defendant serviced the loans and First Tennessee extended the maturity dates on the respective loans. As a condition of the loan extensions, Defendant submitted new financial statements. (See Affidavit of John Gauldin).
In its motion, First Tennessee states that in the mid-1980’s, Defendant’s brother experienced financial difficulties and had trouble making payments on a loan (the “farm loan”) obtained from First Tennessee. On February 20, 1985, Defendant agreed to become a maker on the farm loan, and obligated himself for the entire balance owed. Over the next six years, the farm loan was sufficiently serviced, and First Tennessee extended the maturity date several times. Plaintiff further contends that as with the I.B.N. indebtedness, First Tennessee based its decisions to extend maturity dates on the farm loan on Defendant’s net worth as indicated in Defendant’s current financial statements. First Tennessee maintains that it always considered Defendant’s net worth a significant factor.
In response to the assertions of First Tennessee, Defendant proffers the following facts which are taken largely from Defendant’s Response to Plaintiffs Motion for Summary Judgment.
On August 29, 1991, the Plaintiff allowed I.B.N. to sign a $102,662.58 promissory note. The Defendant guaranteed this note. David Hurt, Defendant’s business partner, also guaranteed this note. The Defendant signed a new security agreement on 666 shares of the Dyersburg Doctors Building, Inc. stock. This promissory note represented a consolidation of four prior loans. The first loan was dated October 15, 1987, and was a line of credit to I.B.N. with a maximum indebtedness of $50,000. David Hurt and the Defendant guaranteed this note, and the Defendant signed a security agreement of 666 shares of the Dyersburg Doctors Building, Inc. stock which he owned, (sic)
The second loan was on December 30, 1987, and was again a loan to I.B.N. The Motion for Summary Judgment filed by the Plaintiff does not allude to it or contain a copy of any guarantees signed by the Defendant as to this loan to I.B.N.
The third loan was a loan directly to the Defendant and to David Hurt in the amount of $25,000.
The fourth loan was a loan of $10,000 dated May 12, 1988, directly to the Defendant and to David Hurt to invest in I.B.N.
The affidavit of John Gauldin, a regional president of First Tennessee Bank National Association, Dyersburg, Tennessee, which is attached to the Plaintiffs Motion for Summary Judgment, states at page 2 that “until defendant’s default in 1991, defendant never defaulted on any loans obtained form First Tennessee.” On the same page, Mr. Gauldin sets out the fact that the Defendant had obtained and repaid to the Plaintiff $202,-630.27 in various loans made between 1981 and 1989. This is an eight-year time period and the average amount of the loans made and repaid is $25,328.78 per year.
The issue for judicial determination is whether a genuine issue of material fact as to whether plaintiff relied on defendant’s prior history with plaintiff or on defendant’s allegedly false financial statement.
DISCUSSION
Summary judgment is to be granted in favor of a moving party when after consideration of the evidence presented by the pleadings, affidavits, answers to interrog*147atories and depositions, and in a light most favorable to the non-moving party, there remain no genuine issues of material fact. P.R.B.P. 7056(c).2 The mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact. See, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986); Street v. J.C. Bradford & Co., 886 F.2d 1472 (6th Cir.1989).
The heart of a summary judgment motion is whether a genuine issue as to any material fact exists such that the movant is entitled to a judgment as a matter of law. Street v. J.C. Bradford & Co., 886 F.2d 1472 (6th Cir.1989). Federal Practice and Procedure: Civil 2d § 2725. Thus, if the only issues for the court’s determination are questions of law, summary judgment is appropriate. Bradford, supra; Koepfle v. Garavag-lia, 200 F.2d 191 (6th Cir.1952).
A fact is material if it tends to resolve any of the issues that have been properly raised by the parties. Commodity Futures Trading Comm’n v. Savage, 611 F.2d 270 (9th Cir.1979). Thus, material facts under rule 56(c) are those that constitute a legal defense, or whose existence or nonexistence affect the outcome. Kennett-Murray Corp. v. Bone, 622 F.2d 887, 892 (5th Cir.1980). SEC v. Seaboard Corp., 677 F.2d 1301 (9th Cir.1982).
Once material facts are determined, the court must ascertain if there are genuine issues concerning these facts. Wright, Miller, & Kane, Federal Practice and Procedures: Civil 2d. § 2725 at 95. The court is faced with an intricate task of piercing the pleading to determine these issues. Summary judgment is not warranted when there is room for clarity or any doubt as to the existence of all pertinent facts being before the court. Id. at 100.
Many courts determine motions for summary judgment without following any prescribed formula. Wright, Miller, & Kane, Federal Practice and Procedure: Civil 2d § 2725 supp. at 16. Yet, courts may review the existence of factual inferences as a pertinent consideration in determining a motion for summary judgment. See, Warrior Tombigbee Transp. Co. v. M/V Nan Fung, 695 F.2d 1294 (11th Cir.1983).
In In re Suburban Motor Freight, Inc., 124 B.R. 984 (Bankr.S.D.Ohio 1990), the. court noted that courts should look critically at summary judgment motions. The court opined:
“Scholars and courts are in agreement that a ‘new era’ in summary judgments dawned by virtue of the Court’s opinions in these cases.” Street v. J.C. Bradford & Co., 886 F.2d 1472, 1476 (6th Cir.1989); Gilbert v. New England Mutual Life Ins. Co., (In re Worl), 111 B.R. 665 (Bankr.S.D.Ohio 1990).
On the whole, these decisions reflect a salutary return to the original purpose of summary judgment. Over the years, decisions requiring denial of summary judgment if there was even a suggestion of an issue of fact had tended to emasculate summary judgment as an effective procedural device.
The Supreme Court’s rulings evidence its desire to remove artificial barriers, i.e., the hint of a genuine issue of material fact, from a court’s ability and willingness to grant summary judgment in appropriate eases.
Id. (Citations omitted in part)
The initial burden of proof is.on the party seeking summary judgment to establish, in light of the pleadings, depositions, answers to interrogatories, admissions and affidavits, the absence of a genuine issue of material fact. In re Suburban Motor Freight, Inc., 124 B.R. at 993. However, the ultimate burden of demonstrating existence of a genuine issue of material fact lies with the non-moving party. Id., citing Celotex *148Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986).
When the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts ... In the language of the Rule, the nonmoving party must come forward with “specific facts showing that there is a genuine issue for trial.” Fed.Rule Civ.Proc. 56(e) (emphasis added) ... Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no “genuine issue for trial.”
Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574 at 586-87, 106 S.Ct. 1348 at 1355-56, 89 L.Ed.2d 538 (1986); See First Nat’l Bank of Arizona v. Cities Service Co., 391 U.S. 253, 289, 88 S.Ct. 1575, 1592, 20 L.Ed.2d 569 (1968).
The Suburban Motor Freight, supra, reviewed the prevailing law in the Circuit and reiterated certain instructive principles for courts considering summary judgment motions. The following governing principles were set forth by the Sixth Circuit in Street v. J.C. Bradford & Co., based on a review of Anderson, Celotex, and Matsushita.
1. Complex cases are not necessarily inappropriate for summary judgment.
2. Case involving state-of-mind issues are not necessarily inappropriate for summary judgment.
3. The movant must meet the initial burden of showing “the absence of a genuine issue of material fact” as to an essential element of the non-movant’s case.
4. This burden may be met by pointing out to the court that the respondent, having had sufficient opportunity for discovery, has no evidence to support an essential element of his or her case. (Emphasis added)
5. A court should apply a federal directed-verdict standard in ruling on a motion for summary judgment. The inquiry on a summary judgment motion or a direeted-verdict motion is the same: “whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.”
6. As on federal directed verdict motions, the “scintilla rule” applies, i.e. the respondent must adduce more than a scintilla of evidence to overcome the motion. (Emphasis added)
7. The substantive law governing the case will determine what issues of fact are material, and any heightened burden of proof required by the substantive law for an element of the respondent’s case, such as proof by clear and convincing evidence, must be satisfied by the respondent.
8. The respondent cannot rely on the hope that the trier of fact will disbelieve the movant’s denial of a disputed fact, but must “present affirmative evidence in order to defeat a properly supported motion for summary judgment. ” (Emphasis added)
9. The trial court no longer has the duty to search the entire record to establish that it is bereft of a genuine issue of material fact.
10.The trial court has more discretion than in the “old era” in evaluating the respondent’s evidence. The respondent must “do more than simply show that there is some metaphysical doubt as to the material facts.” Further, “[wjhere the record taken as a whole could not lead a rational trier of fact to find” for the respondent, the motion should be granted. The trial court has at least some discretion to determine whether the respondent’s claim is “implausible.”
Section 523(a)(2)(B) of the Bankruptcy Code provides that a debt will be declared nondischargeable where such debt is as follows:
(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;
*149(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.
There is no dispute about the fact that Defendant received “money, ... extension, renewal [and] refinancing of credit from First Tennessee by use of a statement in writing.” Defendant prepared and executed certain loan documents and submitted personal financial statements.
Materially False Financial Statements
Defendant’s financial statements were indisputably inaccurate. Based on the entire record, the Court finds that the financial statements were materially false. Debtor’s financial statement listed certain stock represented to be Defendant’s property, which property belonged to Defendant’s wife. This information was not disclosed to First Tennessee. (See 2004 Transcript p. 44 II 21-25). Defendant’s financial statement listed household furnishing at a value of $60,000 from 1987-1990 and listed those same furnishings with a value of $30,000 on the 1991 Bankruptcy Schedules. The Court is mindful that valuations may differ based on the purposes of those valuations. See, 11 U.S.C. § 506(a). Defendant listed a value for the business I.B.N. at $200,000-$280,000 on the financial statements which Defendant asserts was the amount of his investment and assigned no value on the bankruptcy schedules. There was no plausible explanation posited for the discrepancies.
Moreover, Defendant misrepresented his equity interest in certain partnerships, including Bahamas Box Corp. Defendant failed to disclose the existence of a lien on his principal residence in favor of First Citizens 'Bank (Exh. 6), and failed to disclose the existence of a loan from his Pension and Profit Sharing Plan. (Transcript p. 51, II 19-25; p. 52, II 1-5).
The following chart represents liabilities reflected in Defendant’s financial statements submitted to First Tennessee:
[[Image here]]
(The Chart was compiled from records subpoenaed from First Citizens National Bank (Exhibit 3)). Defendant’s Schedule F shows approximately $70,000 of credit and debt.
*150In addition to the items disclosed, there were numerous liabilities which were not disclosed as represented in the following Tables.3
TABLE 1
LIABILITIES THAT DEFENDANT FAILED TO REFLECT
Financial Statement Creditor Date Type Amount
December, 1986 Jefferson Smurfit Corp. 03/19/86 Guaranty $ 60,771.834
Profit Sharing Plan 11/26/82 Loan $ 25,000.005
Profit Sharing Plan 02/04/83 Loan $ 25.000.006
SUBTOTAL $110,771.83
December, 1987 Same obligations not reported on December, 1986 Financial Statement.
October, 1988 First Citizens Nat’l Bank 01/26/88 Guaranty $200,000.007
SUBTOTAL $200,000.00
December, 1989 Security State Bank 10/20/88 Loan $ 50,000.008
Bankruptcy Estate — In re 1988 Lawsuit $ 30,000.009
E.L. Gamer NBC Bank 02/28/89 Guaranty $533,250.0010
First Citizens Nat’l Bank 03/15/89 Guaranty $398,800.0011
NBC Bank 05/12/89 Loan $ 18.050.0012
SUBTOTAL $850,100.00
*151TABLE 1
LIABILITIES THAT DEFENDANT FAILED TO REFLECT
Financial Statement Creditor Date Type Amount
October, 1990 NBC Bank 02/12/90 Loan $ 50.100.0013
AmSouth Financial Corp. 03/20/90 Guaranty $450,000.0014
First Citizens Nat’l Bank 07/16/90 Loan $ 15,134.0715
SUBTOTAL $490,100.00
[[Image here]]
Thus based on the magnitude and numer-osity of the omissions of significant liabilities from the financial statement, the Court finds the statement to be materially false. Additionally, Defendant admitted in his Answer that the financial statements were materially false.
Plaintiffs complaint at paragraph 20 provides:
[20] Prior to August 29, 1991, the most recent financial statement which Defendant had provided to First Tennessee indicated that Defendant’s assets exceeded his liabilities by $2,767,110.30. In fact, the amount by which Defendant’s assets exceeded his liabilities, if such was the case at all, was substantially less than the representation made in Defendant’s financial statement and constituted a material misrepresentation of Defendant’s financial condition. First Tennessee believes this to be true of the 1987, 1988, 1989, and 1990. financial statements which Defendant provided to First Tennessee and upon which First Tennessee relied in granting and/or extending the loans.
Defendant answered:
[12] Answering Paragraph 20 of the Complaint, the defendant admits the aver-ments of the first sentence of that para*152graph. The defendant admits the balance of that paragraph.
Thus the Court finds based on the compelling evidence in the records and based on the absence of any controverting evidence by Defendant where Defendant has had ample time to conduct discovery and produce evidence, Defendant’s financial statements were materially false.
First, Tennessee relied upon Defendant’s October, 1990 Financial Statements when it negotiated new payment terms with Defendant in August, 1991. Gauldin Affidavit at 6-7. Tables 1 and 2 show that the October, 1990 Financial Statement was the one that most dramatically understated Defendant’s financial condition approximately by $1,670,-971.83.
As a matter of law, material misrepresentation occurs when the amount of unreported liabilities equals at least 35% of asserted net worth. See, Bank One v. Woolum (In re Woolum) 979 F.2d 71 (6th Cir.1992). The Woolum case is similar to the case at bar. In Woolum, the defendant had asserted a net worth of $1,324,000. Id. at 75. The Defendant, however, had failed to report $463,000 of additional liabilities, approximately 35% of the asserted net worth. Id. at 73. The court found that the elements of 11 U.S.C. § 523(a)(2)(B) had been met, including the element of material misrepresentation. Omission of prior secured loans totalling $100,000 for loan of $10,000 was material. In re Figge, 94 B.R. 654 (Bahkr.C.D.Cal.1988) ($220,000 the difference between actual value $560,000 and represented value $780,000 was material for loan of $200,000). Overstatement of net worth by at least 7% was material. In re Meyer, 89 B.R. 25 (Bankr. E.D.Wisc.1988).
Regarding Financial Condition
It is undisputed that the financial statements were “respecting Defendant’s financial condition” as they were personal financial statements purported to represent the net worth and credit worthiness of Defendant. They were supplied to the Bank in contemplation of obtaining a loan. Thus the Court finds that there exists no dispute as to any material fact regarding this issue.
Reasonable Reliance
First Tennessee avers that its reliance on Defendant’s financial statements was reasonable. Moreover, First Tennessee states that the Bank examined the financial statements, verified listed assets, and based on its investigation coupled with Defendant’s historical relationship with the Bank, First Tennessee made the loan. Defendant contends that there was no reliance on the financial statements, but that the loan was made on the strength of the trust relationship between First Tennessee and the Defendant and Defendant’s repayment history. Specifically, in Defendant’s Response to the motion for Summary Judgment, Defendant makes the following argument:16
The case of In re Reeds, 145 B.R. 703 (Bkrtcy., N.D.Okl.1992), was a case in which a creditor objected to the discharge of its debt against a Chapter 7 debtor on the ground of false statement of financial condition. At page 707 of that opinion, the Court stated:
The issue of reasonable reliance is divided into two parts. First, there must be actual reliance on the materially false representations and second, this reliance must be reasonable. To establish actual reliance, the creditor must show its reliance on the false financial statement was “a contributory cause of the extension of credit” and “that credit would not have been granted if the lender had received accurate information.”
No where in the pleadings, depositions, answers to interrogatories, and admissions on file, together with any affidavits, is there proof that plaintiff’s reliance on the allegedly false financial statement was a contributory cause of the extension of credit or that credit would not have been granted if the lender had received accurate information, (sic) There is therefore a genuine issue as to these material facts.
That same case went on to discuss reliance at page 707 and states as follows: *153Whether or not reliance was reasonable is a factually sensitive inquiry.... The inquiry can involve such things as the amount and adequacy of the information given or requested, the nature and circumstances of the loan, the past relationship, if any, between creditor and debtor, the amount of the loan itself, the sophistication of the lender, its normal lending practices and the custom of the industry.
The court is keenly aware of the tensions that exist within Section 523(a)(2)(B). Its requirement of reasonable reliance must not become a vehicle by which the courts, having the benefit of 20/20 hindsight, second guess a creditor’s loan policies or the wisdom of its lending decisions. At the same time, however, “it is not our business to bail out any lender no matter how recklessly it gives out its money.”
Other genuine issues as to the plaintiffs reliance upon the defendant’s alleged false financial statement are revealed by the plaintiffs answers to the defendant’s first set of interrogatories. In those interrogatories, the plaintiff was asked to describe what written documents were considered in approving said loans. The plaintiffs response was that it considered at least 73 separate documents in approving the loans which were directly to the defendant or which the defendant guaranteed.
Defendant believes there is a genuine issue as to a material fact as to whether or not the loans to the defendant and the loans to I.B.N. guaranteed by the defendant were made on the basis of the proof of the financial statement of the defendant or whether they were made on the basis of the defendant’s prior history with the bank in repaying over $200,000 in loans, or the defendant’s earning’s history.
No where in any of the pleadings, depositions, answers to interrogatories, and admissions is there proof that the plaintiff would not have made the loans or granted extensions of the loans or consolidated any loans had it known that the defendant’s liabilities were greater than set out in his numerous financial statements, (sic)
In Martin v. Bank of Germantown (In re Martin), 761 F.2d 1163 (6th Cir.1985), the United States Court of Appeals for the Sixth Circuit held that the “reasonableness” requirement is not “a rigorous requirement, but rather is directed at creditors acting in bad faith,” noting however that Congress did intend that there be some verification of financial information provided by debtors. See also, In re Walton, 158 B.R. 948 (Bankr.N.D.Ohio 1993). In the instant case, accurate verification of much-of the omitted liability information would have been difficult. In BancBoston Mortgage Corp. v. Ledford (In re Ledford), 970 F.2d 1556 (6th Cir.1992), the court enumerated objective standards upon which to determine whether a lender’s reliance was reasonable. The factors are:
(1) whether the creditor had a close personal relationship or friendship with the debtor;
(2) whether there had been previous business dealings with the debtor that gave rise to a relationship of trust;
(3) whether the debt was incurred for personal or commercial reasons;
(4) whether there were any “red flags” that would have alerted an ordinarily prudent lender to the possibility that the representation relied upon were not accurate; and
(5) whether even minimal investigation would have revealed the inaccuracy of the debtor’s representations.
Id. at 1560 (citations omitted). [First Tennessee’s Memorandum of Law]
Based on the Ledford factors, the affidavit of John Gauldin, and the nature and extent of the undisclosed liabilities, and based on Defendant’s testimony in his 2004 Examination that the false financial statements were submitted to First Tennessee for the purpose of obtaining a loan, the Court finds from the totality of the evidence that there is no material issue as to the fact of First Tennessee’s reliance on the financial statement. Similarly, given the history of the trust relationship between these parties, and the sophistication of the lender and the borrower, the Court finds that there is no genuine issue of fact as *154to the reasonableness of First Tennessee’s reliance.
Defendant insists that a factual issue is evidenced by the Bank’s admission that over 73 separate documents were considered in approving loans to Defendant. There is no requirement that the materially false statement be the sole document on which the lender relies but simply that there be reliance on the document. It would be fairly uncommon for a lending institution to base its lending decision on a single document in these times of complex, national and international transactions. Reliance must be examined in light of the facts and circumstances of each case.
As the Court stated in Bradford, supra, there must be something more than the" hint of a genuine issue of material fact. The nonmoving party must ultimately demonstrate the existence of such a disputed material fact. This Court finds that Defendant has failed to show any genuine issue as to the fact of First Tennessee’s reliance and thus the Court grants judgment for First Tennessee on the issue of reliance. In the face of a properly supported motion for Summary Judgment, Defendant has offered no affidavits, no documents, no controverting proof in any form other than his answer to the complaint.
Intent to Deceive
Plaintiff contends that as a matter of law, Defendant provided the Financial Statements to First Tennessee with an intent to deceive. The Sixth Circuit has held that the “intent to deceive” does not require a showing of “subjective intent to have another person rely on financial statements.” Investors Credit Corp. v. Batie (In re Batie), 995 F.2d 85, 90 (6th Cir.1993). Instead, “the standard ... is that if the debtor either intended to deceive the Bank or acted with gross recklessness, full discharge will be denied.” Bank One v. Woolum (In re Woolum), 979 F.2d 71, 73 (6th Cir.1992) (citing In re Martin, 761 F.2d at 1167); See also, In re Liming, 797 F.2d 895 (10th Cir.1986).
The facts of In re Woolum are very similar to the facts in the instant case. Before obtaining credit from the lender, the debtor submitted a financial statement that did not list contingent liabilities of approximately $463,000. Thereafter, the debtor submitted three more financial statements which, like the first, substantially failed to list his contingent liabilities. At the trial of the lender’s § 523(a)(2)(B) action, the debtor testified (1) that he thought part of the claim against him was a “mistake” and (2) that “he had forgotten” about one of the guaranties he had executed. Id. at 73. The Woolum court rejected testimony from the debtor that he had “forgotten” about his unreported liabilities.
The Defendant in the instant case similarly states that he forgot to include the various liabilities. (See Transcript p. 75, 86-87). The magnitude of Defendant’s unreported liabilities are so great, that they cannot be charged to a lapse of memory. Defendant is a physician, and a businessman with sufficient education and an appreciation of financial transactions. It would severely strain credulity to accept Defendant’s explanation as to his failure to disclose these liabilities.
Grossly reckless conduct on the part of a debtor in a written financial statement satisfies the requisite intentional deception of Section 523(a)(2)(B). See, In Knoxville Teachers Credit Union v. Parkey, 790 F.2d 490 (6th Cir.1986); In re Batie, supra.
CONCLUSION
Based on the foregoing consideration of the pleadings, affidavits, exhibits, applicable case law, and the ease record as a whole, and based on the absence of proof by Defendant, summary judgment is granted in favor of First Tennessee as to its complaint seeking the nondischargeability of its particular debt. In response to the motion, Defendant has set forth no facts to refute those proffered by First Tennessee. The bare denials in the Answer are insufficient to create a genuine issue such to overcome a Motion for Summary Judgment. Once the facts are put forth by the movant, it is incumbent upon the nonmoving party to set forth sufficient facts to evidence a genuine issue. A bare assertion that the facts are not true is simply insufficient. See, Street v. J.C. Bradford, supra.
*155Based on the foregoing, summary judgment is granted in favor of the plaintiff.
IT IS SO ORDERED.
. 28 U.S.C. § 157(b)(2)(I).
. F.R.B.P. 7056(c) states:
"... 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 judgment as a matter of law.”
. (The information is taken verbatim from First Tennessee's Memorandum of Law for convenience; however, the Court finds that all of the information is fully supported by the record). References to Exhibits in the Chart and Tables pertain to Exhibits attached to First Tennessee's Memorandum of Law.
. See Exhibit 4, copies of two guaranties executed by Defendant and a consent judgment taken against him by Jefferson Smurfit.
. During his 2004 Examination, Defendant admitted having borrowed those funds. Exhibit 1 at 81-82. See also collective Exhibit 5 excerpts from the books and records of Defendant’s Profit Sharing Plan evidencing the indebtedness. These copies are part of the record in AmSouth Financial Corporation's Adversary Proceeding against Lynn Andrew Warner, Adv.Pro. No. 92-0466.
. During his 2004 Examination, Defendant admitted having borrowed those funds. Exhibit 1 at 81-82. See also, collective Exhibit 5 excerpts from the books and records of Defendant's Profit Sharing Plan evidencing the indebtedness. These copies are part of the record in AmSouth Financial Corporation’s Adversary Proceeding against Lynn Andrew Warner, Adv.Pro. No. 92-0466.
. Defendant executed a guaranty in favor of First Citizens National Bank on January 26, 1988, obligating Defendant for a $200,000 line of credit. The guaranty secured the line of credit that First Tennessee granted to a corporation owned by Defendant (and others), American Nursing Resources, Inc. ("ANR”). See Exhibit 6, a copy of records subpoenaed from First Citizens National Bank indicating the account status of the ANR obligation.
. Defendant failed to reflect that, on October 20, 1988, Defendant borrowed $50,000 from Security State Bank. Exhibit 7 attached hereto is a copy of a Promissory Note by which that obligation was incurred.
. Defendant failed to reflect that, at some point in 1988, the bankruptcy trustee in the case of In re E.L. Gamer sued him individually for having taken a preferential payment. Although Defendant failed to include this contingent claim, Defendant ultimately conceded his liability. See Exhibit 8, a copy of the consent judgment (attached to the proof of claim previously filed with the Court) executed on Defendant's behalf which evidences this unreported liability of $30,000.
. Defendant failed to include a guaranty in favor of NBC Bank in the amount of $553,250 incurred February 28, 1989, relating to his investment in BIP, Ltd. See Exhibit 9, a copy of the guaranty. Incidentally, to date, Defendant has failed to list this liability (and corresponding asset, if any) in his bankruptcy schedules.
. Defendant failed to reflect that, on February 15, 1989, Defendant increased his obligation to First Citizens National Bank relating to his ANR line of credit from $200,000 to $398,800. Collective Exhibit 10 consists of the note executed by ANR and Defendant's related Guaranty Agreement.
. Defendant failed to reflect an $18,050 loan from NBC Bank obtained May 12, 1989. Collective Exhibit 11 evidences the original obligation under a Note and Security Agreement dated May 12, 1989, and a second Note and Security Agreement dated November 18, 1989, by which the loan was apparently refinanced.
. Defendant failed to reflect that, on February 12, 1990, Defendant executed a note in favor of NBC Bank in the amount of $50,100. Exhibit 12 is a copy of the Note and Security Agreement by which Defendant incurred this obligation.
. Defendant failed to reflect that, on March 20, 1990, Defendant executed a guaranty in favor of AmSouth Financial Corp. in the amount of $450,000. Collective Exhibit 13 are copies of AmSouth's Proof of Claim (previously filed with the Court) to which were attached the note executed by D.W.A. Partnership and Defendant’s guaranty of the note.
.Defendant failed to reflect that, on July 16, 1990, Defendant executed a note in favor of First Citizens in the amount of $15,134.07 relating to a business that Defendant operated as a sole proprietorship, the “Dr. L.A. Warner, Jr. Personal Injury Clinic.” Exhibit 14 is a copy of the note by which Defendant obligated himself for this debt.
. The Court has set forth relevant portions of the Defendant's Response verbatim as this was the only evidence offered by Defendant to overcome the Motion for Summary Judgment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491853/ | MEMORANDUM
JOHN C. MINABAN, Jr., Bankruptcy Judge.
This ease involves a dispute as to ownership of the proceeds of certificates of deposit in which the debtor is a joint owner.
This case is before the court upon Motion by Debtor for Turnover of Property. The debtor requests that the trustee be ordered to turnover and surrender proceeds of jointly owned certificates of deposit to Mr. Donald Betts, the debtor’s father, who was the sole contributor to the certificates of deposit. I conclude that the Motion by Debtor for Turnover of Property should be sustained.
FACTS
On the day this bankruptcy ease was commenced, the debtor, Brenda Overton, a/k/a Brenda Betts was a joint owner of two certificates of deposit'issued by First Federal of Lincoln. The other joint owners of the two certificates of deposit were her father, Mr. Donald Betts and her brother, Mr. Brian Betts. The certificates of deposit were owned by these three parties as joint tenants with rights of survivorship. These joint owners and the issuer of the certificates of deposit, First Federal of Lincoln (the “Bank”), were subject to the contractual provisions set forth in a booklet captioned “Ownership Rights and Obligations” which in pertinent part provided:
The account is owned .by all named joint owners as joint tenants with rights of sur-vivorship and not as tenants in common, and not as tenants by the entirety. The Association is authorized to act pursuant to any one or more of the joint tenants’ signatures. Any one or more such person(s) have the power to act in all matters related to the account, including, but not limited to, the withdrawal in whole or in part of this account, and the pledging of this account in whole or in part as security for any loan made to one or more of the owners. Any such pledge shall not operate to sever or terminate either in whole or in part the joint tenancy estate and relationships reflected in or established by this contract. It is agreed by the joint owners with each other and by the owners with the Association that any funds placed in or added to the account by any one of the owners is and shall be conclusively intended to be a gift and delivery at that time of such funds to the owner or owners to the extent of his/her or their pro rata interest in the account.
Garnishments, attachments, and other legal orders received by the Association regarding any one owner will attach any and *198all funds in this account up to the amount of the legal order.
At the time of the filing of the bankruptcy petition, there were two certificates of deposit in which Brenda Overton was a joint owner. Each had an approximate value of $21,-000.00. One such certificate was pledged as collateral for a loan to the debtor, Brenda Overton, for approximately $10,000.00. The other certificate was pledged as collateral for a loan to the debtor’s brother, Brian Betts, for approximately $10,000.00. The debtor, Brenda Overton, made no contribution of money to the certificates of deposit. Her father, Donald Betts had obtained the money from the proceeds of life insurance on his deceased wife and from workmen’s compensation payments and other funds which were his alone. Donald Betts used these funds to purchase a certificate of deposit in his own name with the Bank. At the time loans were made to Brenda Overton and to her brother, Brian Betts, the certificate of deposit originally obtained by Donald Betts was canceled at the insistence of the Bank and two new certificates of deposit, those now before the court, were issued in the names of the joint owners, Brenda Overton, Donald Betts, and Brian Betts.
Upon the filing of this bankruptcy ease, the trustee made a claim on both certificates of deposit. Both loans on which the certificates of deposit were pledged matured after the filing of the bankruptcy petition and Brenda Overton and her brother, Brian Betts, failed to pay the Bank the amounts due and owing on the loans. The Bank obtained relief from the automatic stay in order to setoff the funds in the certificates of deposit against the indebtedness owed to it by the debtor and Brian Betts. After obtaining relief from the automatic stay, the Bank took an offset and remitted the balance of proceeds from each certificate to the trustee. Such proceeds included $10,839.21 from one certificate of deposit and $10,903.97 from the other certificate of deposit. The debtor asserts that the remaining proceeds are not property of the bankruptcy estate and should be turned over to Donald Betts, the debtor’s father, as owner of these amounts.
DISCUSSION
I conclude that the agreement between the Bank and the depositors does not govern the rights of the account holders inter se, that the agreement is not enforceable by the bankruptcy trustee as a third party beneficiary, and that the remaining funds from the certificates of deposit are property of Mr. Donald Betts.
Nebraska Revised Statute § 30-2722(b) provides that “during the lifetime of all parties, an account belongs to the parties in proportion to the net contribution of each to the sums on deposit, unless there is clear and convincing evidence of a different intent.” See Neb.Rev.Stat. § 30-2722(b) (West Supp. 1993). On the facts of this ease it is undisputed that the debtor’s father, Donald Betts contributed all of the money to the certificates of deposit. However, the trustee asserts that the contractual provisions of the agreement between the Bank and the depositors quoted above provide clear evidence that the parties intended that the certificates of deposit would be jointly owned by the three depositors.
Under the agreement, the Bank was given authority to act on the signature of any one of the three joint tenants. Further, each joint tenant was given the power to withdraw or pledge the entire amount of the certificates of deposit “to the extent of his/her or their pro rata interest in the account.” The quoted language also states that the party contributing funds makes a present gift to the joint owners of “their pro rata” share, and that garnishments, attachments, and other legal orders regarding any one owner will attach to all funds in the account up to the amount of the legal order. The trustee argues that under the contract, the debtor, Brenda Overton, as a joint owner, had sufficient interest in all funds in the certificates of deposit to permit her creditors to reach all such funds in satisfaction of her separate debt, and that therefore, under § 541 of the Bankruptcy Code, all her right, title and interest in the account is property of the estate. The argument of the trustee is further buttressed by the fact that the Nebraska Supreme Court has given full force and effect to such contractual provisions to pro*199tect financial institutions. See Utteckt v. Norwest Bank of Norfolk, 221 Neb. 222, 376 N.W.2d 11 (1985).
The result asserted by the trustee is inequitable and is not mandated by Nebraska law or by the contract between the Bank and the depositors. Nebraska statutory and decisional law carefully distinguishes between the rights of a financial institution and its depositors on the one hand and the rights of the depositors inter se on the other hand. See Neb.Rev.Stat. §§ 30-2722 to 30-2726, 30-2727 to 30-2733 (West Supp.1993). See also Craig v. Hastings State Bank, 221 Neb. 746, 380 N.W.2d 618, 623-625 (1986). Contract provisions such as the ones before the court have been held to be enforceable to protect financial institutions from liability. See Uttecht, 376 N.W.2d at 14. Neb.Rev. Stat. §§ 30-2723, 30-2727 (West Supp.1993). Indeed, a financial institution may allow withdrawal and garnishment in an amount different from the actual ownership between the parties inter se, and is provided immunity in doing so. However, such contract provisions have been held not to govern the rights between the depositors inter se and their creditors. See Craig, 380 N.W.2d at 624-25. In analyzing this ease, I retain this distinction.
Under the agreement between the depositors and the Bank, the Bank was properly allowed to take an offset from the funds of the certificates of deposit to satisfy the debt owed it by the debtor and her brother, and if the Bank had received a garnishment order or attachment, it could have surrendered all funds in the certificate of deposit accounts with immunity from liability to any joint owner. However, the liability of the Bank is not the issue before the court. The issue before the court is the ownership between the depositors inter se as to the remaining balance of the certificates of deposit. In regard to ownership between depositors inter se, Nebraska Revised Statute § 30-2722(b) governs, and the funds on deposit belong to each party in proportion to their net contribution unless the parties clearly intend otherwise. Therefore, the court must look to the intent of the parties to determine ownership.
In the present ease, Donald Betts, the debtor’s father, contributed all of the funds in the accounts. The evidence shows that originally Donald Betts purchased a certifi-. cate of deposit in his own name. Mr. Betts agreed to pledge his certificate of deposit as collateral to secure the loans sought to be obtained by his children, Brenda Overton (the debtor) and Brian Betts. In fact, it was only when the Bank insisted that Mr. Betts surrender his certificate of deposit and purchase two new certificates of deposit in the names of all three parties that Mr. Betts did so. Mr. Betts did not intend to make a gift or transfer a present ownership interest in the funds to his children. He simply intended to pledge his own funds to secure the obligations of Brenda Overton and Brian Betts to repay their loans to the Bank. Brenda Overton and Brian Betts were to make payments on the loans. Under these facts, it is clear that, as between the joint account holders, there was no evidence of an intent different from the net contributions rule. Since Mr. Betts contributed all of the money in the certificates of deposit, all of the remaining funds belong solely to him. Consequently, I conclude that the debtor, Brenda Overton, a/k/a Brenda Betts, has no ownership interest in the balance of the certificates of deposit.
The trustee also asserts that, even if the debtor does not have an ownership interest in the funds, the funds may be brought into the bankruptcy estate under § 541(a)(3) if the interest of the father and the brother are avoidable pursuant to § 544 and § 550 of the Bankruptcy Code in a separate adversary proceeding. Under § 544, the trustee is given the rights of a hypothetical lien creditor of Brenda Overton who levied upon and attached or garnished the certificates of deposit on the date of bankruptcy. If such a creditor could obtain the funds in the certificates of deposit with priority over the interests of Donald Betts and Brian Betts, then under §§ 544 and 550 of the Bankruptcy Code, the interests of Donald Betts and Brian Betts could be avoided by the trustee in a separate adversary proceeding and the motion for turnover should be denied at this time.
*200As stated previously, under the agreement between the Bank and the joint account holders, it was specifically provided:
Garnishments, attachments, and other legal orders received by the Association regarding any one owner will attach any and all funds in this account up to the amount of the legal order.
Thus, it is clear that if a creditor had attached or garnished the certificates of deposit on the day this bankruptcy case was commenced, the Bank, under authority of the above language, could have honored the attachment or garnishment without liability to any account holder, and have paid out all amounts held in the certificate of deposit accounts.
However, it is not clear that creditors of Brenda Overton or the bankruptcy trustee can enforce the agreement between the Bank and the depositors, and thereby subject the interest of Donald Betts and Brian Betts to attachment and garnishments in satisfaction of the separate debts of Brenda Overton. The trustee and creditors of Brenda Overton are not parties to the agreement between the Bank and the depositors. Thus, they may not enforce the agreement unless they qualify as third party beneficiaries with an enforceable claim.
I conclude that lien creditors, including the trustee under § 544, are not intended beneficiaries of the contract between the Bank and the depositors, but only incidental beneficiaries thereof, and thus the trustee can not enforce the contract and its provisions as to ownership.
Under the Second Restatement of Contracts, to establish the right to sue on a contract as an intended third party beneficiary, the party asserting that right must show that the right of performance/enforcement by the beneficiary is appropriate to give effect to the intent of the parties, and either 1) the performance of the promise will satisfy a monetary obligation of the promisee to the beneficiary, or 2) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the performance. See Restatement (Second) of Contracts § 302(1) (1986). I conclude that these requirements are not met in the present ease.
First, the purpose or intent of the agreement was to protect the Bank from hability, and enforcement of the contract by hen creditors is not appropriate or necessary for this purpose. Second, the promisors in this case are the depositors, who promised the Bank that they would allow the Bank to attach all funds of the certificates of deposit regardless of actual ownership upon receipt of a legal order. Therefore the Bank was the promis-ee. At the time the Bank entered into the contract with the depositors, it did not owe any present monetary obhgations to hen creditors of the depositors. The contract merely foresaw potential monetary obh-gations of the depositors to hen creditors, and sought to protect the Bank from non-monetary legal hability to the depositors and the potential creditors. Third, there is no indication that the Bank, as promisee, intended to give the trustee or other hen creditor the benefit of the promised performance. The Bank only intended to protect itself from hability.
Nebraska decisional law does not clearly elaborate the degree to which a non-party to an agreement may enforce its provisions. ’ As generally stated by the Nebraska Supreme Court:
In order for those not named as parties to a contract to recover thereunder as third party beneficiaries, it must appear by express stipulation or by reasonable intendment that the rights and interests of such unnamed parties were contemplated and provision was made for them. Alder v. First Nat’l Bank and Trust Co., 241 Neb. 873,491 N.W.2d 686, 689 (Neb.1992) (citing Lauritzen v. Davis, 214 Neb. 547, 335 N.W.2d 520 (Neb.1983) and Dworak v. Michals, 211 Neb. 716, 320 N.W.2d 485 (Neb.1982)).
The hteral implication of the broad statement of law quoted above is that a non-party may enforce an agreement if the contracting parties expressly contemplate and provide for the non-party in any manner whatsoever. However, such a broad interpretation of the general statement of the Nebraska Supreme Court is inconsistent with reported eases which have not permitted *201beneficiaries to enforce an agreement where the parties to that agreement did not intend to benefit the party seeking to enforce the agreement. Alder, 491 N.W.2d at 686, 688-89. The Alder case makes clear that mere reference to a party in a contract does not make that party a third party beneficiary with a right to enforce that contract. Id. In Alder, a partnership which had borrowed money to build a roller skating rink was seeking to enforce a guaranty agreement and an authorization agreement between the SBA and the lender, which provided that the SBA would guarantee ninety percent (90%) of the loan to the partnership only if the partnership submitted evidence that a performance bond had been obtained by the contractor before construction commenced. Id. at 688. In Alder the contractor who completed the work did not obtain a performance bond and the work proved to be defective. The partnership sued the lender as a form of recourse asserting that the agreements between the lender and the SBA obligated the lender to not disburse funds unless a performance bond was obtained. Id. The Supreme Court of Nebraska held that the partnership could not enforce the agreement as a third party beneficiary because there was no evidence that the agreements between the lender and the SBA were intended to do anything more than protect the SBA. Id. at 689.
The facts of the present case are similar to those in Alder in that there is no evidence that the agreement between the Bank and the depositors was intended to do anything more than protect the Bank. The entire agreement is referable to an intent to limit the Bank’s liability from a wide variety of contingencies, and the agreement, from the account holder’s perspective, is a contract of adhesion whose provisions should be limited in effect to accomplish only its intended purpose of limiting the Bank’s liability. There is no evidence of an intent to benefit creditors of the depositors, and without evidence of such intent, creditors can not enforce the agreement as third party beneficiaries, even under Nebraska law.
Therefore, I conclude that the trustee, as a lien creditor can not enforce the provisions of the Bank agreement providing that the Bank may honor legal orders up to the full amount of the certificates of deposit. Thus, the trustee can not avoid the interest of the father and brother in the proceeds under § 544, and such proceeds can not become property of the estate through the trustee’s avoiding powers. As a result, § 544 does not provide appropriate grounds for denying the motion for turnover by the debtor.
I conclude that the ownership rights between the joint depositors are governed by the net contribution rule. Since the father, Donald Betts, contributed all of the money contained in the certificates of deposit, he is the owner of the balance, and the trustee, the debtor, and bankruptcy estate have no interest therein.
IT IS THEREFORE ORDERED, that proceeds of the certificates of deposit are not property of the bankruptcy estate.
IT IS FURTHER ORDERED, that the Motion for Turnover (Fil. # 18) is sustained. The trustee shall turnover the proceeds of the certificates of deposit to Mr. Donald Betts, the debtor’s father, within twenty-one (21) days hereof. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491854/ | MEMORANDUM OPINION
JOHN T. FLANNAGAN, Bankruptcy Judge.
Debtor Franklin Savings Corporation appears by its attorneys, R. Pete Smith and Jonathan A. Margolies of McDowell, Rice & Smith, Kansas City, Missouri. The Resolution Trust Corporation (“RTC”) appears by its attorneys, Michael J. Belfonte and Erlene W. Krigel of Krigel & Krigel, P.C., Kansas City, Missouri. The Office of Thrift Supervision (“OTS”) appears by its attorneys, Martin Jefferson Davis of Washington, D.C. and Joann E. Corpstein of Overland Park, Kansas. The United States Trustee, John E. Foulston, appears by his attorney, Jeffrey W. Rockett.
Franklin Savings Corporation filed its Application of Debtor for Authority to Employ Special Counsel (“Application”) on July 28, 1993. The Application requests authority to employ the law firms of Rouse, Hendricks, German, May & Shank, P.C. (“Rouse Firm”) and Sidley & Austin as special counsel to assist debtor with an appeal from the District Court to the Tenth Circuit Court of Appeals.
The appeal involves whether debtor is liable for $122,019.60 of costs incurred by OTS in what the parties refer to as the “OTS litigation,” to wit: Franklin Savings Corporation v. Office of Thrift Supervision, Case No. 90-2054-S (D.Kan), Case No. 90-3272 (10th Cir.). In this case, Franklin Savings Corporation sued to reverse an OTS order placing Franklin Savings Association under conservatorship as authorized by FIRREA.
*214Following a successful appeal to the Tenth Circuit Court of Appeals in the “OTS Litigation,” OTS filed a bill of costs with the Clerk of the District Court. The Clerk taxed the costs against Franklin Savings Corporation. The District Court then reviewed the Clerk’s action and found that the Tenth Circuit’s ruling in the conservatorship appeal entitled OTS to the costs. However, since the Tenth Circuit ruling was issued before the debtor filed this bankruptcy case, the District Court ruled that OTS’s actions had violated the bankruptcy automatic stay. Because OTS had failed to obtain relief from the stay, the District Court decided that OTS had waived its right to the costs. This decision was entered on January 21,1993; the OTS filed a Notice of Appeal from the ruling on March 17, 1993. Hence, debtor wants to employ special counsel to handle this “taxed cost” appeal.
Although not indicated in its caption, the Application requests that the firms be employed nunc pro tunc as of the date of the filing of the Notice of Appeal on March 17, 1993, some two months before the filing of the Application. Under D.Kan.Bk.Rule ■9004.1, the nunc pro tunc nature of the Application should have been included in the pleading caption.
The RTC filed a limited objection to the Application on August 6, 1993. While it did not object to the employment of the firms per se, it did oppose paying the firms with tax refund monies that RTC claimed to own. The ownership of the tax refund monies has been the focal point of this bankruptcy case. Since the filing of the RTC’s response, this Court has ruled that the tax refund monies are property of the bankruptcy estate and has denied the RTC’s request for a stay of the use of the tax refund monies pending the outcome of RTC’s appeal of the tax refund decision. In denying the request for stay, the Court allowed the debtor to use the tax refund monies for the payment of professionals, subject to certain limitations. The RTC’s objection is now moot and does not require a ruling.
The OTS objected to the Application on August 26,1993, stating that Sidley & Austin should not be employed, nunc pro tune or otherwise. Apparently, Sidley & Austin represented the debtor as special counsel in petitioning the Supreme Court for a writ of certiorari in the OTS litigation. However, Sidley & Austin concluded its representation of the debtor before the taxation of costs became an issue. The OTS further points out that the debtor had already filed its one and only brief as appellee in the “taxed cost” appeal by the time it filed its Application here on July 28, 1993.
The United States Trustee filed his objection to the Application on August 27, 1993, complaining that there were no “extraordinary circumstances” alleged to justify appointing the firms nunc pro tunc. He also complains that debtor failed to follow D.Kan. Bk.Rule 9004.1. by omitting the words “nunc pro tune” from the caption of the Application, thereby obscuring its true nature.
Franklin Savings Corporation filed an omnibus response on September 13, 1993, directed at the objections of both the OTS and the United States Trustee. In this pleading (debtor raises other points in a subsequently filed Motion to Strike), debtor claims that the OTS objection should fail because it amounts to an interference with the debtor’s right to choose its own counsel, and that the Court should overrule the United States Trustee’s objection to avoid an inequitable result.
After filing its Application, debtor issued a Notice With Opportunity for Nonevidentiary Hearing on Application of Debtor for Authority to Employ Special Counsel filed August 6, 1993. The notice stated that if objections to the Application were filed on or before August 26, 1993, a non-evidentiary hearing would be held on September 14, 1993.
Although such objections were timely filed, the September 14, 1993, hearing did not occur because on August 30, 1993, Martin Jefferson Davis of the OTS filed a motion for continuance of the hearing. The motion states that counsel for the debtor had no objection to the continuance. The Court granted the continuance by order dated September 1, 1993, continuing the hearing to October 4, 1993.
On October 4,1993, the debtor appeared at the hearing and filed a Motion to Strike the *215Objections to Debtor’s Application for Authority to Employ Special Counsel directed at the positions of the OTS and the United States Trustee. Paragraph 4 of the motion sets out D.Kan.Bk.Rule 2014.1B which appears under the caption “Application for Employment Of Professionals.”
B. Objection of United States Trustee. The United States Trustee shall have fifteen days after the filing of such an application [to employ] in which to file any objections to the application with the court. The trustee, debtor or committee shall have fifteen days after the filing of any objections to file an answer or response and serve such upon the United States Trustee. The United States Trustee shall have ten days after the filing of the response by the trustee, debtor or committee in which to file either: (1) a statement that the response is adequate and the objection is withdrawn; or (2) a statement that the response is inadequate and requesting an evidentiary hearing. The United States Trustee’s failure to file an objection to the application or to file a statement after the trustee, debtor or committee has made a response, shall be deemed a waiver of any objection and the court may forthwith enter an Order approving the employment of the professional person.
Under this rule, the United States Trustee has 15 days from the filing of an application to employ counsel to file and objection to the application. The debtor then has 15 days to answer or respond. If the debtor answers or responds, the United States Trustee has 10 more days within which to file a statement either withdrawing his objection or asking for an 'evidentiary hearing. If the United States Trustee fails to file a statement, his objection is deemed waived.
In its motion to strike, the debtor argues that because neither the OTS nor the United States Trustee filed a statement within 10 days of the debtor’s responses to their objections, they have waived their objections. The OTS’s reply to the motion to strike points out that the express language of D.Kan.Bk.Rule 2014.1B makes it applicable to the United States Trustee only. The rule does not apply to the OTS; therefore, the debtor’s motion to’ strike OTS’s objection is overruled.
The United States Trustee’s reply to the Motion to Strike is two-fold. First, he argues that his objection to the Application filed August 27, 1993, satisfies the language of D.Kan.Bk.Rule 2014.1B. Second, he contends that the Notice of Non-evidentiary Hearing which debtor served with the Application eliminated any need for compliance with D.Kan.Bk.Rule 2014.1B. The Notice provided that if objections were filed, a hearing would be held on September 14, 1993. Debtor agreed to continue the September 14, 1993, hearing to October 4, 1993, since it made no objection to the motion or the order for continuance.
Local Rule 2014.1B of the United States Bankruptcy Court for the District of Kansas was originally intended as a procedure to permit the United States Trustee to review an application for the appointment of debt- or’s counsel in Chapter 11 cases and either acquiesce or object. However, the wording of the rule does not limit it to cases under Chapter 11. The rule is designed to allow the United States Trustee to examine counsel’s affidavit of disinterestedness and lack of conflict of interest and, if necessary, to move the matter to a hearing as quickly as possible.
The type of notice used by the debtor in this instance, one which automatically set the Application for hearing if objections were filed, made it unnecessary for the United States Trustee to file a statement under D.Kan.Bk.Rule 2014.1B requesting hearing. It is well known by both debtor’s counsel and the United States Trustee that the procedure used by the debtor is available to all counsel. The notice places the pleading on the Court’s non-evidentiary docket if objections are filed. The Court then deals with the problem or sets it for evidentiary hearing if necessary. Having followed this procedure, debtor cannot now be heard to rely on D.Kan.Bk.Rule 2014.1B.
The debtor’s motion to strike the United States Trustee’s objection to the Application is denied.
*216Even if the United States Trustee’s objection were considered waived, the Court is under no obligation to approve an application requesting appointment of a professional nunc pro tunc without first considering the merits of the application.
Appointment nunc pro tunc is “only appropriate in the most extraordinary circumstances. Simple neglect will not justify nunc pro tunc approval of a debtor’s application for the employment of a professional.” In re Land, 943 F.2d 1265, 1267-68 (10th Cir.1991) (citation omitted).
In response to the United States Trustee’s objection that no “extraordinary circumstances” were pled, the debtor stated:
The Martin court [102 B.R. 653 (Bankr. W.D.Tenn.1989) ] accordingly held that a nunc pro tunc application should be granted where “the denial of [the] application, with its concurrent denial of reasonable fees and expenses, would ... have the effect of granting a windfall benefit to the estate.” Id. The present case meets this criterion. Sidley & Austin and Rouse, Hendricks have- diligently pursued the Costs Appeal in an effort to save the estate from paying OTS’s $122,019.60 in litigation costs. This effort directly benefits the United States Trustee in its role as guardian of the interests of the unsecured creditors. The United States Trustee has not questioned the importance or quality of this work, nor could he. This Court’s equitable power to grant an employment application nunc pro tunc should be exercised to avoid an inequitable result. See Martin, 102 B.R. at 657_
(Response to Objections to the Application of Debtor for Authority to Employ Special Counsel filed by debtor on September 13, 1993, at 5.)
The Martin decision is misquoted in the pleading. The decision states, “[T]he denial of a nunc pro tunc application, with its concurrent denial of reasonable fees and expenses, would not have the effect of granting a windfall benefit to the estate.” 102 B.R. at 657 (emphasis added).
While Martin considers whether denial of the application would result in a windfall benefit to the estate, this is but one of a dozen factors it considers in granting a nunc pro tunc application. The Martin court denied the application and stated, “[Tjhere has not been a clear and convincing showing as to a satisfactory explanation for the failure of debtor’s counsel to seek a timely approval of its employment on behalf of the debtor and no sufficient explanation has been given for the delay in filing for a nunc pro tunc application.” Id. at 657-58.
The court further stated, “Especially when a debtor is represented by experienced bankruptcy counsel, an entitlement to a nunc pro tunc appointment is even more questionable.” Id. at 656. Debtor’s counsel are experienced bankruptcy attorneys and, in this case in particular, have met with several challenges regarding appointment and compensation of professionals.
Debtor’s response does not suggest that “extraordinary circumstances” justify approval of the Application nunc pro tune. Rather, it argues that the Application should be approved because (1) the Rouse Firm and Sidley & Austin provided valuable services to the debtor, (2) the importance and quality of these professionals’ work has not been questioned, and (3) denial of the Application would result in a windfall to the estate.
No attempt is made to explain the delay in filing the Application for appointment of these firms. Rather, the debtor requests that the Court exercise its equitable powers and ignore the established legal standard of a showing of “extraordinary circumstances” for nunc pro tunc appointment. Valuable services furnished to the debtor, potential windfall benefit to the estáte, and unquestioned work quality are not support for a finding of “extraordinary circumstances.” Since the debtor has not offered any explanation or excuse for the delay, there is no basis for a finding that “extraordinary circumstances” exist to support an appointment nunc pro tunc.
The Application to employ the firms of Rouse, Hendricks, German, May & Shank, P.C., and Sidley & Austin is approved as of the date of the filing of the Application, July 28,1993. However, the debtor’s request that *217the Application be approved nunc pro tunc to March 17, 1993, is denied.
This proceeding is core under 28 U.S.C. § 157. The Court has jurisdiction under 28 U.S.C. § 1334 and the general reference order of the District Court effective July 10, 1984 (D.Kan.Rule 705).
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491855/ | MEMORANDUM ORDER
JOHN T. FLANNAGAN, Bankruptcy Judge.
This is the trustee’s objection to attorneys’ fees requested by debtor’s attorneys. The debtor filed a voluntary petition under Chapter 11 of the Bankruptcy Code on May 8, 1992. On June 19, 1992, the Court entered an order approving the employment of Stum-bo, Hanson & Hendricks as debtor’s counsel. The debtor’s case was converted to a proceeding under Chapter 7 on October 8, 1992.
Stumbo, Hanson & Hendricks applied for allowance of attorneys’ fees and expenses on June 29, 1993. The Chapter 7 trustee objected on July 9,1993, alleging that the hours debtor’s counsel spent preparing for and attending two § 341 meetings were excessive.
*218The application shows counsel spent a total of three hours preparing for and attending the debtor’s Chapter 11 § 341 meeting. This time includes counsel’s preparation, preparation with the debtor, and time spent reviewing the “initial report.” After the Chapter 11 case was converted to Chapter 7, debtor’s counsel spent an additional two and eight-tenths hours preparing for and attending the debtor’s Chapter 7 § 341 meeting.
Certainly, the trustee is justified in objecting to the fee statement since it fails to provided sufficient detail to inform her of what was involved in the preparation. Debt- or’s counsel should have provided a specific statement of the matters attended to or discussed during the time in question, rather than the broad notation that counsel “prepared” for the § 341 meetings. When large amounts of time are expended on a single task, the itemization should contain sufficient detail to inform reviewing parties on how the time was spent so they can judge the reasonableness of the request for compensation.
Based upon the Court’s prior experience with time spent in § 341 meetings, the Court is willing to presume that each of the § 341 meetings took at least one hour of counsel’s time. Perhaps in reality each meeting took more time than this, but without more explanation than is offered, the Court can only assume that there was nothing unusual about these meetings and that they did not last more than one hour each. Since the Court has no foundation for giving counsel the benefit of the doubt, it is unwilling to allow fees for more than one hour per meeting. When this time is deducted from the five and eight-tenths hours applied for on the two hearings combined, counsel spent three and eight-tenths hours on unexplained “preparation.” Unlike attendance at a § 341 meeting, where the Court can rely upon its prior experience as some gauge of reasonableness, this preparation time cannot be judged without further information. This time could certainly include a number of case aspects needing attention and would not necessarily be unreasonable if properly explained.1 However, debtor’s counsel fails to make sufficient explanation, albeit he bears the burden of satisfying the Court that such time was spent in necessary work on the case.
The trustee’s objection is sustained as to three and eight-tenth’s hours of unaccounted time. The application for attorneys’ fees and expenses is approved in the amount of $3,692.57 only, the amount of the request less the unexplained three and eight-tenths hours of time at the rate of $95 per hour.
This proceeding is core under 28 U.S.C. § 157. The Court has jurisdiction under 28 U.S.C. § 1334 and the general reference order of the District Court effective July 10, 1984 (D.Kan. Rule 705).
The foregoing discussion shall constitute findings of fact and conclusions of law under Fed.R.Bankr.P. 7052 and Fed.R.Civ.P. 52(a).
IT IS SO ORDERED.
. The application did mention time was spent "reviewing” the "initial report.” This time is in the same category as "preparation” time, i.e., time that the Court has no basis for judging without further information from counsel. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491856/ | ORDER
TOM R. CORNISH, Bankruptcy Judge.
On this 7th day of March, 1994, the Motion for Summary Judgment filed January 12, 1994 by the United States of America (Docket Entry No. 15); the Memorandum in Support of Motion for Summary Judgment (Docket Entry No. 16); the Objection to Motion for Summary Judgment of Internal Revenue Service and Plaintiffs’ Motion for Summary Judgment filed February 1, 1994 (Docket Entry No. 19); Plaintiffs’ Brief in Support of Objection to Motion for Summary Judgment of Internal Revenue Service and Plaintiffs’ Motion for Summary Judgment filed February 1, 1994 (Docket Entry No. 20); Stipulation of Facts filed February 1, 1994 (Docket Entry No. 21); and Reply Brief of United States, Re: Motion for Summary Judgment filed February 18, 1994 (Docket Entry No. 22) came on for consideration.
After review of the above-referenced pleadings, this Court does hereby enter the following Findings of Fact and Conclusions of Law in conformity with Rule 7052, Fed. R.Bankr.P., in this core proceeding:
FINDINGS OF FACT
1. The Debtors requested Chapter 7 relief on June 19, 1990.
2. The case was an asset ease and a notice to file proofs of claim was issued by the Clerk on October 16, 1990.
*2203. On January 4,1991, the Internal Revenue Service filed a proof of claim for 1988 taxes ($1,000.00) and 1989 taxes ($2,000.00).
4. On August 16, 1991, the Trustee filed an objection to the Internal Revenue Service claim alleging the taxes had been paid.
5. The Internal Revenue Service did not respond although it received notice.
6. The Court on October 9, 1991 disallowed the claim.
7. At the time the claim was filed, the Debtors had filed their 1988 and 1989 tax returns indicating no tax was due; however, the Examination Division of the Internal Revenue Service was, at that time, auditing said returns.”
8. The bankruptcy case was closed on June 10, 1992.
9. The Debtors received notice of an Internal Revenue Service levy for 1988 taxes for $17,833.92 in June of 1993.
10. On June 23, 1993, the Debtors’ attorney advised the Internal Revenue Service that he believed the levy violated the automatic stay.
11. The following amounts have been offset or seized by the Internal Revenue Service:
$780.00 1991 Tax Return Refund
$650.28 Levy
$11.00 Levy
12. The Debtors moved to reopen the case on August 11, 1993 seeking to enforce the order disallowing the claim and enjoining the Internal Revenue Service from further collection procedures. The case was reopened on September 2, 1993.
13. The Debtors filed an adversary complaint on September 20, 1993 seeking to enjoin the IRS from attempting to collect the 1988 taxes.
CONCLUSIONS OF LAW
A. This matter is a core proceeding to 28 U.S.C. § 157(b).
B. Ordinarily, this Court would have jurisdiction over the Defendant by virtue of the fact that Defendant filed a claim herein and also 11 U.S.C. § 505 which confers authority upon this Court to determine the amount of tax liability of a debtor. The Debtors’ tax liability in question arises out of 1988 personal income taxes which are pre-petition taxes. Thus, the Court has authority conferred upon it by 28 U.S.C. § 157(b) and 11 U.S.C. § 505 to consider these issues. Further, the government has voluntarily submitted itself to this Court’s jurisdiction by filing a claim herein. 11 U.S.C. § 106.
C. The correct method for either party to determine the dischargeability of Debtors’ personal liability for 1988 income taxes under § 505 is through a proper Bankruptcy Rule 7001 proceeding to determine dischargeability. This is not the case. The only related proceeding herein was a claim filed by the Defendant and an objection to the claim filed by the Debtors. The Court entered a default Order, after a failure of the Internal Revenue Service to appear, on the Objection to Claim. Where the decision is not on the merits, the failure to properly file a claim only results in the cre'ditor not participating in any distribution of the bankruptcy estate. See, e.g., In re Grynberg, 986 F.2d 367 (10th Cir.1993). The claims process herein under Rule 3003, Fed.R.Bankr.P., did not determine dischargeability of the tax liability of the Debtors and was not decided on the merits.
D. Since no adversary complaint was filed under Rule 7001, Fed.R.Bankr.P., to determine the dischargeability of the Debtors’ 1988 taxes by either the Debtors or the IRS, this issue was not reached in the bankruptcy proceeding. Res judicata or issue or claim preclusion is inapplicable since the determination of dischargeability or the factual issues determining same were not “actually litigated” by this Court or any other Court. See In re Wallace, 840 F.2d 762 (10th Cir.1988). No findings of fact or conclusions of law have been entered concerning the dischargeability of Debtors’ 1988 federal tax liability. The legislative history of 11 U.S.C. § 505 outlines the procedure to be followed; i.e., when a Bankruptcy Rule 7001 complaint is not filed by either the debtor or taxing authority, the proper forum to challenge the IRS deficiency notice would be the *221Tax Court since Debtors’ personal liability has not been determined in the bankruptcy proceeding. See In re Grynberg, supra.
The Court finds that the post-discharge collection activity of the Internal Revenue Service is not barred by the Court’s October 9, 1991 Order or any other Order issued by this Court.
IT IS THEREFORE ORDERED that the Motion for Summary Judgment filed by Defendant United States of America is granted. The Motion for Summary Judgment filed by Plaintiffs is denied. This Order is entered without prejudice to the right of the'Debtors to file an amended adversary complaint concerning dischargeability within twenty (20) days. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491857/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
THIS is a yet-to-be confirmed Chapter 11 ease and the matter before the Court is a complaint for injunctive relief filed by the Minnelusa Company (Debtor) against A.G. Andrikopoulos, George A. Seifert, and John and Marjorie Dunn, as Trustees of the Dunn Trust (Defendants), judgment creditors of the Debtor. The facts relevant to resolution of this controversy as established at the final evidentiary hearing are as follows:
At the time of the commencement of this Chapter 11 case, the Debtor owned and operated a marine facility known as the Deep Lagoon Marina in Ft. Myers, Florida. The Defendants were stockholders of the Debtor until late 1980 when the Debtor repurchased the Defendants’ stock. The repurchased stock was placed in escrow pending satisfaction of the promissory notes executed by the Debtor representing the consideration for the stocks repurchase. The Notes were *226guaranteed by Frank Gower, (Gower) the current principal and twenty-four per cent shareholder of the Debtor.
•In January, 1992, the Debtor and Gower entered into an agreement replacing the original repurchase transaction. Pursuant to this agreement the Debtor executed new notes in favor of the Defendants which were again personally guaranteed by Gower. In early 1993, the Debtor notified the Defendants that no further payments will be made on the notes, based upon the Debtor’s claim that Florida’s stock repurchase statute 607.-017(4) FlaSiat, prohibits payment on the notes because the Debtor was “insolvent” at the time of the execution of the notes and the guarantee and, therefore, the notes are not enforceable.
In April, 1993, the Defendants filed suit against the Debtor and Gower in state court in Colorado. On January 10, 1994, the court in Colorado granted summary judgment in favor of the Defendants and against the Debtor and Gower on the promissory notes and on the guarantee in the amount of $300,-000.00.
On January 18, 1994, the Debtor filed its Petition for Relief under Chapter 11 of the Bankruptcy Code, which of course prevented any attempt to enforce the judgment by the Defendants against the Debtor. In February, 1994, the Debtor filed its Complaint for Injunctive Relief under § 105 in order to protect Gower from the collection of the judgment by the Defendant.
It is a well-recognized proposition that the automatic stay was designed to protect debtors and property of the estate and does not protect others including the non-debtor principals, of a debtor entity. However, it is also true that in an exceptional circumstance, the Bankruptcy Court may use its § 105 power to temporarily protect non-debtors by way of an injunction against collection actions by creditors against non-debtors affiliated with a debtor entity.
It is generally recognized that injunction is an extraordinary remedy and the party seeking injunctive relief has the burden to establish the following:
(1) a strong probability of success on the merits;
(2) irreparable injury to the movant if the relief sought is not granted;
(3) granting injunctive relief will not cause substantial harm to the party against whom the injunctive relief is granted; and
(4) the public interest will be best served by issuing the preliminary injunction.
In re Otero Mills, Inc., 25 B.R. 1018 (D.C.1982); Matter of Old Orchard Inv. Co., 31 B.R. 599 (D.C.1983); In re Myerson & Kuhn, 121 B.R. 145 (Bankr.S.D.N.Y.1990). Because injunctive relief is an extraordinary remedy, it should not be routinely granted. It should be granted only upon a clear showing that the movant established all the elements required to obtain injunctive relief. United States v. State of New York, 552 F.Supp. 255 (N.D.N.Y.1982).
There are generally two instances in a Chapter 11 case when injunctive relief was found to be justified, albeit only on a temporary basis. One, when a principal of a debt- or who himself is not a debtor, is the key person and as such should be temporarily protected against lawsuits in order to enable the non-debtor principal to devote full time and energy to the affairs of a debtor, especially at the initial stage of the case. Thus, upon showing that his time and energy is needed in order to allow him to tend to the affairs of a debtor and to devote his full time to formulating a plan of reorganization, the non-debtor principal may be entitled to temporary protection. The second instance when injunctive relief was found to be justified was when the individual non-debtor’s assets were to be used as a source to fund the plan, either through sale of the asset or when the preservation of his credit standing and his ability to borrow played a significant and meaningful role in a debtor’s attempt to achieve reorganization, St. Petersburg Hotel Associates, Ltd., 37 B.R. 380 (Bankr.M.D.Fla.1984). In such situations, injunctive relief was granted to protect the non-debtor principal at least until the necessary financing to fund the plan of reorganization was secured.
Applying these general principles to the facts involved in the present instance, *227this Court is satisfied that the proof present; ed by the Debtor in support of the injunctive relief sought falls far short of the persuasive force required under the applicable legal principles. There is nothing in this record to show that Gower is the hands-on principal of this Debtor who devotes his full time to the Debtor’s affairs. Gower is not even a resident of Florida, he resides in Colorado. The business of the Debtor is run by manager Jim Bates, who is supervised by president and chairman Paul Hoovler.
The evidence offered as to Gower’s contribution to this Debtor’s Plan of Reorganization is scant as well. It was presented that Gower would be willing to provide the $100,-000.00 necessary to cure the arrears on the BancFlorida loan, the major secured creditor of the Debtor, which may produce a consensual plan. However, it is also clear that Gower’s own admission places his assets in excess of $1.5 million. Clearly, Gower has the assets to satisfy the judgment, and provide the $100,000.00 contribution needed by this Debtor.
Lastly, it is clear even if the injunction sought is granted it will be only temporary and certainly would not protect Gower post-confirmation.
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/8491859/ | MEMORANDUM OPINION
JOHN E. RYAN, Bankruptcy Judge.
On September 16,1993, Susann E. Rostler (“Debtor”) filed an amendment to her bankruptcy schedules, claiming an increased homestead exemption of $100,000 under California Code of Civil Procedure (“C.C.P.”) § 704.730(a)(3)(B). Debtor claimed that as a result of her pre-petition use of the drug L-tryptophan she was rendered disabled and unable to engage in substantial gainful employment. On October 12, 1993, Charles Daff, the Chapter 7 trustee (“Trustee”), objected to Debtor’s amendment because the evidence indicated that Debtor was not entitled to the increased homestead exemption under C.C.P. § 704.730(a)(3)(B).
At a hearing on March 16,1994,1 took the matter under submission to determine whether Debtor was entitled to the increased exemption under C.C.P. § 704.730(a)(3)(B).
JURISDICTION
This court has jurisdiction over this case pursuant to 28 U.S.C. § 1334(a) (1994) (the district courts shall have original and exclusive jurisdiction of all cases under title 11), 28 U.S.C. § 157(a) (1994) (authorizing the district courts to refer all title 11 eases 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)(E) (1994).
FACTS
On January 19, 1991, Debtor filed a voluntary petition for relief under Chapter 7 of the *410Bankruptcy Code (the “Petition Date”).1 On February 1, 1991, Trustee was appointed.
On September 16, 1993, Debtor filed an amendment to her bankruptcy schedules, claiming a $100,000 homestead exemption under C.C.P. § 704.730(a)(3)(B), which allows an increased exemption based upon a debt- or’s inability to work as the result of a disability.
At Debtor’s examination under Federal Rule of Bankruptcy Procedure (“Rule”) 2004 on April 30, 1991, Debtor testified that she had operated her own retail garment business for the eight years prior to her bankruptcy and before that took business and finance courses at the University of Southern California. Debtor also testified that since the filing of bankruptcy, she had closed her retail store but continued to sell women’s fashions as a “jobber.”2 Debtor also testified that she was studying for the California real estate broker’s examination and that she had a position available to her in real estate sales if she did not pass the broker’s examination.
On March 3, 1993, Richard M. Rees, M.D. (“Dr. Rees”) examined Debtor. On April 1, 1993, Dr. Rees opined that as a result of Debtor’s pre-petition use of L-tryptophan, Debtor was suffering from Eosinophilia Myalgia Syndrome (“EMS”). According to Dr. Rees, beginning late 1990 or early 1991, Debtor experienced memory deficiency and mental confusion. Dr. Rees’ opinion was based primarily on Debtor’s statements, and he stated that he did not rely on Debtor’s prior medical records because they were unavailable. Despite a lack of medical records, Dr. Rees concluded that Debtor had EMS, and no other diagnosis explained her condition. Based on his EMS diagnosis, Dr. Rees opined that Debtor was, and is, incapable of gainful employment.
Debtor also testified that she had EMS symptoms as of the Petition Date. Debtor, therefore, asserts that she is entitled to the increased homestead exemption under § 704.730(a)(3)(B) because, due to her EMS, she was incapable of substantial gainful employment.
Trustee objects to Debtor’s increased exemption, asserting that Debtor, as of the Petition Date, was not suffering from a physical or mental disability. Trustee further asserts that even if Debtor was suffering from a physical or mental disability as of the Petition Date, she had not shown that the disability rendered her unable to engage in substantial gainful employment as required by § 704.730(a)(3)(B).
At the hearing on March 16, 1994, I took the matter under submission to determine whether Debtor was entitled to the increased exemption under C.C.P. § 704.730(a)(3)(B).
DISCUSSION
Bankruptcy Code (“Code”) § 522(b)3 provides an individual debtor with a choice between federal and state exemption systems unless the applicable state prohibits its debtors from electing the federal exemptions. *411Pursuant to C.C.P. § 703.130,4 California has expressly disallowed its debtor citizens from claiming exemptions pursuant to § 522(d). Instead, California has established its own exemption system contained in C.C.P. §§ 704.010 et seq. Under the California system, homestead exemptions are codified in C.C.P. § 704.730(a).5 A debtor may elect the exemptions set forth in C.C.P. § 704.730(a), provided that the debtor is eligible for an exemption as of the date of the petition. In re Dore, 124 B.R. 94, 98 (Bankr.S.D.Cal. 1991).
Rule 4003 sets forth the requirement that the debtor file a list of his or her -exempt property. Rule 1009 provides that an amendment to the debtor’s listed exemptions can be made at any time before the case is closed. If no objection is raised to the debt- or’s list of exempt properties within 30 days of the amendment, or within such time as the court orders, the debtor’s claimed exemptions are automatically approved and are not subject to review or revocation. Taylor v. Freeland & Kronz, — U.S.-,-, 112 S.Ct. 1644, 1648, 118 L.Ed.2d 280, 287 (1992). If an objection is timely raised, Rule 4003(c) provides that the objecting party has the burden of proving that the exemption is not properly claimed. In re Moffat, 107 B.R. 255, 258 (Bankr.C.D.Cal.1989).
On September 16, 1993, Debtor properly amended her schedules to claim the increased exemption under § 704.730(a)(3)(B). On October 12, 1993, Trustee timely filed an objection to Debtor’s claimed exemption. Trustee, therefore, has the burden of proving that Debtor is not entitled to the $100,000 homestead exemption under C.C.P. § 704.-730(a)(3)(B).
C.C.P. § 704.730(a)(3)(B) is a relatively new addition to California’s scheme of property exemptions. Since its enactment in 1991, California courts have provided little guidance on how to apply the exemption. The plain language of C.C.P. § 704.-730(a)(3)(B), however, establishes two requirements. First, the debtor has a mental or physical disability. Second, as a result of the mental or physical disability, the debtor is unable to engage in substantial gainful employment. When asserting the exemption in bankruptcy, these conditions must exist as of the date of the petition. Dore, 124 B.R. at 98.
Addressing the first requirement of § 704.730(a)(3)(B), Trustee asserts that Debtor’s evidence is insufficient to establish that she had a mental or physical disability as of the Petition Date. Specifically, Trustee argues that because Dr. Rees’ diagnosis did not specify the exact date that Debtor began suffering from EMS, it is unclear whether Debtor had EMS as of the Petition Date.
The Ninth Circuit recognizes that a mental disability is not as easy to substantiate by objective laboratory testing as a medical impairment. Lazarich v. Heckler, 593 F.Supp. 766, 770 (N.D.Cal.1984). In general, mental disorders cannot be ascertained and verified like physical illnesses because, unlike other parts of the body, the mind cannot be probed by mechanical devices to obtain objective clinical manifestations of mental illness. Le-*412bus v. Harris, 526 F.Supp. 56, 60 (N.D.Cal.1981). Moreover, the Ninth Circuit has suggested that “there may be people who are really disabled, and can be found so by medically acceptable clinical diagnostic techniques, even though laboratory techniques do not support the diagnosis.” Flake v. Gardner, 399 F.2d 532, 540 (9th Cir.1968). Here, Dr. Rees diagnosed Debtor as suffering from EMS as of the Petition Date. Under Federal Rule of Evidence (“FRE”) 104, this evidence must be given some weight. Russell, Bankruptcy Evidence Manual, 1993 Ed., § 104.
Debtor also testified as to her symptoms as of the Petition Date, further supporting Dr. Rees’ diagnosis. Trustee offered no evidence in response. Under the circumstances, I find that Trustee has failed to meet his burden of proving that Debtor was not suffering from EMS as of the Petition Date. Accordingly, Debtor has satisfied the first requirement of C.C.P. § 704.-730(a)(3)(B).
Turning to the second requirement of C.C.P. § 704.730(a)(3)(B), Trustee asserts that Debtor’s deposition testimony shows that she was able, and did, engage in substantial gainful employment as of the Petition Date. In response, Debtor maintains that she was unable to maintain substantial gainful employment and again offers Dr. Rees’ and her own testimony to support her contention.
As a preliminary matter, Debtor requests that I review her prior testimony in light of her affliction with EMS. Debtor contends that EMS affected her memory and, therefore, the accuracy of the testimony that she gave at her 2004 examination. FRE 601, however, does not recognize mental capacity as a basis for witness incompetency, although the court can give some weight to this factor. Russell, Bankruptcy Evidence Manual, 1993 Ed., § 601.2. As long as Debtor testified from personal knowledge and understood her duty to tell the truth, Debtor was competent to testify. Here, Debtor had personal knowledge of the facts because she was testifying about her own experiences. Additionally, Debtor acknowledged that she understood the duty to tell the truth. I observed Debtor testify in this proceeding and found her competent. She understood the issues and gave cogent testimony. I did not observe her having memory losses or difficulty understanding the questions. I find no merit in Debtor’s request to disregard unfavorable prior testimony while weighing testimony favorable to her cause.
Turning to the substantive requirements of C.C.P. § 704.730(a)(3)(B), as of the Petition Date, Trustee must show that Debtor was able to engage in substantial gainful employment.
The legislative history and case law have not defined the phrase “substantial gainful employment.” Section 704.-730(a)(3)(B) does presume that a recipient of federal disability benefits under Subchapters II6 or XVI7 of the Social Security Act (the “Act”)8 is unable to engage in substantial gainful employment. In order to qualify for disability benefits under the Act, a claimant must show that he or she is disabled and, as a result of the disability, is unable to engage in “substantial gainful activity.” Lackey v. Celebrezze, 349 F.2d 76, 77 (4th Cir.1965). Because § 704.730(a)(3)(B) refers to the Act and uses the same qualifying language when determining a disability, I will look to the Act eases for guidance in interpreting the meaning of “substantial gainful employment.”
In Corrao v. Shalala, 20 F.3d 943, 946 (1994), the Ninth Circuit held that the definition of “substantial gainful activity” under the Act focuses on the nature of the claimant’s work activities. The Corrao court held that work activity is “substantial” if it involves significant physical or mental activities. Id. Work activity is “gainful” if it is the kind of work usually done for pay or profit, whether or not a profit is realized. Id. at 946. Self-employment as well as com*413petitive employment is included within the definition of “substantial gainful activity.” Campbell v. Flemming, 192 F.Supp. 62, 63 (1961).
I find that to qualify for the § 704.-780(a)(3)(B) exemption, therefore, Debtor must have been, as of the Petition Date, unable to: (1) perform meaningful mental or physical work-related activity; (2) in a competitive or self-employed position; (3) that normally results in pay or profit.
Here, Debtor operated her own retail garment business for the eight years prior to bankruptcy. As of the Petition Date, she had closed her retail location, but continued to operate the business by purchasing inventory and employing others to act as sales representatives on her behalf. As a sole proprietor, Debtor made hiring, purchasing and other business decisions that significantly impacted her ability to maintain the retail operation. As further indicia of Debtor’s work-related capabilities, Debtor planned to enter the real estate field. These business and career planning decisions necessarily required meaningful, work-related, mental activity.
Debtor’s self-employed status as a “jobber,” does not prevent a finding of substantial gainful employment. Campbell, 192 F.Supp. at 63. Additionally, Debtor indicated that she planned on entering the field of real estate and was confident of obtaining a position as a sales agent. Her opinion of her work-related abilities along with her operation of a retail garment business negates a finding that Debtor was unable to maintain substantial gainful employment as of the Petition Date.
Debtor testified that she earned $800 a month from her retail business. Her income was also supplemented by her mother during this period. It is not necessary that Debtor generate sufficient income for support for her to be considered gainfully employed. Rather, the relevant inquiry is whether she was engaged in a business that normally results in pay or profit. Corrao, 20 F.3d at 946. The $800 monthly profit that Debtor did make supports a finding that she was involved in a profit-making enterprise. Moreover, she planned on generating additional income as a real estate agent.
In response, Debtor asserts that Dr. Rees testified that she was unable to engage in gainful employment as of the Petition Date. Dr. Rees, however, was not Debtor’s physician at the time. In fact, he did not examine Debtor until March 3, 1993, more than two years after the Petition Date. In light of Debtor’s own testimony that she was actually employed as of the Petition Date and had the realistic expectation of additional employment in the real estate field, I am not persuaded by Dr. Rees’ opinion^
Accordingly, I find that Trustee has satisfied his burden of proving that Debtor, despite her EMS, was able to maintain substantial gainful employment as of the Petition Date. Debtor, therefore, is not entitled to the increased homestead exemption.
CONCLUSION
Trustee failed to establish that Debtor did not have EMS, a disabling condition, as of the Petition Date. Trustee, however, did show that Debtor was able to engage in substantial gainful employment as of the Petition Date.
Because both requirements for an increased exemption under C.C.P. § 704.-730(a)(3)(B) have not been satisfied, Trustee’s objection to Debtor’s increased exemption is sustained.
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.
. On April 17, 1991, Debtor’s Chapter 7 case was converted to Chapter 13. On September 10, 1991, I reconverted Debtor’s case to Chapter 7.
. As a "jobber,” Debtor acquired an inventory of garments and employed others to sell the garments on her behalf.
. Code § 522(b)(1) provides:
Notwithstanding section 541 of this title, an individual debtor may exempt from property of the estate the properly listed in either paragraph (1) or, in the alternative, paragraph (2) of this subsection.... Such property is—
(1) properly 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 properly that is exempt under Federal law, other than subsection (d) of this section, or State or local law that is applicable on the date of the filing of the petition at the place in which the debtor’s domicile has been located for the 180 days immediately preceding the date of the filing of the petition, or for a longer portion of such 180-day period than in any other place; and
(B) any interest in property in which the debtor had, immediately before the commencement of the case, an interest as tenant by the entirety or joint tenant to the extent that such interest as a tenant by the entirety or joint tenant is exempt from process under applicable non-bankruptcy law.
. C.C.P. § 703.130 provides:
Pursuant to the authority of paragraph (1) of subsection (b) of Section 522 of Title 11 of the United States Code, the exemptions set forth in subsection (d) of Section 522 of Title 11 of the United States Code (Bankruptcy) are not authorized in this state.
. C.C.P. § 740.730(a) provides that the amount of a homestead shall be:
(1) Fifty thousand dollars ($50,000) unless the judgment debtor or spouse of the judgment debtor who resides in the homestead is a person described in paragraph (2) or (3).
(2) Seventy-five thousand dollars ($75,000) if the judgment debtor ... resides in the homestead at the time of the attempted sale and was a member of a family unit.
ft) One hundred thousand dollars ($100,000) if the judgment debtor or spouse of the judgment debtor who resides in the homestead is at the time of the attempted sale of the homestead any one of the following:
(A) A person 65 years of age or older.
(B) A person physically or mentally disabled and as a result of that disability is unable to engage in substantial gainful employment. There is a rebuttable presumption affecting the burden of proof that a person receiving disability insurance benefit payments under Title II or supplemental security income payments under Title XVI of the federal Social Security Act satisfies the requirements of this paragraph as to his or her inability to engage in substantial gainful employment.
. 42 U.S.C. §§ 401-433 (federal old-age, survivors, and disability insurance benefits).
. 42 U.S.C. §§ 1382-83 (supplemental security income for aged, blind, and disabled).
. 42 U.S.C. §§ 301, et seq. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491860/ | ORDER DENYING AMENDED MOTION TO EXTEND TIME TO FILE COMPLAINT TO DETERMINE DIS-CHARGEABILITY AND TO OBJECT TO DISCHARGE
LEWIS M. KILLIAN, Jr., Bankruptcy Judge.
THIS MATTER is before the Court on the amended motion of Gwyndoline T. Earp and Curtis D. Earp (“creditors”) for an extension of time to file a complaint to determine the dischargeability of certain debts and to object to the Debtor’s discharge. On May 18, 1994, the creditors filed a motion to extend by a thirty days the time for filing a complaint under §§ 523(c) and 727. On May 26, 1994, the Debtor filed an objection stating that the creditors’ motion was filed after the May 16, 1994 deadline for filing such complaints and was, therefore, improper. The Court denied the creditors’ motion on May 31, 1994. Thereafter on June 16, 1994, the creditors filed the instant motion amending their earlier motion to include a claim of excusable neglect as basis for an extension of time following the expiration of time to file such complaints. For the reasons stated herein, the creditors’ amended motion must also be denied.
Excusable neglect is addressed in the “time” provisions of Bankruptcy Rule 9006(b) which reads in part:
Except as provided in paragraphs (2) and (3) of this subdivision, when an act is required or allowed to be done at or within a specified period by these rules or by a notice given thereunder or by order of court, the court for cause shown may at any time in its discretion ... (2) on motion made after the expiration of the specified period permit the act to be done where the failure to act was the result of excusable neglect.
Thus, the discretion of a court to permit a party to complete an act following an expiration of the time specified by the rules due to the excusable neglect of the party is expressly limited by Rule 9006(b).
Paragraphs (2) and (3) of Rule 9006(b) specify where enlargement is either not permitted or permitted only within the requirements of the rule permitting an act. Included in the latter category are Rules 4004 and 4007 which govern the time for filing a complaint objecting to discharge and determining dischargeability, respectively. Both rules permit a party to seek an extension of time for filing complaints, but such motions must be made before the deadline imposed by the rules. Rules f00f(b) and . f007(c), F.R.Bankr.P. Failure to request an extension of time to file a discharge or discharge-ability complaint prior to the deadline is fatal, especially where the party has knowledge of, or could easily ascertain the deadline. See, In re Williamson, 15 F.3d 1037, 1039 (11th Cir.1994). Accordingly, it is
ORDERED AND ADJUDGED that the creditors’ amended motion for an extension of time to file complaints under §§ 727 and 523(c) be, and hereby is denied.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491861/ | ORDER ON OBJECTION TO ADMINISTRATIVE CLAIM OF LORAL
ALEXANDER L. PASKAY, Chief Judge.
THIS is a confirmed Chapter 11 reorganization case, and the matter under consideration is an Application for Administrative *447Expense, filed by the Committee for the Libraseope Retirement Plan (Loral) and the Objection to its Claim filed by the Debtor. In its Claim, Loral contends it is entitled to an allowance as cost of administration in the approximate amount of $3.7 million which represents the loss allegedly suffered by the Singer Master Trust (Master Trust) resulting from the Debtor’s alleged post-petition breach of its fiduciary duty as Master Trust sponsor arising from an allegedly improvident investment. In opposition, the Debtor contends that it did not violate its duty as the Master Plan sponsor and it did conduct due diligence in connection with this investment, and that the Master Trust was not damaged by this investment. In due course this matter was set for final evidentiary hearing, and the facts relevant to resolution of this controversy, as established at that hearing, are as follows:
During the time relevant, the Debtor was the sponsor of its retirement plan, known as the Singer Master Trust (Master Trust). Under the Master Trust, the Debtor was authorized to appoint the Named Fiduciary for Asset Management. David Redmond (Redmond) who served as the Debtor’s President and Chief Executive Officer, was also appointed to act as the Named Fiduciary for Asset Management for the Master Trust. Under the Master Trust, the Debtor was charged with the ultimate responsibility for supervising all investments of Pension Plan assets. The Northern Trust Company (Northern Trust) was named as Trustee for the Master Trust.
In early 1990, Redmond was approached by Fred Bullard (Bullard), a local businessman and land developer. Redmond met Bul-lard before and Bullard suggested to Redmond a possible investment by the Trust in real estate. Bullard initially attempted to suggest this investment to Paul Bilzerian (Bilzerian), who prior to 1990 was CEO of the Debtor and also acted as the Named Fiduciary of the Master Trust who directed Bullard to contact Redmond to discuss the proposal of Bullard.
Initially, Bullard suggested that the Trust purchase a tract of land located in Osceola County, Florida, which was involved in a foreclosure at the time. The land in questions is adjacent to land owned by the Walt Disney Company, close to Disney World. Redmond rejected the concept, stating that the Master Trust was not interested to invest and own real property. Therefore, Redmond agreed to loan the funds of the Master Trust to Bullard, solely on a short-term basis, in order to enable Bullard to purchase the property at foreclosure. It was understood that Bullard would find replacement financing and repay the funds advanced by the Trust in full.
The closing of the loan was scheduled shortly after Bullard’s first meeting with Redmond and the time available to Redmond to conduct due diligence was limited. When Redmond submitted the proposed transaction to Northern Trust, it was rejected because of the haste in processing this loan and because of the shortness of time it was not possible to properly investigate the proposed loan. Under the terms of the Trust Agreement, for approval of any investment of trust funds, Northern Trust’s consent was required. However, the Master Trust permitted the creation of a special Separate Investment Trust for the purpose of managing a special asset of the Master Trust, for which the Trustee was unwilling or unable to act for any reason. (Loral’s Exh. 1). This Special Trust was to be created by a written instrument, and an Investment Trustee was to be designated to take custody and manage the asset, the corpus of the Special Investment Trust. Redmond did establish a Special Trust, for the purpose of managing the Bullard loan, which was its sole asset, and Redmond named himself to act as the Investment Trustee of this Special Trust. Redmond authorized and directed Northern Trust to transfer the funds. Northern Trust complied with the request and transferred the funds necessary to consummate the proposed transaction with Bullard.
The Bullard loan was closed on March 30, 1990, and the Master Trust loaned $3,167,-000.00 to an entity created by Bullard known as Gateway Prospect, Inc. (Gateway), the named borrower and the purchaser of the Osceola property. The initial promissory note had a one-year maturity date, and car*448ried a high interest rate of 24% in order to encourage Gateway to seek refinancing. The Note was secured by a first mortgage on the property and was personally guaranteed by Bullard.
Prior to closing Bullard was requested and did furnish his personal financial statement. It is without dispute that this financial statement was unaudited and was prepared by Bullard himself and Redmond was aware that the financial statement was unaudited and prepared by Bullard. Redmond did not undertake any independent investigation into Bullard’s financial strength and his ability to respond to his guarantee in the event Gateway defaulted on the loan.
In connection with this transaction, Redmond employed the law firm of Glenn, Rasmussen & Fogarty (Law Firm) to assist him in connection with the required due diligence. The attorney of the Law Firm undertook an independent investigation of this proposed investment by the Trust. Part of that investigation was a review of appraisals supplied by Bullard, discussions with engineers about the feasibility of the planned use for the land, and an environmental audit to ascertain any potential environmental liabilities or obstacles. It is without dispute that no new appraisal was ordered by Redmond, nor was the appraisal provided by Bullard investigated.
In September, 1990, Gateway failed to make an interest payment of $380,000.00. It is without dispute that Redmond did not demand Bullard respond on his guarantee and cure the default. Instead, Redmond agreed to rewrite the Note extending the term of the Note by rolling all past due interest payments into the principal to be paid at the new maturity of the Note. Redmond did not request any additional security as consideration for rewriting the Note. It is without dispute that neither Redmond nor any one else from the Trust monitored Gateway’s attempts to develop this land. On March 30, 1991, the renewed Note fully matured, and when the Note was called Gateway was unable to satisfy its obligation under the Note.
In 1992, Northern Trust filed suit to foreclose its mortgage securing the Note. The foreclosure was uncontested by Gateway and on September 24, 1992, a Stipulated Final Judgment of Foreclosure was entered in favor of Northern Trust. The Final Judgment was entered in favor of Northern Trust in a total amount of $5,151,556.81 including costs and pre-judgment interest through September 17,1992, and the property was purchased by Northern Trust on behalf of the Master Trust at the foreclosure sale.
Based upon these facts, Loral contends that this Special Trust was created by Redmond in order to circumvent Northern Trust’s rejection of the Bullard investment and second that Redmond breached the fiduciary duty of the Debtor owed to the Master Trust and imposed by the Employee Retirement Income Security Act of 1974 (ERISA) 29 U.S.C. § 1001, et seq., and therefore, the Debtor is liable for the damages incurred by the Trust as a result of the Gateway investment. The claim for administrative expense filed by Loral is in a total amount of $4,561,-298.69. This amount includes costs, interest and attorney’s fees not awarded in the foreclosure judgment, as well as a credit of $1,450,000.00 for the fair market value of the property at the time of the foreclosure which was purchased at the foreclosure sale by Northern Trust on behalf of the Master Trust and is still owned by the Master Trust. In support of the objections under consideration, the Debtor contends first that the due diligence conduct by Redmond was sufficient and the investment was proper and the Debt- or did not breach its fiduciary duty owed to the Master Trust. Lastly, and possibly most importantly, the Debtor contends that since the Master Trust is substantially overfunded, the Master Trust suffered no losses and, therefore, is not entitled to damages.
The Master Trust Agreement obligates all individuals and entities owing a fiduciary duty to the Plan to carry out that responsibility prudently, and for the exclusive benefit of the Plan’s beneficiaries, and in accordance with the terms and conditions of ERISA. (Loral’s Exh. 1). ERISA § 404(a)(1) sets forth the standards of fiduciary conduct, which provides, in pertinent part, that a fiduciary must discharge his or *449her duties “solely in the interest of the participants and beneficiaries” and:
(A) for the exclusive purpose of:
(i) providing benefits to participants and their beneficiaries; and
(ii) defraying reasonable expenses of administering the plan;
(B) with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims
(D) in accordance with the document and instrument governing the plan.
29 U.S.C. § 1104(a)(1). These obligations are referred to as “The Prudence Requirement” and the “Exclusive Benefit Requirement.”
The Prudence Requirement and the Exclusive Benefit Requirement are the key protections afforded by ERISA. Donovan v. Cunningham, 716 F.2d 1455 (5th Cir.1983), cert. denied, 467 U.S. 1251, 104 S.Ct. 3533, 82 L.Ed.2d 839 (1984). The Prudence Requirement requires a fiduciary making a pension plan investment decision to give “appropriate consideration” to those facts and circumstances that, given the scope of the investment duties, the fiduciary should know are relevant to the particular investment or courses of action involved, and to act accordingly. 29 U.S.C. § 1104(a)(1)(B). ERISA does not excuse a fiduciary’s breach of duty because the fiduciary acted in good faith. Martin v. Walton, 773 F.Supp. 1524 (S.D.Fla.1991). In addition, ERISA princi ples hold fiduciaries to a more exacting standard than common law of trusts standards. Donovan v. Mazzola, 716 F.2d 1226 (9th Cir.1983); Martin v. Walton, supra. § 404(a)(1)(B) explicitly holds fiduciaries to the standard of a prudent expert, rather than that of a prudent layman. In situations where pension plan fiduciaries are making loans, the fiduciary is held to the standard of professional bankers and bank investment advisers. Katsaros v. Cody, 744 F.2d 270 (2d Cir.) cert. denied, 469 U.S. 1072, 105 S.Ct. 565, 83 L.Ed.2d 506 (1984). The fiduciary’s conduct must be evaluated as of the time of the investment, without considering the ultimate success or failure of .the investment. Donovan, supra.
In evaluating the loan by the pension plan, the Court may consider several factors in determining the prudence of the fiduciary’s decision, including:
(1) Whether the fiduciary sought the advice of independent counsel in making the decision;
(2) The interest rate of the loan compared to other assets in the fund’s portfolio;
(3) The ability of the borrower to repay the loan;
(4) The value of the collateral pledged to secure the loan;
(5) The fiduciary’s evaluation of the value of the collateral;
(6) Whether a guaranty of the loan was executed;
(7) The financial ability of the guarantor to pay the borrower’s obligations in the event of a default.
Donovan v. Walton, 609 F.Supp. 1221 (S.D.Fla.1985); Brock v. Walton, 794 F.2d 586 (11th Cir.1986); Katsaros, supra; Donovan v. Mazzola, supra.
In evaluating this loan according to these factors, it is clear that Redmond did in fact obtain the advice of independent counsel in employing the Law Firm to assist in due diligence. In addition, it is clear that the interest rate of the loan was appropriate in view of the circumstances surrounding the transaction. Finally, this Court is satisfied that the collateral pledged was sufficient to secure the loan, based upon the location of the property and the physical attributes of the property as set forth by the testimony at trial. However, this Court is equally satisfied that the fiduciary breached his duty of prudence by accepting an unaudited financial statement from Bullard, without so much as a question as to the information contained in the financial statement. It is clear that no investigation was done into the ability of Bullard to pay Gateway’s obligation in the event of default. In this Court’s judgment, Redmond’s familiarity with Bullard personally and as a real estate developer is not an adequate substitute for an appropriate inves*450tigation into the guarantor’s ability to satisfy the loan in the event of default. Based upon the foregoing, this Court is satisfied that Redmond did breach his duty of prudence.
This leaves for consideration the amount of damages to be awarded to Loral. The damages asserted by Loral are comprised of two components: losses associated with the default on the loan, and attorney’s fees, expenses and interest.
In considering the value of the property, this Court has considered the testimony of the appraisers, together with their written reports, and finds that the value assigned to the property by the Debtor’s appraiser is more accurate. The appraiser for Loral provided comparables which were not truly comparable to the subject property, including properties which did not have utilities accessible, and which were not located on paved roads, both attributes of the subject property. Therefore, this Court accepts the value of $3.4 million for the subject property.
In addition, it should be noted that Loral still owns the property and therefore, has not suffered any actual loss as a result of this investment. Instead the loss asserted by Loral is in actuality speculative. In fact, in view of the location of the property contiguous with Disney property, and the expected development of the Disney properties in the future, it is not inconceivable that this property will increase in value in the near future. Furthermore, Loral incurs little overhead cost in holding the property, the only cost being property taxes. The fact that the Trust may have made money had the investment been made prudently is also speculative. The Trust can be compensated only for actual loss, which, this Court is satisfied was not suffered by Loral.
This leaves for consideration the remainder of the claim, the bulk of which is made up of attorney’s fees. Loral, in its claim, seeks in excess of $35,000.00 in attorney’s fees for the foreclosure of the subject property.' It is uncontroverted in this record that the foreclosure was uncontested. It is also clear that the attorneys who were hired to handle the foreclosure were located in distant cities, the closes being Miami, to handle a foreclosure in Orlando. Finally, this Court is satisfied that $35,000.00 is an unreasonable amount of fees for a simple uncontested foreclosure action which was resolved by a stipulated final judgment. Therefore, this Court is satisfied that an appropriate amount of fees for an uncontested foreclosure is $1,000.00, and Loral is awarded this amount.
In addition, Loral seeks an additional $123,924.17 for fees and costs incurred in this litigation and for other services. Upon review of the invoices supporting this portion of the claim, this Court is not able to distinguish the specific tasks undertaken by each of the firms, or to establish a designation of what time was spent by what firm in representing Loral in a variety of tasks. Not only are fees for this litigation sought for compensation in this claim, in addition, general representation in the case, as well as in other proceedings outside of this Court, and general advice were rendered on to Loral by these law firms. Without a breakdown, it is impossible for this Court to test the reasonableness of these fees in the context of what services were rendered. Therefore, this portion of the claim shall be disallowed without prejudice to allow Loral to file an amended claim setting out in detail exactly what services were rendered on behalf of Loral, and to designate in what separate actions or matters the services were rendered.
Finally, Loral seeks $7,914.75 for 1993 real estate taxes for the subject property. The record is clear that Loral has held this property for more than a year, and during that time has made no efforts to market or sell the property. Stretching this request for compensation to its logical extreme, Loral could hold the property forever, and hold the Debtor responsible for the property taxes. This Court is satisfied that Loral has not sustained its burden to show that the 1993 real estate taxes are attributable to actual losses of the plan associated with this investment. Therefore, this Court is satisfied that this portion of the claim should be disallowed.
Accordingly, it is
*451ORDERED, ADJUDGED AND DECREED that the Objection to Administrative Claim of Librascope Retirement Plan is hereby sustained, and the claim is hereby allowed in the reduced amount of $1,000.00, without prejudice to allow Loral to file an amended claim setting forth the detail and designation of the attorney’s fees incurred in this case, exclusive of the fees and expenses incurred in the foreclosure action. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491862/ | MEMORANDUM OPINION AND ORDER
JULIE A. ROBINSON, Bankruptcy Judge.
This matter comes before the Court pursuant to the trustee’s Complaint to Determine Secured Status and Avoid Postpetition Transfers, and Objection to Claim. A status hearing was held on March 17,1993, at which time the Honorable James A. Pusateri took the matter under advisement. The parties have agreed to allow the undersigned to rule on this matter based upon the pleadings and briefs filed by the parties. The trustee, Eric C. Rajala, appears pro se. Marjorie Rosahe Kelly appears through her attorney, Edward J. White. Leonard Earl Kelly appears through his attorney, R. Pete Smith.
*722
JURISDICTION
The Court has jurisdiction over this proceeding. 28 U.S.C. § 1334. This is a core proceeding. 28 U.S.C. § 157(b)(2)(B) and (k).
FINDINGS OF FACT
The plaintiff and defendant stipulated to the following facts:
a. That on November 21, 1983, Leonard Earl Kelly (hereinafter “debtor”), and Marjorie Rosalie Kelly (hereinafter “defendant”), were granted a divorce in the District Court of Wyandotte County, Kansas.
b. That as a part of the Decree of Divorce, the defendant was allowed the sum of $125,000 as a property settlement to be paid without interest, as follows: $20,833 per year for a period of six years, to be paid during each of the six years in twelve monthly installments of $500 each, with the balance of $14,833 to be paid on or before December 31 of each year. Decree of Divorce, at ¶ 6B.
c. That additionally, the debtor was ordered to pay to the defendant as alimony, the sum of $1,000 per month beginning December 1, 1983, for a period of 120 months or until defendant’s death or remarriage, whichever event occurred first. Decree of Divorce, at ¶ 6C.
d. That as part of the Decree of Divorce the debtor had set over to him as his sole and separate property, free and clear of any right, title or interest of [defendant], the parties residence at 10429 Riverview, Ed-wardsville, Kansas, subject to any mortgages or encumbrances thereon which debtor assumed and agreed to pay.
e. That in addition to the residence, the Decree set over to the debtor as his sole and separate property an airstrip, plus 45 acres of land and barn adjacent to the residence in Edwardsville.
f. That to secure the installment payments the defendant was given a lien against the parties’ residence at 10429 Riverview, Edwardsville, Kansas.
g. That on November 7, 1989, the debtor filed his petition under Chapter 7 of Title 11 of the United States Code.
h. That the debtor has made no payment on either the property settlement or alimony since the filing of this bankruptcy action.
i. That on March 6, 1990, the defendant filed her Motion for Relief From Stay.
j. That the sum of $35,166 is due and outstanding on the settlement obligation; and there was $9,000 in delinquent alimony payments as of July 11, 1990.1
k. That on April 19, 1990, this Court granted the debtor a homestead exemption in one acre of the residence tract. The Court earlier approved the sale by the Chapter 7 trustee to the debtor of one acre of the residence tract (exclusive of the house and one acre claimed as exempt). Thus, the debtor now holds title to all of the residence tract consisting of the house and two acres.
l. That pursuant to § 541 of the Bankruptcy Code, the plaintiffitrustee, Erie C. Rajala, held title to the adjacent 45 acre tract, until it was sold.
m. That the value of the residence and adjacent 45 acres is in excess of the amount presently due the defendant for the delinquent property settlement installment payments and alimony payments. The minimum agreed value of the residence (house and 2 acre tract) in which the debtor resides is approximately $140,000.
n. That on July 9, 1990, the hearing was held pursuant to defendant’s Motion for Relief From Stay. After hearing arguments of counsel, the Court took the matter under advisement upon the simultaneous filing of memorandum briefs by the parties.
o. On April 3, 1991, the Court entered an order sustaining the motion of the defendant, Marjorie Rosalie Kelly, for relief from the automatic stay to proceed with instituting *723foreclosure actions to collect her unpaid property settlement and alimony, 125 B.R. 301.
p. As of the commencement of the case, the debtor owed the sum of $1,000 to the defendant for alimony, and the sum of $35,-166.00 to the defendant under the property settlement portion of the Decree of Divorce.
q. That the debtor’s obligation under the alimony portion of the Decree of Divorce is nondischargeable pursuant to 11 U.S.C. § 523(a)(5), as the same is in the nature of alimony or support.
r. On March 13, 1992, the Court entered an Order approving the sale by auction of the 45 acres by the trustee, free and clear of liens, with liens to attach to sale proceeds. On June 3, 1992, the Court approved the high bid on the property and confirmed the sale for an amount in the sum of $101,000. After payment of expenses of the sale, the trustee now holds net sale proceeds in the sum of $92,329.00 in an interest bearing account, pending further order of the Court.
CONCLUSIONS OF LAW
The trustee seeks a determination that the defendant has no lien against the property of the estate for postpetition alimony payments. In the alternative, the trustee seeks to avoid the defendant’s lien for alimony payments which became due and remain unpaid after the commencement of the case, to the extent such lien encumbers property of the estate. The trustee claims that, by virtue of 11 U.S.C. § 549, the trustee has the power to avoid postpetition transfers of property of the estate which did not occur pursuant to court order or in the ordinary course of the debtor’s business.
The parties agree that the $1,000 alimony payment that was past due when debtor filed his bankruptcy petition and the balance of the property settlement in the amount of $35,166 should be paid to defendant out of the sale proceeds.2 On March 17, 1993, the Court entered an Order Directing Immediate Payment of Funds, which directed the trustee to pay forthwith to Edward J. White, attorney for defendant, the sum of $36,166. The Order notes that the remaining issue before the Court regarding payment of the balance of the alimony judgment due, shall be deferred pending further rulings of the Court, and the lien, if any, shall continue to follow the money held from the sale of the real estate. Therefore, the only issue before this Court involves the alimony payments that became due after the debtor filed his bankruptcy petition.
In Brieger v. Brieger, 197 Kan. 756, 760, 421 P.2d 1 (1966), the court held that installments of child support become final judgments and constitute a lien when they are due and unpaid. The court stated that:
We believe the general rule to be that a judgment which directs the periodic payment either of support or of alimony and which fails to provide that the judgment shall be a lien on specific property does not, of itself, constitute any lien on the real estate owned by the father or husband.
Id. at 759, 421 P.2d at 3. Defendant and debtor3 argue that Brieger is distinguishable and that the rule set forth in Wichita Fed. Sav. and Loan Ass’n v. North Rock Rd. Ltd. Partnership, 13 Kan.App.2d 678, 779 P.2d 442 (1989), should apply to the present case.
In Wichita Federal, the court was dealing with a property division judgment which contained the following statement: “The above judgment shall be a lien upon all real estate granted to the Defendant herein and shall continue to be a lien until such time as paid in full by the Defendant or expressly waived by the Plaintiff in writing.” Id. at 680, 779 P.2d at 443. The court in Wichita Federal noted that based on the argument that the judgment lien did not extend to the full value *724of the $31,600 property division judgment involved in that case, the court was asked to apply the ruling of Brieger, that a judgment against a parent for periodic payments for child support is a lien against the real property of the parent only to the extent of the payments due and delinquent at the time of the sale of property and not as to future payments not yet due. Wichita Federal, 13 Kan.App.2d at 682, 779 P.2d at 445. The court declined to extend the ruling in Brieger to the property division judgment, noting that a judgment for child support is subject to modification and future change while the property division judgment in that case was for a fixed sum.
The debtor argues that the present case is also distinguishable from Brieger, because a child support judgment is subject to modification and alimony is not, citing Spaulding v. Spaulding, 221 Kan. 574, 561 P.2d 420 (1977) (citing K.S.A. § 60-1610(e), the forerunner to the current § 60-1610(b)(3)). The Court finds that the important factor in this case is that the alimony award is subject to termination upon the defendant’s remarriage or death, rather than whether it is subject to modification. The property division judgment in Wichita Federal was for a fixed sum. Although the alimony may not be modified, it is still impossible to tell the full amount of alimony to be awarded under the decree, because the payments would cease upon remarriage or death. Debtor also argues that the fact that the payments were ordered in installments did not take from it the character of finality or destroy the lien. Again, its the fact that the award is subject to termination that is important, not the fact that the payments are in installments. The debtor argues that the fact that the alimony was contingent upon death or remarriage does not affect the permanent nature of the alimony award, citing Bair v. Bair, 242 Kan. 629, 750 P.2d 994 (1988). Bair, however, did not discuss the judgment lien issue and merely dealt with the ability to modify an alimony award.
In arguing that the present case should fall under the rule set out in Wichita Federal, the debtor also cites Bohl v. Bohl, 234 Kan. 227, 231, 670 P.2d 1344 (1983), for the proposition that there is no distinction between alimony and property division when considering judgment liens. Although the court in Bohl does note that the terminology used to describe the award is no longer significant, the court also goes on to state that “while the two concepts are different, it does not appear, in the case at bar, that the distinctions should make a difference regarding the imposition of a lien on a ‘homestead’.” Id. at 230-31, 670 P.2d at 1347-48 (emphasis added). In that case, the wife was awarded a money judgment in the amount of $890,217 in lieu of other property and the court had granted the ex-wife’s motion to modify its decree and imposed a judicial lien in favor of the ex-wife upon all of the real estate awarded to the husband. Id. at 228, 670 P.2d at 1345-46. The court was therefore determining whether the husband’s homestead claim rendered the property exempt from the wife’s judgment lien. In making that determination, the court looked to cases in which the court had imposed a lien to enforce an alimony award, and the husband argued that the cases were distinguishable because his case dealt with a division of property. Id. at 230, 670 P.2d at 1347. However, Bohl and the alimony cases cited therein are all distinguishable from the present case, because they all deal with situations where the divorce decree expressly created a hen. In the present case, the divorce decree only expressly imposed a hen on the debtor’s homestead.4 Therefore, defendant must rely on *725K.S.A. § 60-2202 to establish a lien on the 45 acre tract sold by the trustee. Section 60-2202(a) provides in pertinent part that:
Any judgment rendered in this state by a court of the United States or by a district court of this state in an action commenced under chapter 60 of the Kansas Statutes Annotated shall be a hen on the real estate of the judgment debtor within the county in which judgment is rendered.
K.S.A. § 60-2202(a).
The Court finds that reliance on § 60-2202(a) to create a hen for the entire alimony award upon divorce, when such award is subject to termination upon death or remarriage and before such amounts are due, would unduly restrict the ahenation of property. See Harvey S. Berenson, Survey of Kansas Law: Family Law, 17 Kan.L.Rev. 349, 379 n. 164 (1969) (“Since alimony may continue until death or remarriage, if it were automatically a hen on real property, a prospective purchaser from any alimony debtor would be unable to ascertain when the hen would be extinguished, unless one of the contingencies cutting off alimony had occurred.”) Therefore, the defendant does not have a hen for any payments becoming past due after debtor filed his bankruptcy petition. The postpetition debt is not an allowable claim because it was not matured when debtor filed his bankruptcy petition. See In re Benefield, 102 B.R. 157, 160 (Bankr. E.D.Ark.1989) (citing 11 U.S.C. § 502(b)(5)). In addition, from the filing of the petition, the property has remained property of the estate and 11 U.S.C. § 362(a)(4) stays any act to create, perfect, or enforce any hen against property of the estate. Id. In the absence of equitable considerations, any action violating the automatic stay is void. See Id.; In re Colder, 907 F.2d 953, 956 (10th Cir.1990).
IT IS THEREFORE ORDERED BY THE COURT that the sale proceeds from the sale of the 45 acre tract are held by the trustee free and clear of any hen asserted by the defendant by virtue of alimony payments becoming past due after debtor filed his bankruptcy petition.
This Memorandum shall constitute findings of fact and conclusions of law under Rule 7052 of the Federal Rules of Bankruptcy Procedure and Rule 52(a) of the Federal Rules of Civil Procedure. A judgment based on this ruling will be entered on a separate document as required by Rule 9021 of the Federal Rules of Bankruptcy Procedure and Rule 58 of the Federal Rules of Civil Procedure.
IT IS SO ORDERED.
. As noted subsequently in this Opinion, the parties have agreed that defendant is entitled to the $35,166 outstanding on the settlement obligation and $1,000 of the delinquent alimony payments, which is the portion that became due pre-petition. Therefore, the remaining alimony payments which became due post-petition in the total amount of $48,000, are now delinquent and in issue in this case.
. The parties stipulated that the Decree of Divorce became a judgment lien on both the residence and the adjacent 45 acres and that there are no other liens on either the residence or the adjacent 45 acre tracts superior to the Decree of Divorce judgment lien. They disagree, however, as to whether the lien attached to payments becoming due post-petition.
. On April 6, 1993, the Court entered an Order Allowing Intervention, which sustained the debt- or’s motion to intervene in this action. The debtor and the defendant have asserted similar arguments and the Court refers to them interchangeably when discussing their arguments.
. The divorce decree, along with the Order Nunc Pro Tunc which was entered on May 30, 1984, provide in relevant part:
6. The parties have entered into a Property Settlement Agreement, the terms of which are as follow:
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B. Petitioner shall additionally receive from respondent the sum of $125,000.00 cash in lieu of other marital property, payable as follows without interest ...
C. Petitioner shall receive from respondent alimony in the amount of $1,000 per month, payable by respondent to petitioner directly on the 1st day of December, 1983, and on the first day of each succeeding month, for a period of 120 consecutive months or until petitioner's death or remarriage, whichever event shall first occur. The foregoing alimony is contractual between the parties and is not subject to *725modification, renewal or extension by the court.
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E. To secure the installment payments of $125,000.00 set forth above, petitioner shall have a lien against the residence of the parties at 10429 Riverview Road, Edwardsville, Kansas, hereinafter described and hereinafter set over to respondent. Said lien shall be deemed discharged and released of record upon final payment of the above-described installment payments, and petitioner is directed to execute any necessary release to release the same of record. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491864/ | MEMORANDUM AND OPINION SEEKING TO MODIFY PLAN AND PROVIDE FOR IRS CLAIM
BERNICE BOUIE DONALD, Bankruptcy Judge.
This cause came to be heard on the timely filed motion of the United States of America, a creditor acting through the Internal Revenue Service (“IRS”), seeking modification of the Debtor’s1 confirmed chapter 13 plan.
This Court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 157(b)(1) and 1334. Moreover, the Court finds that this matter is a “core proceeding” within the meaning of 28 U.S.C. § 157(b)(2)(A) and (0).
This Memorandum Opinion constitutes the Court’s finding of fact and conclusions of law pursuant to F.R.B.P. 7052.
FACTS
The facts are derived from both the oral stipulations of the parties and the Court’s file.
On May 19, 1992, Debtor filed a chapter 7 case which was administered for 266 days and was discharged on February 9, 1993. Subsequently, Debtor filed a case under chapter 13 on May 24, 1993. Debtor’s plan proposed to pay the IRS $20 per month over 60 months for a total of $1200. On or about July 8,1993, the IRS filed a motion pursuant to 11 U.S.C. § 1329(a) for modification of the plan confirmed in the chapter 13 case.
In the instant case, the tax matters in dispute arise out of IRS assessments of additional tax liability against the Debtor for the 1983 and 1988 tax years. The tax liabilities for the 1983 period were assessed by the IRS on May 25, 1992. That assessment is the result of an audit of a limited partnership, “Ocean Springs Partners” (“Partnership”), of which Debtor was a limited partner. The audit was the direct consequence of the tax matters partner of said Partnership purporting to sign on behalf of all the partners a Form 872-0 consent to extend the period for assessing tax attributable to partnership items for the period which ended December 31, 1983.
The tax liabilities for the 1988 period were assessed by the IRS on April 27,1992. This assessment was the result of a distribution from a retirement account that was taken by Debtor and not reported as income.
The IRS alleges that it has an allowed claim of $13,338.37 for pre-petition tax liabilities and/or post-petition tax liabilities pursuant to 11 U.S.C. § 1305(a)(1).
ISSUES
The issues for judicial determination are as follows:
1. Whether a tax liability may be imposed upon a limited partner as a result of the tax matters partner purportedly extending the period of limitations for assessment of taxes attributable to items of that partnership?
2. Whether the filing of a chapter 7 petition suspends the running of the 240-day period for determining tax claim priority status provided by 11 U.S.C. 507(a) (7) (A)(ii)?
DISCUSSION
1. Whether a tax liability may be imposed upon a limited partner as a result of the tax matters partner purportedly extending the period of limitations for assessment of taxes attributable to items of that partnership?
The IRS contends that the 1983 assessment was a timely assessment in spite of the *126three (3) year period of limitations imposed by 26 U.S.C. § 6229(a). The IRS relies on 26 U.S.C. § 6229(b)(1)(B) in alleging that the tax matters partner of the Partnership is statutorily authorized to extend the period of limitation for assessing a tax imposed by subtitle A of the Internal Revenue Code with respect to the Debtor, a limited partner, attributable to the Partnership. (Trial Ex. 1). The term “tax matters partner” is defined in 26 U.S.C. § 6231(a)(7). Section 6231(a)(7) states that:
(7) Tax matters partner. The tax matters partner of any partnership is—
(A) the general partner designated as the tax matters partner as provided in regulations, or
(B) if there is no general partner who has been so designated, the general partner having the largest profits interest in the partnership at the close of the taxable year involved (or, where there is more than 1 such partner, the 1 of such partners whose name would appear first in an alphabetical listing).
If there is no general partner designed under subparagraph (A) and the Secretary determines that is impracticable to apply subparagraph (B), the partner selected by the Secretary shall be treated as the tax matters partner.
In the instant case, the Debtor does not dispute that the individual who signed the Form 872-0 consent was the tax matters partner. Thus, the only question posed to the Court regarding the May 25,1992 assessment is one of timeliness.
The general rule limiting the period during which a partnership may be assessed provides that any assessment must be made within 3 years after the return for such tax is filed. 26 U.S.C. § 6229(a). Section 6229(a) states that:
(a) General Rule.—Except as otherwise provided in this section, the period for assessing any tax imposed by subtitle A with respect to any person which is attributable to any partnership item (or affected item) for a partnership taxable year shall not expire before the date which is 3 years after the later of—
(1) the date on which the partnership return for such taxable year was filed, or
(2)the last day for filing such return for such year (determined without regard to extension).
However, Title 26 U.S.C. § 6229(b)(1)(B) states that period may be extended with respect to all partners by an agreement entered into by the Secretary and the tax matters partner. Section 6229(b)(1)(B) states, in pertinent part, that:
(b) Extension By Agreement
(1) In General.—The period described in subsection (a) (including an extension period under this subsection) may be extended—
(B) with respect to all partners, by an agreement entered into by the Secretary and the tax matters partner (or any other person authorized by the partnership in writing to enter into such an agreement), before the expiration of such period.
Debtor nevertheless contends that the consent was ineffective and the 1983 assessment was untimely. The consent was ineffective, argues Debtor, because there was no signed power of attorney whereby Debtor gave the tax matters partner to sign such an extension. This argument is without merit. Since the power of the tax matters partner is statutorily authorized, it is incumbent upon the Debtor to show a limitation of that authorization. The Debtor has failed to produce any documentation which would suggest that the tax matters partner’s authority was limited in any way. Further, there is nothing in Section 6229(b) or the legislative history of subchapter C which suggests that the tax matters partner in this cause was limited in authority to extend the period of limitations for assessment of taxes attributable to items of the Partnership. Thus, it follows that tax liability may be imposed upon the Debtor as a result of the tax matters partner of the Partnership extending the period of limitations for assessment of taxes attributable to items of the Partnership.
2. Whether the filing of a Chapter 7 petition suspends the running of the 240-day period for determining tax claim priority status provided by 11 U.S.C. 507(a)(7)(A)(ii)?
The United States Bankruptcy Code sets forth certain types of unsecured claims *127that are entitled to priority in distribution over other unsecured claims. The IRS argues that its claim regarding the assessment for the 1988 tax year is entitled to priority status as provided by section 507(a) (7)(A) (ii). Section 507(a) states, in pertinent part, that:
(a) The following expenses and claims have priority in the following order:
(7) Seventh, allowed unsecured claims of governmental units, only to the extent that such claims are for—
(A) a tax on or measured by income or gross receipts—
(ii) assessed within 240 days, plus any time plus 30 days during which an offer in compromise with respect to such tax that was made within 240 days after such assessment was pending, before the date of the filing of the petition ...
In the instant case, in order for this tax claim to be entitled to priority treatment, the tax must have been assessed within 2W days of the petition date of May 24, 1993.
Query, did the assessments take place within the statutory 240-day period?
The IRS points out that during the pen-dency of Debtor’s prior Chapter 7 case, Debtor’s assets were protected by the automatic stay of 11 U.S.C. § 362(a). Consequently, during the period of time between March 19, 1992 and February 9, 1993, the IRS could take no action to compel Debtor to pay the applicable tax obligations for the 1988 tax year. The IRS contends that the running of the 240-day period was tolled by the automatic stay during the 266 day pen-dency of the Debtor’s Chapter 7 case, and the tax therefore is entitled to priority status.
In re Deitz, 116 B.R. 792 (D.Colo.1990), has facts quite similar to the instant case and is directly on point regarding the issue before the court. On September 28, 1987, based on an examination of the debtor’s 1979, 1980, and 1982 federal income tax returns, the government assessed additional tax liability. 116 B.R. at 793. On March 29, 1988 (181 days after the assessment), the debtor filed a chapter 7 bankruptcy petition. 116 B.R. at 793. He received a discharge on September 19, 1988, and filed his chapter 13 petition on February 14,1989 (148 days after the chapter 7 proceeding concluded). The debtor’s chapter 13 plan did not provide for the payment of the assessed taxes. 116 B.R. at 793. The U.S. District Court in Deitz, allowed the IRS to maintain a claim under Section 507(a)(7)(A)(ii). The Court held that the debtor’s filing of a Chapter 7 case suspended the running of the 240-day statutory period for the duration of the Chapter 7 ease. In making this determination, the Court looked to 11 U.S.C. § 108(c) and 26 U.S.C. § 6503(b). Title 11 U.S.C. 108(c) provides, in relevant part:
(c) Except as provided in section 524 of this title, if applicable nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an agreement fixes a period for commencing or continuing a civil action in a court other than a bankruptcy court on a claim against the debtor, or against an individual with respect to which such individual is protected under section 1201 or 1301 of this title, and such period has not expired before the date of the filing of the petition, then such period does not expire until the later of—
(1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; or
(2) 30 days after notice of the termination or expiration of the stay under section 362, 922, 1201, or 1301 of this title, as the case may be, with respect to such claim.
In addition, 26 U.S.C. § 6503(b) provides, in relevant part:
(b) Assets of taxpayer in control or custody of court.
The period of limitations on collection after assessment prescribed in section 6502 shall be suspended for the period the assets of the taxpayer are in the control or custody of the court in any proceeding before any court of the United States or of any State or of the District of Columbia, and for 6 months thereafter.
The Court held that since the debtor filed his chapter 13 petition within six months of the conclusion of the chapter 7 proceeding, the United States may benefit from Section 6503(b). 116 B.R. at 794. The 240-day peri*128od established by Section 507 was tolled and extended by 11 U.S.C. § 108 and 26 U.S.C. § 6503. 116 B.R. at 794. Thus, the debtor received no discharge for the taxes.
As ■ set forth previously, Section 507(a)(7)(A)(ii) accords priority status to taxes that were assessed within 240-days of the petition’s filing. Where a bankruptcy is filed within that period, courts have consistently followed the logic of the District Court in Deitz by considering the running of that period to be suspended under Section 108(c) as a statute of limitations. See, e.g., In re Linder, 139 B.R. 950 (D.Colo.1992) (holding that 26 U.S.C. §§ 6503(b) and (h) apply to the Bankruptcy Code through 11 U.S.C. § 108(c), thereby tolling the 240-day assessment period in 11 U.S.C. § 507(a)(7)(A)(ii)); In re Brickley, 70 B.R. 113 (9th Cir. BAP 1986) (holding that 11 U.S.C. § 108(c) in conjunction with 26 U.S.C. § 6503 suspended the three-year tax collection period in § 11 U.S.C. § 507(a)(7)(A)® while the debtor’s assets were protected by the bankruptcy court); In re Molina, 99 B.R. 792 (Bankr.S.D.Ohio 1988) (holding that the three-year period in 11 U.S.C. § 507(a)(7)(A)® was suspended by the filing of the first bankruptcy petition); In re Grogan, 158 B.R. 197 (Bankr.E.D.Cal.1993). Under this line of authority, the IRS’s claim for the 1988 taxes is clearly entitled to priority status. The tax was assessed well within 210 days of the petition date of May 24, 1993. Although the debtor’s attorney is to be credited for noting the equitable concerns posed against a debtor being subject to multiple assessments, this Court must note that the Bankruptcy Court can only exercise whatever equitable powers it has within the confines of the Bankruptcy Code. In re Middleton Arms, et al, 934 F.2d 723 (1991). Accordingly, the Court holds that the IRS’s claim retains its priority status and the debtor’s objection to the claim is denied.
CONCLUSION
For all the reasons stated above, this Court finds that tax liability may be imposed upon the Debtor as a result of the tax matters partner of the Partnership extending the period of limitations for assessment of taxes attributable to items of the Partnership for the 1983 tax period. Further, this Court finds that the IRS’s claim for the 1988 taxes tax was assessed well within 210 days of the petition date of May 24, 1993 and is clearly entitled to priority status.
IT IS SO ORDERED.
. The Court shall refer to Herbert and Elaine Acosta jointly and severally as the “Debtor.” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491865/ | MEMORANDUM OF DECISION
A. POPE GORDON, Bankruptcy Judge.
Dura-Built Homes, Inc. instituted this adversary proceeding on June 13, 1989 seeking to recover an alleged preference under 11 U.S.C. § 547.1
Defendant Dobbins Forest Products, Inc. filed a motion for summary judgment on July 10,1989, and intervenor First Alabama Bank filed a cross-motion for summary judgment on August 14, 1989.
The court heard oral arguments of counsel on these motions on August 22, 1989. Having considered the verified material submitted in support of and in opposition to the motions as well as the oral arguments and briefs of counsel, the court is of the opinion that there is no genuine issue as to any material fact and that the defendant is entitled to judgment as a matter of law.
The undisputed facts are as follows. On August 8, 1988, defendant Dobbins Forest Products, Inc. (“Dobbins”) obtained a judgment against plaintiff Dura-Built Homes, Inc. (“Dura-Built”) in the Circuit Court for Montgomery County, Alabama.2 On December 21, 1988, Dobbins instituted garnishment proceedings in the Circuit Court for Montgomery County against First Alabama Bank and Dura-Built to recover funds of Dura-Built on deposit with the bank. First Alabama received service of the writ of garnishment on December 22, 1988.3
First Alabama filed an answer to the writ of garnishment on January 5, 1989 in which it stated that Dura-Built had $12,062.16 on deposit with the bank.
On March 20, 1989, the Circuit Court for Montgomery County entered an order condemning the funds. First Alabama paid the *172funds into the court, and the clerk of the court distributed the money to Dobbins.
Dura-Built filed a Chapter 11 petition in bankruptcy on June 2, 1989. Dura-Built then instituted this adversary proceeding alleging that the $12,062.16 transfer to Dobbins constituted a preference avoidable under 11 U.S.C. § 547.
On July 10, 1989, defendant Dobbins filed a motion for summary judgment alleging that the transfer did not constitute a preference in that the transfer occurred well outside the requisite 90-day period preceding the filing of the petition. According to Dobbins, the transfer occurred in December, 1988 at the time of service of the garnishment on First Alabama Bank. First Alabama filed a cross-motion for summary judgment contesting the date of the transfer and alleging that the transfer did indeed occur within the 90-day period preceding the filing of the petition. According to First Alabama and Dura-Built, the transfer occurred in March, 1989 at the time the circuit court condemned the bank funds in favor of Dobbins.
Under Alabama law, the service of a garnishment creates a lien in favor of the garnishor. Ala.Code § 6-6-76 (1975). A garnishment lien is encompassed within the definition of “transfer” under the Bankruptcy Code. In re Conner, 733 F.2d 1560, 1562 (11th Cir.1984).4
11 U.S.C. § 547(e)(1)(B) provides that a “transfer” of personal property is “perfected when a creditor on a simple contract cannot acquire a judicial hen that is superior to the interest of the transferee.”5 Under Alabama law, a garnishment lien is created on the date of service of the garnishment, and the priority rights of the garnishor are determined as of that date. See First State Bank v. Southtrust Bank, 519 So.2d 496, 497 (Ala.1987) (stating general rule).
Under the facts of the instant ease, First Alabama Bank received service of the garnishment on December 22, 1988. On that date, Dobbins obtained a garnishment hen on the funds of Dura-Built on deposit with the bank. Ala.Code § 6-6-76 (1975). The hen constituted a “transfer” under the Bankruptcy Code.
The transfer was perfected on the date of service of the garnishment because on that date, no “creditor on a simple contract [could] acquire a judicial hen that [would be] superior to the interest of [Dobbins].” 11 U.S.C. § 547(e)(1)(B). The garnishment hen is a judicial hen which would take priority over subsequent judicial hens.
Thus, the transfer of the funds occurred on December 22, 1988 at the time of service on First Alabama Bank—not when the circuit court actually condemned the funds on March 20, 1989.
First Alabama, in contending to the contrary, points this court to cases which hold generally that a debtor retains an interest in garnished property after service of the garnishment, and the debtor’s interest continues up until the date of condemnation.6 See In re Stephens, 43 B.R. 97 (Bankr.N.D.Ala.1984); In re Lewis, 21 B.R. 926 (Bankr.N.D.Ala.1982). However, the critical question is not whether the debtor still retains some interest in garnished property but rather whether a “transfer” has occurred under the Bankruptcy Code. The Code’s definition of transfer is exceptionally broad. A debtor’s interest in his property need not be extinguished for a transfer to have occurred.
*173This court holds that the transfer occurred in December, 1988 — well outside the requisite 90-day period. The transfer did not constitute a preferential payment subject to avoidance under 11 U.S.C. § 547.
Accordingly, Dobbins’ motion for summary judgment is due to be granted, and First Alabama’s cross-motion for summary judgment is due to be denied.
A separate order will be entered contemporaneously herewith.
. The court has jurisdiction of this matter pursuant to 28 U.S.C. § 1334. This is a core proceeding under 28 U.S.C. § 157(b)(2)(F).
. The judgment for $22,400.00 represented money Dura-Built owed Dobbins on an open account.
.Dura-Built received service of the writ of garnishment on December 27, 1988.
. 11 U.S.C. § 101(50) provides as follows:
“transfer" means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property, including retention of title as a security interest and foreclosure of the debtor’s equity of redemption; ...
. 11 U.S.C. § 101(32) defines judicial lien as "a lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.” Under this definition, a garnishment lien under Alabama law is a "judicial lien" under the Bankruptcy Code. See In re Moore, 56 B.R. 7, 8 (Bankr.M.D.Ala.1985).
.Cf. Ala.R.Civ.P. 64B and Ala.Code § 6-10-37 (1975) allowing a debtor to interpose a claim of exemption after a judgment of condemnation if the debtor had no notice of the garnishment. We note that the debtor in the instant case is a corporation and was not entitled to exempt the garnished funds. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491866/ | RULING AND ORDER ON MOTION FOR RELIEF FROM FINAL ORDER
ROBERT L. KRECHEVSKY, Chief Judge.
I.
ISSUE
The matter before the court is a motion filed by Michael Industries, Inc. (Mil) on September 24, 1993, pursuant to Fed. R.Bank.P. 9024 and Fed.R.Civ.P. 60(b)(1), to relieve Mil from a final order the court entered on July 16, 1993. The relief Mil seeks, primarily based on the ground of “excusable neglect,” is that the court vacate the July 16,1993 order and schedule a new hearing on the subject matter of the order— approval of a compromise of a claim asserted by the debtor’s estate against American Fence Co., Inc. and American Security Fence *193Corp. (collectively “American Fence”). The following background is based upon an evi-dentiary hearing and the memoranda submitted by the parties.
II.
BACKGROUND
MRM Security Systems, Inc., the debtor, commenced this ease on May 4,1992 with the filing of a Chapter 11 petition. While operating as a debtor-in-possession, the debtor negotiated a sales agreement with Mil which provided that Mil purchase the debtor’s tangible and intangible assets, except accounts receivable. The court, on October 29, 1992, entered an order authorizing the sale and allocating the sale proceeds, totaling $215,000, as follows: $20,000 for the debtor’s patents and $195,000 for the remaining assets. Listed as an asset on the debtor’s Chapter 11 schedules was a counterclaim the debtor had asserted in American Fence Co. v. MRM Sec. Sys., Inc., 710 F.Supp. 37 (D.Conn.1989), a patent-infringement action pending in the Connecticut U.S. District Court. The debtor was a co-defendant in this action along with the debtor’s president, Michael R. Mainiero (Mainiero).
On November 10, 1992, shortly after the asset sale had been completed, the court converted the debtor’s case to one under Chapter 7, approved the appointment of Neal Ossen, Esq. (Ossen) as Chapter 7 trustee, and set December 17, 1992 as the date for the § 341 meeting of creditors. Anthony J. Casella, Esq. (Casella), an attorney who had represented the debtor prepetition in the pending patent litigation, attended the § 341 meeting and suggested to Ossen that he, Casella, be retained to handle the debtor’s counterclaim. Ossen, on March 26, 1993, filed an application with the court for the approval of Casella’s employment to represent the estate in the patent litigation, but Ossen later withdrew the application prior to any court action. MII subsequently advised Ossen in a letter dated May . 25, 1993 that Mil had engaged Casella to represent it with regard to any settlement of the patent-infringement litigation.
Ossen, on June 11,1993, filed a motion for approval of a compromise of the counterclaim, asserting that the counterclaim against American Fence was an asset of the debtor’s estate. Under the compromise, American Fence agreed to pay the debtor’s estate $10,-000 in return for Ossen stipulating to judgment in the patent litigation and “quit-claiming] any residual interest in the intellectual property once held by the estate.... ” June 11, 1993 Motion ¶ 5. American Fence also agreed to withdraw its proof of claim filed in the debtor’s case. The clerk’s office scheduled a hearing on the motion for July 7, 1993 at 11 a.m. The court’s proceeding memorandum for the July 7, 1993 hearing indicates that Ossen, Jeffrey G. Grody, Esq. (Grody), an attorney for American Fence, Casella and Richard L. Lambert (Lambert), an officer of Mil, were present in court. Ossen requested that the court continue the hearing to July 16, 1993, stating that American Fence was reviewing its willingness to compromise and that an hour of hearing time would be needed. Lambert objected to the continuance stating that he had “counsel here” and “I have come here from Michigan to fight for an asset that we acquired in a distribution.” July 7, 1993 Tr. at 3. Casella made no statement. The court ordered the hearing continued to July 16, 1993 at 2:00 p.m.
On July 16, 1993, Ossen, Grody, and Mai-niero were present in court. No one appeared for MII. When the clerk first called the motion to compromise, Mainiero stated that, as the debtor’s “former CEO” and a creditor of the estate, he objected to the compromise. The court stated, “Okay. I’ll pass the matter and I’ll hear it later.” July 16,1993 Tr. at 2. When the matter was later called, Ossen advised that Mainiero had left the courtroom and not returned. Ossen and Grody proceeded to place on the record the reasons for the compromise, following which the court approved the compromise and entered its written order.1 On August 24,1993, pursuant to a stipulation executed by American Fence and Ossen, the debtor’s counterclaim against American Fence was dismissed with prejudice. Ossen has received, and still *194retains, the $10,000 due under the compromise. American Fence has withdrawn its proof of claim filed in the debtor’s estate.
On September 24, 1993, Mil filed its motion for relief from the order approving the compromise. Mil’s papers stated that Mil did not appear at the July 16, 1993 hearing because it had not completed negotiations to retain counsel to pursue its objection to the compromise based upon its assertion that Mil had acquired the debtor’s counterclaim in the asset purchase. Mil contended that it relied upon Mainiero to be present in court and obtain a continuance of the July 16,1993 hearing, and that Mainiero had interpreted the court’s statement, that it would “pass the matter,” as an order continuing the hearing to a later, unspecified, date. Mainiero had so advised Mil. Mil further asserted that it did not learn that the court had approved the compromise until after Mil completed negotiations in August 1993 to retain the law firm of Hebb & Gitlin to represent it in its objection, and that Hebb & Gitlin thereafter promptly filed the present motion.
III.
DISCUSSION
Rule 60(b)(1) states, in pertinent part, that “[o]n 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_” Fed.R.Civ.P. 60(b)(1). Mil argues that the circumstances outlined in Section II constitute a type of negligence on its part that comprises “excusable neglect” as that phrase was recently construed by the Supreme Court in Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. Partnership, — U.S.-, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993).
Analogizing the present situation to a motion brought by a party seeking to set aside a default judgment, Mil contends that applicable Rule 60(b)(1) standards dictate reopening the order because (1) Mil’s conduct was not willful, (2) its objection to the compromise has substantial merit, and (3) neither the trustee nor American Fence would be prejudiced by reopening the order. See Mil’s Brief at 10 (citing Davis v. Muster, 713 F.2d 907, 915 (2d Cir.1983) (stating that the criteria for setting aside a default judgment “include (1) whether the default was willful; (2) whether defendant has a meritorious defense; and (3) the level of prejudice that may occur to the non-defaulting party if relief is granted”)).
Even accepting Mil’s contention that the standard for relief under Rule 60(b)(1) in this situation is roughly equivalent to the standards for setting aside a default judgment,2 the court finds that Mil’s decision not to appear through an attorney at the July 16th hearing does not constitute excusable neglect, but rather was the product of a conscious choice not to retain counsel for that hearing. Mil admits it chose not to have counsel appear on its behalf because Mil had not completed what it characterized as lengthy fee negotiations with Hebb & Gitlin, its previous bankruptcy counsel for the asset purchase. Lambert testified that, not having concluded a satisfactory attorney’s retention agreement, he asked Mainiero to go to the court to obtain an adjournment for at least a week. Mainiero never advised the court he was present at Lambert’s request. He stated he was there on his own behalf as a creditor of the estate.3 His unfamiliarity with courtroom procedure does not translate to excusable neglect entitling Mil to reopen the order compromising the claim. Cf. Link v. Wabash R.R. Co., 370 U.S. 626, 633-34, 82 S.Ct. 1386, 1390-91, 8 L.Ed.2d 734 (1962) (parties cannot avoid consequences of acts or omissions of freely selected agent, and proceeding properly dismissed when attorney failed to attend scheduled pretrial confer-*195enee); Longshore v. Bhandari (In re Bhandari), 161 B.R. 315, 318 (Bankr.N.D.Ga.1993) (holding that debtor had not shown excusable neglect when his failure to produce financial records was the result of intentional and conscious decisions, rather than from neglect or negligence); Applebaum v. Arnow (In re Amow), 159 B.R. 676, 680 (Bankr.E.D.N.Y.1993) (creditor not entitled to relief from order dismissing complaint on theory that creditor’s failure to appear at rescheduled hearing was result of excusable neglect).
Mil has not established that the relevant circumstances warrant relief from the order compromising the claim. The court makes no finding on the merits of Mil’s assertion that it had purchased the claim at issue.
IV.
CONCLUSION
Mil’s motion to relieve it from the final order entered by the court on July 16, 1993 must be, and hereby is, denied. It is
SO ORDERED.
. No party had filed a written objection to the compromise.
. With one exception, Fed.R.Bankr.P. 7001 requires an adversary proceeding, not motion practice, for the determination of ownership interests in property. See Fed.R.Bankr.P. 7001.
. Mainiero explained to the court that
I’m not an attorney and I don't have an attorney with me, because he couldn’t be here today at the last minute. I'm here to object to the compromise on the basis of course, that I would like to have an attorney properly and professional [sic] to present to the court.
July 16, 1993 Tr. at 2. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491868/ | OPINION AND ORDER
ON COMPLAINT TO RECOVER PREFERENCE
BARBARA J. SELLERS, Bankruptcy Judge.
Before the Court is the complaint of Frederick M. Luper, the Chapter 7 Trustee for Carled, Inc., (“Trustee”) to recover an alleged voidable preference from defendant, Columbia Gas of Ohio, Inc. (“Columbia”). This matter was tried to the Court on May 31, 1994.
The Court has jurisdiction in this adversary proceeding pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this District. This is a core proceeding under 28 U.S.C. § 157(b)(2)(F) *357which this Bankruptcy Judge may hear and determine.
The parties have stipulated the following facts:
(1) Within the ninety (90) day period preceding the filing of the bankruptcy petition of Carled, Inc. (“Debtor”), Columbia received payments from the Debtor totaling $8,817.61 (“the Payments”).
(2) The Payments made to Columbia by the Debtor were to or for the benefit of Columbia in consideration for gas service provided to the Debtor by Columbia.
(3) The Payments were for the gas service rendered to the Debtor prior to each payment.
(4) The Payments were made to Columbia while the Debtor was insolvent.
(5) The Payments enabled Columbia to receive more than it otherwise would have received if the Payments had not been made and Columbia received payment of its debt to the extent provided in Title 11 of the United States Code.
With these stipulations and the evidence provided by the Trustee at trial, the Court hereby finds that the Trustee has established all elements of a voidable preference with respect to the Payments. See 11 U.S.C. § 547(b). Columbia does not seriously contest this finding. Columbia asserts, however, that the “ordinary course” defense provided by 11 U.S.C. § 547(c)(2) excepts these transfers from the Trustee’s avoiding power.
Section 547(c)(2) provides:
The Trustee may not avoid under this section a transfer—
(2) to the extent that such transfer was—
(A) in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the transferee;
(B) made in the ordinary course of business or financial affairs of the debtor and the transferee; and
(C) made according to ordinary business terms.
In this circuit, a party asserting an “ordinary course” defense must prove each of the three elements set forth above by a preponderance of the evidence. Logan v. Basic Distribution Corp. (In re Fred Hawes Organization, Inc.), 957 F.2d 239, 242-243 (6th Cir.1992). Determining whether a payment is made in the ordinary course of business and according to ordinary business terms is a factual question. Yurika Foods Corp. v. United Parcel Service (In re Yurika Foods Corp.), 888 F.2d 42, 45 (6th Cir.1989). The timing, amount, manner of payment, and the circumstances under which the transfer was made all must be examined. Yurika Foods, 888 F.2d at 45.
The fact that payments were made late or on an irregular basis does not establish that such payments were unusual or extraordinary if such payments are consistent with an otherwise established course of dealing between the parties. Waldschmidt v. Ranier (In re Fulghum Construction Corp.), 872 F.2d 739, 742 (6th Cir.1989). However, “lateness of the payments must be the norm as opposed to the exception.” Sprowl v. Miami Valley Broadcasting Corp. and WHIO, Inc. (In re Federated Marketing, Inc.), 123 B.R. 265, 270 (S.D.Ohio 1991). See, also, Youthland, Inc. v. Sunshine Girls of Florida, Inc. (In re Youthland, Inc.), 160 B.R. 311 (S.D.Ohio 1993).
At the hearing, the Trustee conceded that the debts to Columbia were incurred by the Debtor in the ordinary course of its business and the ordinary course of Columbia’s business. Therefore, the first element of the “ordinary course” defense has been established.
With regard to the second element, that the payments were made in the ordinary course of business of the Debtor and Columbia, Columbia established the following facts. The Debtor maintained three separate commercial accounts with Columbia for gas service during the parties’ twenty-three month course of business. During that period, the Debtor made sixty-nine (69) payments on those accounts, only three (3) of which were received by Columbia by the due date stated on the invoice. That due date generally is 14 to 18 days from the date Columbia generates its invoices. However, the Debtor customarily made its payments to Columbia within *358Columbia’s 41-day billing cycle.1 During the course of the twenty-three month relationship between the Debtor and Columbia, the number of “reminder notices” sent by Columbia to the Debtor increased in the last ten (10) billing periods.
The Court finds that the payments made by the Debtor to Columbia within the ninety (90) days preceding the bankruptcy filing were made within the “ordinary course” of conduct between the Debtor and Columbia. With the exception of the payments relating to the altered meter reading periods, the timing and sequence of payments made during that period did not dramatically change from the previous payment relationship between the parties. There was no evidence of any unusual collection activity, service shut off, or personalized communication between the parties. Even though the Debtor’s tardiness worsened, the activity basically followed the sequence of regular billing, rebilling with reminder, and notice of proposed shut-off which had characterized the entire service period. The Court finds that it was the practice of this Debtor generally to make payments late, but within the 41-day billing cycle, and that the few payments outside that cycle do not constitute a change in the parties’ practice during the ninety (90) days preceding the bankruptcy filing. Therefore, Columbia has established the second element of the “ordinary course” defense.
The final element Columbia must show is that the course of dealing between it and the Debtor is also “ordinary” in the particular industry. This element of the “ordinary course” defense is more difficult to show and is fact intensive. This element, while not intended to eviscerate the other provisions of this defense, requires Columbia to show that the payment relationship between it and the Debtor, consisting of repetitive payments after the invoice due date and outside a 30-day period, is ordinary within the utility industry.
Testimony, including the deposition of a representative of East Ohio Gas Company, established that it is common for a pereent-age of utility service invoices to be paid more than thirty (30) days after invoice. The evidence did not show, however, that any significant percentage of particular customers of a utility provider consistently and routinely pay outside a 30-day period. Said differently, the Court believes that to meet the third prong of the “ordinary course” defense, Columbia must show more than that a percentage of its invoiced customers pay late. The lateness must be established as a pattern for a significant percentage of specific customers. Columbia did not make this showing. Therefore, the Court finds that Columbia has not proven that the course of dealings between it and the Debtor are “ordinary” within the utility industry.
Based on the foregoing, the Court finds that each of the elements of a voidable preference under 11 U.S.C. § 547(b) has been established either by the parties’ stipulations or the evidence. The Court further finds that Columbia has failed to establish that the payment relationship between it and the Debtor was common or ordinary within the utility industry for this region. Therefore, the payments made by the Debtor to Columbia within the ninety (90) days preceding the bankruptcy in the amount of $8,817.61 may be avoided by the Trustee as preferential transfers and preserved by the estate.
IT IS SO ORDERED.
. The Court recognizes that some payments were made outside the 41-day billing period. However, a witness for Columbia explained that those atypical payments resulted from an internal realignment which altered meter reading times for certain accounts during that time period. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491869/ | ORDER DISMISSING CASE
CHARLES G. CASE, II, Bankruptcy Judge.
INTRODUCTION
The Debtor built the Amherst Post Office in Amherst, Massachusetts under contract with the United States Postal Service. On September 13, 1991, the Chapter 7 Trustee, Roger Brown, filed this adversary proceeding against the Postal Service, alleging breach of contract as the result of failure to pay all amounts alleged to be owed by the Debtor. The Summons and Complaint were mailed on October 10,1991 to “United States Postal Service; Anthony Frank, Postmaster General,” and “Anthony Frank, Postmaster General, Washington, D.C. 20260, United States Postal Service, c/o Postmaster General, Washington, D.C. 20260.” No further service was made. The Postal Service, through the United States Attorney for the District of Arizona, timely answered on December 13, 1991, asserting insufficiency of service of process (Defs Answer at 3, line 13.) and lack of subject matter jurisdiction (Id. at 3) as defenses.
In the ensuing months, the case was continued from time to time on the Court’s status conference calendar, with the parties advising the Court, first, that a settlement was underway and, second, that one was not. Eventually, the Trustee sought an additional continuance to complete discovery. Apparently, the first discovery was served by the Trustee April 26, 1993, a year and a half after the case was filed. Among the Postal Service’s answers to this written discovery were the factual assertions which supported its claim of improper service of process. The case remained inactive for several months, leading to a February 1, 1994 Order that the ease would be dismissed in the absence of good cause shown to the contrary.
*686In response to the February 1,1994 Order, Trustee’s counsel sought a status conference for the purpose of setting a discovery cut-off date and a trial date. During this time, certain discovery disputes arose which were brought before the court on March 30, 1994. The Postal Service argued that it was answering discovery in good faith, stating that “the United States produced ... a large volume of information organized and tabbed in four large 3-ring binders and answered to the best of [its] ability all interrogatories posed.” At a status hearing held on April 4, 1994, which Postal Service’s counsel did not attend due to family exigencies, counsel for the Trustee indicated that the Postal Service’s answer “stated that this Court lacked subject matter jurisdiction.” The Postal Service was ordered to file any motion challenging jurisdiction within thirty days and the matter was set for trial on July 25, 1994. Following the hearing, counsel for Postal Service filed a lengthy “status statement,” explaining her client’s response to discovery, the extent of document searches undertaken, the non-existence of certain requested documents and the circumstances that led to her non-appearance at the April 4, 1994 status hearing. No mention was made in this filing of either a personal or a subject matter jurisdictional defense to be seriously asserted by the Postal Service.
In apparent response to this Court’s April 4 Order, the Postal Service filed the present Motion to Dismiss on April 29, 1994, asserting both insufficiency of service of process and lack of subject matter jurisdiction. The Court grants the Motion to Dismiss on the ground that this Court lacks subject matter jurisdiction. The Court denies the Motion to Dismiss on the ground of insufficiency of service of process, finding that such defense has been waived by the Postal Service.
ISSUES PRESENTED
The Motion to Dismiss presents the following issues:
1. Whether the Complaint must be dismissed because the Trustee did not comply with the Requirements of Rule 4(d)(5), Rules of Fed.Civ.Proc., or, whether, in the alternative, the Defendant has waived non-compliance.
2. Whether the Complaint must be dismissed because the United States has not waived sovereign immunity so as to confer jurisdiction on the Bankruptcy Court pursuant to 11 U.S.C. § 106 or other provision.
DISCUSSION
A. Service
The Postal Service moves the Court dismiss the Complaint because the Trustee failed to deliver a copy of the Summons and Complaint to the Office of the United States Attorney for the District of Arizona and to the Attorney General of the United States, as required by Rule 7004, Fed.R.Bankr.Proc. The Trustee alleges that service upon the Postal Service by First Class Mail is sufficient.
Rule 4(d)(5), of the Rules of Federal Civil Procedure, effective January 1, 1990 and incorporated by Bankruptcy Rule 7004(a), provides for service upon an “agency of the United States.”1 Service is accomplished “by serving the United States and by sending a copy of the summons and of the complaint by registered or certified mail to such officer or agency.” Service upon the United States is accomplished “by delivering a copy of the summons and of the complaint to the United States attorney for the district in which the action is brought ... and by sending a copy ... by registered or certified mail to the Attorney General of the United States at Washington, District of Columbia....” Rule 4(d)(4). The Trustee concedes it has failed to deliver a copy of the Summons and Complaint to either the United States Attorney for the District of Arizona or to the Attorney General. Unquestionably, the Trustee’s failure to effect proper service upon the United States as required by the *687applicable rules would be fatal to his claim in the absence of a waiver of this defense.
The bulk of the Trustee’s argument in opposition to the Motion is based upon eases where the Defendant did not raise the insufficiency of service defense in its initial pleading. Here, however, the Postal Service did. Thus, many of the cases the Trustee relies on, including Wyrough & Loser Inc. v. Pelmar Labs., Inc., 376 F.2d 543 (3rd Cir.1967), Orange Theatre Corp. v. Rayherstz Amusement Corp., 139 F.2d 871 (3d Cir.1944), cert. denied 322 U.S. 740, 64 S.Ct. 1057, 88 L.Ed. 1573 (1944) and Marcial Ucin, S.A v. S.S. Galicia, 723 F.2d 994 (1st Cir.1983), are simply not relevant.
Closer on point is Reliable Tire Distributors, Inc. v. Kelly Springfield Tire Co., 623 F.Supp. 153 (D.Pa.1985), where the defendant asserted the defense and counterclaimed, filed a motion for summary judgment without stating that it was in the alternative to its personal defenses, and reasserted its defenses only after losing the summary judgment motion. The court stated
There are limits in the extent to which a defendant can actively litigate a case without waiving defenses of personal jurisdiction and improper venue.... [T]o hold otherwise would be to obtain the delay which Rule 12 was designed to prevent.
623 F.Supp. at 155-56.
While the Defendant here has not availed itself of this Court by filing a counterclaim, motion for summary judgment or other aggressive pleading, it has provided and engaged in fairly extensive discovery, apparently contemplated and worked on settlement, prepared the case for trial and did not press its defense until forced by the Court to do so. Unquestionably, the purpose of the special service rules for the United States is to guarantee that the government is aware at both the client level, i.e. the Postal Service, and the lawyer level, i.e. the Attorney General and the United States Attorney for the relevant district, of the claims being asserted against the government. Also unquestionably, that awareness exists in this- case. The relevant Postal Service employees have been engaged for over a year in searching files and formulating defenses and the government has been represented from the start by the United States Attorney.
The underlying policy of Rule 12 is to require an early hearing and disposition of personal jurisdiction defenses in order to avoid unnecessary cost and delay. Although the Government did preserve the defense in its answer, it not file a motion to dismiss at the beginning of the case to bring the matter to a head. Rather, it has addressed the case on the merits from the beginning and now seeks a dismissal on this non-substantive ground nearly three years later.
The Trustee is certainly not blameless in this matter. While he attempts to deflect responsibility, complaining that the Postal Service has not done anything “to support that defense” since asserting the defense of improper service in its answer, the Trustee could have resolved this issue before proceeding with or as part of its discovery. Most easily of all, the Trustee could simply have remedied its initial error by serving the United States as required by the rules.
Although this case does not present as clear cut a set of facts as Reliable, this Court comes down on the side of judicial economy and fair play and holds that the Postal Service has waived its defense of insufficiency of service of process. The Motion to dismiss on that ground is denied.
B. Subject Matter Jurisdiction
The Plaintiff, who has invoked the jurisdiction of the Court, bears the burden of demonstrating there is subject matter jurisdiction. Holloman v. Watt, 708 F.2d 1399, 1401 (9th Cir.1984) cert. denied, 466 U.S. 958, 104 S.Ct. 2168, 80 L.Ed.2d 552 (1984). Unlike insufficiency of service of process, challenges to a court’s subject matter jurisdiction may be raised at any time and are not subject to implicit waiver. See Rule 12(h)(3), Fed. Rules of Civ.Proe.; Augustine v. United *688States, 704 F.2d 1074, 1075 fn. 3 (9th Cir.1983). Absent waiver of sovereign immunity by the United Stated, this Court lacks subject matter jurisdiction.
The doctrine of sovereign immunity protects governmental units from suits brought by the debtor in a bankruptcy case. Hoffman v. Connecticut Dep’t of Income Maintenance, 492 U.S. 96, 109 S.Ct. 2818, 106 L.Ed.2d 76 (1989). Waiver of sovereign immunity must be unequivocally expressed, must be construed strictly in favor of the sovereign, and must not be enlarged beyond what the language requires. United States v. Nordic Village, Inc., 503 U.S. -, 112 S.Ct. 1011, 1014-1015, 117 L.Ed.2d 181 (1992). The Plaintiff has not persuaded the Court that it has subject matter jurisdiction over this action and therefore it must be dismissed.
The statute of general bankruptcy jurisdiction, 28 U.S.C. § 1334, does not strip the United States of sovereign immunity, as contended by the Trustee. However, another statute upon which the Trustee relies does provide for limited immunity:
A governmental unit is deemed to have waived sovereign immunity with respect to any claim against such governmental unit that is property of the estate and that arose out of the same transaction or occurrence out of which such governmental unit’s claim arose.
11 U.S.C., § 106(a). Pursuant to Section 106, then, the United States can be sued without its consent where 1) the governmental unit has filed a claim against the estate, and 2) the estate’s claim against the government arose out of the same transaction or occurrence as the unit’s claim, and 3) the claim against the governmental unit is for property of the estate. United States v. Germaine (In re Germaine), 152 B.R. 619, 623-624 (9th Cir. BAP 1993). In other words, if the governmental unit makes claim to property of the estate, the government is open to having a claim asserted back against it. The purpose of § 106(a) is to prevent the government from receiving a distribution on a claim without subjecting itself to any liability it may have to the estate on a compulsory counterclaim. H.R.Rep. No. 595, 95th Cong., 1st Sess. 317 (1977); S.Rep. No. 989, 95th Cong., 2d Sess. 20 (1978), U.S.Code Cong. & Admin.News 1978, p. 5787.
The Trustee concedes that the Postal Service has made no claim upon the estate, formally or informally. However, in this case, the Debtor assigned its Postal Service contract as security for a loan made by a bank which was subsequently taken over by the Federal Deposit Insurance Corporation. While the Postal Service has not filed a claim in this case, the FDIC has. Thus, the Trustee argues that claim of the FDIC for repayment of a loan secured by the contract with the Postal Service satisfies the requirement of a claim for purposes of Section 106(a).
This argument is meritless and disregards the language of the statute, which states that the claim must be made by the governmental unit from which the Trustee seeks payment. It is not enough that a governmental unit has made a claim. The Trustee has cited no authority for this novel reading of the statute.
The government contractor, solvent or otherwise, is bound by complex system of laws and regulations. One given in entering into a contract with the government is that its sovereign immunity must be explicitly waived. For claims arising out of government disputes, the relevant limited waiver is found in the Contract Disputes Act, 41 U.S.C. § 605 et seq. It is to this Act, and its related procedures, the Trustee must look to redress the alleged wrongs by the government against this estate. In the absence of a waiver of sovereign immunity that confers jurisdiction upon this Court, this adversary proceeding must be dismissed.
THEREFORE, IT IS ORDERED AS FOLLOWS:
1. The Motion of the Postal Service to dismiss for insufficiency of service of process is denied;
*6892.The Motion of the Postal Service to dismiss for lack of subject matter jurisdiction is granted.
. Rule 4(d)(5), Fed.Rules of Civ.Proc. has been replaced by new Rule 4(i). It is not clear to the Court which version of the Federal Rule was incorporated by the Bankruptcy Rules at the time this complaint was served; however, it is clear that the Trustee did not comply with the requirements of service upon the United States under either rule. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491870/ | MEMORANDUM
JOHN C. COOK, Bankruptcy Judge.
This Chapter 11 case is before the court for a determination of whether certain unpaid attorney fees previously awarded to the debtor-in-possession for his legal representation of Chapter 13 debtors are the property of his bankruptcy estate or whether they are excepted from that category by 11 U.S.C. § 541(a)(6) as “earnings from services performed by an individual debtor after the commencement of the case.” Having considered the evidence presented at the hearing of this matter, the arguments of counsel, and the briefs of the parties, the court is of the opinion that the unpaid attorney fees in question were fully earned when they were awarded, that they do not fall within the “earnings exception” described in § 541(a)(6), and that therefore they are property of the bankruptcy estate in this case.
I.
On December 10, 1993, Richard L. Banks, doing business as Banks & Associates, filed a petition for relief under Chapter 11 of the Bankruptcy Code. Mr. Banks is an attorney who specializes in representing debtors in consumer bankruptcy cases and who was, at the time of his filing, the attorney of record in approximately 2,400 Chapter 13 cases pending in the Eastern District of Tennessee.
The nearly universal practice for awarding attorney fees to the debtor’s counsel in Chapter 13 cases, and the practice in this district, entails the setting of an appropriate fee by the court at an early juncture in the case, *943often at confirmation of the debtor’s plan. Once the fee is set, the Chapter 13 trustee begins making monthly payments to the debtor’s attorney from moneys paid into the plan by the debtor or his employer. Because Chapter 13 plans often last 50 or 60 months, an attorney’s fee of $700, for example, might be paid by an initial distribution of $200 to the attorney shortly after confirmation of the plan, followed by monthly payments of $15 for several years until the balance of the fee is paid.
The undisputed evidence in this case shows that Mr. Banks had been awarded a total of over $1,500,000 in attorney fees for the Chapter 13 cases that were pending on the date of his voluntary petition. As of that date, Mr. Banks had received only about eighty percent of those fees, and over $270,000 remained awarded but unpaid. This unpaid balance of the awarded attorney fees is the subject of this litigation. Two creditors, the United States Internal Revenue Service and the American National Bank & Trust Company of Chattanooga, contend that those unpaid fees were earned as of the date of the petition in this case, that they are ordinary accounts receivable, and that therefore they are property of the bankruptcy estate under the general provisions of 11 U.S.C. § 541. Mr. Banks, on the other hand, takes the position that the unpaid fees were unearned as of the date of his petition and that they are not property of his estate because they are specifically excepted from it by the “earnings exception” of 11 U.S.C. § 541(a)(6).
II.
The Bankruptcy Code defines property of the estate to include, among other things,
(6) Proceeds, product, offspring, rents, or profits of or from property of the estate, except such as are earnings from services performed by an individual debtor after the commencement of the case.
11 U.S.C. § 541(a)(6). Ordinarily, it is easy to determine whether earnings by a debtor are for services he has performed before or after the commencement of his case because compensation is usually considered to be earned as the work it is exchanged for is being done. If the work is done before commencement of the debtor’s case, the earnings are accounts receivable and are property of the estate. If the work is done after commencement of the case, the earnings are excepted from the estate by the operation of § 541(a)(6).
This case is unusual, however, because there is a dispute over whether the earnings in question are for services Mr. Banks rendered to his Chapter 13 clients before or after the commencement of his case. The dispute arises in part from testimony in the ease that as much as seventy percent of the work in a typical Chapter 13 case is done after confirmation, much of it by paralegals and secretaries. Mr. Eron Epstein, a local attorney testifying as an expert in Chapter 13 practice, stated that about sixty percent of the work in the average Chapter 13 is posteonfirmation work and that approximately seventy-five percent of that posteonfirmation work was routinely done by nonlawyers.1 Mr. Banks went even further and testified that seventy percent of the work in a Chapter 13 was posteonfirmation work. Thus, because a substantial portion of the work done in Chapter 13 cases is done after confirmation, Mr. Banks argues that the attorney fee awarded him at the confirmation of a given debtor’s plan must be regarded as compensation both for the work he has done prior to confirmation and for the sixty or seventy percent of the work remaining after confirmation.
An award of attorney fees to the attorney for the debtor in any bankruptcy case is governed by 11 U.S.C. § 330(a)(1), which provides that
*944the court may award ... to the debtor’s attorney reasonable compensation for actual, necessary services rendered ... based on the nature, the extent, and the value of such services, the time spent on such services, and the cost of comparable services other than in a case under this title....
Because this section allows an award of attorney fees only for “actual” services rendered, bankruptcy courts appear to be limited to paying attorney fees for services that have already been performed and that can be documented according to the method established by Fed.R.Bankr.P. 2016. Rule 2016 requires the submission of “a detailed statement of (1) the services rendered, time expended and expenses incurred, and (2) the amounts requested.” Id. Notably, there is no provision in either § 330 or Rule 2016 for estimating and awarding attorney fees for services to be rendered in the future, and the use of the past tense in both the code section and the rule — “services rendered” — conveys the idea that compensation may be paid only for work already performed. Thus, Mr. Banks’ argument that fees paid in Chapter 13 cases after confirmation are really for services rendered after confirmation finds no support in either the Bankruptcy Code or Rules, according to which a bankruptcy court could not properly award a fee for unspecified, speculative services that might never be rendered in the particular case it had under consideration.
The case law in this circuit is to the same effect. In Boddy v. United States Bankruptcy Court (In re Boddy), 950 F.2d 334 (6th Cir.1991), the Sixth Circuit held that a bankruptcy court applied an improper legal standard in setting the fee for the debtor’s attorney in a Chapter 13 ease when it apparently adhered to a fixed fee for what it considered to be “normal and customary” services and refused to consider the attorney’s lodestar application,2 which substantiated a higher fee than the one awarded. Emphasizing the plain language of § 330, the Sixth Circuit observed that
[w]hile the bankruptcy courts certainly know the typical compensation paid for legal services in a Chapter 13 case better than this court, the establishment of a fixed fee for certain “normal and customary” services is directly contrary to the plain “actual, necessary services rendered” language of 11 U.S.C. § 330.
Id. at-337. It then adopted the lodestar method as the primary method for setting attorney fees in Chapter 13 cases.
It seems obvious that attorney fees calculated by the lodestar method can take account only of the hours an attorney has already expended in the case, for those are the only ones he can document as “actual” and “rendered.” Thus, there are no provisions in the lodestar method, § 330, or Rule 2016 for payment of attorney fees for services that might or might not be rendered in the future.
Moreover, there are no provisions that allow the court to determine what an average fee would be and to pay it in all eases with the hope that a case in which counsel is undercompensated today will be subsidized by one in which he is overcompensated tomorrow. An average fee applied in all cases is certainly a fixed fee as to an individual case, and Boddy, the controlling precedent in this circuit, condemns the use of fixed fees. Yet, Mr. Bank’s would have the court characterize the fee awarded in each of his Chapter 13 cases as an average fee, arguing, as he does, that the initial fee awarded at confirmation is intended to compensate him for services he renders his client until the case is closed and that, in the average case,3 he earns whatever part of the initial fee happens to be paid him4 after confirmation by render*945ing services after confirmation. Because he renders significant postconfirmation services in some cases, little service in others, and no service in still others, yet is paid after confirmation in all of them, his insistence that he is “earning” fees in all these cases must mean that the court has averaged the cases together and is paying for all the postconfirmation work on that basis. That is the only way Mr. Banks could conceivably “earn” fees in those cases in which he does little or no postconfir-mation work. This argument, however, collides with Boddy’s disapproval of awarding an average fee in a given case because, by logical extension, Boddy’s rationale would preclude fees arrived at by averaging all the work done in a single attorney’s numerous cases, which is what Mr. Banks argues for, as well as fees arrived at by averaging all the work done in a particular kind of case by the local bar, which is the usual method by which “fixed,” “flat,” “typical,” or “customary” fees are arrived at.
Like many, if not most, courts, this court has established an expedited regime for awarding attorney fees in Chapter 13 cases to accomplish the goal of setting reasonable fees acceptable to all the parties in interest in the case while avoiding unnecessary timekeeping, filings, and litigation. See, e.g., In re Orris, 166 B.R. 935, 937 (Bankr.W.D.Wash.1994) (court approves initial fees in $700 — $1000 range depending on the complexity of the case and only if there is no objection); In re Pearson, 156 B.R. 713, 717 (Bankr.D.Mass.1993) (court considers fee applications in $750 — $1000 range without a detailed statement); In re Atwell, 148 B.R. 483, 487 (Bankr.W.D.Ky.1993) (court approves fees not exceeding $875 without a detailed statement if there is no objection; counsel may submit a detailed statement at any time); In re Bush, 131 B.R. 364, 367 (Bankr.W.D.Mich.1991) (court considers fee applications not exceeding $1000 without detailed statement); Keith M. Lundin, Chapter IS Bankruptcy, § 7.31 at 7-75 (J. Wiley & Sons, 1994) (“It is almost inconceivable that bankruptcy courts would engage in full-scale lodestar calculation of debtors’ attorneys’ fees in every Chapter 13 case, especially in districts with high-volume Chapter 13 programs.”). Thus, this court does not require an attorney to file an itemized statement of hours worked if his request for “initial compensation” does not exceed $850 and no interested party objects. Under this system, the court reviews the ease file and considers, among other things, the amount of the debt, both secured and unsecured, the length of the plan and the amount of distribution to the creditors, the nature of the case (consumer or business), and its complexity. This review is undertaken, and the initial fee is determined, at confirmation when the court, considering the factors mentioned, can estimate an approximate lodestar fee for the services reasonably performed up to that point.
The system also provides for the award of “additional compensation” to the attorney if he renders services to the debtor after confirmation. Again, if there are no objections, and if the additional compensation requested and the initial compensation already awarded do not exceed $1250, the court can estimate an approximate lodestar fee based upon a description of the services rendered.
This court’s two-tiered system, providing as it does for “initial compensation” and “additional compensation,”5 demonstrates the court’s purpose to award fees only for those services that have already been rendered. Because the award of fees at confirmation is intended to compensate attorneys only for services already rendered, the fees must be considered fully earned at the time they are awarded. See In re Orris, 166 *946B.R. 935, 937 (Bankr.W.D.Wash.1994) (court considers that fee awards set in confirmation orders compensate counsel for all preconfir-mation services, but not post-confirmation services); In re Atwell, 148 B.R. 483, 487 (Bankr.W.D.Ky.1993) (court awards fee for services performed between the filing of the Chapter 13 petition and the filing of the statement of allowed claims; counsel may request additional fees for services rendered after the filing of the statement of allowed claims). The same holds true for any fees awarded as additional compensation for post-confirmation services: they are earned at the time of the award.6
Mr. Banks has apparently misperceived the nature of the court’s fee award, perhaps owing to the fact that attorneys of record in Chapter 13 cases usually continue in that capacity until the case is closed. Since a case might last five years, it could be wrongly assumed that some undefined part of the initial award has been intended sub silentio as compensation for minor postconfirmation services that would not warrant the filing of another request for attorney fees. If this incorrect assumption were true and the initial fee was indeed to be earned over the entire life of the case, counsel would occasionally be obliged to return unearned fees to clients or Chapter 13 trustees when cases failed soon after confirmation. After many thousand Chapter 13 cases, the court is unaware of any instance in which fees have been returned or a motion for disgorgement has been filed under such circumstances.
III.
In this case the statutory law and the case law converge with the court’s intentions in awarding attorney fees. Bankruptcy Code § 330, Rule 2016, and Boddy indicate that attorney fees in bankruptcy are awarded only for services already rendered. That has always been this court’s understanding, and it has awarded fees on that basis. On the other hand, Mr. Banks’ theory that Chapter 13 fees are averaged fees awarded on a piecework basis simply has no support in law or practice and must be rejected.
For the foregoing reasons, the court finds that the attorney fees awarded Mr. Banks for his representation of Chapter 13 debtors were awarded for services already rendered at the time of the awards. The court concludes (1) that the fees set out in the awards made to Mr. Banks before the filing of his petition in bankruptcy were fully earned before the commencement of his case, (2) that any unpaid portions thereof are not subject to the earnings exception of 11 U.S.C. 541(a)(6), and (3) that any unpaid portions thereof are the property of his estate.
An appropriate order will enter.
. According to Mr. Epstein, his office’s posteon-firmation services often entail solving the debt- or's transportation problems so the debtor can continue his employment, assisting the debtor in acquiring new but essential debt, and solving problems caused by interruptions in the debtor’s employment and income stream. Common post-confirmation services rendered by Chapter 13 attorneys may include objecting to creditor claims, modifying plans, defending against motions to dismiss or motions to vacate the automatic stay, amending schedules, and converting the Chapter 13 case to a case under another chapter.
. The lodestar method of computing attorney fees involves multiplying the attorney's reasonable hourly rate by the number of hours the attorney has reasonably expended on the case. Boddy, 950 F.2d at 337.
. Mr. Banks has offered opinion evidence that sixty or seventy percent of the work performed in the average Chapter 13 is performed after confirmation. He has offered no evidence of the number of hours of work an attorney performs after confirmation, even in the average case, nor has he offered evidence of the average number of hours he personally spends on postconfirmation work.
.The amount paid him after confirmation is a matter of happenstance. If his client is able to pay in a fund of money prior to confirmation, Mr. Banks will be permitted to retain a substan*945tial portion of it as part of the initial fee set at confirmation. If his client fails to pay in an amount in excess of the filing fee, then all of Mr. Banks' fee will be paid after confirmation.
. Standing Order 93-1, which makes these distinctions and otherwise sets up the system described herein, has been in effect since June 4, 1993. It superseded Standing Order 90-1, which had been in effect since June 1, 1990. Although Standing Order 90-1 did not specifically make provision for the awarding of "additional compensation" as Standing Order 93-1 does, it did refer to “initial compensation," and the regular practice of the court was, and is still, to award additional compensation for services rendered after confirmation upon a properly supported application to do so.
. Awards arrived at in this manner do not constitute typical, average, fixed, or customary fees because the court has no set fee in mind when it reviews a request for compensation. Indeed, the court often awards a fee less than that requested. Rather, the ceilings employed by the court only mark the bounds within which the court feels comfortable in estimating lodestar fees based on a review of the case. Within these rather narrow boundaries, a miscalculation by the court would hardly be catastrophic, and the court could as easily make an error in determining the reasonableness of the rates or hours set out in a fully itemized fee application. Setting fees simply is not an exact science, and, in any event, an attorney always has the option of filing an itemized application. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492318/ | ORDER
RICHARD S. STAIR, Jr., Chief Judge.
This matter came on for hearing on March 21, 1996, on the Motion for Certificate of Contempt filed by the debtor, Donald Ray Walker, on February 8, 1996, seeking an order requiring First Tennessee Bank Credit Card Division to cease and desist from violating the automatic stay. For the reasons stated in the Memorandum filed this date, containing findings of fact and conclusions of law as required by Fed.R.Bankr.P. 7052, the court directs the following:
1. The Motion for Certificate of Contempt filed by the debtor on February 8, 1996, is GRANTED.
2. First Tennessee Bank Credit Card Division shall cease and desist from sending the letter and proposed reaffirmation agreement attached as Exhibit A to the Stipulations filed March 15, 1996, in its current form to debtors under the jurisdiction of the United States Bankruptcy Court for the Eastern District of Tennessee, Northern Division.
SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491871/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW ON MOTION FOR LEAVE TO FILE NOTICE OF APPEAL
ROBERT McGUIRE, Chief Judge.
Pursuant to Bankruptcy Rule 7052, following are the Court’s Findings of Fact and Conclusions of Law on the motion of Kenneth L. Nichols (“Nichols”) for leave to file notice of appeal.
Findings of Fact
1. On August 23, 1993, the Court heard Nichols’ Motion to Reopen Case. At the hearing, the Court ruled that Nichols had not shown sufficient cause to reopen this ease.
2. On August 25,1993, this Court entered an order denying Nichols’ Motion to Reopen Case.
3. Allegedly Nichols did not receive a copy of this Court’s August 25, 1992 order from the clerk until January 11, 1994. This appears to be borne out by the Clerk’s Certificate showing that it was only served on the debtor and the trustee. In the interim, Nichols allegedly had been submitting proposed orders to the clerk.
4.' Nichols filed a notice of appeal on December 20, 1993, in the Bankruptcy Court.
5. On January 19, 1994, Nichols filed, in the Bankruptcy Court, a Motion for Leave to File Notice of Appeal, and Notice of Appeal.
6. On February 16, 1994, the District Court directed the District Clerk to return the file to the Bankruptcy Court for ruling on the Motion for Leave to File Notice of Appeal.
Conclusions of Law
1. The Court has jurisdiction of this motion.
2. Bankruptcy Rule 8002(a) gives a ten-day period from the entry of an order to file a notice of appeal. Movant failed to file a notice of appeal within this time frame.
3. Bankruptcy Rule 8002(c) allows for the filing of a motion for extension of time to file a notice of appeal. This-extension can either be granted within the original ten-day period or upon a showing of excusable neglect, not more than twenty days after the expiration of the time to file a notice of appeal. In essence, a thirty-day outer time limit is placed on the filing of a motion to extend time to file a notice of appeal, and for the actual filing of the notice of appeal by Bankruptcy Rule 8002(c). Nichols’ motion does not fall within the time parameters as set forth in Bankruptcy Rule 8002(c). This Court cannot extend the time period for filing a notice of appeal beyond the thirty-day time limit. Moore v. Hogan, 851 F.2d 1125 (8th Cir.1988); In re Universal Minerals, Inc., 755 F.2d 309 (3rd Cir.1985); In re Enerco, Inc., 43 B.R. 412 (Bankr.N.D.Tex.1984). The motion should be denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491872/ | Opinion on Judgment
HUGHES, District Judge.
1. Introduction.
George Kaufman and Galleria West Hotel Group, who hold a second lien on a hotel in bankruptcy, object to an incentive fee claimed by Guest Quarters Hotels Limited Partnership, the manager. The bankruptcy court allowed the payment. Because Kaufman and Galleria West received the process that they were due and because the bankruptcy court was correct in relying on the terms of the management agreement, the judgment will be affirmed.
2. Background.
S & C Corporation’s main asset was the Galleria West Guest Quarters hotel. Mass-Mutual was the first lien-holder, and its plan to reorganize S & C was approved by the bankruptcy court and affirmed by this court. Throughout the bankruptcy, Guest Quarters continued to manage the hotel under an agreement. While that agreement, as an executory contract, was rejected by S & C on October 6,1992, under the terms of the plan, the effective date of the rejection was not until the end of the year, when the hotel was transferred to MassMutual.
*40Under the agreement, Guest Quarters could earn an incentive fee for 1992 by-achieving operating results better than the contractually-specified level. The incentive fee equaled twenty percent of gross operating profit exceeding $3,300,000. For fiscal year 1992, the fee was $212,417. Guest Quarters applied for payment of the bonus as an administrative expense. See 11 U.S.C. § 503(b)(1)(A).
The bankruptcy court approved the application over the objection of Kaufman and Galleria West.
3. Due Process versus Oral Argument.
The claimant filed its application. The affected parties were notified. The second-lien creditors filed an opposition. The bankruptcy court approved the payment, overruling the second-lien creditor’s objections. Because the bankruptcy court allowed no oral argument, Kaufman and Galleria West assert that it fell into error, depriving them of their right to a “hearing.”
Kaufman and Galleria West proffer no material fact that was in bona fide dispute about which they had requested an opportunity to make a record before the court. The omission of a hearing turns entirely on the absence of oral argument by counsel.
Generally, the bankruptcy court can act only “after notice and a hearing.” 11 U.S.C. § 503(b)(1)(A). The bankruptcy code defines that phrase to mean “after such notice as is appropriate in the particular circumstances, and such opportunity for a hearing as is appropriate in the particular circumstances.” 11 U.S.C. § 102(1)(A). Bad draftsmanship aside, that description is reasonably clear. Indeed, it largely echoes Justice Jackson’s observation that one is entitled to “adjudication preceded by notice and opportunity for hearing appropriate to the nature of the case.” This requires “notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.” Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 313, 314, 70 S.Ct. 652, 656-57, 657, 94 L.Ed. 865 (1950). With his usual utilitarian focus, Justice Holmes simply said' that “what is due process depends on circumstances.” Moyer v. Peabody, 212 U.S. 78, 84, 29 S.Ct. 235, 236, 53 L.Ed. 410 (1909). A fundamental requirement of due process is “the opportunity to be heard.... It is an opportunity which must be granted at a meaningful time and in a meaningful manner.” Armstrong v. Manzo, 380 U.S. 545, 552, 85 S.Ct. 1187, 1191, 14 L.Ed.2d 62 (1965) (Potter Stewart, J.).
Kaufman and Galleria West have not suggested an inherent ineffectiveness in submitting the opposing positions to the court by their papers. No peculiarity of this case suggests oral argument is necessary for a just adjudication.
Oral argument is not ordinarily an element of effective presentation of a petition or objection. By example, the Court of Appeals for the Fifth Circuit hears oral argument in only about 30% of its cases. On the other hand, the Supreme Court hears thousands of applications for writs of certiorari without ever allowing oral argument.
Because trial judges have limited time, practices must be developed to help them manage the demands for judicial attention. Although lawyers often wish out loud for some absolute uniformity in the techniques used by judges, on reflection they would be no happier with the result of a rigid system designed to the lowest common denominator of judge. Instead, the discretion of a trial judge is allowed to roam broadly in search of practices within the rules that are reasonably adapted to her style of thought, types of case, volume of cases, and other abilities and limitations. From this variety we get inconsistencies, but with them we get innovations that can be adopted by others and an average productivity far above any rigid system.
In this context, bankruptcy judges have the discretion whether to allow oral argument. Bankruptcy judges need the opportunity to adapt their ease management practices to the realities of their dockets. See, e.g., North American Printing Ink Co. v. Regensteiner Printing Co., 140 B.R. 474 (N.D.Ill.1992).
*41In this appeal, the parties have had a hearing. The simple act of the court’s reading their objections and briefs constitutes a hearing. What they have not had is oral argument. Judges must retain the discretion to manage their dockets. Absent a congressional mandate through the bankruptcy code for oral argument, the requirement of a hearing is met by allowing the parties to file their briefs.
“A system of procedure is perverted from its proper function when it multiplies impediments to justice without the warrant of clear necessity.” Reed v. Allen, 286 U.S. 191, 209, 52 S.Ct. 532, 537, 76 L.Ed. 1054 (1932) (Cardozo, J., dissenting). The absence of oral argument on these objections is not procedural irregularity; instead, the demand before the trial court and the point on appeal are war by attrition by the appellants.
4. Timeliness.
The record shows that the objection was filed within 20 days of the amended application; therefore, the objection was timely.
5. The Propriety of Payment of the Incentive Fee.
Kaufinan argues that because the management agreement was rejected by MassMutual in its plan of reorganization, it is deemed breached by the debtor as of April 1, 1991. Thus instead of relying on the agreement to pay the earned incentive fee, the debtor only had to pay reasonable value for services rendered. See. Matter of Braniff Airways, Inc., 783 F.2d 1283, 1285 (5th Cir.1986). Since the debtor did not present any evidence of the reasonableness of the incentive fee, rather it relied on the existence of the management agreement, Kaufinan says that the payment cannot be approved.
What is puzzling is Kaufman's selection of April 1,1991, as the date. The affirmed plan of reorganization was filed on April 15, 1992. The plan specifically stated that executory contracts not assumed were deemed to have been rejected on the effective date of the plan. That date was October 6, 1992, in the plan, and the end of the year in actuality, when the hotel was turned over. The. only mention of April 1, 1991, in the plan of reorganization is its use as the record date for purposes for determining holders of allowed claims and interests. That has nothing to do with when the agreement is deemed rejected. It is clear to the court that the agreement was in effect for all of 1992.
Thus the terms of the agreement are entitled to treatment as an administrative expense where those terms serve to preserve and protect the estate. See Isaac v. Temex Energy, Inc. (In re Amarex, Inc.), 853 F.2d 1526, 1530 n. 4 (10th Cir.1988). It is undisputed that Guest Quarters operated the hotel through December 1992. It was entitled to payment.
6.Conclusion.
The merits of the dispute illustrate the necessity of sustaining a court’s ability to manage its docket. Kaufman has received all the hearing that he is due in this case. The judgment of the bankruptcy court will be affirmed.
Final Judgment
1. Kaufinan and Galleria West’s motion for oral argument is denied. (#3)
2. The judgment of the bankruptcy court is affirmed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491873/ | OPINION AND ORDER SUSTAINING OBJECTION TO AMENDED PRIORITY PROOF OF CLAIM AND AMENDED SECURED PROOF OF CLAIM OF THE STATE OF MICHIGAN
WALTER J. KRASNIEWSKI, Bankruptcy Judge.
This matter is before the Court upon Freightway Corporation’s (the “DIP”) objection to the State of Michigan, Department of Treasury, Revenue Division’s (the “State”) amended priority proof of claim and amended secured proof of claim. The Court finds that the DIP’S objection is well taken and should be sustained.
FACTS
The State filed a secured proof of claim and a priority proof of claim in the DIP’S bankruptcy case on March 8,1993 (collectively the “Claims”).
The DIP filed an objection to the Claims on July 16, 1993 (the “Objection”).
At a pretrial conference on August 18, 1993, the Court sustained the Objection. Subsequently, on August 23, 1993, the Court entered an order denying the Claims (the “Order”).
To date, the State has neither appealed nor sought relief in this Court from the Order.
On June 6,1994, the State filed an amended secured proof of claim and an amended priority proof of claim (the “Amended Claims”). The items asserted in the Amended Claims are the same as the items asserted in the previously denied Claims in all material respects.
DISCUSSION
The Court finds that the Order is res judicata as to the Amended Claims. See DBL Liquidating Trust v. P.T. Tirtamas Majutama (In re Drexel Burnham Lambert Group, Inc.), 148 B.R. 993, 996-97 (S.D.N.Y.1992) (creditor barred from reasserting through proof of claim process claims which had previously been resolved against creditor in adversary proceeding under Federal Rules 56 and 12(b)(6)). The Order represented an adjudication on the merits. Therefore, the State is barred from relitigating its secured claim and its priority claim by res judicata.
Moreover, even if the Amended Claims could be construed as a motion for *43reconsideration of the Claims, the State has failed to demonstrate “cause” for reconsideration.
Significantly, the State has not provided the Court with any newly discovered evidence or case law in support of the Amended Claims.
Furthermore, the State has not demonstrated that its conduct in failing to prosecute the Claims represented “excusable neglect”. In determining whether the State has demonstrated “excusable neglect”, the Court is guided by the Supreme Court’s analysis of “excusable neglect” within the analogous context of Fed.R.Bankr.P. 9006(b). In Pioneer Inv. Serv. Co. v. Brunswick Assoc. Ltd. Partnership, the Supreme Court instructed bankruptcy courts to balance the equities in determining whether a party’s conduct constitutes “excusable neglect”. Pioneer Inv. Serv. Co. v. Brunswick Assoc. Ltd. Partnership, — U.S. -, -, 113 S.Ct. 1489, 1495, 123 L.Ed.2d 74 (1993).
Factors which a court should consider in making this equitable determination include:
[ 1.] the danger of prejudice to the [opposing party],
[ 2.] the length of the delay and its potential impact on the judicial proceedings,
[ 3] the reason for the delay, including whether it was within the reasonable control of the movant,
[ 4.] and whether the movant acts in good faith.
Pioneer, — U.S. at -, 113 S.Ct. at 1498 (citation omitted).
The Court finds that the equities do not favor reconsidering the Claims.
First, reconsidering the Claims would further delay the DIP’s reorganization. The Court has previously confirmed the DIP’s plan of reorganization. Second, at this stage in the administration of the estate, it would be manifestly inequitable to require other creditors who have diligently prosecuted their claims to await the disposition of the Amended Claims. These creditors have relied upon the fact that the Claims were denied in approving Freightway’s plan of reorganization. Third, appearance at the pretrial conference was clearly within the State’s reasonable control. Moreover, the State has not demonstrated that its failure to take any action subsequent to the Order and prior to the filing of the Amended Claims was “excusable”. The Court cannot conclude that the State has acted in bad faith. Nevertheless, in balancing the above factors, the Court concludes that the State has failed to meet its burden of demonstrating “excusable neglect”. C.f. United States v. RG & B Contractors, Inc., 21 F.3d 952 (9th Cir.1994) (the fact that movant overlooked certain invoices in its files did not represent “excusable neglect” under Rule 60(b)); Harlow Fay, Inc. v. Fed. Land Bank of St. Louis (In re Harlow Fay, Inc.), 993 F.2d 1351 (8th Cir.1993) (extension of time for “excusable neglect” not warranted where debtor attempted to file untimely modification of its chapter 11 plan one week late and excuse advanced by debt- or’s counsel was that late filing was caused by counsel’s reduction in staff because of financial problems and continuing problems due to firm’s relocation), cert. denied, — U.S. -, 114 S.Ct. 87, 126 L.Ed.2d 55 (1993).
In light of the foregoing, it is therefore
ORDERED that the DIP’s objection to the State’s amended priority proof of claim and amended secured proof of claim be, and it hereby is, sustained. . | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491874/ | OPINION
JERRY A. FUNK, Bankruptcy Judge.
This proceeding is before the Court on Plaintiffs two-count complaint seeking to except from discharge a money judgment entered in state court on September 10, 1993, for attorney’s fees and costs in the amount of $6,765.00, plus interest. See 11 U.S.C. § 523(a)(6). The Court conducted a trial on April 28, 1994, and upon review of the evidence presented and the parties’ memoranda, enters the following findings of fact and conclusions of law. See Fed.R.Bankr.P. 7052. The Court has jurisdiction over this proceeding pursuant to 28 U.S.C. § 1334.
FINDINGS OF FACT
Ammann, the Plaintiff, is a real estate developer. Ihringer is Ammann’s former partner and a construction contractor. This proceeding involves a longstanding dispute between Ammann and Ihringer over a project known as the Sunrise Villas Development (“Sunrise”) located in Palm Coast, Florida.1 Ammann’s Sunrise project entailed construction of 28 unit townhouses and the subdivision of the property into 14 lots. In 1985, Ammann proceeded to build Sunrise, and he enlisted the help of Ihringer’s company, Gulf Star Builders, Inc. (“Gulfstar”), to *143serve as prime contractor. Ihringer accepted Ammann’s offer and on August 24, 1985, signed a construction contract, which included an option to purchase the property (the parties did not submit this contract into evidence). The contractual option granted Ih-ringer the right to purchase parcel A and lots 4 and 5 (as recorded in Map Book 4, Page 2).
Thereafter, the parties had a disagreement which resulted in Ihringer filing a lawsuit in state court (Case No. 87-391-CA) on behalf of Regency Park, Inc., consisting of two counts: one for specific performance and the other for breach of contract. Plaintiff Exhibit 1. Ammann answered and filed an amended counterclaim which alleged multiple claims for relief: breach of fiduciary duty, breach of oral partnership, conversion, civil theft, ejectment, breach of option contract, slander of title, quiet title, and declaratory relief. Plaintiff Exhibit 3. Also, Ammann filed a third-party complaint against Ihringer and Gulfstar. Plaintiff Exhibit 4.
The thrust of the previous litigation — from Ihringer’s perspective — concerned his entitlement to monies promised as an advance. Ihringer claimed that the parties agreed orally for Ammann to pay him an advance prior to beginning construction. In addition, Ihringer asserted that the contract option expressly authorized him, upon exercising the option, to purchase the property at a fixed and definite price. Ammann alleged in defense that Ihringer failed to perform as promised; Ihringer was to “provide services in connection with the development of said properties, including model homes, infrastructure and the development of a commercial use office condominium complex.” Plaintiff Exhibit 1, ¶4. In addition, Ammann alleged that Ihringer agreed to release and terminate the real estate purchase option for $6,370.97. Ammann’s remaining defenses included allegations of misconduct.
That 1987 lawsuit was settled by the parties. The parties met on August 15, 1988, to complete the settlement agreement. Am-mann paid Ihringer $95,000.00 and prepared, in German, a written receipt. Plaintiff Exhibit 7. Ihringer signed the receipt,2 executed a quit claim deed, and returned various plans and drawings. Plaintiff Exhibit 8.
In addition, Ihringer executed a release as an individual and on behalf of Regency Park, Ine., and Gulfstar. The relevant part of that agreement provides:
KNOW ALL MEN BY THESE PRESENTS, that we, William G. Ihringer, Regency Park, Inc., a corporation, and Gulf Star Builders, Inc., a Florida corporation, for the consideration of the sum of $10.00 and other valuable consideration paid to one or more of us by or on behalf of Ernst U. Ammann and/or E. Ammann, Inc., a corporation, the receipt whereof is hereby acknowledged, and in return for dismissal with prejudice of those counterclaims against William G. Ihringer and Gulf Star Builders, Inc., in case No. 87-391-CA, in the Circuit Court of the Seventh Judicial Circuit, In and For Flagler County, Florida, styled Regency Park, Inc. v. Ernst U. Ammann v. William G. Ihringer and Gulf Star Builders, Inc., do hereby release, acquit and discharge the said Ernst U. Am-mann and E. Ammann, Inc., a corporation, their agents, employees, representatives, heirs, successors, and assigns from all claims, demands, actions, damages, lawsuits and expenses on account of, or in any way growing out of, those matters set forth in the lawsuit, or on account of or in any way growing out of that real property described on Exhibit “A” attached hereto and generally known as the Easterly and Westerly Parcel of Reserve Parcel A, Section 2, Florida Park at Palm Coast, and Lots 4 and 5, Block 2, Section 2, as recorded in Map Book 6, Page 2, Public Records of Flagler County, Florida, including the sale, lease, option to purchase, development, or subdivision thereof.
Plaintiff Exhibit 5 (emphasis added). As stated in paragraph 4 of the agreement, the *144parties agreed that this release was to be a complete and final expression of the parties’ settlement.
The matter essentially was resolved until Ihringer (and Gulfstar) filed a lawsuit in state court — Case No. 92^67 — against Am-mann and his company, claiming damages for Ammann’s theft of the Sunrise plans, thought by Ihringer to be protected by copyright. Plaintiff Exhibit 9. Other than agreeing that Barry Barnett created the original Sunrise drawings, the parties then, as now, vehemently dispute ownership of the plans and the copyright.3 See Deposition of Barry Barnett at 13. Ihringer contends that he never intended to sell his copyright; Ammann contends that: (1) Ammann paid Ihringer for the drawing; and (2) even if Ihringer owned the copyright, he later purchased his rights for $95,000.00. During trial, Plaintiffs counsel agreed to dismiss count two which claimed Ihringer fraudulently obtained the copyright.
Although the purpose for bringing the second lawsuit was to resolve Ihringer’s unyielding claim that he hired Barry Barnett, an artist, to render a “conceptual drawing” of Sunrise and that he alone retained the copyright, Ihringer filed a notice of lis pendens in Flagler County. Ammann objected in 1993 to the notice of lis pendens because he was actively seeking venture capital to finance Sunrise. A notice of lis pendens would all but shatter any ongoing negotiations with potential investors. Following a hearing on Ammann’s objection, the Court dissolved the lis pendens in an order entered on March 23, 1993. On March 17, 1993, the day prior to the hearing to dissolve the lis pendens, Ih-ringer filed a third lawsuit in federal court along with a second notice of lis pendens. By filing such a notice, Ammann’s success in dissolving the lis pendens would be a calamitous victory. One notice would be dissolved; yet a second notice would endure and interfere with Ammann’s efforts to obtain capital necessary to complete Sunrise.
The state court resolved the second lawsuit by granting Ammann’s motion for summary judgment. Plaintiff Exhibit 11. The state court held a hearing to consider the motion. Plaintiff Exhibit 12. As the transcript reveals, Ammann pressed before the nisi prius that the pending lawsuit was barred because Ihringer previously executed a complete release of all claims and causes of action. In addition, Ihringer failed to respond to Am-mann’s request for admissions served on August 28, 1992. Ammann argued that Ihringer’s unanswered admissions were deemed admitted, quoting local rule 1.340(e) for the Fifth District Court of Appeals.4 As that court properly concluded, Ihringer had admitted that a previous suit was filed on the same matter when he failed to respond to the discovery requests; he was estopped, therefore, from reasserting the same claim.5
The federal lawsuit was similarly dismissed for failure to prosecute on October 12, 1993. Plaintiff Exhibit 15. Ihringer was represented by counsel in that action.
Ihringer filed a petition for relief pursuant to Chapter 11 on October 11, 1991, which case was converted to Chapter 7 on June 8, 1993. Plaintiff seeks to except from discharge a money judgment entered in state court on September 10, 1993, in case no. 92-467, for attorney’s fees and costs in the amount of $6,765.00, plus interest. See 11 U.S.C. § 523(a)(6).
CONCLUSIONS OF LAW
The Bankruptcy Code excepts a debt from discharge if a debt owed is “for willful *145and malicious injury by the debtor to another entity or to the property of another entity.” 11 U.S.C. § 523(a)(6). While the terms “willful” and “malicious” ordinarily imply personal hatred, spite, or ill-will, a creditor is not required to prove that a debtor’s motive was to harm the creditor. In re Latch, 820 F.2d 1163, 1164 n. 4 (11th Cir.1987); In re Ikner, 883 F.2d 986 (11th Cir.1989). If a debtor pursues an action that is either “excessive in the absence of spite” or without “just cause” and results in harm, such acts may be characterized as malicious even though there is no proof of specific intent to injure a creditor. In re Wilson, 126 B.R. 122, 124 (Bankr.M.D.Fla.1991).
Ordinarily, filing a lawsuit would not be considered malicious as that term is defined above. Thus, Ihringer, by simply choosing to contest Ammann’s alleged abuse of his claimed copyright, may be considered unyielding or perhaps litigious, but his actions would not be subject to scrutiny, as they are in this matter — to except a debt from discharge because of its underlying malicious purpose. Clearly, the law must require something more than a bitter dispute between two former partners who ended a promising business deal in acrimony and who became embroiled in litigation.
Ammann does not seek to recover damages in this action for damages incurred in the federal lawsuit, although Ammann probably would be entitled to damages had he pleaded them. Instead, Ammann seeks to have only the attorney’s fees incurred during the second lawsuit to be excepted from discharge. The issue for this Court to consider, then, is whether Ihringer “maliciously” and “willfully” filed the second lawsuit. The Court does not consider, as Plaintiff suggests, a subsequently filed federal lawsuit when determining if a fee award in a prior state lawsuit, alleged to be malicious, should be excepted from discharge. If Ihringer had acted with malice, then his indebtedness to Ammann for attorney’s fees and costs will be excepted from discharge. The Code is quite clear that a discharge is a privilege afforded to honest debtors. When a debtor engages in willful and malicious conduct, such as alleged here, a debtor may not avail himself of bankruptcy’s “fresh start.”
The state court has already determined that the claims raised by Ihringer in the second lawsuit were resolved by the parties’ settlement agreement in the first lawsuit. Factually, this finding alone lends support to Ammann’s claim that Ihringer acted deliberately and without “just cause” when he filed the second suit. Nevertheless, Ihringer maintains that he owned the copyright as early as 1985, although he did not register it until 1992 and just prior to filing the federal lawsuit. If Ihringer owned the copyright, and it is doubtful that he did, he could have released it, as Ammann claims, upon payment of $95,000.00. Signing and executing the release would negate any justification for filing a subsequent suit. If Ihringer’s interest survived, it was resolved nevertheless by the state court on summary judgment. Ih-ringer has relinquished whatever interest he possessed in the property or stemmed from the property, including his alleged copyright. That much is clear.
From the evidence presented at trial, Ih-ringer’s actions demonstrate a desire to accomplish much more than protecting his alleged copyright; his actions demonstrate a desire to frustrate Ammann from completing Sunrise. Ihringer filed a notice of lis pen-dens, allegedly on the advice of attorney Gary Bloom. Tim Conner testified — as an expert — that a lis pendens, such as the one filed by Ihringer, lacked any legal justification in a copyright infringement suit. Conner testified that the only conceivable purpose for filing the lis pendens was to either stall the project or to extort money from Ammann. Moreover, Ammann challenged the filing of the notice of lis pendens, and the state court agreed and ordered that the lis pendens be dissolved.
In response, Ihringer offered an unsatisfactory explanation for filing the notice of lis pendens. Ihringer testified that Gary Bloom advised him to file the notice of lis pendens, which advice he claims to have relied upon in good faith. Although this is Ihringer’s explanation, the Court finds that Ihringer’s testimony is self-serving and credits instead the testimony of Tim Conner. By Florida law— *146as recognized in Royal Trust Bank v. Von Zamft, 511 So.2d 654 (Fla.App. 3rd DCA 1987) — actions that ordinarily would be treated as legally culpable are excused when one acts in “good faith” upon the advice of counsel. From the evidence presented at trial, it is clear that Ihringer may have subjectively believed that he was true owner of the copyright; but nonetheless, it is clear that Ihringer failed to act in good faith.
Ihringer was not helplessly at the mercy of his attorney, as Ihringer testified. In fact, Ihringer represented himself throughout this litigation (until trial) and did a reasonable job responding to the Court’s orders and preparing pretrial memoranda — including a motion for summary judgment. For example, Ih-ringer submitted a lengthy exhibit and witness list, which consisted of 21 superbly tabbed documents. Also, Ihringer included as an exhibit a letter he wrote to the Honorable Kim Hammond of the Seventh Judicial Circuit. In a letter dated August 3, 1993, Ihringer boasted his knowledge of copyright law, when he wrote:
In the process of going through some of the papers and filings, I was able to gather, I was amazed how little the Attorneys of all parties know about the Patent, Trademark & Copyright Laws of the United States.
By reading the questions on the new action, when one is familiar with thes (sic) laws, one can clearly see a lak (sic) of information and knowledeg (sic) about the Patent, Trademark & Copyright Laws, even so these laws are clearly defined, explicit, short, very interesting to read and fairly easy to comprehend.
Defendant Exhibit JB. Ihringer even mailed a copy of the March 1991 revisions to Judge Hammond. Nonetheless, Ihringer claims to lack any knowledge concerning the possible harm a notice of lis pendens could cause Ammann.
Further, Ihringer explained the reason for filing a second notice of lis pendens in federal court as a coincidence. The notice was filed the day prior to the hearing on a similar notice in state- court. He claims that he wanted the state action dismissed so he could proceed with the copyright action in federal court, ostensibly a more likely forum for a copyright infringement action. Ihringer testified he was unaware that on the day prior to the hearing to dissolve the lis pendens, a second notice of lis pendens was filed in the federal lawsuit. The Court does not credit this explanation in light of his previous actions. The more credible explanation, which is contrary to Ihringer’s coincidence theory, is that Ihringer attempted to frustrate and extort Ammann’s efforts to complete Sunrise.
In sum, the Court concludes that Ihringer settled all claims against Ammann when he executed the release. If any claims survived the release, those claims including Ihringer’s alleged copyright infringement claim were foreclosed on summary judgment. While the Court acknowledges that filing a lawsuit does not violate the Code, such filing' may be violative, nonetheless, if the debtor’s actions are willful and malicious. In this case, Ih-ringer filed multiple lawsuits challenging more than just Ammann’s abuse of his alleged copyright; he used the law improperly to stall the further development of Sunrise. While some may call such actions effective strategy or superior trial tactics, as the public routinely observes in fictional courtroom dramas, the Court considers them to be willful and malicious and an abuse of the legal system.
Enshrined in the Constitution’s guarantee of ordered liberty is the right of any citizen to file a lawsuit. If this were the sole issue here, the Court would easily rule in Ihringer’s favor. Yet it is not at issue, even tangentially. Ihringer attempted to win his case — not on the merits, but through indecorous maneuvering. While Ihringer’s methods may have achieved some measure of success, such methods are of no avail in an equitable proceeding such as bankruptcy. Plaintiff is entitled to be reimbursed for the cost of attorney’s fees expended to defend a malicious and willful prosecution.
Accordingly, it is ORDERED AND ADJUDGED that:
1. The relief requested in Plaintiffs complaint, seeking to except from discharge a money judgment entered in state court on *147September 10, 1993, for attorney’s fees and costs in the amount of $6,765.00, plus interest is GRANTED.
2.The Court shall enter a separate final judgment in accordance with these findings.
DONE AND ORDERED.
. The project was formally known as Regency Park and Regency Plaza.
. The receipt executed by the parties provides as follows (as translated):
The undersigned confirms herewith that Mr. Ernst Ammann paid for everything that was done on his property, plus Gulfstar and Regency Park and William Ihringer received the sum of $95,000.00 (Ninety-five Thousand) Dollars by check for performance like plans, soil tests, permits and option release. Palm Coast, 8/15/88
. Plaintiff stipulated during trial that the copyright registration was filed with the appropriate office. Defendant Exhibit 2.
. Ammann also filed a motion to compel discovery, requiring Ihringer to answer interrogatories and a request for production. Ihringer failed to answer and the Court found him to be in contempt. Ihringer failed to comply with the contempt order, too.
. During trial, Ihringer's counsel argued that the claims were in fact different. While they were different claims as pleaded, the attorney's fees at issue in this matter were nonetheless awarded because Ammann prevailed on summary judgment. By granting summary judgment and awarding fees, the state court determined that Ihringer filed an unnecessary, successive suit, which Ihringer admitted by operation of law. The Court is bound by that prior determination. It is an altogether different matter whether that second suit filed in 1992 was done maliciously and willfully. The state court made no such finding. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491875/ | *148
ORDER MODIFYING THE AUTOMATIC STAY
JERRY A. FUNK, Bankruptcy Judge.
This case is before the Court on Trafalgar House, Inc.’s Motion for Relief from Stay (Doc. No. 49, filed on April 12, 1994). The Court conducted a hearing on April 29, 1994, and after receiving evidence and the testimony of witnesses, the Court reserved ruling on the matter. Following the hearing, the parties submitted memoranda which contained proposed findings of fact and conclusions of law. The Court makes the following legal findings.
In its motion for relief from stay, Trafalgar House, Inc. (“Trafalgar”), alleged that: (1) it held a valid, perfected security interest; (2) the debtor was in default of the note; (3) the debtor failed to adequately protect Trafalgar’s interest; and (4) the debtor lacked equity in the equipment listed in the motion. At the hearing, Trafalgar provided proof that it had a perfected security interest in debt- or’s equipment, which is currently property of the estate.
The creditors’ committee objects to Trafalgar’s lien because the debtor allegedly failed to directly execute a security agreement with Trafalgar; instead, the debtor executed a lease and a security agreement with Trafalgar House Services, Inc., which subsequently assigned the chattel papers to Trafalgar. In essence, then, the creditors’ committee asserts in defense that Trafalgar lacks the requirements necessary to establish a security interest.
Whenever a hearing is held to determine whether a party in interest should be granted relief from the stay, the Code allocates the parties’ respective burdens of proof as follows:
(1) the party requesting such relief has the burden of proving the debtor’s equity in property; and
(2) the party opposing such relief has the burden of proof on all other issues.
11 U.S.C. § 362(g). Thus, once the movant demonstrates prima facie entitlement to relief, which the Court concludes Trafalgar has demonstrated, the opposing party must present evidence to the contrary. See In re Allstar Bldg. Products, Inc., 834 F.2d 898, 902 (11th Cir.1987). Ordinarily, such evidence consists of a debtor’s equity in certain property and the need to retain property essential to a successful reorganization. In this case, the objecting creditors’ committee presented evidence, ostensibly to prove that Trafalgar’s lien is invalid.
While the Code clearly assigns to the nonmoving party the burden of proving “all other issues,” the nonmovant may not present evidence that a lien is invalid during a hearing on a motion for relief from stay. In re Born, 10 B.R. 43, 46 (Bankr.S.D.Tx.1981); accord In re High Sky Inc., 15 B.R. 332 (Bankr.M.D.Penn.1981). Nor will the Court decide the merits of the defense that the lien is invalid, although the Court will consider such allegations in determining the appropriateness of requiring the parties to litigate the lien’s validity at all or the need for adequate protection. The complexity of the issues raised in opposition to Trafalgar’s motion requires, as stated in the Code, the filing of an adversary proceeding or a separate trial, and such complex issues are not to be considered in a. motion to lift the stay. See Fed.R.Bankr.P. 7001(2).
This approach taken by the Court today — which lifts the automatic stay but only for the purpose of determining the validity of a claimed security interest — protects both debtor’s and creditors’ rights pending resolution of the validity of Trafalgar’s challenged lien. If Trafalgar has a valid lien, as the movant contends, then the creditor may proceed to enforce its lien and reclaim the equipment. Otherwise, the equipment belongs to the debtor-in-possession. Nonetheless, the resolution of Trafalgar’s lien is necessary before the Court can decide the merits of lifting the stay and allowing Trafalgar to act upon the collateral — even though it appears that Trafalgar will ultimately prevail. See In re Cycle Products Distributing Co., 118 B.R. 643 (Bankr.S.D.Ill.1990) (stating not only that the Code is silent as to how an assignment is effected, but also that general principles of law and equity apply except where they are displaced by particular provisions of the Code).
*149Accordingly, it is ORDERED AND ADJUDGED that the Motion to Modify the Automatic Stay is GRANTED. The stay is lifted only to the extent that an action be filed in a court of competent jurisdiction to determine the validity and extent of Trafalgar’s lien. Thereafter, this Court will determine: (1) further modification of the automatic stay; or, (2) the need for adequate protection until a plan is confirmed.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491878/ | MEMORANDUM OPINION AND DECISION
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court after Hearing on Debtor’s Motion to Reopen Chapter 7 Case for Purpose of Adding Additional Creditors and Objections to Debtor’s Motion to Reopen Closed Bankruptcy Case filed Post-Hearing by D.A. Fedrigo (hereafter “Fedrigo”). At the Hearing, the parties were afforded the opportunity to present evidence and arguments they wished the Court to consider in reaching its decision. This Court has reviewed the arguments of Counsel, supporting affidavits and exhibits as well as the entire record in the case. Based upon that review, and the following reasons, this Court finds that Debtor’s Motion to Reopen Case should be Granted.
FACTS
On March 4, 1993, Debtor filed for relief pursuant to Chapter 7 of the Bankruptcy Code and received a discharge from all dis-chargeable debts on June 28,1993. The case was administratively closed on July 20, 1993.
Debtor filed a Motion to Reopen Chapter 7 Case for the Purpose of Adding Additional Creditors on April 28,1994. The prospective Creditors, Fedrigo; Deerfield Co. Operative Assoc, (hereafter “Deerfield”) and Joseph Dumoulin, Jr., (hereafter “Dumoulin”) were served with the Motion. Neither Fedrigo, Deerfield or Dumoulin filed a responsive pleading.
The Court scheduled a Hearing on Debt- or’s Motion and served notice upon Fedrigo, Deerfield and Dumoulin. Neither Fedrigo, Deerfield, Dumoulin nor their representatives appeared. At the Hearing, Debtor’s Counsel informed the Court that the subject indebtedness was incurred prior to Debtor’s filing. According to Debtor’s Counsel, Debt- or inadvertently omitted the debts to Fedri-go, Deerfield and Dumoulin. Debtor was only reminded of the debts’ existence upon service of a Complaint for damages by Du-moulin after the bankruptcy case was closed.
The One Thousand Seven Hundred and 00/100 Dollars ($1,700.00) debt to Fedrigo emanates from the purchase of a dog; and the Three Hundred ($300.00) debt to Deer-field is the balance due on a fuel account. Dumoulin’s contingent claim emanates from a dog bite case which occurred in August, 1992. After the Hearing, Fedrigo filed an Objection to Debtor’s Motion To Reopen Closed Bankruptcy Case.
LAW
11 U.S.C. § 350
§ 350. Closing and reopening cases.
(b) A case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause.
11 U.S.C. § 523
§ 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—
(3) neither listed nor scheduled under section 521(1) of this title, with the name, if known to the debtor, of this creditor to whom such debt is owed, in time to permit—
(A) if such debt is not of a kind specified in paragraph (2), (4), or (6) of this *269subsection, timely filing of a proof of claim, unless such creditor had notice or actual knowledge of he ease in time for such timely filing; or
(B) if such debt is of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim and timely request for a determination of dischargeability of such debt under one of such paragraphs, unless such creditor had notice or actual knowledge of the case in time for such timely filing and request:
Rule 5010. Reopening cases.
A case may be reopened on motion of the debtor or other party in interest pursuant to § 350(b) of the Code. In a chapter 7, 12, or 13 case a trustee shall not be appointed by the United States trustee unless the court determines that a trustee is necessary to protect the interests of creditors and the debtor or to insure efficient administration of the ease.
DISCUSSION
This case is a core proceeding pursuant to 28 U.S.C. § 157(2)(A). This Court has jurisdiction over the subject matter and parties hereto pursuant to 28 U.S.C. § 1334.
This issue before the Court is whether Debtor should be granted leave to reopen his bankruptcy case to include Fedrigo, Deer-field and Dumoulin as Creditors for the purpose of scheduling and discharging the appurtenant indebtedness. Fedrigo argues that the case should not be reopened on the basis that Debtor fraudulently misrepresented the terms of purchase for the guard dog; that Fedrigo relied upon the misrepresentations; and that as a result of Debtor’s misrepresentations, Fedrigo suffered a loss of Seventeen Hundred and 00/100 Dollars ($1,700.00). The dog was returned and Fed-rigo requested a refund. Debtor never refunded the purchase price of the dog. Debt- or argues that the failure to list Fedrigo, Deerfield and Dumoulin as Creditors is the result of inadvertence.
In making its decision, this Court relies upon the principles of In re Soult, 894 F.2d 815 (6th Cir.1990). The underlying facts in Soult are similar to those in the case at bar. Debtor in Soult owed approximately Fourteen Thousand and 00/100 Dollars ($14,-000.00) toward the purchase of a dental practice at the time he filed bankruptcy. Debtor never listed the seller of the dental practice as a creditor and consequently, the creditor never received notice of the bankruptcy proceedings. The creditor learned of the bankruptcy one (1) year after discharge. Four (4) years after discharge the creditor filed a cause of action against the debtor in Common Pleas Court to recover the balance due. The debtor sought and received leave to reopen the bankruptcy case. The creditor appealed the Bankruptcy Court’s decision to allow the reopening of the underlying case and scheduling of debts nunc pro tunc.
Upon review, the Sixth Circuit refused to set aside the Bankruptcy Court’s findings of fact on the basis that they were not erroneous. See Loudermill v. Cleveland Board of Education, 844 F.2d 304 (6th Cir.1988), cert. denied, 488 U.S. 946, 109 S.Ct. 377, 102 L.Ed.2d 365 (1988). The court affirmed the Bankruptcy Court’s decision to reopen the Soult case finding that the Bankruptcy Court had not abused its discretion. See In re Rosinski, 759 F.2d 539, 541 (6th Cir.1985).
The Sixth Circuit articulated five (5) reasons why the Bankruptcy Court was correct in granting debtors leave to reopen. First, the creditor in Soult was not barred from discharge under 11 U.S.C. § 523(a)(3)(A) since he was neither listed nor scheduled in time to permit the timely filing of a proof of claim. Second, debtor’s failure to name the seller as a creditor was the result of inadvertence, not the result of willful or reckless acts or part of a fraudulent scheme. Third, debt- or’s failure to include the creditor did not prejudice him nor did he losé any meaningful right which he would have enjoyed had he been named as a creditor. Fourth, the creditor could still share in any dividends if assets were subsequently discovered. Fifth, the creditor could still contest the dischargeability of the amount due from the sale.
In this case, the Court also has five (5) reasons upon which it bases its decision to grant Debtor’s Motion to Reopen. First, *270neither Fedrigo, Deerfield and Dumoulm are barred from discharge since they were never notified of the impending bankruptcy. Second, there is no evidence that Debtor’s failure to schedule Fedrigo, Deerfield and Du-moulm was willful, fraudulent, reckless or part of a fraudulent scheme. Third, this is a no asset case and there is no evidence that Debtor’s failure to list Fedrigo, Deerfield and Dumoulm has in any way prejudiced their rights as Creditors. Fourth, Fedrigo, Deer-field and Dumoulin may still object to the dischargeability of their respective claims. Fifth, neither Deerfield or Dumoulin filed an objection to Debtor’s Motion to Reopen by submitting a written pleading or appearing at the Hearing.
Fedrigo’s post-hearing Objection is specifically related to the dischargeability of indebtedness emanating from the return of the guard dog and not the merits of whether there is a legal basis upon which to reopen Debtor’s case. By permitting Debtor to reopen this case, Fedrigo will be permitted to resolve the issue as it relates to the dis-chargeability of his claim against Debtor. Although this Court has considered Fedrigo’s pleading, there is no evidence adduced which convinces the Court that Debtor’s Motion to Reopen should not be Granted.
Based upon the facts presented in this case, the Court finds that Debtor’s Motion to Reopen should be Granted. In reaching this conclusion, 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 Debtor’s Motion to Reopen be, and is hereby, GRANTED.
It is FURTHER ORDERED that Debtor shall file all appropriate pleadings sufficient to schedule the indebtedness to Fedrigo, Deerfield, and Dumoulm by Friday, August 19, 1994 at 4:00 P.M. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491879/ | MEMORANDUM OPINION AND DECISION
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court on Plaintiffs Complaint to Avoid Preferential Transfer and Defendants Answer. The parties agreed to submit written arguments and stipulations. The Court has reviewed the written arguments of Counsel, Briefs, all correspondences and exhibits, as well as the entire record in the case. Based on that review and for the following reasons, the Court finds that the transaction between Debtor and Defendant constitutes a preference which may be avoided pursuant to 11 U.S.C. § 547; that Plaintiffs request for statutory interest from May 25, 1993 should be Granted; and that Plaintiffs request for turnover should be Granted.
FACTS
Debtor was an employee of The Fifth Third Bank of Northwestern Ohio, N.A. (hereafter “Defendant”) and a participant in the Fifth Third Bancorp Master Profit Sharing Plan (hereafter “Plan”). The Plan is a qualified trust under 26 U.S.C. § 401(a), subject to the Employee Retirement Income Security Act of 1974 (hereafter “ERISA”). The Plan also contains antialienation language required by ERISA which creates a restriction on the transfer of a beneficial interest of the Debtor in the Plan enforceable under applicable non-bankruptcy law.
Debtor’s interest in the Plan, amounting to Twenty-Two Thousand Two Hundred Forty-Eight and 39/100 Dollars ($22,248.39) was distributed to her by cheek on November 30, 1992. Debtor authorized Defendant to supply her endorsement to the check. Pursuant to Debtor’s instructions, Defendant retained Ten Thousand Four Hundred Forty-five and 74/100 Dollars ($10,445.74) and delivered to Debtor a check for the remaining Eleven Thousand Eight Hundred Two and 65/100 Dollars ($11,802.65). Defendant applied the money received toward Debtor’s antecedent indebtedness. Debtor spent the amount delivered to her on miscellaneous debts.
Debtor concedes that she was insolvent on November 30, 1992. Defendant concedes that as a result of the transfer, it received more than it would have received if this were a case under Chapter 7 of the Bankruptcy Code; the transfer had not been made; and Defendant had received payment of such debt to the extent provided by the Bankruptcy Code.
On January 19,1993, Debtor filed her Petition for relief under Chapter 7. The Trustee (hereafter “Plaintiff’) subsequently filed a Complaint to Avoid Preferential Transfer un*272der 11 U.S.C. § 547(b). The Defendant responded with an Answer and objected to the return of funds. At the Pre-Trial, Counsel agreed to submit all pending issues to the Court by way of Briefs and Stipulations.
LAW
11 U.S.C. § 547
§ 547. Preferences.
(b) Except as provided in subsection (c) of this section, the trustee may avoid any transfer of an interest of the debtor in property—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A)on or within 90 days before the date of the filing of the petition;
(5) that enabled 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. § 541
§ 541. Property of the Estate
(c)(2) A restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title.
11 U.S.C. § 542
§ 542. Turnover of property of the estate,
(a) Except as provided in subsection (c) or (d)of this section, an entity, other then a custodian, in possession, custody, or control, during the case, of property that the trustee may use, sell, or lease under section 363 of this title, or that the debt- or may exempt under section 533 of this title, shall deliver to the trustee, and account for, such property or the value of such property, unless such property is of inconsequential value or benefit to the estate.
26 U.S.C. § 402
§ 402. Taxability of beneficiary of employees’ trust.
(5) Rollover amounts
(C) Transfer must be made within 60 days of receipt
Subparagraph (A) shall not apply to any transfer of a distribution made after the 60th day following the day on which the employee received the property distributed.
DISCUSSION
I. JURISDICTION AND CORE PROCEEDING.
The issues before this Court include whether Debtor’s transfer of Ten Thousand Two Hundred Pour Hundred Forty-five and 74/100 Dollars ($10,445.74) to Defendant constitutes a preferential transfer under 11 U.S.C. § 547; what amount, if any, must Defendant turnover to Plaintiff; and whether Defendant is required to pay interest on the amount, if any, subject to turnover. Pursuant to 28 U.S.C. §§ 157(b)(2)(E) and 157(b)(2)(F), this case is a core proceeding. This Court has jurisdiction over the parties and subject matter hereto pursuant to 28 U.S.C. § 1334.
II. The TRANSFER Between Plaintiff and Defendant Constitutes a Preference.
A trustee can seek to set aside as a preference, any payment which meets the qualifications of 11 U.S.C. § 547(b). Those qualifications include a payment to a creditor, for an antecedent debt, made while debtor is insolvent, within ninety (90) days before the date of the filing of a petition for bankruptcy, that enables the creditor to receive more than such creditor would receive under a normal Chapter 7 liquidation. 11 U.S.C. § 547(b). The trustee has the burden of proving the avoidability of a transfer under 11 U.S.C. *273§ 547(g). The creditor against whom the avoidance is sought has the burden of proving the nonavoidability of a transfer under 11 U.S.C. § 547(g).
In this case, Plaintiff and Defendant have stipulated as follows: that the transfer was for Defendant’s benefit; that the transfer was on or account of an antecedent debt owed by the Debtor before the transfer was made; that the transfer was made while Debtor was insolvent; and the transfer enabled Defendant to receive more than it would have received if the case were one under Chapter 7 of this title; that the transfer enabled Defendant to receive more than if the transfer had not been made; and that Defendant received payment of such debt to the extent provided by the provisions of Chapter 7. The only element which is in dispute is the ninety (90) day time requirement.
ERISA qualified trusts do not constitute property of the debtor’s estate and are protected from attachment of creditors in bankruptcy. 11 U.S.C. § 541(e)(2). Under 26 U.S.C. § 402(a)(5)(C), debtor is provided a sixty (60) day rollover period in which to invest the funds distributed from a qualified trust into another qualified plan. However, if funds are withdrawn from an ERISA qualified trust and not “rolled over” into another qualified trust during the sixty (60) day period, they, become unprotected assets of the debtor in bankruptcy and are property of the estate. 26 U.S.C. § 402(c)(3).
Defendant argues that since Debtor transferred the money within the sixty (60) day window, the funds remain subject to the transfer restriction under ERISA’s antialien-ation provisions and are not property of the estate. In the alternative, Defendant claims that since the sixty (60) day period within which to rollover the Plan proceeds had not expired at the time Debtor filed for relief, the money is still protected from Plaintiff, as if it still existed in the qualified trust.
Plaintiff counterpoises that once the transfer was made within the sixty (60) day window preceding Debtor’s filing and the transfer was not made to a qualified plan, the funds lost their protection finder ERISA’s antialienation provisions. According to Plaintiff, all elements of a preference co-exist and Defendant should turnover Ten Thousand Four Hundred Forty-five and 74/100 Dollars ($10,445.74) plus interest from May 25, 1993, the date that the Complaint was filed.
Counsel for both sides discuss in their Briefs whether a bankruptcy petition filed after distribution but within the sixty (60) period preserves the automatic protection of the assets as if they were still within the original qualified fund. However, when the facts of this case are examined closely, the only issue is the characterization of the Ten Thousand Four Hundred Forty-five and 74/100 Dollars ($10,445.74) paid to Defendant at the same time that the transfer was made to Defendant.
Funds of Twenty-two Thousand Two Hundred Forty-eight and 39/100 Dollars ($22,-248.39) were distributed to Debtor. The law allows Debtor a sixty (60) day period within which to either “rollover” this money into another qualified fund and continue its protected status or retain the money and place it within the Creditor’s reach. Debtor in this case, had a sixty (60) day rollover period beginning on November 30, 1992 and ending on January 29, 1993. Debtor made two (2) separate elections, neither of which have the effect of a rollover. First, within sixty (60) days prior to filing bankruptcy, Debtor elected to transfer Ten Thousand Four Hundred Forty-five and 74/100 Dollars ($10,445.74) to Defendant for the sole purpose of fulfilling the obligation for an antecedent debt. Second, Debtor elected to retain the remaining Eleven Thousand Eight Hundred Two and 65/100 Dollars ($11,802.65) for her personal use.
At the time of the filing, Debtor had made an election with respect to the proceeds from the Plan. She elected not to protect them by rolling them over into another qualified fund, but to retain them and make a payment to a Creditor. At the point that Debtor made the payment to Defendant, her election became final and the option to rollover within sixty (60) days was terminated. It seems extremely unlikely that had Debtor changed her mind about making the payment, Defen*274dant would have returned the funds so that she could place them in a trust.
Based upon the stipulations and evidence, this Court finds that Debtor intended to complete payment on an antecedent debt. As evidenced by the November 30,1992 transaction, she did not intend to rollover the Ten Thousand Four' Hundred Forty-five and 74/100 Dollars ($10,445.74) tendered to Defendant. As a result of Debtor’s election, the November 20,1992 transfer was made within the ninety (90) days preceding Debtor’s filing on January 19,1993. As contemplated under 11 U.S.C. § 547, the November 20, 1992 payment by Debtor to Defendant for an antecedent debt constitutes a preference.
III. Interest on Avoidable Preferential Payments.
Interest charges are appropriate where a creditor improperly retains assets of the estate. Where a payment is found to be a preferential payment, a Chapter 7 trustee is entitled to prejudgment interest from the date of filing of the trustee’s complaint. In re Chattanooga Wholesale Antiques, Inc., 930 F.2d 458, 465 (6th Cir.1991).
Plaintiff prays for repayment of interest from Defendant for the use of money it was not entitled to receive. Under these circumstances, it is proper to require Defendant to pay interest to Plaintiff from the date of the filing of the Complaint. Therefore Defendant must also reimburse Plaintiff for use of the money from the time of filing the Complaint on May 25, 1993.
IV. Turnover of Property of the Estate.
The trustee not only has the power to avoid a transaction that constitutes a preference under 11 U.S.C. § 547, but the trustee has the right to demand turnover of any property which may be used or sold for the benefit of the estate, held by any entity, other than a custodian. 11 U.S.C. § 542(a). The burden of proof is on the party seeking turnover. That burden must be sustained by clear and convincing evidence. In re Bloom, 91 B.R. 445 (Bkrtcy.N.D.Ohio 1988).
In this case, Plaintiff has proven by clear and convincing evidence that the transfer between Debtor and Defendant of Ten Thousand Four Hundred Forty-five and 74/100 Dollars ($10,445.74) constitutes a preference. Further the value of this transfer can be of significant value in the liquidation of the estate and the distribution to all unsecured Creditors. Therefore, Plaintiff has the right to the property held presently by Defendant pursuant to 11 U.S.C. § 542(a).
In reaching the conclusion found herein, the Court has considered all 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 November 30, 1992 transfer between Debtor and Defendant of Ten Thousand Four Hundred Forty-five and 74/100 Dollars ($10,445.74) constitutes a preferential transfer which may be avoided by Plaintiff.
It is FURTHER ORDERED that Plaintiffs request for statutory interest from the date of filing the Complaint on May 25,1993, be, and is hereby, GRANTED.
It is FURTHER ORDERED that Plaintiffs request for turnover of the funds to Plaintiff be, and is hereby, GRANTED; and that Defendant shall pay Plaintiff by August 19, 1994 the sum of Ten Thousand Four Hundred Forty-five and 74/100 Dollars ($10,-445.74) plus statutory interest from May 25, 1993. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491880/ | MEMORANDUM
KEITH M. LUNDIN, Bankruptcy Judge.
The question presented is whether Tennessee fraudulent conveyance law permits the Chapter 7 trustee to avoid this debtor’s pre-bankruptcy purchase of a single premium insurance policy and transfer to family members of a remainder interest in real property. The transfers are avoidable. The following are findings of fact and conclusions of law. Fed.R.Bankr.P. 7052.
I
Between 1982 and 1985 this debtor acquired three pieces of real property: (1) a residence known as the “Harrow Court” property; (2) a triplex, the purchase of which was financed by the sellers, James and Barbara Atkeison; and (3) an apartment building, also financed by the seller, James W. Pickle.
On June 2, 1989, the Harrow Court residence was destroyed by fire. In December 1989, the purchase money loan for the apartment building was in default and Pickle began foreclosure. This foreclosure was delayed by the filing of a Chapter 13 bankruptcy by this debtor’s (former) husband. That Chapter 13 case was dismissed. In June 1990, Pickle completed foreclosure. In September 1990, Pickle sued the debtor for the deficiency and damages.
In March of 1991, the debtor received $53,-500 from State Farm Insurance to settle her claim for the Harrow Court fire. After payment of expenses, the debtor had $40,000 in cash.
The debtor consulted her accountant concerning this money. The accountant referred her to a Nashville attorney who is a member of the panel of bankruptcy trustees for this district and who specializes in bankruptcy law. On July 1, 1991, after consultation with bankruptcy counsel, the debtor purchased a single premium life insurance policy for $40,000.
On August 2, 1991, the Atkeisons sued the debtor to collect the balance of the purchase price for the triplex.
On September 26, 1991, after additional consultation with her accountant and bankruptcy counsel, the debtor conveyed the Harrow Court lot to her children, retaining a life estate. The children paid the debtor $3,000. The market value of the lot at the time of transfer was between $12,000 and $20,000.
The Harrow Court property and fire insurance proceeds were the debtor’s only significant assets.
On November 12, 1991, Pickle obtained a judgment against the debtor for $110,365.13. Pickle began garnishing the debtor’s wages. On December 6,1991, the Atkeisons obtained a judgment against the debtor for $11,911.87.
Pickle filed suit in the Chancery Court for Davidson County, Tennessee on June 16, 1992 to avoid the transfer of the Harrow Court property as a fraudulent conveyance. On February 17,1993, the debtor filed Chapter 7. The debtor claimed the cash value of the life insurance policy exempt pursuant to *296Tenn.Code Ann. § 56-7-203.1 The trustee removed Pickle’s fraudulent conveyance action to this court and amended the complaint to allege that the purchase of the single premium life insurance policy was also avoidable pursuant to 11 U.S.C. § 544(b).2
II
Tennessee law voids every conveyance made with the intent or purpose to delay, hinder or defraud creditors. Tenn.Code Ann. §§ 66-3-101, 66-3-308.3 11 U.S.C. § 544(b) permits a bankruptcy trustee to “avoid any transfer of an interest of the debtor in property ... that is voidable under applicable law by a creditor holding an [allowable] unsecured claim.”
The Tennessee Supreme Court has declared that conversion of nonexempt property into exempt property, with the purpose of placing it beyond the reach of creditors is a voidable fraudulent conveyance. Hollins v. Webb, 2 Tenn.Cas. (Shan.) 581 (1877). See also In re Hall, 31 B.R. 42, 45 (Bankr.E.D.Tenn.1983).
In Hollins, the debtor borrowed money using nonexempt personal property as collateral. He used the proceeds to reduce a mortgage on real property to create a homestead exemption. Holding that the debtor’s actions constituted “a fraud upon his creditors, [which] cannot be permitted” the Tennessee Supreme Court explained:
[t]he fraud seems to consist in this: the debtor who has property subject to his creditor’s claim, by his own act places it beyond their reach, and secures to himself all the benefits to be derived from it.
Hollins, 2 Tenn.Cas. (Shan.) at 583.
The Sixth Circuit reached a similar result in Shanks v. Hardin, 101 F.2d 177 (6th Cir.1939). Applying Tennessee law, the court denied a homestead exemption to a debtor who procured deeds to himself from his siblings for the purpose of shielding real property from creditors. Finding Hollins v. Webb to be controlling precedent, the Sixth Circuit held that a debtor who, in contempla*297tion of bankruptcy, converts “property, subject to execution, into a homestead for the express purpose of defeating his creditors” has committed a fraud. Shanks, 101 F.2d at 178. See also In re Hall, 31 B.R. 42, 45 (Bankr.E.D.Tenn.1983) (objection to homestead exemption sustained where “the debt- or, ... while insolvent and in contemplation of bankruptcy, established a homestead exemption in property, which was then subject to execution, for the express purpose of defeating the rights of creditors.”).
The Tennessee courts recognize that fraudulent conveyance eases are fact intensive. See Macon Bank & Trust Co. v. Holland, 715 S.W.2d 347, 349 (Tenn.Ct.App.1986) (“Whether a transfer is fraudulent is determined by the facts and circumstances of each ease.”). The Tennessee appellate courts have identified many “badges of fraud” to guide the trial courts in divining a debtor’s intent for fraudulent conveyance purposes:
1. The transferor is in precarious financial condition.
2. The transferor knew there was or soon would be a large money judgment rendered against the transferor.
3. Inadequate consideration for the transfer.
4. Secrecy or haste in carrying out the transfer.
5. A family or friendship relationship between the transferor and the transferee^).
6. The transfer included all or substantially all of the transferor’s nonexempt property.
7. Retention by the transferor of a life estate or other interest in the property transferred.
8. Failure of the transferor to produce available evidence explaining or rebutting a suspicious transaction.
9. Lack of innocent purpose or use for the transfer.
See Weaver v. Nelms, 750 S.W.2d 158 (Tenn.Ct.App.1987); Macon Bank and Trust Co. v. Holland, 715 S.W.2d 347 (Tenn.Ct.App.1986); Gurlich’s, Inc. v. Myrick, 54 Tenn.App. 97, 388 S.W.2d 353 (1964); Union Bank v. Chaffin, 24 Tenn.App. 528, 147 S.W.2d 414 (1940); Bank of Blount County v. Dunn, 10 Tenn.App. 95 (1929); Grannis, White & Co. v. Smith, 22 Tenn. (3 Hum.) 179 (1842); Floyd v. Goodwin, 16 Tenn. (2 Yer.) 484 (1835).
The transfers by this debtor are overwhelmingly tainted with badges of fraud. After listening to the witnesses and observing their demeanor, it is clear that this debt- or converted the nonexempt fire insurance proceeds into an exempt single premium life insurance policy and transferred a remainder interest in the Harrow Court property to her children for the purpose of defeating the claims of her creditors.
The debtor was acutely aware of her substantial liabilities to the Atkeisons and to Mr. Pickle. The debtor discussed these liabilities with her accountant shortly after Pickle sued her. The accountant referred the debtor to bankruptcy counsel. After the first consultation with bankruptcy counsel, the debtor invested all of her liquid assets in a single premium life insurance policy. Such policies are exempt from the claims of creditors under Tennessee law. The second consultation with bankruptcy counsel took place after the Atkeisons filed suit and just weeks before judgment was entered for Pickle. This second consultation resulted in the debtor’s transfer of real property to her children with the reservation of a life estate. The effect of this second transfer was to remove a fee simple interest in real property from the reach of the debtor’s creditors.
The nature and timing of these transfers was not coincidental. The debtor’s testimony that the Atkeison and Pickle lawsuits played no role in her decision to purchase the life insurance policy or to transfer all but a remainder interest in the Harrow Court property to her children was not believable.
The fire insurance proceeds, combined with the Harrow Court property constituted all of the debtor’s assets. The debtor has offered no credible benign explanation for the purchase of a $40,000 single premium life insurance policy with a death benefit in excess of $150,000 by a debtor with no dependents. The transfer of a remainder interest in the Harrow Court property to the debtor’s children for inadequate consideration with *298the retention of a life estate is a classic example of a fraudulent conveyance. Compare Macon Bank and Trust Co. v. Holland, 715 S.W.2d 347 (Tenn.Ct.App.1986) (transfer of house to- debtor’s three children for $1.00 with reservation of life estate was not a fraudulent conveyance where transferor was in poor health, the transfer balanced other financial transactions among the family members and the transferor was dependent upon the three children.)
These transfers would be avoidable by a creditor under Tennessee law and thus are avoidable by the trustee in bankruptcy.
•An appropriate order will be entered.
ORDER
For the reasons stated in the Memorandum contemporaneously filed herewith, IT IS ORDERED, ADJUDGED and DECREED that the purchase of the single premium life insurance policy and the transfer of a remainder interest in the Harrow Court property are fraudulent conveyances recoverable by the. plaintiff.
IT IS SO ORDERED.
. Tenn.Code Ann. § 56-7-203 provides:
The net amount payable under any policy of life insurance or under any annuity contract upon the life of any person made for the benefit of, or assigned to, the wife and/or children, or dependent relatives of such persons, shall be exempt from all claims of the creditors of such person arising out of or based upon any obligation created after January 1, 1932, whether or not the right to change the named beneficiary is reserved by or permitted to such person.
. 11 U.S.C. § 544(b) provides:
The trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502 of this title or that is not allowable only under section 502(e) of this title.
. Tenn.Code Ann. § 66-3-101 provides:
Every gift, grant, conveyance of lands, tenements, hereditaments, goods, or chattels, or of any rent, common or profit out of the same, by writing or otherwise; and every bond, suit, judgment, or execution, had or made and contrived, of malice, fraud, covin, collusion, or guile, to the intent or purpose to delay, hinder, or defraud creditors of their just and lawful actions, suits, debts, accounts, damages, penalties, forfeitures; or to defraud or to deceive those who shall purchase the same lands, tenements, or hereditament, or any rent, profit, or commodity out of them, shall be deemed and taken, only as against the person, such person's heirs, successors, executors, administrators, and assigns, whose debts, suits, demands, estates, or interest, by such guileful and covinous practices as aforementioned, shall or might be in any wise disturbed, hindered, delayed, or defrauded, to be clearly and utterly void; any pretense, color, feigned consideration, expressing of use, of any other matter or thing, to the contrary notwithstanding. Tenn.Code Ann. § 66-3-308 provides:
Every conveyance made and every obligation .incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud, either present or future creditors, is fraudulent as to both present and future creditors.
Tenn.Code Ann. § 66-3-101 derives from the Statutes of 13 Elizabeth (Ch. 5) and 27 Elizabeth (Ch. 4). State v. Nashville Trust Co., 28 Tenn. App. 388, 416, 190 S.W.2d 785, 796 (1944). Its predecessor was first enacted in Tennessee in 1801. See 1801 Tenn.Pub. Acts Ch. XXV, § 2. The current version first appeared in 1858. See Tenn.Code § 1759 (1858). In 1919 the Tennessee legislature enacted a uniform fraudulent conveyance law. See 1919 Tenn.Pub. Acts Ch. 125 § 2. Currently codified at Tenn.Code Ann. §§ 66-3-301-314, the uniform law supplements but does not replace its older relative. United States v. Kerr, 470 F.Supp. 278, 281 (E.D.Tenn.1978); Scarborough v. Pickens, 26 Tenn.App. 213, 218, 170 S.W.2d 585, 587 (1943). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491881/ | ORDER
CADDELL, Bankruptcy Judge.
This matter is before the Court on confirmation of the Third Amended Plan of Reorganization filed by the debtor. Objections to the proposed plan were filed by Citizens Bank & Savings, White and Son Enterprises, Inc., and the trustee, Jan Eberhardt. The hearing in this matter was held on the 21st day of July, 1994.
From the evidence presented, the Court makes the following findings of fact. In 1991, the debtor obtained a loan from Citizens Bank & Savings for the purpose of constructing poultry houses. The poultry houses, which were built by White and Son Enterprises, Inc., secured the loan of Citizens Bank & Savings.
In 1992, the gross income generated from the poultry operation was approximately $51,000.00. The income was divided equally between Citizens Bank & Savings and the debtor. The expenses associated with the operation of the poultry houses were paid from the proceeds given to the debtor.
The debtor began experiencing financial problems and filed for relief under Chapter 12 of the Bankruptcy Code on September 20, 1993. The debtor filed his plan on January 20,1994, and filed his first amendment to the plan on April 7, 1994. The amendment provided that the debtor would surrender certain collateral to Citizens Bank & Savings. Citizens Bank filed an objection to the amendment on May 4, 1994.
On April 18, 1994, the Court entered an order establishing the value of the debtor’s real property, poultry operation and dairy barn. On June 6, 1994, the debtor filed his Second Amended Plan of Reorganization. This plan basically adopted the values set forth in the Order dated April 18, 1994, and proposed to surrender additional collateral to Citizens Bank & Savings.
At the confirmation hearing held on June 8,1994, the debtor agreed to amend his plan for the third time and to file a new statement of affairs. Due to the poor health of the debtor, the Court allowed the debtor to testify as to the feasibility of the amended plan even though the hearing on confirmation was technically continued..
On June 23, 1994, the debtor filed his Third Amended Plan of Reorganization, and the confirmation hearing was held on July 21, 1994. Citizens Bank & Savings, White and Son Enterprises, Inc., and the trustee filed objections to the Third Amended Plan.
The objection filed by Citizens Bank & Savings is based upon the debtor’s proposal to pay this indebtedness for fifteen years at eight and a half percent interest.1 The bank argues that it does not make loans on poultry houses for more than ten years, and that the interest rate must be variable and at least two percent above the prime lending rate.
Section 1222(b)(2) of the Bankruptcy Code allows a debtor through his Chapter 12 plan to modify the rights of a secured creditor, and the Court is not bound by the terms and conditions the lender dictates to its other customers. However, the lender’s secured position/collateral should be of such that the risk factors involved with modifying the terms of the indebtedness are minimal. In re Janssen Charolais Ranch, Inc., 83 B.R. 743 (Bkrtcy.D.Mont.1987).
In Janssen, the Chapter 12 debtor, who owned a cattle operation, proposed to pay the *401secured creditor for 20 years at ten and three-fourths percent interest. The secured creditor, who was oversecured, did not accept this rate because other similar situated customers were charged a higher interest rate. The court held that what constituted
a proper market rate of interest had to be determined on a case by case basis, from a standard which applies a rate the debtor would pay a commercial lender for a loan of equivalent amount and duration, considering the risk of default and any security. Id. at 744.
The court accepted the proposed interest rate as being reasonable in light of the debt- or’s projected income and expenses, the stability of the cattle market, and that the collateral would retain its value at a rate equal to the rate at which the debt was being serviced. The court held that the risk factors (default and deteriorating value of the security) were minimal. The court confirmed the debtor’s Chapter 12 plan.
In In re Butler, 97 B.R. 508 (Bkrtcy.E.D.Ark.1988), a Chapter 12 debtor proposed to make payments to two secured lienholders in twenty annual installments at eleven percent interest. Farm Credit, who had liens on three parcels of real estate, objected to the twenty year repayment period, but its objection was overruled because the rate of interest proposed in the plan exceeded' the current market rate. The higher interest rate provided extra protection to the lienholder.
First National Bank of Eastern Arkansas, who had liens on real estate and farming equipment, objected to the twenty year “pay out” period. The court held
that because of the depreciable nature of the farm equipment partially securing the First National’s claim, First National would not remain fully secured while payments under the restructured payment terms proposed by the plan would be made. Id. at 512.
In the present case, the lien of Citizens Bank & Savings is primarily secured by the poultry houses. The evidence shows that the houses are approximately two years old and have an average “life expectancy” of 10 years. The debtor proposes to repay the indebtedness over a period of fifteen years. It is the opinion of this Court that the poultry houses will not maintain their value at a rate equal to the rate the debt is being serviced. The proposed fifteen year term is not acceptable to this Court.
The plan also proposes to pay Citizens Bank & Savings eight and one-fourth percent interest over the fifteen year period. The debtor testified that a “fair market rate is prime plus two”.
The bank’s representative testified that the present prime rate of interest is seven and one-fourth percent. The current lending rate is at least nine and one-fourth percent. It is the opinion of this Court that because of the depreciable nature of the collateral, the debtor’s poor health, and the fact that the debtor has only operated the houses for two years, the interest rate as proposed in the plan is not sufficient to nullify the risk factors.
Citizens Bank & Savings also argues that the value of any property that is to be disposed of under the plan must be determined as-of the effective date of the plan. 11 U.S.C. § 1225(a)(5)(B)(i). Specifically, the value of the poultry houses as set forth in the Court’s Order dated April 18, 1994, is not binding on Citizens Bank & Savings and the confirmation of the plan.
The Court is of the opinion that the .value of the collateral could not have changed from April 18, 1994, to July 21, 1994. The value determined by this Court in the April 18, 1994, Order was based upon the evidence presented at the hearing. The Court finds that the value of the collateral set forth in the Order dated April 18, 1994, is the value of collateral as of the effective date of the Third Amended Plan.
Citizens Bank & Savings also objected to the plan because the property that is to be surrendered by the debtor is “land locked”. The Bank argues that it has no ingress or egress to a public road. The debtor responded by agreeing to give the Bank a right of way over his land, but the plan as filed did not provide for such. The plan must provide the Bank with a right of *402ingress and egress to the property that is being surrendered.
The objection of White and Son Enterprises, Inc., is that the plan provides for payment of their claim in full, but still designates it as an unsecured claim. After review of the documents, the Court finds that White and Son Enterprises, Inc., has a secured lien on the debtor’s real estate. The plan must recognize the indebtedness owed to White and Son Enterprises, Inc., as a secured debt and treat it as such.
The trustee’s objection to the Third Amended Plan is that it fails to meet the “best interests of the creditors’ test”. 11 U.S.C. § 1225(a)(4). This means that the unsecured creditors would receive less through the Chapter 12 plan as they would in a Chapter 7 liquidation. The trustee argues that the debtor is not entitled to assert a homestead exemption as the surviving spouse of his deceased wife.2
The debtor’s plan proposes to pay the unsecured creditors an amount equal to the equity he has in his home, which is allegedly $10,000.00. The debtor derived this sum based upon the following computation:
Value of residence $53,000,00 3
First State Bank Mortgage - $10,475.25
Debtor’s homestead exemption - $ 5,000.00
Deceased wife’s homestead exemption - $ 5,000.00
White and Son judicial lien - $22,158,004
Total equity in home $10,842.00
In support of his position, the debtor cites § 6-10-101 Code of Alabama (1975), which provides that
[if] no exceptions are filed ... [to the] setting aside of the homestead exemption, the title to the real property so set aside shall vest in the surviving spouse and minors, share and share alike ... If all the real property left by the decedent in this state does not exceed in area or value the homestead allowed by law as exempt, title to all such property shall vest absolutely in the surviving spouse, the children ... (emphasis added).
The remainder of the provision states that the surviving spouse and minor children have exclusive possession of the real property until the surviving spouse’s death and the children reach the age of majority, and that the homestead cannot be sold for division during this same time period.
The Court has reviewed this provision and does not agree with the debtor’s position. This section of the Alabama Code only grants title of the homestead to the surviving spouse. It says nothing about a surviving spouse being entitled to an additional homestead exemption in bankruptcy.
Section 522(d) of the Bankruptcy Code sets forth the exemptions that a debtor is entitled to. However, Alabama “opted out” of the federal exemptions and requires a debtor to choose only those exemptions set out under the Alabama law. § 6-10-11, Code of Alabama (1975). Each resident of Alabama who files bankruptcy is allowed a $5,000.00 homestead exemption and a $3,000.00 personal property exemption. § 6-10-2; § 6-10-6 Code of Alabama (1975). The appropriate date for determining bankruptcy exemptions is the date of the order for relief. In re Lindsey, 94 B.R. 723 (Bkrtcy.S.D.Ala.1988); In re Rester, 46 B.R. 194 (S.D.Ala.1984).
In the present case, on the day the petition was filed, the debtor was entitled to his $5,000.00 homestead exemption and his $3,000.00 personal property exemption. The debtor may not claim an exemption as the surviving spouse of his deceased wife because that exemption was not available to him on the day the order for relief was entered.
The Court is of the opinion that the debt- or’s Third Amended Plan fails to meet the “best interest of the creditors” test. Under the proposed plan, the unsecured creditors will receive a pro rata share of $10,842.00. Under a Chapter 7 liquidation, the unsecured creditors would receive a pro rata share *403based upon the equity in the debtor’s home ($15,842.00). The equity in the home increased because the Court will not allow the debtor to claim a $5,000.00 exemption as a surviving spouse. The trustee’s objection to the Third Amended Plan is due to be sustained.
It is therefore ORDERED, ADJUDGED AND DECREED that the objections filed by Citizens Bank and Savings, White and Son Enterprises, Inc., and the trustee be and hereby are SUSTAINED, and confirmation of the debtor’s Third Amended Plan is DENIED.
Done and Ordered.
. The original terms of the note were ten years at eight and one half percent interest for the first twelve months. The interest was then subject to a variable rate based on the prime lending rate.
.The debtor’s wife was not a joint debtor in bankruptcy and died after the order for relief was entered.
.The debtor's home is the only real property that has equity.
.This sum represents a judgment of $17,978.84 plus interest for a period of sixty months. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491882/ | ORDER RE: STATUTE OF LIMITATIONS
CHARLES G. CASE, II, Bankruptcy Judge.
INTRODUCTION
This case involves a loan from Liberty National Bank (“Liberty”) to Arminex, Inc., a company owned by the Debtor. The note was guaranteed by the Small Business Administration (“SBA”). The loan was originally made in 1986 and Arminex, Inc. defaulted in 1987. The loan was guaranteed by the Debtor and secured by the equity in a house owned jointly by him with his mother. After the Debtor defaulted in early 1987, Liberty liquidated certain business collateral. The last credits for collateral liquidation were in July, 1987. The Debtor filed this Chapter 13 bankruptcy in August, 1993.
Along the way, Liberty failed and the Federal Deposit Insurance Corporation (“FDIC”) took over the note. In 1991, the SBA was called upon by FDIC to make good on its guarantee, and, following that, took an assignment of the note and the deed of trust. In 1993, the SBA acquired the first lien on the property by advancing an additional $65,-000.00 to protect its security position. The SBA has abandoned any claim to personal liability against the Debtor and is only pursuing its in rem claim against the property.
ISSUES PRESENTED
The issues presented are the following:
1. Whether the statute of limitations applicable to the enforcement of the SBA’s lien rights derives from Arizona law or Federal law.
2. If Federal law is applicable, whether the SBA is entitled to relief from the automatic stay.
3. If Arizona law is applicable, whether the SBA’s claim on its second lien should be disallowed.
DISCUSSION
A. What is the appropriate statute of limitations?
The Debtor argues that since this was a transaction between an Arizona resident and an Arizona bank, Arizona law controls. To this end, the Debtor cites Atlee Credit Corporation v. Quetulio, 22 Ariz.App. 116, 524 P.2d 511 (1974), which held that the six-year contract statute of limitations applied to actions to foreclose on real estate security. This result was later codified in A.R.S. § 33-817. Debtor argues that the lien supporting the guarantee is no longer enforceable because the SBA has filed to enforce it within six years from the original default.
The government argues that federal law applies and that there is no federal statute of *664limitations governing the SBA’s right to foreclose its Ken. For this proposition, SBA rehes on Westnau Land Corp. v. U.S. Small Business Administration, 1 F.3d 112 (2nd Cir.1993) and United States v. Ward, 985 F.2d 500 (10th Cir.1993). Both cases hold that the federal six-year statute of Kmitations relating to money judgments does not impact the government’s right to foreclose on a real property lien. 28 U.S.C. § 2415(a). Each of these cases involves a federal loan guaranty program; Westnau involves an SBA loan similar to this one and Ward involves a Farmers Home Administration loan.
The Debtor distinguishes these cases by arguing that they involve direct loans by the government, rather than guarantees where the government became the holder of the paper by virtue of a subsequent assignment. This assertion is simply incorrect as to West-nau; that case is strikingly similar to this one and involved a loan made by a private institution and insured by the SBA. While the distinction is true as to Ward, it is a distinction without a difference.
The Debtor’s fundamental argument is that since this was originally a transaction between Arizona entities, it should be covered by Arizona law. This is unavailing. The SBA’s footprints are everywhere to be found in the documents. Indeed, the deed of trust that is the subject of this dispute specifically states, “this instrument is to be construed and enforced in accordance with applicable federal law.”
As a fallback position, the Debtor argues that United States v. Kimbell Foods, Inc., 440 U.S. 715, 99 S.Ct. 1448, 59 L.Ed.2d 711 (1979) stands for the proposition that federal law really means state law in circumstances such as these. In Kimbell, the United States Supreme Court considered what the appropriate priorities should be as between loans made pursuant to federal programs and private loans. The issue had to do with whether or not the government, when acting as a commercial lender, is entitled to special rules of priority, much Kke it is entitled to when tax Kens are involved.
The Supreme Court held in Kimbell that when government-wide loan programs are involved, federal law, not state law, should control the priority scheme and other issues relevant to the interpretation of the government’s rights. In the case of priorities (where there is no federal statutory scheme), the Supreme Court decided that applicable federal law would be the same as the appKca-ble state law. In this case, however, as in Westnau, there is no federal statutory void. See 28 U.S.C. § 2415(a). The Westnau court-noted that Kimbell dealt with a situation where the area involved was unregulated. Here, there is a six-year federal statute relating to money judgments which Courts of Appeals have interpreted not to extend to the equitable in rem procedure of foreclosure.
Notwithstanding this authority, the Debtor argues that Section 2415(a) is not determinative because it does not address a limitation period for foreclosure actions. The Debtor’s argument still faüs. In determining when it is appropriate to rely upon state law as the basis for federal law, the Supreme Court in Kimbell looked to the following factors:
1. Uniformity.
“Undoubtedly, federal programs that ‘by their nature are and must be uniform in character through the Nation’ necessitate formulation of controlling federal rules, [citations omitted]. Conversely, when there is Kttle need for a nationaKy uniform body of law, state law may be incorporated as the federal rule of decision.” 440 U.S. at 728, 99 S.Ct. at 1458.
2. Frustration of Purpose of the Federal Programs.
“Apart from considerations of uniformity, we must also determine whether the appKcation of state law would frustrate specific objectives of federal programs. If so, we must fashion special rules soKc-itous of those federal interests.” Id.
3. Disruption of Commercial Relationships.
“Finally, our choice of law inquiry must consider the extent to which the appKcation of a federal rule would disrupt commercial relationships predicated on state law.” Id. at 728-29, 99 S.Ct. at 1458-59.
Applying these principles, the Supreme Court determined that state law should control in the area of Ken priority. Such a rule *665would not frustrate any policy objectives in federal loan programs. The Court noted that broad national uniformity already existed in the Uniform Commercial Code. The Court noted that where the government is acting as a commercial lender, it is not necessary or appropriate to give it the protections it enjoys as an “involuntary creditor” involved in the collection of taxes. Finally, the Court expressed concern about the impact on overall credit relationships if the priorities that parties bargained for could be disrupted by a previously unknown “springing” federal lien.
Applying these principles to this ease, the balance comes out clearly in favor of the application of the federal statute. In this situation, there is a need for uniformity and statutes of limitations as applied in the various states are notoriously non-uniform. While in Arizona a six-year statute of limitations is applicable to foreclosures, the statute in another state might be two years, or there may be no governing statute at all. In short, unlike Uniform Commercial Code, the differing laws to which the United States would be subject vary wildly in this arena, underscoring the necessity of uniformity. A lack of uniformity could seriously undermine the remedial objectives of the SBA loan program by causing a restriction of available credit due to the increased risks involved where choice of law issues may be raised by a Debtor after default.
Finally, applying the last criteria, the application of the existing federal law (which includes no time limit on foreclosures) would have no discernible disruptive effect upon the expectations upon other private creditors. Rather, the only impact would be upon the private debtors who could receive a windfall if the government did not act swiftly enough.
Finally, as an equitable consideration, the SBA is a guarantor and may not, as here, be called upon to make good on its guarantee until late in the game. In this case, the SBA did not pay and receive the assignment until four years after the default; clearly, it could have been possible that this act would not have occurred until after the six years had run from the original default. Application of the Debtor’s rule would preclude the SBA from a foreclosure remedy at that point.1 This is neither sensible nor fair. Unlike the assignee of a deed of trust who, as the Debt- or suggests, steps into the shoes of the seller and takes the deed of trust as it then exists, the SBA was a party to this transaction from the very beginning, having provided the necessary guarantee that induced Liberty National Bank to lend the money to the Debtor in the first place. Under these circumstances, it is disingenuous for the Debtor to suggest that this was merely a private relationship to which the SBA came at a later time and that the SBA took the assignment with the risk that enforcement of the hen may be subject to a statute of limitations defense.
Therefore, an application of the Kimbell factors leads to the conclusion that federal law in this ease means just that, and does not implicate state statutes of limitations.
B. SBA’s Motion for Stay Relief
The Debtor admits he has made no payments for many months on either the first or the second hen. There is no serious dispute that the Debtor lacks equity and, although the Debtor hsted the house on his schedules, it appears that he may have no legal interest in it because of a quit claim deed he executed in favor of his mother several years ago. Debtor’s counsel avowed that the Debtor could and would cure all post-petition defaults on the first hen promptly. There is neither an agreement, nor the likelihood of one, on curing arrearag-es on the second hen.
SBA’s interest in the collateral is not adequately protected; therefore, rehef from the stay is appropriate. The Debtor has made no effort in his plan to deal with claim; rather, he has specifically stated that no payments will be made to SBA on the first hen through the plan or otherwise. At this point, *666curing the post-petition defaults on the first lien is not enough; some adequate way of protecting the SBA’s second lien must be provided by the Debtor to avoid complete relief from the stay. None has yet been put forth.
However, notwithstanding SBA’s counsel’s avowal that the agency would no longer negotiate with Debtor, the Court believes it is appropriate, now that the validity of the second lien is no longer in doubt, to allow a short period for the parties to attempt to resolve their differences. Therefore, the order lifting the stay will not be effective for thirty days. If the parties reach agreement in that time, the court will approve the agreement. If not, the Debtor may submit a further response to the motion for relief, stating specifically how he proposes to provide adequate protection to the SBA on each of its liens. If such a response is filed before within thirty days from the date of this Order, the Court will set an expedited hearing to determine its sufficiency. The Debtor is admonished that the Court will assess sanctions against him if it is determined that the proposed adequate protection is clearly insufficient or not proposed in good faith.
For the foregoing reasons,
IT IS ORDERED AS FOLLOWS:
1. The Debtor’s objection to the SBA claim is overruled and the SBA claim is allowed as a non-recourse claim.
2. The SBA is granted relief from the automatic stay, effective thirty days from the date of this order.
. The SBA argued at the hearing that existing caselaw establishes that the statute does not begin to run on its in personam claim until it receives an assignment of the note and security documents from the initial lender. Because the SBA has abandoned its claim to personal liability of the Debtor, this issue is neither addressed nor resolved. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491883/ | MEMORANDUM OF DECISION
GEORGE B. NIELSEN, Jr., Chief Judge.
This proceeding arises, on cross motions for summary judgment filed by plaintiff D. Christopher Ward, the appointed Chapter 7 trustee (“trustee”) and defendant Communications Data Services, Inc., an Iowa corporation (“CDS”). Plaintiffs motion is denied and defendant’s motion is granted.
The complaint was filed inter alia to invalidate defendant’s Iowa statutory artisan’s lien under the trustee’s strong arm powers. 11 U.S.C. § 545(2). Docket No. 1 at p. 8. The trustee also alleged defendant’s possessory lien is a preferential transfer. Supra at pp. 9-10. 11 U.S.C. § 547(b).
The facts necessary for an understanding of these issues follow.
I.
On December 23, 1993, Kaehina Publications, Inc. (“debtor”) filed a Chapter 7 bankruptcy. Pre-petition debtor published Golf Illustrated Magazine, distributed to consumers across the United States. During the course of publication, debtor developed a subscriber list with pertinent data, estimated to include approximately 400,000 customers.
On July 15, 1992, debtor entered into a subscription fulfillment agreement with CDS. Defendant agreed to handle subscription and mailing matters, provide mailing labels and produce notices of expiration of subscrip*672tions. Debtor agreed to pay CDS on a periodic basis.
Debtor defaulted in its payments. CDS asserted the right to sell the subscription list at auction pursuant to a statutory lien under Iowa Code § 577.1. Defendant alleges a claim against debtor of approximately $163,-271.87. On January 28, 1994, this Court approved sale of the assets for $56,000. Such amount is in escrow pending a resolution of the statutory hen claim.
The issue is whether trustee may avoid the statutory lien defendant claims on the subscriber list.
II.
A bankruptcy trustee may avoid a statutory hen when the hen is not perfected or enforceable against a bona fide purchaser (“BFP”), whether or not such purchaser exists. 11 U.S.C. § 545(2). The relevant time period is the petition filing date. Supra.
Whether the hen is enforceable against a bona fide purchaser is determined by state law. Saslow v. Andrew (In re Loretto Winery Ltd.), 898 F.2d 715, 718 (9th Cir.1990); Souers v. Nevada Ready Mix (Matter of Souers), 163 B.R. 346, 349 (Bankr.S.D.Iowa 1994).
Under Iowa law, any person who provides services or furnishes material in making, repairing, improving, or enhancing personal property has a hen for the agreed or reasonable compensation while such property is lawfully in the creditor’s possession. Iowa Code § 577.1(1).
In the present case, trustee appears to concede CDS has estabhshed an artisans hen under the statute. Regardless, there is clear authority CDS would have such a hen. See Chemical Bank v. Communications Data Services, Inc., 765 F.Supp. 1401, 1404-05 (S.D.Iowa 1991).
In examining state law, courts look to the words of the statute to determine whether the hen meets the bona fide purchaser test and follow accepted rules of statutory construction. In re Loretto Winery, 898 F.2d at 721-22.
The hen arises upon creditor’s taking possession of the.hst and performing services on it. Chemical Bank v. Communications Data Services, Inc., 765 F.Supp. at 1404. The CDS hen continues so long as the property is lawfully in its possession. Iowa Code § 577.1. Thus, at the time of filing bankruptcy, CDS had a perfected artisans hen on the subscription hst lawfully in its possession.
The hypothetical purchaser cannot be taken outside the factual framework of the ease. Loretto Winery, 898 F.2d at 721. In Loretto Winery debtor had possession of the property when bankruptcy was filed. Id. That is not this case. State law determines whether a party is a bona fide purchaser. Briggs v. Kent (In re Professional Investment Properties of America), 955 F.2d 623, 627 (9th Cir.1992); cert. denied, — U.S. -, 113 S.Ct. 63, 121 L.Ed.2d 31 (1992). (Section 544 case).
Under Iowa law, a BFP takes property in good faith, from the holder of legal title for valuable consideration, without notice of other equities. Raub v. General Income Sponsors of Iowa, Inc., 176 N.W.2d 216, 219 (Iowa 1970). Notice of an existing right that deprives a vendee of BFP status may be actual or constructive. Before one gains such status, it must be shown the purchase was without actual or constructive notice of another’s claim. Bartels v. Hennessey Brothers, Inc., 164 N.W.2d 87, 94 (Iowa 1969).
Here, any purchaser would have actual notice of CDS’s claim, as CDS had possession of the files. Thus, such purchaser could not defeat the CDS claim.
Notwithstanding this, trustee argues § 545(2) presumes he is a bona fide purchaser. He argues there is no need to examine whether he had actual or constructive notice of the CDS lien. In short, trustee argues by definition § 545(2) creates a hypothetical bona fide purchaser. As a result, the Court need not examine whether there was notice of the lien, since it is presumed the trustee has met all BFP requirements. Thus, trustee is presumed to have acquired the property without actual or constructive notice of the CDS claim.
*673This misconstrues the statute. Section 545(2) provides a trustee may avoid a statutory lien that is not perfected or enforceable against a bona fide purchaser. 11 U.S.C. § 545(2). The focus is whether, by the com-meneement of the case, the creditor has taken all necessary steps to perfect its liens.
Loretto Winery instructs courts not to take the bona fide purchaser outside the case’s factual framework. 898 F.2d at 721. If the trustee’s reasoning is followed, the Court would do just that, by ignoring that CDS had possession on the petition date.
Trustee’s authority does not suggest a different result. In In re English, 112 B.R. 20 (Bankr.W.D.Ky.1989), creditor filed a mechanics lien post-petition. Creditor argued since debtor had actual knowledge of his claims before bankruptcy, the lien was enforceable. 112 B.R. at 21.
The Court disagreed, noting under § 545(2) the trustee is given the status of a bona fide purchaser on the date of bankruptcy. As of that date, the mechanic’s lien was not perfected. Id. at 21. The Court concluded the trustee steps into the shoes of a bona fide purchaser and does not share any knowledge of events leading up to lien perfection. Debtor’s personal knowledge of creditor’s intent to file a lien pre-petition is not imputed to the trustee. Id. at 22.
English does not declare that notice is irrelevant. It simply holds debtor’s subjective knowledge of an unperfected claim is not imputed to the trustee. This is in accord with other cases. In Koski v. Seattle First National Bank (In re Koski), 144 B.R. 486, 488 (Bankr.D.Idaho, 1992), the court did not give preclusive effect to a state court decision relying on debtor’s actual notice in concluding a lien was not invalidated by failure to notice. The bankruptcy court held debtor’s knowledge is not imputed to a hypothetical BFP under Section 545. 144 B.R. at 488-89.
In Pierce v. Aetna Life Insurance Company (In re Pierce), 809 F.2d 1356 (8th Cir.1987), an attorney did not properly perfect his lien. He argued the trustee had both actual and constructive notice of his contingent fee agreement and lien. The Eighth Circuit rejected this argument, stating such notice was irrelevant. The attorney’s lien was not perfected against the trustee, who held the status of a hypothetical BFP. Id. at 1361.
As noted in the Collier treatise, enforceability of the statutory lien depends upon its perfection as of the petition date. Have necessary steps been taken, by that date, to make the lien enforceable against a bona fide purchaser? That question determines validity. Collier on Bankruptcy ¶ 545.04 at 545-19 (15th ed. 1994).
CDS had possession of the files at the petition date. Trustee has not argued that CDS did not hold a valid Iowa artisan’s lien. Given this, trustee cannot defeat the lien as a hypothetical bona fide purchaser. Such purchaser has actual notice of the CDS interest by creditor’s prior possession of the files.
III.
The final element is whether to grant summary judgment on 11 U.S.C. § 547(b) allegations. Trustee contends he is not trying to avoid the statutory lien under 547(c)(6). Adversary Docket No. 28 at 2. He instead intends to avoid payments made from debtor within 90 days of the petition. Supra. To the extent § 547(c)(6) is an issue, CDS is granted summary judgment. That section provides a trustee may not avoid a statutory lien not avoidable under section 545. Since the transfer is not avoidable under 545, the lien is not avoidable under 547(c)(6).
CDS is correct in asserting any transfer occurred well outside the 90 day period of 11 U.S.C. § 547(b). The lien arose when CDS took possession and began rendering services. Chemical Bank v. Communications Data Services, 765 F.Supp. at 1404-05. The affidavit of Kenneth Barloon establishes CDS took possession of the files on July 15, 1992, and had continued possession. Based on *674Chemical Bank, the lien arose at that time, well outside the 90 day preference period.1
ORDERED ACCORDINGLY.
. To the extent trustee is now asserting a § 547 issue regarding payments made to CDS during the 90 days period, this is not currently before the Court. It appears trustee would need to amend his complaint to allege this cause of action. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491884/ | DECISION AND ORDER DENYING “MOTION TO VACATE ORDER AVOIDING LIEN OF FIRST NATIONAL BANK”
WILLIAM A. CLARK, Bankruptcy Judge.
Presently before the court is a “Motion to Vacate Order Avoiding Lien of First National Bank.” The court has jurisdiction pursuant to 28 U.S.C. § 1334 and the standing order of reference entered in this district. This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (K).
FACTS
On February 23,1994, the debtor, Beverly Swing, filed a motion to avoid the judicial lien of First National Bank pursuant to § 522(f) of the Bankruptcy Code. First National Bank filed nothing in response to the debt- or’s motion, and the court entered an order avoiding the judicial lien on March 29, 1994. Although not referred to in the order, this court’s order was based on the decision of In re Moreland, 142 B.R. 221 (Bankr.S.D.Ohio 1992).1 First National Bank did not appeal this court’s order of March 29, 1994.
On April 6, 1994, in Resolution Trust Corporation v. Moreland (In re Moreland), 21 F.3d 102 (6th Cir.1994), the Sixth Circuit reversed the lower courts’ decisions. Presently before the court is a motion of National City Bank (successor to First National Bank) for the court to vacate its order of March 29, 1994, on the ground “that such order was obtained as the result of all parties’ mistake or erroneous understanding as to the correct law applicable to lien avoidance” (Doc. # 19). The bank’s motion was filed on May 2, 1994.
CONCLUSIONS OF LAW
Relief from an order of this court is governed by Fed.R.Bankr.P. 9024 which provides that:
Rule 60 F.R.Civ.P. applies in cases under the Code except that (1) a motion to reopen a case under the Code or for the reconsideration of an order allowing or disallowing a claim against the estate entered without a contest is not subject to the one year limitation prescribed in Rule 60(b), (2) a complaint to revoke a discharge in a chapter 7 liquidation case may be filed only within the time allowed by § 727(e) of the Code, and (3) a complaint to revoke an order confirming a plan may be filed only within the time allowed by § 1144, § 1230, or § 1330.
Fed.R.Civ.P. 60(b) states that:
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) *815fraud (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-
Despite the availability of relief from orders under Rule 60(b), it must be emphasized that:
Our legal system has a strong interest in the finality of adjudication. Accordingly, we do not apply new judicial decisions retroactively without substantial justification. For example, in civil adjudication, the general rule under Fed.R.Civ.P. 60(b) is that a judgment will not be disturbed despite a change in the law. United States v. Woods, 986 F.2d 669, 674 (3d Cir.1993).
Although the movant has not referred to a particular portion of Rule 60, in this court’s circuit a claim of legal error is “subsumed in the category of mistake under Rule 60(b)(1).” Pierce v. United Mine Workers of America Welfare, 770 F.2d 449, 451 (6th Cir.1985). The initial inquiry, then, is whether the bank has filed its motion to vacate the court’s order within a “reasonable time” as required by Rule 60(b):
A motion for relief under clause (1) must be made within a reasonable time, and “not later than one year after the judgment, order, or proceeding was entered or taken.” Thus a party is not given an absolute year in which to make his motion for relief. Instead, a year is given as the maximum time beyond which no proceeding under clause (1) can be taken. 7 James W. Moore et al., Moore’s Federal Practice para. 60.22[4] (2d ed. 1993).
With respect to the “reasonable time” requirement of Rule 60(b), the Sixth Circuit Court of Appeals has determined that relief may be granted under Rule 60(b)(1) only where a motion is filed prior to the time for taking an appeal:
Those courts which have found errors of law to be a ground for Rule 60(b)(1) relief, recognizing the effect, their view has on Rule 59(e) and on finality of'judgments, have considered carefully what is a “reasonable time” for seeking-reconsideration of a point of law to the appeal period.... This Court is persuaded that the better view is to allow reconsideration of a point of law under Rule 60(b)(1) when relief from judgment is sought within the normal time for taking an appeal. International Controls v. Vesco, 556 F.2d 665 (2d Cir.1977), cert. denied, 434 U.S. 1014, 98 S.Ct. 730, 54 L.Ed.2d 758. This view serves the best interest of the judicial system by avoiding unnecessary appeals and allowing correction of legal error if and when made and the trial court has been satisfied that an error was committed. Barrier v. Beaver, 712 F.2d 231, 234-35 (6th Cir.1983).
It is settled that a 60(b) motion “cannot be used to avoid the consequences of a party’s decision ... to forego an appeal from an adverse ruling.” (citations omitted) This admonition applies with particular force to a motion based on legal error. The interests of finality of judgments and judicial economy outweigh the value of giving a party a second bite of the apple by allowing a 60(b) motion, after the appeal period has run, on the same legal theory that would have been asserted on appeal. Pierce, supra, 770 F.2d at 451-52.
In the instant matter, in order to have appealed this court’s order the bank was required to file a notice of appeal “within 10 days of the date of the entry of the ... order appealed from.” Fed.R.Bankr.P. 8002(a). The bank did not appeal nor did it file its motion to vacate within the appeal period.
For whatever reason, appellant chose not to appeal at the time of the initial judgment and now seeks to use Rule 60(b) as a substitute for appeal after others had sought a ruling from the Fifth Circuit. An unsuccessful litigant may not rely on appeals by others and share in the fruits of *816victory by way of a Rule 60(b) motion. Parks v. U.S. Life and Credit Corp., 677 F.2d 838, 840 (11th Cir.1982).
It might appear that, because of a change in the law shortly after the issuance of this court’s order, the bank should be given a year to file its Rule 60(b) motion. However, the interest in finality of judgments precludes such a result:
The strong interest in the finality of litigation demands rejection of [such] suggestion. During the pendency of an appeal, the parties recognize the possibility of reversal; thus, modification of a judgment being appealed impacts not at all on finality concerns. “There must be an end to litigation some day, and free, calculated and deliberate choices are not to be relieved from.” [Ackerman v. U.S.] 340 U.S. 193, 198, 71 S.Ct. 209, 211, 95 L.Ed. 207. Under [such] suggestion all judgments would not be final for a year. Their enforceability would be conditioned on no change in the law. The resulting instability would create chaos. Id., at 841.
In short, “Rule 60(b) simply may not be used as an end run to effect an appeal outside the specified time limits, otherwise those limits become essentially meaningless.” Pryor v. U.S. Postal Service, 769 F.2d 281, 288 (5th Cir.1985). Accord, Morris v. Adams-Millis Corp., 758 F.2d 1352, 1358 (10th Cir.1985). Because the bank’s 60(b)(1) motion to vacate was filed outside the normal appeal period, its motion must be denied.
For the foregoing reasons, it is hereby ORDERED that National City Bank’s “Motion to Vacate Order Avoiding Lien of First National Bank” is DENIED.
. "The district court affirmed the decision of the bankruptcy court by an unpublished decision. However, it did not affirm on the grounds set out in the decision of the bankruptcy court.” Resolution Trust Corporation v. Moreland (In re Moreland), 21 F.3d 102, 104 (6th Cir.1994). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491885/ | MEMORANDUM OPINION AND DECISION
RICHARD L. SPEER, Bankruptcy Judge.
This case comes before the Court on remand from the Court of Appeals, and after a Hearing on Plaintiffs Writ of Execution Issued to Defendant to Garnish Defendant’s Interests in the Bell and Beckwith Profit Sharing Retirement Plan and Trust (hereafter the “Plan”). A Hearing was held on June 22, 1994. At the Hearing, the parties were afforded the opportunity to present evidence and arguments they wished the Court to consider in reaching its decision. This Court has reviewed the arguments of Counsel, all exhibits presented as well as the entire record of the case. Based upon that review, the Court orders that Defendant Society Bank & Trust pay to Patrick A. McGraw, as Trustee of the Debtor’s estate, the amount of Seventy-two Thousand Eight Hundred Forty-four and 25/100 Dollars ($72,844.25).
FACTS
Bell and Beckwith (hereafter “B & B”) was a limited partnership that conducted a stock brokerage business in Toledo, Ohio. A liquidation proceeding under the Securities Investor Protection Act, as amended, 15 U.S.C. Section 78aaa, et seq. (hereafter “SIPA”) was commenced with respect to B & B on February 5, 1983, after it was discovered that B & B’s managing general partner, Edward P. Wolfram, Jr. (hereafter ‘Wolfram”), had embezzled approximately Forty-seven Million Dollars ($47,000,000.00) from the brokerage. It appears that Wolfram’s fraud commenced as early as 1973.
The Wolfram fraud involved the severe overvaluation of certain securities held in B & B customer margin accounts controlled by Wolfram, and the excessive borrowings by Wolfram against these overvalued securities. Annual financial statements prepared by accounting firms employed by B & B in 1976 through 1982 showed that the firm had a positive net income during these periods of time. Accounting evaluations, done under Generally Accepted Accounting Practices after the Bankruptcy action was initiated to reflect the impact of the Wolfram fraud, revealed that B & B was insolvent and had no net income for this period of time. For example, by the audit date'in 1982, the net income reported by B & B’s auditors was Two Hundred Fifty-five Thousand Three Hundred Seventeen Dollars ($255,317.00). However, if the bad debt expense related to the Wolfram-controlled accounts containing the overvalued securities is properly reflected in accordance with Generally Accepted Accounting Practices, a deficiency of income over expenses of Twelve Million Nine Hundred and Five Thousand One Hundred Seventy-five Dollars ($12,905,175.00) should have been reported.
B & B established the Profit Sharing Retirement Plan and Trust (the “Plan”) in 1974. Toledo Trust Company/Trust Corp was the original trustee of funds maintained in the Plan, including the period from 1976 through February 5, 1983. Society Bank & Trust (hereafter “Society”) is the successor in interest to The Toledo Trust Company and *21Trust Corp Bank, and continues as trastee for the Plan through the present time.
The following provisions 3.1 and 3.4 of the Plan governed the terms upon which contributions were made to the Plan by B & B, as employer, for the participants, including Wolfram:
ARTICLE III
Contributions
3.1 The Plan is effective as of April 1, 1974. Contributions shall be made by the Employer only out of the Employer’s net income from its business, provided that if such net income of the Employer is less than the total Employer contributions provided for herein for any Plan Year, contributions on behalf of each Participant for any such year shall be reduced rat-ably. Net income shall be determined in accordance with generally accepted accounting practices and shall be computed before any provisions for contributions under the Plan for any such year. In each Plan Year the Employer shall contribute on behalf of each participating Owner-Employee who elects to participate and each Partner-Employee an amount not more than five percent (5%) of the participants total Compensation for the year. In computing the amount of the contribution of the Employer the amount of earned income to be taken into account in the case of each Owner-Employee and Partner-Employee and the amount of the Compensation to be taken into account in the case of each Employee shall not exceed $100,000 in each year. The limitations hereinabove stated apply to the aggregate contributions made by the Employer to all qualified plans of the Employer in each Year.
% * * * * *
3.4 All contributions made by or on behalf of each Participant and all investments made with contributions and the earnings thereon shall be credited to a separate account maintained for him under the Plan. A participant’s interest in all contributions and other amounts credited to his account shall immediately become and at all times remain fully vested and nonforfeitable. Within sixty (60) days after the close of each plan Year the Employer shall furnish each Participant a statement of the amounts credited to his account during and at the end of such year. (Emphasis added.)
Contributions made by B & B, as Employer, for the Plan account of Wolfram from 1976 through 1983 total Twenty-six Thousand Four Hundred Thirty-one and 46/100 Dollars ($26,431.46). The amounts of these contributions have been stipulated by the parties. B & B actually had no net income and had unreasonably small capital to continue its brokerage business during the times that these contributions were made by B & B to Wolfram’s account. Thus, the contributions violated paragraph 3.1 of the Plan which required B & B to have net income before contributions to the Plan were made.
The net assets in Wolfram’s account were Sixty-six Thousand Three Hundred Fifty-three and 34/100 Dollars ($66,363.34) as of December 31, 1982, the valuation date nearest to the February 5, 1983 commencement of the B & B liquidation proceedings. Over time, the improper contributions of Twenty-six Thousand Four Hundred Thirty-one and 45/100 Dollars ($26,431.46) were commingled in the Wolfram Plan account with proper contributions. No contributions were made to the Plan after February 5, 1983. As of March 31, 1994, the Plan account valuation date nearest to the date of the Hearing, the total value of the assets in the Wolfram Plan was One Hundred Eighty-two Thousand Three Hundred Eighty-five and 34/100 ($182,386.34). Since the commencement of the B & B liquidation proceeding, Society and its predecessors have charged a total of Thirty-four Thousand Eight Hundred Eighty-four and 81/100 Dollars ($34,884.81) in administrative expenses to the Wolfram Plan account.
*22The Trustee obtained a final judgment, which is unsatisfied in this adversary proceeding against Wolfram in the total amount of Twenty-nine Million Dollars ($29,000,-000.00) plus interest, and served a Writ of Execution on Society to obtain and apply Wolfram’s interests in the B & B Plan to the judgment against Wolfram. Society objected to the Writ of Execution. Wolfram has not appeared in the Trustee’s proceedings in aid of execution and has not objected to the writs of execution served upon Society.
DISCUSSION
Orders to turn over property of the estate are core proceedings pursuant to 28 U.S.C. Section 157. Thus, this case is a core proceeding.
This matter comes before the Court on remand from the Circuit Court of Appeals in In re Bell & Beckwith, 5 F.3d 150 (6th Cir.1993). This Court is to determine the amount of contributions made by B & B to the Plan that are to be held void ab initio, as these funds were deposited in violation of the terms of the Plan. This issue has been addressed in the factual findings supra, and has been stipulated by the parties. These contributions totalling Twenty-six Thousand Four Hundred Thirty-one and 45/100 Dollars ($26,431.45) are to be transferred to Patrick A. McGraw, Trustee (hereafter “Trustee”) for the benefits of the Creditors of the Debt- or’s estate.
Also at issue is whether, and in what proportion, the increase in value of the assets of the Plan and the expenses associated with this increase should likewise be transferred to the Trustee as earnings on the void contributions. This issue was not addressed by the Court of Appeals. An analogous principle of trust law provides that, ‘Where a commingled mass of trust property or funds and other property or funds, commingled by a trustee wrongfully, increases in value, the beneficiary should share in the increase at least in proportion to his contributions to the mingled mass in its original condition.” 76 American Jurisprudence 2d, Trusts § 303, at 316-17. See also cases cited therein: Bird v. Stein, 258 F.2d 168 (1958), cert. denied, 359 U.S. 926, 79 S.Ct. 608, 3 L.Ed.2d 628; Regal Insurance Co. v. Summit Guaranty Corp., 324 N.W.2d 697, 705 (Iowa 1982); and Holmes v. Gilman, 138 N.Y. 369, 34 N.E. 205 (1893).
Following this principle, this Court holds that the portion of the increase in value of the Plan funds that should be paid to the Trustee for the benefit of creditors should be equal to the proportion of contributions held void ab initio, Twenty-six Thousand Four Hundred Thirty-one and 45/100 Dollars ($26,-431.45), to the total funds in the Plan at the commencement of the B & B liquidation proceedings, Sixty-six Thousand Three Hundred Fifty-three and 34/100 Dollars ($66,353.34). Thus, the Trustee is due Forty Percent (40%) of the increased value of the securities held in the Plan. The latest valuation of the Plan, discussed supra, places its value at One Hundred Eighty-two Thousand Three Hundred Eighty-five and 34/100 Dollars ($182,-385.34). The original value at the commencement of the liquidation proceeding, also discussed supra, was Sixty-six Thousand Three Hundred Fifty-three and 34/100 Dollars ($66,353.34), so the increase in the value of the assets of the Plan was One Hundred Sixteen Thousand Thirty-two Dollars ($116,-032.00). The portion of this increase due the Trustee is Forty Percent (40%) of this figure, which is Forty-six Thousand Four Hundred Twelve and 80/100 Dollars ($46,412.80). Adding this portion to the original funds contributed to the account, Twenty-six Thousand Four Hundred Thirty-one and 45/100 Dollars ($26,431.45), the Trustee is due Seventy-two Thousand Eight Hundred Forty-four and 25/100 Dollars ($72,844.25) in total.
The Trustee also alleges that Society should reimburse the Debtor’s estate for the administrative expenses charged by Society to the Plan in payment of services provided regarding the Plan’s administration. The basis of this argument is that if Society had not taken the improperly contributed funds, there would have been no administrative expenses that would have been charged against them. This Court declines to accept this line of reasoning. This argument places blame on Society for accepting funds from B & B in reliance on the financial statements prepared by B & B’s accountants, where income was *23overstated due to the misevaluation of assets. Requiring a trustee of a retirement plan to revalue the assets on the depositor’s balance sheets places a clearly overly cumbersome duty on the administration of the trust account that would only serve to unreasonably increase costs in the majority of circumstances. Further, if the Trustee in this case argues that the income earned through the administration of the Plan should be returned along with the misplaced funds, it is equitable that the expenses associated with that income should be reduced from the gross income earned. In the case herein, Society has already charged its expenses from the Plan, and the income calculated supra is net of those charges. Thus, the award of Seventy-two Thousand Eight Hundred Forty-four and 25/100 Dollars ($72,-844.25) is proper.
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 Society transfer to the Trustee the sum of Seventy-two Thousand Eight Hundred Forty-four and 25/100 Dollars ($72,844.25), within fourteen (14) days from the date of this Order. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491887/ | MEMORANDUM OF DECISION RE: FCBO’S MOTION FOR RELIEF FROM THE AUTOMATIC STAY
IRVIN N. HOYT, Chief Judge.
The matter before the Court is the Motion for Relief From Automatic Stay filed by Farm Credit Bank of Omaha and Debtor’s response thereto. This is a core proceeding under 28 U.S.C. § 157(b)(2). This Memorandum and accompanying Order shall constitute findings and conclusions as required by F.R.Bankr.P. 7052. As discussed more fully below, the Court concludes that since a foreclosure sale has not taken place, the mortgage relationship between Debtor and FCBO still exists and may be modified under 11 U.S.C. § 1222(b)(2). Therefore, relief from the automatic stay for cause will not be granted.
I.
On June 29, 1971, Farm Credit Bank of Omaha (FCBO) loaned $24,000.00 to Edwin R. Bunke and his wife, Victoria. Edwin and Victoria Bunke gave FCBO a mortgage on certain real property. Edwin and Victoria Bunke defaulted on their obligations in 1992 by faffing to pay real estate taxes on the mortgaged property. On August 12, 1993, FCBO obtained a summary judgment of foreclosure in state court against Edwin Bunke and Victoria Bunke (they were then divorced) for $19,862.56. A sheriffs sale was scheduled for October 18,1993. A few hours before the sale, Edwin Bunke (Debtor) filed a Chapter 12 petition. In his schedule, filed November 2, 1993, Debtor stated FCBO has *65a claim for $18,304.00 that is fully secured by a mortgage on all farm property.
On November 22, 1993, FCBO filed a Motion for Relief From the Automatic Stay Imposed by 11 U.S.C. § 362 and § 1201. FCBO contended that the state court foreclosure judgment terminated Debtor’s interest in the property, except Debtor’s statutory right to redeem as provided by state law, and it sought relief from the automatic stay for cause. Debtor responded on December 9, 1993 that FCBO’s interest was adequately protected and that the property is necessary for an effective reorganization.
At a hearing on December 16, 1993, counsel for each party stated that facts were not disputed and they agreed that Debtor has equity in-the property in excess of FCBO’s claim. The parties presented the legal issue of whether the automatic stay that arose from Debtor’s Chapter 12 petition stayed the county sheriff from conducting the foreclosure sale. Upon receipt of argument and post-hearing briefs, the Court concluded that a sheriffs sale of mortgaged land on which a foreclosure judgment has been entered is stayed under § 362(a) by the filing of a bankruptcy petition because the sale is a proceed.ing “against the debtor that was or could have been commenced before the commencement of the ease under this title” or is an “enforcement, against the debtor or against property of the estate, of a judgment obtained before the [petition was filed]” as governed by § 362(a). Therefore, the Court held that FCBO must obtain relief from the automatic stay for cause1 before the sheriff could conduct a foreclosure sale. The Court further noted that
The parties have not argued, nor does the Court address herein, collateral questions that arise from this decision, including what constitutes cause for relief at this stage of a foreclosure, the effect, if any of 11 U.S.C. § 108(b), and whether under 11 U.S.C. § 1222(b)(2) Debtor may modify FCBO’s judgment rights through a Chapter 12 plan. Those questions are left to another day.
In re Edwin R. Bunke, 173 B.R. 172, 177 (Bankr.D.S.D.1994). The “another day” arrived May 26, 1994 when the parties filed additional stipulated facts and asked the Court to determine whether cause for relief existed. The additional stipulated facts include:
1. As of May 17, 1994, Debtor owed FCBO $21,677.94 plus possible attorneys fees and costs under 11 U.S.C. § 506(b);
2. In addition to the $1,358.20 in 1991 real estate taxes that FCBO advanced Debt- or (included in the $21,677.94 above), Debt- or’s 1992 and 1993 real estate taxes totaling $5,146.97 are delinquent.
3. ' Debtor is obligated to pay real estate taxes under the terms of his note and mortgage with FCBO and it was his failure to pay the 1991 taxes that caused FCBO to commence the state foreclosure proceeding.
4. Debtor has not made a November 1, 1993 post-petition payment to FCBO of $2,062.98.
5. As of May 25, 1994, Debtor is unable to pay in full the $21,677.94 judgment plus costs and interest (to May 17, 1994) owed to FCBO.
6. As of May 25, 1994, Debtor is unable to cure the delinquent real estate taxes of $5,146.97.
7. As of May 25, 1994, Debtor would be unable to perform under a plan that required him to pay FCBO its matured principal and interest.
8. As of May 25, 1994, Debtor would be unable to perform under a plan that required him to pay the matured principal and interest and the delinquent real estate taxes.
9.' FCBO is adequately protected by the value of the Debtor’s real estate that secures FCBO’s claim.
10. Debtor’s real estate is necessary for an effective Debtor’s reorganization.
11. Debtor would be able to confirm a plan, over FCBO’s objection, if allowed to *66modify FCBO’s right to payment under 11 U.S.C. § 1222(b)(2)..
II.
Relief From the Stay for Cause. Cause for relief from the automatic stay under 11 U.S.C. § 362(d)(1) is not defined by the Code but must be determined on a case by case basis. Universal Life Church, Inc., v. I.R.S. (In re Universal Life Church, Inc.), 127 B.R. 453, 455 (E.D.Cal.1991) aff'd, 965 F.2d 777 (9th Cir.1992). It has been interpreted to include “any reason whereby a creditor is receiving less than his bargain from a debtor and is without remedy because of the bankruptcy proceeding.” In re Food Barn Stores, Inc., 159 B.R. 264, 267 (Bankr.W.D.Mo.1993). The burden of proof is on the movant. Id.
Treatment of Secured Claim. Section 1222(b)(2) provides that a Chapter 12 debt- or’s plan may “modify the rights of holders of secured claims.” Unless otherwise agreed, the secured creditor either must retain his hen and receive, as of the effective date of the plan, the allowed amount of his secured claim or he must receive the property securing his claim. 11 U.S.C. § 1225(a)(5). A secured claim may be paid over a period longer than the plan term if the requirements of § 1225(a)(5) are met. 11 U.S.C. § 1222(b)(9).
III.
The crux of the legal issue presented by the parties is whether Debtor may modify FCBO’s secured claim under 11 U.S.C. § 1222(b)(2) now that FCBO has obtained a judgment and a judgment hen. If the secured claim may be modified, Debtor can reorganize timely by paying FCBO the present value of its secured claim over time. FCBO thus would be without cause for rehef from the automatic stay. If Debtor cannot modify FCBO’s secured claim, Debtor has no present ability to pay the claim in full. Consequently, FCBO would have cause for rehef since Debtor could not propose a confirmable plan. Whether FCBO’s secured claim may be modified is a question that may be answered by looking at the nature of the judgment and judgment hen and their relationship to the FCBO’s note, mortgage, and mortgage hen.
As noted in the Court’s Memorandum of Decision entered April 11, 1994 in this case, FCBO’s judgment incorporates the mortgage and becomes security for FCBO’s claim under S.D.C.L. § 21-17-11. This relationship between the judgment and mortgage and their respective hens is best described by an early South Dakota Supreme Court opinion.
[T]he docketing of a proper judgment [in a foreclosure action] does not operate to extinguish the hen created by the parties to the mortgage. The [judgment] hen attaches to all the real property of the debt- or, except his homestead, in the county where the judgment is docketed, while the hen created by the contract [i.e., mortgage] attaches only to the property described in the mortgage. If the docketing of a judgment in an action to foreclose a real estate mortgage extinguishes the mortgage hen, leaving only the judgment hen, the collection of a debt secured by a mortgage on a homestead cannot be enforced when the debtor has no property other than a homestead. In such a case, if the mortgage hen merges in the judgment Hen, the creditor loses his hen by attempting to enforce it. Certainly the Legislature did not intend the statute to have that effect.... An action to foreclose is brought for the purpose of enforcing the existing lien,’ not for the purpose of creating any new rights or obligations- The hen of such a mortgage is accessory to the obhgation that it secures; it is extinguished by the extin-guishment of the obhgation and by a sale of the mortgaged premises in satisfaction of the obhgation; but it is not extinguished by the mere lapse of the time [as may happen with a judgment lien], [Cite therein.] The debt secured by the mortgage in the case at bar may have merged in the judgment which determined the validity and amount; but the hen created by the [mortgage] was neither merged in nor extinguished by such judgment. Though the form or evidence of the debt may have been changed, the unsatisfied, recorded [mortgage] remained.
*67Rhomberg v. Bender, 28 S.D. 609, 134 N.W. 805, 806 (1912) (emphasis added). This reasoning remains sound today. While the judgment determined the validity and amount of FCBO’s secured claim against Debtor and may have merged with the note, the judgment did not extinguish either the mortgage or the mortgage lien. The mortgage and mortgage lien remain intact until there has been a foreclosure sale. Thus, a contractual relationship between FCBO and Debtor still exists.
Since a contractual relationship between Debtor and FCBO still exists absent the foreclosure sale, the Court cannot find any statutory bar that would preclude Debtor from modifying FCBO’s secured claim under §§ 1222(b)(2), 1222(b)(9) and 1225(a)(5). Compare Justice v. Valley National Bank, 849 F.2d 1078 (8th Cir.1988) (debtor’s power to cure defaults and modify the rights of secured creditors under § 1222(b) is not applicable after a foreclosure sale has been held). Although FCBO’s effort to foreclose the mortgage was interrupted by Debtor’s intervening Chapter 12 petition, FCBO nonetheless improved its position by having its debt validated and liquidated.2 Debtor, however, still has the legal and equitable title to his mortgaged property. The note and mortgage between Debtor and FCBO remain viable and, thus, may be modified under § 1222(b)(2).
The parties having stipulated that FCBO’s interest is adequately protected and the Court having found that Debtor’s mortgage relationship with FCBO still exists and may be modified under 11 U.S.C. § 1222(b)(2), the Court concludes FCBO has not shown cause for relief from the automatic stay. Accordingly, FCBO’s motion for relief from the automatic stay will be denied. An appropriate order will be entered.
. The parties have stipulated that Debtor has equity in the property so FCBO may not obtain relief under 11 U.S.C. § 362(d)(2).
. FCBO also may have "improved” its secured position by obtaining a general judgment lien on any equity in Debtor’s non homestead real property, see S.D.C.L. § 15-16-7; but see Rhomberg, 134 N.W. at 806, and in any after acquired real property. See Murphy v. Connolly, 81 S.D. 644, 140 N.W.2d 394, 398 (1966). Since FCBO is fully secured by its specific mortgage lien, however, that issue is not presented here. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491888/ | MEMORANDUM OPINION AND ORDER
JULIE A. ROBINSON, Bankruptcy Judge.
This matter comes before the Court pursuant to the Motion to Abstain filed by Peoples State Bank and Trust Co. (“Bank”). A hearing was held on May 16, 1994, at which time the Court took the matter under advisement. The Bank appeared by and through its attorney, Robert Nugent. Harry D. Krug (“debt- or”) appeared by and through his attorney, Tim Girard. The trustee, Eric C. Rajala, appeared pro se.
JURISDICTION
The Court has jurisdiction over this proceeding. 28 U.S.C. § 1334. This is a core proceeding. 28 U.S.C. § 157(b)(2)(A), (B), (C) and (0).
FINDINGS OF FACT
Debtor filed a voluntary petition under Chapter 12 of Title 11, United States Code, on October 28, 1993. Prior to the filing, the Bank initiated two actions against debtor and other parties in the District Court of Russell County, Kansas (tbe “state court actions”). On July 2, 1993, the Bank filed the first action (Case No. 93-C-57) which sets forth claims against debtor for foreclosure of certain of debtor’s realty and personalty and for judgment and monetary damages against debtor. Debtor timely filed his Answer and Counterclaim in Case No. 93-C-57, alleging several affirmative defenses, including the allegation that the Bank failed to give him immediate notice prior to fifing the action in violation of K.S.A. 17-545.1 Debtor’s counterclaim included claims of breach of the duty of good faith and fair dealing, negligence and tortious interference with prospective contract. On or about September 7, 1993, Johnny Boyd was allowed to intervene in Case No. 93-C-57 pursuant to an Order of the District Court of Russell County, Kansas.
*81On or about August 12, 1993, the Bank commenced its second action against debtor (Case No. 93-C-72), seeking foreclosure of the same real estate as the first action. The second action alleges that the Bank notified the borrower of the availability of mediation service in compliance with K.S.A. 74-545(g). Debtor filed his Answer and Counterclaim in Case No. 93-C-72, setting forth the same affirmative defenses and counterclaims, and adding a breach of contract claim.2 On or about September 7, 1993, Johnny Boyd was granted an Order of the District Court of Russell County, Kansas, allowing him to intervene in Case No. 93-C-72.
On January 26, 1994, debtor filed a Complaint for Removal of the state court actions pursuant to Rule 9027(a) of the Federal Rules of Bankruptcy Procedure. Debtor’s Complaint initiated the above-captioned adversary proceeding. On February 28, 1994, the Bank filed a Motion to Abstain, requesting that the Court abstain from hearing this case.
On December 27, 1993, the Bank filed a Proof of Claim in the debtor’s bankruptcy case, and the Bank filed an amended Proof of Claim on May 18, 1994, which attached additional security documents. The Proof of Claim sets forth a secured claim for $290,000 plus interest, $10,675.00 plus interest and attorney fees and other costs as provided by 11 U.S.C. § 506. The Proof of Claim is based on the same notes that are the basis for the state court actions.
On April 15, 1994, the Bank filed a motion requesting that the Court estimate the Bank’s claim pursuant to 11 U.S.C. § 502(c)(1). The motion states that the Court should require the debtor to come forward with appropriate evidence of debt- or’s alleged damages as well as the Bank’s alleged tortious misconduct or breaches of contract to facilitate the Court’s estimation of the Bank’s claim.
On March 11, 1994, the debtor filed an objection to the Bank’s Proof of Claim, alleging that upon adjudication of his defenses and counterclaims in the removed action, debtor will either owe the Bank less than the stated amount of its claim or will be entitled to an offset against the Bank. The debtor filed an amended objection on April 25,1994, arguing that in the event the Court allows the Bank’s claim it should nevertheless disallow fees, costs, or charges claimed by the Bank pursuant to 11 U.S.C. § 506(b) which are unreasonable and not otherwise recoverable and that the Court should refuse to approve such fees, costs, or charges absent sufficient proof of the same, including but not limited to a fee application and time records of the same. On July 26, 1994, the Bank filed an application for allowance of attorneys’ fees and expenses incurred in pursuing its oversecured claim pursuant to 11 U.S.C. § 506(b).
CONCLUSIONS OF LAW
This Court is granted jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(b), which confers original, but not exclusive jurisdiction in the district court of all civil proceedings arising under Title 11, or arising in or related to cases under Title 11. All Title 11 U.S.C. cases and proceedings in, under or related to Title 11 are referred to the bankruptcy judges of this district. See 28 U.S.C. § 157(a) and D.Kan.Rule 705.
Although this Court has jurisdiction over this adversary proceeding, 28 U.S.C. § 1334(c) sets forth provisions for mandatory and discretionary abstention. Section 1334(c)(2) provides for mandatory abstention and states that:
Upon timely motion of a party in a proceeding based upon a State law claim or State law cause of action, related to a ease under title 11 but not arising under title 11 or arising in a case under title 11, with respect to which an action could not have been commenced in a court of the United States absent jurisdiction under this section, the district court shall abstain from hearing such proceeding if an action is commenced, and can be timely adjudicated, *82in a State forum of appropriate jurisdiction.
28 U.S.C. § 1334(c)(2).
One element of mandatory abstention requires that the proceeding be related to a case under Title 11 but not arising under Title 11 or arising in a case under Title 11. Matters “arising under title 11, or arising in a case under title 11” are “core proceedings.” See 28 U.S.C. § 157(b)(1). In other words, for mandatory abstention to be applicable, this adversary proceeding must be “non-core.”
The Court finds that this adversary proceeding is a core proceeding and therefore mandatory abstention is not required. This adversary proceeding involves the same issues necessary to decide the debtor’s objection to the' Bank’s Proof of Claim filed in the debtor’s bankruptcy case. Several courts have held that proceedings which are basically equivalent to claims litigation are core proceedings. See, e.g., In re Meyertech Corp., 831 F.2d 410, 418 (3rd Cir.1987) (concluding that where the cause of action based upon state law is correctly characterized as a claim against the debtor’s bankrupt estate, the litigation of its merits is a core proceeding); In re Chapman, 132 B.R. 153, 157 (Bankr.N.D.Ill.1991) (stating that the action was a core proceeding where creditor filed a claim for the amount owed to them under the mortgage, and debtors had filed the same affirmative defenses and counterclaims against that claim as they filed in the present case); In re Marshland Development, Inc., 129 B.R. 626, 631 (Bankr.N.D.Cal.1991) (removed state court proceeding was core, where defendant’s answer to the complaint was analogous to an objection to claim in bankruptcy, and the proceeding was transmuted into a claims resolution proceeding); In re Baudoin, 981 F.2d 736, (5th Cir.1993) (citing In re Branding Iron Motel, Inc., 798 F.2d 396, 399 n. 3 (10th Cir.1986)) (noting that the controversy involving the note and mortgage is inextricably tied to the bankruptcy proceeding because it affects the liquidation of assets, and comes within the ambit of “core proceedings” as defined in 28 U.S.C. § 157(b)(2)); In re Manville Forest Products Corp., 896 F.2d 1384, (2nd Cir.1990) (holding that adversary proceeding which involved a simple objection to a proof of claim was a core proceeding, despite argument that suit merely involved state law breach of contract claim that was “related to” the bankruptcy case).
Section 1334(c)(1) provides for the Court to exercise discretion in abstaining from hearing a particular proceeding arising under Title 11 or arising in or related to a ease under Title 11 “in the interest of justice, or in the interest of comity with State courts or respect for State law.” In In re Republic Reader’s Service, Inc., 81 B.R. 422, 429 (Bankr.S.D.Tex.1987), the court set forth factors to consider in determining whether to exercise discretionary abstention as follows:
(1) the effect or lack thereof on the efficient administration of the estate if a' Court recommends abstention, (2) the extent to which state law issues predominate over bankruptcy issues, (3) the difficulty or unsettled nature of the applicable state law, (4) the presence of a related proceeding commenced in state court or other nonbankruptcy court, (5) the jurisdictional basis, if any, other than 28 U.S.C. § 1334, (6) the degree of relatedness or remoteness of the proceeding to the main bankruptcy ease, (7) the substance rather than form of an asserted “core” proceeding, (8) the feasibility of severing state law claims from core bankruptcy matters to allow judgments to be entered in state court with enforcement left to the bankruptcy court, (9) the burden of [the bankruptcy judge’s] docket, (10) the likelihood that the commencement of the proceeding in bankruptcy court involves forum shopping by one of the parties, (11) the existence of a right to a jury trial, and (12) the presence in the proceeding of nondebtor parties.
In considering the factors set forth above and in the interest of justice and comity with States courts and respect for State law, the Court finds that it should not exercise discretionary abstention in the present case. If this matter were remanded back to state court, the administration of the debtor’s estate would be delayed. In addition to the claims litigation, other matters in the bankruptcy case are related to and will be affect*83ed by the outcome of this adversary proceeding. For example, the Bank has filed a motion for this Court to estimate its claim and an application for allowance of attorneys’ fees and expenses incurred in pursuing its overseeured claim. In addition, a final pretrial conference on confirmation of debtor’s First Amended and Modified Chapter 12 Plan is set for November 3, 1994. The outcome of this adversary case will materially impact the bankruptcy estate because debt- or’s cattle are the primary income producing asset of his estate, and the determination of damages to his cattle will directly impact the viability of debtor’s reorganization.
The state law issues involved in this case are not difficult or unsettled in nature, and it would not be feasible to sever the state law claims from the bankruptcy matters involved. In fact, the claims are identical to the issues which must be resolved in debtor’s bankruptcy case. The resolution of the debtor’s objection to the Bank’s Proof of Claim will necessarily involve the same issues that would be litigated in state court. The Bank has requested that this Court “estimate” the Bank’s claim. The Court finds that in this case an estimation of the claim would entail almost the same analysis that resolution of the objection to the claim would involve. If the matter were remanded to state court and this Court were required to estimate the claim, both court’s would be duplicating much of the same efforts and wasting judicial resources. Furthermore, delay would result if each court had to await resolution of dependent issues in the other court.
The Court has already had a pre-trial conference on this matter and has set discovery deadlines. These issues would be resolved much more efficiently if they remain in the bankruptcy court and are allowed to continue on the schedule this Court has already set. For the foregoing reasons, this Court declines to abstain from hearing this adversary proceeding.
IT IS THEREFORE ORDERED BY THE COURT that the Banks Motion to Abstain shall be DENIED.
This Memorandum shall constitute findings of fact and conclusions of law under Rule 7052 of the Federal Rules of Bankruptcy Procedure and Rule 52(a) of the Federal Rules of Civil Procedure. A judgment based on this ruling will be entered on a separate document as required by Rule 9021 of the Federal Rules of Bankruptcy Procedure and Rule 58 of the Federal Rules of Civil Procedure.
IT IS SO ORDERED.
. Debtor’s answer in Case No. 93-C-72 cites to K.S.A. 74-545, and the Court believes the debtor intended to cite that subsection in this answer and the reference to K.S.A. 17-545 was merely a typographical error.
. Although debtor's original answers included jury trial demands, on June 30, 1994, the debtor filed a motion for leave to amend his answer and counterclaim, and his Amended Answer and Counterclaim does not include a jury trial demand. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491890/ | ORDER ON DEFENDANT’S MOTION TO DISMISS ADVERSARY COMPLAINT
ALEXANDER L. PASKAY, Chief Judge.
This is a Chapter 11 case and the matter under consideration is a Motion to Dismiss the Complaint. The Motion under consideration is filed by William T. Darling and his wife C. Ann Darling (Debtors) who contend that the Complaint filed by South Trust Bank of Southwest Bank (Bank) is time barred thus subject to dismissal. The facts which are relevant to resolution of this controversy are without dispute and can be summarized as follows.
On October 18, 1993, the Debtors filed their Petition for Relief under Chapter 11 in the United States Bankruptcy Court for the Eastern District of Pennsylvania. On December 2, 1993, the clerk in Pennsylvania issued the customary Notice of the Commencement of the Case which included the bar date of February 28, 1994, for filing complaints to determine dischargeability of debts. The Notice also provided the date set for the meeting of creditors scheduled to be held on December 29,1993. On December 2, 1993, or before the scheduled meeting of creditors, the Bankruptcy Court in Pennsylvania entered an Order and transferred the entire Chapter 11 case to this District. Upon receipt of the file, the clerk of this court, rather than merely resetting the meeting of creditors, issued a new Notice of the Commencement of the Case on January 10, 1994, in which it notified parties of interest, including the Bank, that the last date to file a Complaint for Determination of Discharge-ability of certain Debts was April 19, 1994. The Bank relied on the bar date published in this Notice and filed its Complaint to determine the dischargeability of the Debtors’ obligations on April 4, 1994, or after the first date before the expiration of the second bar date.
The Bank’s Complaint consists of five counts. The first three counts are based upon § 523(c) of the Code. The remaining two counts are based upon § 727(a)(5) and § 727(a)(4) of the Code respectively.
Time to file Complaints, pursuant to § 523(c) challenging the dischargeability of debts pursuant to § 523(a)(2), (4) and (6) is governed by F.B.R.P. 4007(c) which provides:
TIME FOR FILING COMPLAINT UNDER 523(e) ...
A complaint to determine the discharge-ability of any debt pursuant to § 523(c) of the Code shall be filed not later than 60 days following the first date set for the meeting of creditors held pursuant to § 341(a). The court shall give all creditors not less than 30 days notice of the time so fixed in the manner provided in Rule 2002. On motion of any party in interest, after *126hearing on notice, the court may for cause extend the time fixed under this subdivision. The motion shall be made before the time has expired.
The plain meaning of the text leaves no doubt that the bar date is determined by the first date set (emphasis supplied) for the meeting of creditors held pursuant to § 341(a) of the Code, which in the present instance was December 29, 1993. Thus, it follows that the Complaint under consideration filed on April 4, 1994 or after the bar date fixed by the clerk in Pennsylvania was untimely unless this Court is willing to accept the proposition that the correct bar date is April 19, 1994, which event the Complaint filed on April 4th was timely. In support of this proposition the Bank cites several cases in which courts permitted the Complaint to stand even though it was filed after the 60 days fixed by F.R.B.P. 4007(c) when the creditor relied on the incorrect bar date stated in the Notice of the Commencement of the Case. In re Anwiler, 958 F.2d 925 (9th Cir.1992).
In a recent case of In re Kenneth L. Isaacman the Sixth Circuit concluded that the bankruptcy courts may use their equitable power to accept untimely complaints that are filed in reliance on the clerk’s erroneous representation of the bar date. In re Kenneth L. Isaacman, 26 F.3d 629 (6th Cir.1994). The factual situation involved in Isaacman is strikingly similar to the facts involved in this case. The Petition in Isaacman was originally filed in the Northern District of Georgia but transferred to the Western District of Tennessee. Upon receipt of the case the clerk in Tennessee re-noticed the meeting of creditors four days before the bar date originally established in Georgia before the case was transferred. When the creditor’s attorney asked the clerk’s office in Tennessee the bar date she was told that a new bar date was set. The bankruptcy court dismissed the complaint as untimely which Order was affirmed by the District Court. On appeal, the Sixth Circuit reversed and ruled that the attorney’s reliance on the information was reasonable. The Court stated that “To hold otherwise we believe would create an unjust result because parties are entitled to rely on information issued by the bankruptcy courts.” The Court also noted that it was irrelevant whether the creditor relied on the bar date contained in the notice or on the information received on the phone. See also In re Wellman, 89 B.R. 880 (Bankr.D.Colo.1988); Matter of Hickey, 58 B.R. 106 (Bankr. S.D.Ohio 1986); In re Sibley, 71 B.R. 147 (Bankr.D.Mass.1987). The decision of the Eleventh Circuit in Byrd v. Alton, 837 F.2d 457 (11th Cir.1988) is not contrary to the cases just cited. Alton did not involve erroneous information concerning the bar date emanating from the clerk’s office, but an attempt by a tardy creditor to obtain an extension of the bar date after the bar date had already expired. The court held that the Rule is unambiguous and clear and any request for extension of the bar date must be made before the expiration of the 60 days fixed by the Rule.
The facts in this case are on all four and in most respects identical with the facts involved in Isaacman with the exception the in the present case the second bar date was set prior to the expiration of the original bar date set in Pennsylvania, and thus the Bank had a right to assume the second notice superseded the first and the original bar date was also superseded by the second bar date, in this instance April 19, 1944. While this Court is disinclined to accept the proposition urged by the Bank that when a ease is transferred from one district to another the transfer starts a new case. This Court is satisfied that this proposition is not supported either by the Code or by the Rules. Under the authorities cited, it is clear that this Court may use its equitable power and retain the Complaint filed by the Bank.
The Complaint under consideration also contains two Counts, as noted earlier, in which the Bank challenged the Debtor’s right to a general discharge based on § 727(a)(4) and (a)(5). The time to file complaints objecting to the general discharge in Chapter 11 cases is governed by F.R.B.P. 4004(a) which provides:
TIME FOR FILING COMPLAINT OBJECTING TO DISCHARGE ...
In a chapter 11 reorganization case, such complaint shall be filed not later than the *127first date set for the hearing on confirmation. Not less than 25 days notice of the time so fixed shall be given to the United States trustee and all creditors as provided in Rule 2002(f) and (k) and to the trustee and the trustee’s attorney.
While the reference to § 727(a) in this Rule in 'connection with a Chapter 11 case is unfortunate since § 727 does not apply to Chapter 11 cases, see § 103(a), it is evident that these claims are equally not time barred simply because in this case hearing on confirmation is yet to be set. Baséd on the foregoing, this Court is satisfied that the Motion to Dismiss is not well taken and should be denied.
According it is
ORDERED, ADJUDGED AND DECREED that the Motion to Dismiss be and the same is hereby denied. It is further
ORDERED, ADJUDGED AND DECREED that the Debtors shall file their Answer to the Complaint within 15 days from the date of the entry of this Order. It is further
ORDERED, ADJUDGED AND DECREED that if the Debtors file an Answer, the Clerk shall promptly schedule a pre-trial conference. It is further
ORDERED, ADJUDGED AND DECREED that in the event the Debtors fail to file their Answer on or before the date fixed by this Order, the Bank may proceed to seek a final judgment by default.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491891/ | ORDER ON OBJECTION TO CLAIM # 11
ALEXANDER L. PASKAY, Chief Judge.
THIS is a Chapter 7 liquidation case and the matter before the Court is an Objection to Claim #11 filed by the Chapter 7 Trustee (Trustee). Claim # 11 is filed by H.D. Roberts Real Estate Co., Inc. d/b/a Roberts Real Estate (Roberts) as an unsecured claim in the amount of $139,000.00. The Claim is based on a real estate commission allegedly due Roberts for locating a willing and ready buyer for property owned by Helen Costello (Debtor) located in Troy, New York. The Trustee has objected to the Claim on the grounds that the Debtor is not indebted to the Claimant as no written agreement exists between the parties. The facts relevant to the resolution of this controversy as established at the final evidentiary hearing are as follows:
Roberts is a real estate broker doing business in Troy, New York. The Debtor owns a number of apartment buildings, all located on Washington Place in Troy, New York. In April of 1990, Barbara Carey (Carey) an agent with Roberts began contacting the Debtor on a regular basis to inquire as to the Debtor’s interest in selling her apartment buddings, and employing Carey as the exclusive, listing agent. The Debtor was not interested in selling her property in Troy, however, she was interested in refinancing the property in order to pay outstanding city taxes on the property and unequivocally stated that she would not allow a real estate broker to represent her with regard to the sale of the Washington Place properties even if the properties are offered for sale. Notwithstanding the Debtor’s unwillingness to allow Carey to represent her, Carey prepared exclusive listing agreements for the representation of the Debtor and forwarded these agreements to John Darling, Esq., (Darling) an attorney in Troy, New York who had regularly represented the Debtor in the past. Darling was advised by the Debtor that she was not interested in representation by Carey for the sale of the Washington Place properties. It is without dispute that the Debtor never signed the exclusive listing agreement prepared by Carey.
Carey apparently continued'to attempt to find a buyer for the Washington Place properties, and on May 8,1990 presented an offer to purchase the Washington Place properties by Christopher Patieopoulos (Paticopoulos) through Paul Marsh (Marsh), the property manager in charge, to the Debtor, who offered to pay $680,000.00 for the properties. Carey resubmitted an offer by Paticopoulos for a purchase price of $900,000.00. Neither of these offers resulted in an executed purchase agreement between Patieopoulos and the Debtor. It appears that Marsh was not authorized to receive offers to purchase, nor to permit inspections of the interiors of the property.
In October, 1990 the Debtor did in fact transfer her interest in the Washington Place properties to Paticopoulos for $370,000.00. This purchase price was paid with a $6,000.00 down payment, satisfaction of outstanding city taxes totalling approximately $56,000.00, and the balance of the purchase price in promissory notes. It is undisputed that Pati-copoulos defaulted on the underlying promissory notes, and this transfer was avoided by the Trustee in a subsequent compromise.
Based upon these facts, Roberts contends it is entitled to a commission of $139,-000.00 for locating and procuring a ready and *129■willing buyer for the purchase of the Washington Properties. In opposition, the Trustee contends first that Roberts never obtained a listing agreement from the Debtor and the alleged oral agreement claimed by Roberts is unenforceable and is barred by the Statute of Fraud; second that the Debtor is not indebted to Roberts in any amount because there never existed an agreement by the Debtor to authorize Roberts to list the property or an agreement to pay Roberts a commission of 10% in connection with the sale of these properties; and, third, there is no persuasive evidence that there was ever a meeting of the minds between the Debtor and Roberts concerning terms of the sale and payment of real estate commission.
Roberts concedes, as it must, that it never obtained a written listing agreement from the Debtor for the sale of the Troy property but contends that under the applicable law of the State of New York, absence of a written listing agreement is no bar to recover real estate commission provided, of course, that there was, in fact, an agreement by the owner of the property to pay commission in the event the property is sold to a buyer procured by the broker. New York General Obligation Law 5-701(a)(10). This Statute exempts licensed real estate brokers from the requirements of the Statute of Frauds. See also Blake-Veeder Realty, Inc. v. Crayford, 110 A.D.2d 1007, 488 N.Y.S.2d 295 (3rd Dept.1985); Fidelity Business Brokers, Inc. v. Gamaldi, 190 A.D.2d 709, 598 N.Y.S.2d 315 (2nd Dept.1993).
Assuming, arguendo, that the claim of Roberts is controlled by the law of the State of Florida, its claim would only be barred by the Statute of Frauds if it was understood between the parties that the contract was not to be performed within one year from the time it was made, which, by the very nature of the transaction, was unlikely even if there was an agreement to pay commission. Yates v. Ball, 132 Fla. 132, 181 So. 341, 344 (1937); Khawly v. Reboul, 488 So.2d 856, 858 (Fla.3d DCA 1986).
There is no doubt that the authorities cited correctly represent the applicable legal principles. The problem is, however, that they apply only if there was a meeting of the minds which, of course, is an indispensable element to an enforceable contract. Dakin v. Grossman, 57 A.D.2d 941, 395 N.Y.S.2d 81 (Sup.Ct.1977). In the case of Julien J. Studley, Inc. v. New York News, Inc., 122 A.D.2d 633, 505 N.Y.S.2d 419 (1st Dept.1986), aff'd, 70 N.Y.2d 628, 518 N.Y.S.2d 779, 512 N.E.2d 300 (1987), the broker did procure the buyer and sought to recover commission from the owner. The court rejecting the claim held that he was acting as the purchaser’s agent and was merely a volunteer and if the broker without a request from the owner brings a prospective purchaser and the latter, without further acceptance of the broker’s services, accepts the offer made by the prospective purchaser, the broker is not entitled to a commission.
The ease law in New York leaves no doubt that before a broker is entitled to a commission, it is the broker’s burden to establish a prima facie case that (1) there was ' an agreement to pay commission, and (2) he procured a ready, willing and able buyer at the price and terms of the seller. Lane-The Real Estate Dept. Store v. Lawlet Corp., 28 N.Y.2d 36, 319 N.Y.S.2d 836, 268 N.E.2d 635 (1971), rev’d, 33 A.D.2d 924, 307 N.Y.S.2d 494, reinstated, 28 N.Y.2d 36, 319 N.Y.S.2d 836, 268 N.E.2d 635; Albert Bialek Associates v. Arden-Esquire Realty, 110 A.D.2d 578, 487 N.Y.S.2d 794 (1st Dept.1985). In the case of Naum v. Wiltsie, 271 App.Div. 169, 63 N.Y.S.2d 578 (3rd Dept.1946) the Court stated that it is a well established general principle in New York that “a mere volunteer without authority is not entitled to a commission merely because he has inquired the price which an owner asked for his property, and then sent a person to him who consents to take it.” The Court held that “an owner cannot be enticed into liability for commission against his will by a volunteer without authority.” Naum v. Wiltsie, supra.
The testimony shows that Jan Albers (Ms. Albers), a principal with H.D. Roberts, actually was responsible for not only the initial contact with Mr. Paticopoulos, but subsequent contacts with Mr. Paticopoulos and preparation of the purchase offers. Ms. Carey testified that Ms. Albers allegedly was *130present at meetings which Ms. Carey held with the Debtor. Ms. Albers’ testimony, which might have corroborated the testimony of Ms. Carey concerning the existence of a listing agreement or its terms, was not presented to the Court either live or by deposition. Ms. Carey also testified at trial that Paul Marsh, a tenant at one of the Costello properties, was allegedly authorized by Ms. Costello to show the properties on several occasions to Ms. Carey. Ms. Carey also testified that she gave listing agreements to Mr. Marsh to give to Ms. Costello. Again, Paul Marsh was not presented to the Court as a witness to corroborate Ms. Carey’s testimony. There is no explanation by Roberts why it did not present corroborating testimony either of Marsh or Ms. Albers. It is well established that the failure of a party to present evidence by way of corroborating testimony, evidence which is available, permits the inference that such testimony would be adverse and the truth would be damaging to the party who’s testimony required corroboration. In re Vidana, 19 B.R. 787 (Bankr.S.D.Fla.1982).
Based on the foregoing, the totality of the evidence permits but one conclusion that the proof presented by Roberts in support of a binding agreement to pay commission falls far short of the degree of proof and the burden cannot be discharged by inference or alleged facts not supported by independent corroboration.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Objection to Claim # 11 is hereby sustained, and Claim # 11 is hereby disallowed.
DONE AND ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491892/ | ORDER SUSTAINING CREDITORS’ OBJECTION TO EXEMPTIONS
STEVEN H. FRIEDMAN, Bankruptcy Judge.
This matter came before the Court for hearing March 21, 1994, on Creditors’, Mary Kottis, Paul Burke, Harry Casey and William McManus (collectively the “Creditors”), Objection to Exemptions. The Creditors assert that the Debtor, Thomas DeFelice (the “Debtor”) has not been domiciled in the State of Florida for the 180 days immediately preceding the date of the filing of the Chapter 7 petition. Having considered the motion, the argument of counsel, the testimony, the candor and demeanor of the witnesses, and for the reasons set forth below, the Court sustains the Creditors’ objection.
On June 30, 1993, the Debtor filed for protection under Chapter 7 of the Bankruptcy Code. On his schedules, the Debtor claimed his condominium unit in Boca Raton as exempt. The Creditors contend that the Debtor is not entitled to the exemptions permitted under Florida law because the Debtor was not domiciled in Florida for the 180 days immediately preceding the date of the filing of the Chapter 7, or for the longer portion of the 180 day period than any other place.
To be entitled to the exemptions provided under Florida law, a person must be domiciled in Florida for the greater part of 180 days immediately preceding the date of the filing of the petition. In re Dixson, 153 B.R. 594 (Bankr.M.D.Fla.1993). A person is domiciled in Florida if “he has voluntarily fixed his abode, not for a mere special or temporary purpose, but with a present intention of making it his permanent home.” Minick v. Minick, 111 Fla. 469, 149 So. 483, 487 (1933) (quoting 19 Corpus Juris 392). The Florida Supreme Court in Minick also quotes to Corpus Juris to distinguish the difference between “domicile” and “residence”:
[Domicile] is of more extensive signification and includes, beyond mere physical presence at the particular locality, positive or presumptive proof of an intention to constitute it a permanent abiding place. “Residence” is of a more temporary character than “domicile.” “Residence” simply indicates the place of abode, whether permanent or temporary; “domicile” denotes a fixed, permanent residence, to which, when absent, one has the intention of returning.
Id., 149 So. at 488. A change in domicile is effective where there is a physical presence at the new location and an intention to remain there indefinitely, or the absence of any intention to go elsewhere. In re Ring, 144 B.R. 446, 450 (Bankr.E.D.Mo.1992).
Although the Debtor claims his permanent residence to be in Boca Raton, he continues to work much of the year in Rhode Island as a real estate broker. The Debtor claims to have lived in Florida for the past seven years. On his tax returns dating back to 1988, he has listed his Boca Raton condominium as his address. In addition, he has been registered to vote in Palm Beach County, Florida, since 1988 and he applied for and received Florida’s homestead exemption (for tax purposes) in 1990 for his Boca Raton condominium. During June 2, 1993, hearing held in Rhode Island Superior Court relating to his divorce, the Debtor testified that his legal residence was in Boca Raton. However, during that same hearing, the Debtor testified that he goes from Rhode Island to Florida every three months and remains in Florida for one to two weeks. The Debtor also testified that during the 12 months preceding the hearing, he had been in Rhode Island more than he had been in Florida. Further, during an October 28, 1991, state court hearing, the Debtor testified that he had been a resident of the State of Rhode Island prior to the time that action was filed. These prior sworn statements make it clear *132that the Debtor intended to reside in Florida. However, whether the Debtor is a resident of Florida is not the issue. Rather, the issue is whether the Debtor is domiciled in Florida.
Judge Proctor, in In re Brown, 165 B.R. 512 (Bankr.M.D.Fla.1994), considered a situation similar to the instant case. In Brown, the debtor moved from Palm Beach County to Lake City after Hurricane Andrew caused his houseboat to sink. On March 11, 1993, the debtor recorded an affidavit of domicile in Lake City and changed his voter registration and driver’s license to reflect his Lake City address. In April, felony charges were brought against the debtor, and he spent little time away from Palm Beach. The debt- or filed his bankruptcy petition on May 21, 1993, and claimed his Lake City residence as exempt. The Chapter 7 trustee and. a creditor objected to his claim of exemption and asserted that the Lake City property was not his true residence. The court stated that:
Establishing homestead status requires actual use and occupancy of the property. However, continuous uninterrupted presence is not required. Preparation of the property for immediate occupancy may be sufficient to establish actual use and occupancy for homestead purposes. The Supreme Court of Florida has held that where the owner of property manifests an intention to occupy the property as a home by specific acts and does not otherwise act inconsistently with that intent homestead character is established.
Brown, 165 B.R. at 514-15 (citations omitted). The court found that the debtor had the intention to permanently reside in Lake City and sufficiently occupied the property to support his intention. Thus, the debtor was entitled to the exemption.
In this case, the Debtor has undertaken several overt acts manifesting an intention to be domiciled in Florida. The Debtor states on his tax returns that he lives in Florida, he is registered to vote in Florida, and he takes advantage of Florida’s homestead exemption for real estate tax purposes. However, there is one significant action which the Debtor has not taken — he has not moved to Florida with the intent to be domiciled in Florida. Rather than going to Rhode Island with the intention of returning to Florida, it appears that the Debtor comes to Florida with the intention of returning to Rhode Island. The Debtor spends very little time in Florida. He testified in another proceeding that when he comes to Florida he does so for investment purposes. The Court interprets these stateménts as being inconsistent with the Debtor’s contention that he has always had the intention to make Florida his domicile. Therefore, the Debtor is not domiciled in Florida and is not entitled to the exemptions permitted under Florida law. Accordingly, it is
ORDERED that the Creditors’ objection to the Debtor’s exemptions is sustained. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491893/ | RULING ON MOTION OF FEDERAL DEPOSIT INSURANCE CORPORATION FOR EXTENSION OF TIME TO OBJECT TO DISCHARGE
ROBERT L. KRECHEVSKY, Chief Judge.
I.
The Federal Deposit Insurance Corporation (FDIC), by motion filed on June 28,1994 in this Chapter 7 ease, requests a 180-day extension of time, from July 15, 1994 to January 16,1995, in which to file an objection to'discharge or dischargeability. The FDIC contends that Leonard Ginsberg, the debtor, is indebted to the FDIC, as receiver of at least six banks, in an amount in excess of $36,000,000; and due to the complexity of the debtor’s financial dealings, and the time to secure “governmental” approval if a complaint is believed warranted, the requested additional time for investigation is reasonable.
The debtor, on July 11, 1994, filed a response to the FDIC’s motion, requesting the motion be denied on grounds that the FDIC has already had ample time to conclude its investigation, started well before the bankruptcy case, and to file a complaint, and, in addition, that the debtor suffers from a debilitating disease exacerbated by the stress of his pending bankruptcy case. On July 14, 1994, the date noticed for a court hearing on the FDIC’s motion, the debtor filed an additional objection asserting that the FDIC’s motion is untimely in that a court-established bar date of June 10, 1994 for the filing of such complaints had passed prior to the filing of the motion. The parties have submitted *169the issues solely on their memoranda of law and the pleadings.
II.
Creditors filed an involuntary petition for relief under Chapter 7 against the debtor on January 28, 1994. The court entered an order for relief on March 1,1994, and, thereafter, the clerk’s office sent creditors a notice of the commencement of the case, establishing April 11,1994 as the date for the meeting of creditors and June 10, 1994 as the bar date for filing complaints objecting to discharge or to determine dischargeability.
At the April 11, 1994 creditors’ meeting, the designated interim trustee resigned due to a perceived conflict of interest, and the meeting apparently aborted. The clerk’s office, after receiving the name of a successor interim trustee, issued a second notice of commencement of the case (“Second Notice”), setting May 16,1994 as the date of the creditors’ meeting and July 15, 1994 as the bar date for filing complaints objecting to discharge or to determine dischargeability. The FDIC relied upon the date established by the Second Notice when, on June 28,1994, it filed its motion for extension of time within which to object to discharge and discharge-ability.
The debtor asserts that Fed.R.Bankr.P. 4004(a) and 4007(e) mandate that a complaint objecting to discharge and to determine dis-chargeability “shall be filed not later than 60 days following the first date set for the meeting of creditors_” Fed.R.Bankr.P. 4004(a) and 4007(e). (emphasis added). Further, the debtor contends that any motion to extend such bar date pursuant to Rules 4004(b) and 4007(c) “shall be made before such time has expired.” Id. 4004(b) and 4007(c). The debtor, accordingly, argues that under the clear language of the rules the bar date for discharge and dischargeability complaints ran from the first date set for the creditors’ meeting, i.e., June 10, 1994, and the FDIC’s motion filed on June 27, 1994 is untimely.
The FDIC responds that even if the second bar date of July 15, 1994 noticed by the clerk’s office was set in error, the court has the authority under the equitable powers granted by Code § 105(a)1 to correct the eiTor and accept the late-filed motion. The FDIC argues it would be error for the court not to exercise its discretion to do so.
III.
This court recently ruled that courts lack discretion to disregard the bankruptcy rules and, thus, cannot extend dis-chargeability bar dates once they have passed. In re Pratt, 165 B.R. 759 (Bankr. D.Conn.1994). Pratt, in dicta, noted that many courts, including two courts of appeal, have recognized an exception to this doctrine “where the bankruptcy court has affirmatively misle[ ]d a creditor through the setting of incorrect deadlines. In those unique circumstances ..., Code § 105(a) permits a court to correct its own mistakes by accepting late-filed dischargeability complaints.” Id. at 761 (footnote omitted). Since the date of the Pratt ruling, the Sixth Circuit has joined the Ninth and Tenth Circuits,2 and concluded “that where a bankruptcy court erroneously sets a second bar date for the filing of complaints to determine dischargeability of a debt before the first bar date has expired and where a creditor, reasonably relying on that second date files a complaint before the expiration of the second date, the bankruptcy court abuses its discretion if it fails to exercise its equitable powers and permits the complaint to proceed.” In re Isaacman, 26 F.3d 629, 636 (6th Cir.1994). The court, in line with this authority, concludes that the *170FDIC motion will be treated as if timely filed.
As for the debtor’s initial objection to the motion, based upon the length of time already elapsed and the debtor’s illness, the court finds such arguments not persuasive. The court, however, finds the extension requested to be excessive, and a shorter period is more appropriate.
rv.
The debtor’s objection to the FDIC’s motion for extension of time, based upon timeliness of filing, is overruled. The debtor’s remaining objections to the motion are not sustainable. The court, however, concludes that a six-month extension is excessive and extends the bar date to December 1, 1994. It is
SO ORDERED.
. Section 105(a) provides:
(a) The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.
11 U.S.C. § 105(a).
. In re Anwiler, 958 F.2d 925, 928-29 (9th Cir.), cert. denied, - U.S. -, 113 S.Ct. 236, 121 L.Ed.2d 171 (1992); In re Themy, 6 F.3d 688, 689-90 (10th Cir.1993). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491895/ | MEMORANDUM ON DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
RICHARD S. STAIR, Jr., Bankruptcy Judge.
The debtor, Randal Charles Fox, commenced this adversary proceeding by filing a Complaint on June 17, 1994, seeking a determination of the dischargeability of his federal income tax liabilities for 1985 and 1986.1 The Internal Revenue Service (IRS) responded on July 25, 1994, with a motion entitled “Motion to Dismiss for Failure to State a Claim upon Which Relief May Be Granted; or in the Alternative Motion for Summary Judgment” (Motion). The court, by an Order entered on July 26, 1994, directed the debtor to respond to the Motion within twenty days; however, he failed to respond leaving the court to assume that he does not oppose the Motion.
This is a core proceeding. 28 U.S.C.A. § 157(b)(2)(I) (West 1993).
I
Pursuant to Fed.R.Civ.P. 56(c), made applicable to this adversary proceeding through Fed.R.Bankr.P. 7056, summary judgment is available only when a party is entitled to a judgment as a matter of law and when, after consideration of the evidence presented by the pleadings, affidavits, answers to interrogatories, and depositions in a light most favorable to the nonmoving party, there remain no genuine issues of material fact. The mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment. The factual dispute must be genuine. 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).
The record consists of the Complaint, with attached exhibits, the Motion, and an affidavit executed by Shannon Hough, the Department of Justice attorney representing the IRS, with an attached exhibit.2 The IRS has presented materials outside the pleadings. Accordingly, the court shall treat the Motion exclusively as one for summary judgment as provided in Fed.R.Civ.P. 12(b), incorporated into Fed.R.Bankr.P. 7012.
II
The IRS argues that the debtor’s 1985 and 1986 tax liabilities are nondis-*249chargeable under Bankruptcy Code § 523(a)(1). Section 523(a)(1) provides in material part:
(a) A discharge under section 727 ... of this title does not discharge an individual debtor from any debt—
(1) for a tax or a customs duty—
(A) of the kind and for the periods specified in section 507(a)(2) or 507(a)(7) of this title, whether or not a claim for such tax was filed or allowed;
(B) with respect to which a return, if required—
(i) was not filed; or
(ii) was filed after the date on which such return was last due, under applicable law or under any extension, and after two years before the date of the filing of the petition; or
(C) with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax[.]
11 U.S.C.A. § 523(a)(1) (West 1993).
As applicable to the present adversary proceeding, § 523(a)(1)(A) provides that certain tax claims entitled to priority status under § 507(a)(7) are nondischargeable. Section 523(a)(1)(A) makes nondischargeable the following tax claims entitled to priority status:
[A]llowed unsecured claims of governmental units, [but] only to the extent that such claims are for—
(A) a tax on or measured by income or gross receipts—
(iii) other than a tax of a kind specified in section 523(a)(1)(B) or 523(a)(1)(C) of this title, not assessed before, but assessable, under applicable law or by agreement, after, the commencement of the case[.]
11 U.S.C.A. § 507(a)(7)(A) (West 1993). For purposes of this adversary proceeding, a tax is considered “assessable” if the IRS makes the assessment “within 3 years after the return was filed (whether or not such return was filed on or after the date prescribed).” 26 U.S.C.A. § 6501(a) (West Supp.1994).
The debtor filed his federal income tax returns for the years ending 1985 and 1986 on October 28, 1991. Under § 6501(a), the IRS is allowed to make assessments for additional tax until October 28, 1994, three years from the filing of the return. The IRS made its assessments between April 18, 1994, and April 25, 1994, by sending the debtor Tax Deficiency Notices that assessed an additional $9,262.89 for 1985 and $4,077.22 for 1986 in taxes, penalties, and interest.3 Because the debtor filed his Chapter 7 petition on February 3, 1994, and the IRS made assessments betweén April 18, 1994, and April 25, 1994, the taxes in dispute were not assessed before commencement of the debtor’s Chapter 7 case, but were assessable after commencement of the case under § 6501(a). Thus, the requirements of § 507(a)(7)(A)(iii) have been met and the debtor’s 1985 and 1986 tax liabilities, except as to any penalties, are nondis-chargeable.4 See In re Reed, 165 B.R. 959, 962 (Bankr.N.D.Ga.1993); Anderson v. United States (In re Anderson), 157 B.R. 104, 108 (Bankr.N.D.Ohio 1993); Wines v. United States (In re Wines), 122 B.R. 804, 807 (Bankr.S.D.Fla.1991), rev’d in part on other grounds, Bankr.L.Rep. (CCH) ¶ 74,674 (S.D.Fla. Apr. 8, 1992).
While § 523(a)(1) is dispositive of the dischargeability issue for the tax and interest portions of the debtor’s tax liabilities, § 523(a)(7) determines the dischargeability of *250the penalty portion.5 Section 523(a)(7) provides that a tax penalty is dischargeable if it was “imposed with respect to a transaction or event that occurred [more than] three years before the date of the filing of the petition.” 11 U.S.C.A. § 523(a)(7)(B) (West 1993); see Roberts v. United States (In re Roberts), 906 F.2d 1440, 1443 (10th Cir.1990); Henderson v. United States (In re Henderson), 137 B.R. 239, 242 (Bankr.E.D.Ky.1991). Contra Ferrara v. Department of Treasury (In re Ferrara), 103 B.R. 870, 873 (Bankr.N.D.Ohio 1989). The applicable “transaction or event” in this case is the date the debtor’s 1985 and 1986 tax returns were due, April 15, 1986, and April 15, 1987, respectively. See Roberts, 906 F.2d at 1444 & n. 6; Paulson v. United States (In re Paulson), 152 B.R. 46, 49 (Bankr.W.D.Pa.1992). Thus, the transaction for which the debtor’s tax penalties were imposed occurred more than three years before he filed his Chapter 7 petition on February 3, 1994, and the penalty portion of his 1985 and 1986 tax liabilities is dischargeable under § 523(a)(7)(B).
For the reasons set forth herein, an appropriate Judgment will be entered granting in part and denying in part the defendant’s Motion, and finding the debtor’s 1985 and 1986 tax liabilities, except as to any penalties, nondischargeable.
JUDGMENT
For the reasons set forth in the Memorandum on Defendant’s Motion for Summary Judgment filed this date, it is ORDERED, ADJUDGED, and DECREED as follows:
1. The “Motion to Dismiss for Failure to State a Claim upon Which Relief May Be Granted; or in the Alternative Motion for Summary Judgment” filed July 25, 1994, by the defendant is GRANTED in part and DENIED in part.
2. To the extent the defendant seeks a summary judgment determining the plaintiffs income tax liabilities for 1985 and 1986, inclusive of taxes, interest, and penalties, nondischargeable under 11 U.S.C.A. § 523(a)(1)(A) (West 1993), its motion is granted with respect to the debtor’s liability for taxes and interest. Such taxes and interest are accordingly nondischargeable. However, that portion of the defendant’s claim attributable to a “filing late penalty” and “negligence penalty” is discharged.
. The codebtor, Alice Amanda Fox, is not a party to this adversary proceeding.
. The attorney for the IRS filed her own affidavit in support of the Motion to establish the date the debtor filed his 1985 and 1986 returns and the date the IRS made its assessments. This affidavit does not meet the requirement of Fed.R.Civ.P. 56(e) that "affidavits shall be made on personal knowledge, [and] shall set forth such facts as would be admissible in evidence." However, the debtor did not object to the affidavit or to the manner in which the exhibit was presented to the court and, thus, waived any objection. The exhibit and affidavit will accordingly be relied upon by the court in support of the IRS Motion to the extent they appear accurate. See Investors Credit Corp. v. Batie (In re Batie), 995 F.2d 85, 89 (6th Cir.1993); infra note 3.
. Ms. Hough states in her affidavit that all the assessments were made on April 25, 1994. However, the exhibit attached to the affidavit and the Tax Deficiency Notices attached to the debtor’s Complaint establish that the assessments were made on April 25, 1994, for the year ending December 31, 1985, and April 18, 1994, for the year ending December 31, 1986.
. The Internal Revenue Service does not assert nondischargeability under § 523(a)(1)(B) or (C). The debtor's tax liabilities are not of the type specified in § 523(a)(1)(B) because the debtor filed his Chapter 7 petition more than two years after he filed his 1985 and 1986 tax returns. Further, nondischargeability cannot be established under § 523(a)(1)(C). See Solomon v. Commissioner, 732 F.2d 1459, 1461 (6th Cir. 1984) ("[T|he failure to file is not in itself sufficient to prove fraud....”).
. Although the § 523(a)(7) dischargeability issue is not raised directly by the debtor in his Complaint or by the IRS in its Motion, it must necessarily be addressed by the court because a portion of the claim the IRS seeks to be declared nondischargeable is the debtor’s liability for a “filing late penalty” and "negligence penalty.” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491896/ | ORDER OF REMAND
MARY D. SCOTT, Bankruptcy Judge.
THIS CAUSE is before the Court upon the plaintiff’s “Objection to Removal of State Court Action,” filed on August 12, 1994, which the Court will treat as a motion for remand, and the Trustee’s Motion to Intervene, originally filed in the state court proceeding. Inasmuch as the Court will remand this matter, adjudication of all other pending motions are better left to the discretion of the state court.
This bankruptcy ease was filed on August 17, 1993. The debtor Billy Joe Barnes died on September 9, 1993. On May 2, 1994, the brother of Billy Joe Barnes, Ronnie Barnes, filed an action in the Circuit Court of Saline County, Arkansas, requesting that the Court determine that he is entitled to the proceeds of life insurance benefits. Alonna Barnes, the co-debtor and wife of Billy Joe Barnes, filed an answer, cross-complaint, counterclaim, and third-party complaint, asserting that she is entitled to the proceeds of the policy. The trustee sought to intervene, claiming that the policy proceeds are property of the estate. On May 26, 1994, the trustee timely filed a notice of removal of the litigation to this Court. Fed.R.Bankr.Proc. 9027(a)(3).
Upon the filing of a notice of removal, the Court is required to review the notice and determine whether jurisdiction is proper. Strange v. Arkansas-Oklahoma Gas Corp., 534 F.Supp. 138, 139 (W.D.Ark. 1981). If the matter does not properly rest with the Court, “[t]he court to which such claim or cause of action is removed may remand such claim or cause of action on any equitable ground.” 28 U.S.C. § 1452(b). Although the Court treats the objection to removal as a motion for remand, this Court may, upon its own motion, remand the matter to the state court. See id.; Smith v. City of Picayune, 795 F.2d 482 (5th Cir.1986).
There are numerous factors which courts may consider in determining whether to remand a case on equitable grounds. See generally Baxter Healthcare Corporation v. Hemex Liquidation Trust, 132 B.R. 863, 867-68 (N.D.Ill.1991); Citicorp Savings of Illinois v. Chapman, 132 B.R. 153, 157-58 (Bankr.N.D.Ill.1991). Upon application of the factors to the instant case, remand on equitable grounds is clearly merited. Only one of the six parties in the suit is a debtor-in-bankruptcy. The action removed to this Court pleads state-law claims based upon insurance and tort law, which do not “arise under” or “arise in” the bankruptcy ease. The complaint, counterclaim, cross-complaint, and third-party complaint are composed of purely state law claims for which there is no jurisdiction in this Court, other than that granted by 28 U.S.C. § 1334, exists.
Remand would have little, if any, effect upon the administration of the bankruptcy case.1 Given the burdens of this Court’s docket, there is no reason to believe that the state court action would not proceed to trial as expeditiously as in this Court. Moreover, as this matter is non-core, the requirements of 28 U.S.C. § 157 further lengthen the proceeding because this Court would only be able to make proposed findings to the district court which then would consider the issues. Finally, plaintiff has made demand for jury trial, again invoking complex procedures inasmuch as this Court cannot conduct jury trials. A right to jury trial is another factor which militates in favor *257of remand to the state court. See In re Tucson Estates, 912 F.2d 1162 (9th Cir.1990). Thus, the claims, purely state law matters, are better addressed by the state court. Comity and the interests of consistency in the application of state law also militate in favor of remand. The equitable grounds being overwhelmingly in favor of remand, it is
ORDERED as follows:
1. The trustee’s motion to intervene is GRANTED. If a pleading was not previously filed with the Circuit Court, the trustee shall forthwith file any pleading pursuant to Ark.R.Civ.Proc. 24(c) with the Circuit Court.
2. This adversary proceeding is REMANDED to the Circuit Court of Saline County, Arkansas.
3. The status conference regarding this adversary proceeding, scheduled for August 23,1994, in Little Rock, Arkansas is removed from the calendar. The status conference regarding the bankruptcy case will remain on the August 23, 1994, calendar.
IT IS SO ORDERED.
. Of course, were the state court to determine that Alonna Barnes is entitled to the proceeds of the insurance policy, then there will exist issues for this Court. Those issues need not be decided by the state court and would not be ripe for adjudication until such time as there is a determination as to whether Ronnie Barnes or Alonna Barnes is the party entitled to the insurance proceeds. Further, the trustee can fully protect the interests of the bankruptcy estate by intervening in the state court proceeding. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491897/ | ORDER DENYING MOTION TO AMEND FINDINGS
MARY D. SCOTT, Bankruptcy Judge.
THIS CAUSE is before the Court upon the debtors’ Motion to Amend Findings of Fact and/or to Alter or Amend Judgment, filed on August 8,1994, to which the creditor Agribank, FCB (“Agribank”) responded on August 26, 1994. This Court previously ruled in this case that the forty acres1 upon which the debtors currently reside may not be claimed exempt as homestead with respect to Agribank because Agribank’s lien attached to this parcel of land claimed by the debtor prior to the time the land became debtors’ homestead.
Agribahk obtained a consent decree on a 190 acre tract of land owned by the debtors, on July 11, 1991. At the time that judgment was filed, it became a lien on all other property owned by the debtors in Lonoke County, Arkansas. Despite entry of the consent judgment, the debtors refused to move from the tract, and did not do so until a Writ of Assistance was issued. Thereafter the debtors argued in other legal proceedings that they were entitled to return of their home. During trial on the exemption issue, the debtor Jimmy Austin explained his reasons for continuing to fight for the 190 acres: “I wanted my home back.”
The debtors assert that they considered the entire 230 acres they farmed as their “homeplace,” and, since they never designated any particular portion of that homeplace as their homestead, they could designate the remaining 40 acres as homestead when they filed their petition in bankruptcy. This argument ignores the relevant time period for determining homestead in this case and the facts presented at trial.
The issue for the Court was whether the forty acres constituted the debtors’ homestead at the time Agvibank’s lien attached. An Arkansas citizen is entitled to claim, at a maximum, only 160 acres as rural homestead. The fact that the debtors considered 230 acres as “homeplace” does expand their homestead rights under Arkansas law. The fact that the debtors did not designate any portion of that 230 acres in July 1991 as homestead does not, in 1993, give them the right to designate a particular portion of that land for purposes of electing a homestead as of July 1991. The Court is not bound by the declaration of homestead on the date of the filing of the petition in bankruptcy. The relevant time period is when Agribank’s lien attached, on July 11, 1991. At the relevant time period, not only did the debtors not reside on the 40 acre parcel, they showed no intent to make that forty acres their homestead. Rather, they lived on another 190 acre tract of land, refused to move from that 190 acres for eight months after foreclosure, continued to litigate the issue of entitlement to the 190 acres, secreted their ownership of the forty acre parcel, and testified, in court, under oath, that the 190 acres was their “home.”
The debtors assert that there is no evidence in the record to support the factual findings that 160 of the 190 acres of the debtors’ land was their homestead. Apparently, the debtors believe that since they did not expressly state their intent as of a specif*264ic date that no finding can be made. This is incorrect. A party’s intent must often be inferred from the all of the facts and circumstances of the case, combined with the testimony and demeanor of the party. In this instance, the debtor husband, made it clear,2 from his words, tone, and "demeanor, what land they considered to be “home”: the 190 acres. Indeed, this Court cannot imagine a more telling statement of intent than the debtor husband’s plaintive, “I wanted my home back.” The debtor husband’s emotional statement, combined with the acreage limitations imposed under Arkansas law, compels the conclusion that 160 of the 190 acres was the debtors’ homestead during the relevant time period, when Agribank’s lien attached.
The Court has reviewed the pleadings, the record, the Order Sustaining Objection to Exemption, the relevant law, and the parties’ arguments. The Court agrees with the position and analysis set forth in Agribank’s response; its arguments are well-taken. Accordingly, it is
ORDERED that the Motion to Amend Findings of Fact and/or to Alter or Amend Judgment, filed on August 8, 1994, is DENIED.
IT IS SO ORDERED.
. The forty acres was devised to the debtor husband by his father. In 1929, J.A. Austin, the debtor husband’s father purchased eighty acres of land. J.A. Austin died testate in 1989, devising to his two sons specific portions of the land. Jimmy Austin, the debtor in this case, inherited the east one-half of the land. Norvell Austin received the west one-half of the eighty acres, which property contained a residence. No deeds were ever recorded to reflect the inheritance in the public records. Probate was never opened for J.A. Austin. The acreage, still titled in the name of J.A. Austin, has not been partitioned. In this manner, the debtors were able, for a time, to conceal from creditors their ownership of the forty acres.
In light of these facts, is it also questionable whether the debtor wife is entitled to claim any legal interest in the land, much less claim a homestead exemption.
. The debtor wife did not testify. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8491898/ | *265
SUPPLEMENTAL ORDER
JAMES G. MIXON, Chief Judge.
On June 25, 1993, the debtor, Jones Truck Lines, Inc., (plaintiff) filed this adversary-proceeding against Foster’s Truck and Equipment Sales, Inc. (defendant), to recover alleged preferential transfers under 11 U.S.C. §§ .547 and 550 in the sum of $114,-836.00. The court entered a default judgment in favor of the plaintiff on February 4, 1994. The defendant filed a “motion to alter, set aside and for relief from default judgment” on February 11, 1994. A hearing was held on the defendant’s motion on March 25, 1994, and the Court took the matter under advisement.
BACKGROUND
On July 12, 1993, the plaintiff filed its proof of service, stating that a copy of the summons and complaint was mailed to the defendant on June 30, 1993. On July 30, 1993, counsel for the defendant, K.C. Cohen, Esq., of Cohen & Malad, P.C., filed an appearance1 in the case, and on August 31, 1993, the defendant filed its answer.
On December 3, 1993, the plaintiff filed a motion to strike answer and motion for default judgment alleging that the answer should be stricken as untimely filed. The defendant responded to the motion to strike and a hearing was scheduled for January 7, 1994. Notice of this hearing on the default was sent to counsel for the defendant, K.C. Cohen, Esq., as well as defendant’s local counsel, Lance R. Miller, Esq.
Mr. Miller appeared on behalf of the defendant at the January 7, 1994, hearing on the plaintiffs motion to strike answer and for default judgment. Although local counsel made statements in oral argument regarding the reasons Mr. Cohen filed the answer untimely, Mr. Cohen was not present at the hearing to testify. Therefore, the defendant failed to present admissible evidence to explain the reasons for the untimely fifing of the answer.
At the close of the evidence at the January 7, 1994, hearing, the Court found that there was proper service on the defendant, the answer was untimely filed, and there was insufficient evidence to deny the entry of default judgment on the basis of good faith mistake or excusable neglect. Therefore, a default judgment was entered on February 4, 1994.
On February 11, 1994, the defendant filed its “motion to alter, set aside and for relief from default judgment.” A hearing was held on the defendant’s motion on March 25, 1994, at which time the defendant’s counsel, Mr. Cohen, did appear and testify. Mr. Cohen acknowledged that he received and read a copy of the summons issued by the court and was aware of the date a responsive pleading to the complaint was to be filed. He also admitted that he was aware that the summons directed that if he did not respond to the complaint relief could be granted against his client by default.
Mr. Cohen testified that he received a letter on August 30, 1993, from plaintiffs counsel notifying him of the default. Immediately after receiving the letter, Mr. Cohen prepared an answer and forwarded it to the court by Federal Express to be filed the next day. Mr. Cohen gave the following testimony regarding the reasons for fifing the answer untimely:
Q: Have you given the Court all the reasons that you think the default should be excused? That you presently think the default should be excused?
A: No, I don’t think so.
Q: What other reasons do you have?
A: Well, there are a number of things that are set out in my affidavit which is attached to the motion to set aside the default under Rule 60. One of those, which we haven’t discussed this morning, is the nature of local practice in the Indianapolis bar and my familiarity with that practice based on my bankruptcy experience. In adversary proceedings, especially ones involving defendants that are out of the geographic jurisdiction of the Court, *266what’s done in our jurisdiction is that the summons will set a pre-trial date. And the summons that I received in connection with this case clearly stated on the cover that the pre-trial date would be set by further order of the Court, which gave me the impression that I had at least up until that time to try to resolve the matter in the fashion that I pursued, which was the correspondence with counsel.
Record at 38-39.
Q: Mr. Cohen, other than your understanding of the Rules of bankruptcy procedure as affected by the way you describe the local practice in Indianapolis, is there anything that prevented you from filing a responsive pleading within the time allotted in the summons that you say you received?
A: Yeah, that was my concern about the creation of additional expense for both parties spent in this case.
Record at 36.
When questioned by the Court regarding his overall practice and experience, Mr. Cohen responded as follows:
Q: Your practice — in your practice overall, do you do much litigation?
A: Very little.
Q: But you do litigation in Federal District Court and State Court?
A: From time to time as it’s required.
Q: Do you do some litigation in bankruptcy? Or do you have any experience in litigation in Bankruptcy Court?
A: I have some experience in litigating bankruptcy issues before the Bankruptcy Court.
Q: Now do I understand you to suggest that the local practice in Indiana is that when an adversary proceeding is initiated, that the defendants in the adversary proceeding are not required, or do not routinely file a responsive pleading until such time as the pre-trial is heard?
A: It’s not unusual for pleadings to be filed either immediately before or simultaneous with the pre-trial conference. No action is ever taken in an adversary proceeding before that conference is held. The Court holds a conference with either the Judge or the law clerk to ascertain whether there are defenses to the claim, to set out discovery schedules, and to set dates for the proceeding. There wouldn’t—
Q: Is it the practice, though, that the answers to complaints are routinely not filed within the time prescribed by the Rules? Is that what you’re saying?
A: I wouldn’t want to characterize it that way because I really don’t know. But what I’m saying is that no action would be taken — . If an Answer is filed the day of a pre-trial or if no Answer is filed, as long as there’s been an appearance filed by counsel for a defendant in an adversary, the Court will conduct a pre-trial to determine what the nature of the defense is, whether or not the thing’s going to get settled, and if it’s going to go forward. The Court would certainly grant at that time, in connection with scheduling the proceeding of the litigation, appropriate extensions for pleadings.
Q: Are the pre-trials scheduled within the time limit to file an answer, typically?
A: Very close to that. Most of ’em, in my experience, will be within the thirty days so that if there are defects in pleadings, they can be cured immediately. That’s not unusual for them to be held forty, maybe fifty days out, depending on the nature of the litigation.
Q: Have you ever had any actual case where you were the attorney for the defendant where this practice was employed, that is, no answer was filed before the pre-trial?
A: Oh, absolutely, several times.
Record at 41 — 13. Mr. Cohen also testified that he did not consult with anyone in Arkansas regarding the local procedures for filing answers in the bankruptcy court in Arkansas.
*267At the close of the hearing the Court held that the defendant’s motion to alter, set aside and for relief from default judgment filed on February 11, 1994, -will be treated as a motion for new trial under Bankruptcy Rule 9023 and the Court will consider all the evidence adduced at the hearing in determining whether a default judgment should be entered.
DISCUSSION
Judgment by default may be entered when a party has failed to plead or otherwise defend as provided by the Bankruptcy Rules of Procedure. Fed.R.Bankr.P.7055. The Court is to exercise judicial discretion in determining whether a default judgment should be entered. See Otoe County Nat’l Bank v. W & P Trucking, Inc., 754 F.2d 881, 883 (10th Cir.1985). The Bankruptcy Rules provide that an answer to a complaint shall be served within thirty days after the issuance of the summons, unless otherwise prescribed by the Court. Fed.R.Bankr.P.7012. The Court may, for cause shown, allow the time for filing an answer to be enlarged where the failure to act was the result of excusable neglect. Fed.R.Bankr.P.9006(b)(1).
The Supreme Court in Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. Partnership, — U.S. -, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993) described the test for determining excusable neglect as follows:
This leaves, of course, the Rule’s requirement that the party’s neglect of the bar date be “excusable.” It is this requirement that we believe will deter creditors or other parties from freely ignoring court-ordered deadlines in hopes of winning a permissive reprieve under Rule 9006(b)(1). With regard to determining whether a party’s neglect of a deadline is excusable, we are in substantial agreement with the factors identified by the Court of Appeals. Because Congress has provided no other guideposts for determining what sorts of neglect will be considered “excusable,” we conclude that the determination is at bottom an equitable one, taking account of all relevant circumstances surrounding the party’s omission. These include, as the Court of Appeals found, the danger of prejudice to the debtor, the length of the delay and its potential impact on judicial proceedings, the reason for the delay, including whether it was within the reasonable control of the movant, and whether the movant acted in good faith.
Pioneer, — U.S. at -, 113 S.Ct. at 1498.
Applying the factors from Pioneer to the facts in this ease, the Court finds that Mr. Cohen’s actions do not meet the standards of excusable neglect contemplated by Bankruptcy Rule 9006(b)(1).
Although the danger of prejudice to the defendant in granting default judgment in this case is substantial, the Court is instructed by Pioneer that this factor alone cannot be used to justify excusable neglect. In Pioneer the Court stated:
In other contexts, we have held that clients must be held accountable for the acts and omissions of their attorneys. In Link v. Wabash R. Co., 370 U.S. 626, 82 S.Ct. 1386, 8 L.Ed.2d 734 (1962), we held that a client may be made to suffer the consequence of dismissal of its lawsuit because of its attorney’s failure to attend a scheduled pretrial conference. In so concluding, we found “no merit to the contention that dismissal of petitioner’s claim because of his counsel’s unexcused conduct imposes an unjust penalty on the client.” Id., at 633, 82 S.Ct., at 1390. To the contrary, the Court wrote:
“Petitioner voluntarily chose this attorney as his representative in the action, and he cannot now avoid the consequences of the acts or omissions of this freely selected agent. Any other notion would be wholly inconsistent with our system of representative litigation, in which each party is deemed bound by the acts of his lawyer-agent and is considered to have ‘notice of all facts, notice of which can be charged upon the attorney.’ ”
Pioneer, — U.S. at -, 113 S.Ct. at 1499.
In analyzing the facts of this case to the second and third factors given in Pioneer, the evidence supports a finding that the length of the delay and its potential impact *268on judicial proceedings is not significant, and the movant has acted in good faith in these proceedings. The evidence regarding the final factor, however, concerning the reason for the delay and whether the delay was within the reasonable control of the movant, weighs heavily against the defendant.
As the Supreme Court stated in Pioneer:
There is, of course, a range of possible explanations for a party’s failure to comply with a court-ordered filing deadline. At one end of the spectrum, a party may be prevented from complying by forces beyond its control, such as by an act of God or unforeseeable human intervention. At the other, a party simply may choose to flout a deadline. In between lie cases where a party may choose to miss a deadline although for a very good reason, such as to render first aid to an accident victim discovered on the way to the courthouse, as well as cases where a party misses a deadline through inadvertence, miscalculation, or negligence....
... [B]y empowering the courts to accept late filings “where the failure to act was the result of excusable neglect,” Rule 9006(b)(1), Congress plainly contemplated that the courts would be permitted, where appropriate, to accept late filings caused by inadvertence, mistake, or carelessness, as well as by intervening circumstances beyond the party’s control.
Pioneer, — U.S. at -, 113 S.Ct. at 1494-95.
Mr. Cohen’s actions fall near the far end of the spectrum and constitute a willful flaunting of the deadline. He admitted that he was aware of the date a responsive pleading to the complaint was to be filed, but chose to ignore this deadline based on his understanding of a “local custom” in Indianapolis to not file an answer until after a pretrial conference is held. Mr. Cohen intentionally disregarded the applicable rules of civil procedure that govern civil litigation. The most elementary rule of civil procedure is that a responsive pleading to a complaint and summons must be timely filed to avoid entry of a default judgment. To allow Mr. Cohen’s action to fall under the phrase “excusable neglect” would be contrary to the purpose of “deter[ring] creditors or other parties from freely ignoring court-ordered deadlines in the hopes of winning a permissive reprieve under Rule 9006(b)(1).” Pioneer, — U.S. at -, 113 S.Ct. at 1498. Mr. Cohen’s reasons for filing an untimely answer on behalf of his clients do not constitute excusable neglect as contemplated in Bankruptcy Rule 9006(b)(1). Therefore, for the reasons stated, the defendant’s motion for new trial is denied.
IT IS SO ORDERED.
. The appearance referred to Mr. Cohen as attorney for the defendant, however, there was no address given for Mr. Cohen either in the body of the appearance or in the signature block. | 01-04-2023 | 11-22-2022 |
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